================================================================================
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

             QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended June 30, 2006

                         Commission File Number 0-20734

                              e.Digital Corporation
             (Exact name of registrant as specified in its charter)


           Delaware                                           33-0591385
 (State or other jurisdiction of                       (I.R.S. Empl. Ident. No.)
 incorporation or organization)

          16770 West Bernardo Drive, San Diego, California         92127
         (Address of principal executive offices)                (Zip Code)

                                 (858) 304-3016
              (Registrant's telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.


Large Accelerated Filer [ ] Accelerated filer [ ] Non-accelerated filer [X]

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes [ ] No [X]

As of August 8, 2006 a total of 200,468,500 shares of the Registrant's Common
Stock, par value $0.001, were issued and outstanding.

================================================================================

<PAGE>

e.DIGITAL CORPORATION

                                      INDEX
<TABLE>
<CAPTION>
                                                                                  Page
PART I. FINANCIAL INFORMATION

<S>                                                      <C>                      <C>
         Item 1. Financial Statements (unaudited):

                  Consolidated Balance Sheets as of June 30, 2006 and
                  and March 31, 2006                                               3

                  Consolidated Statements of Operations for the three
                  months ended June 30, 2006 and 2005                              4

                  Consolidated Statements of Cash Flows for the three
                  months ended June 30, 2006 and 2005                              5

                  Notes to Interim Consolidated Financial Statements               6

         Item 2. Management's Discussion and Analysis of Financial
                    Condition and Results of Operations                           12

         Item 3. Quantitative and Qualitative Disclosure about Market Risk        16

         Item 4. Controls and Procedures                                          16

PART II. OTHER INFORMATION

         Item 1.  Legal Proceedings                                               17
         Item 1A. Risk Factors                                                    17
         Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds     23
         Item 3.  Defaults Upon Senior Securities                                 23
         Item 4.  Submission of Matters to a Vote of Security Holders             23
         Item 5.  Other Information                                               23
         Item 6.  Exhibits                                                        23

SIGNATURES                                                                        24
</TABLE>


                                       2
<PAGE>

Part I. Financial Information
Item 1. Financial Statements:
e.Digital Corporation and subsidiary

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                       June 30, 2006       March 31, 2006
                                                                                        (Unaudited)
                                                                                             $                  $
                                                                                      -------------------------------------
<S>                                                                                            <C>               <C>
ASSETS
Current
Cash and cash equivalents                                                                      502,979           1,058,723
Accounts receivable, trade                                                                           -               2,670
Deposits and prepaid expenses                                                                   68,778              31,667
                                                                                      -------------------------------------
Total current assets                                                                           571,757           1,093,060
                                                                                      -------------------------------------
Property and equipment, net of accumulated depreciation of
   $605,714 and $593,266, respectively                                                          50,060              62,508
                                                                                      -------------------------------------
    Total assets                                                                               621,817           1,155,568
                                                                                      =====================================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current
Accounts payable, trade                                                                        369,250             261,196
Other accounts payable and accrued liabilities                                                  84,986             107,145
Accrued lease liability                                                                        515,000             515,000
Accrued employee benefits                                                                      153,020             117,108
Dividends                                                                                      436,013             402,305
Customer deposits                                                                              813,420             793,750
Convertible subordinated promissory notes, less $735,354 and $1,103,031
   for unamortized debt discount, respectively                                                 764,646             396,969
Unsecured promissory notes                                                                   1,040,188           1,015,954
                                                                                      -------------------------------------
    Total current liabilities                                                                4,176,523           3,609,427
                                                                                      -------------------------------------

                                                                                      -------------------------------------
    Total liabilities                                                                        4,176,523           3,609,427
                                                                                      -------------------------------------
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: 96,000 shares
    issued and outstanding, each period. Liquidation preference
    of $1,363,042 and $1,334,321, respectively                                                 960,000             960,000
  Series EE Convertible and Redeemable Preferred stock 20,000 shares designated:
    2,500 shares issued and outstanding, each period. Liquidation preference
    of $282,329 and $277,342 respectively                                                      250,000             250,000
Common stock, $0.001 par value, authorized 300,000,000,
   200,431,000 shares outstanding each period                                                  200,431             200,431
Additional paid-in capital                                                                  73,766,547          73,710,110
Dividends                                                                                     (436,013)           (402,305)
Accumulated deficit                                                                        (78,295,671)        (77,172,095)
                                                                                      -------------------------------------
Total stockholders' deficit                                                                 (3,554,706)         (2,453,859)
                                                                                      -------------------------------------

Total liabilities and stockholders' deficit                                                    621,817           1,155,568
                                                                                      =====================================
</TABLE>

See notes to interim consolidated financial statements


                                       3
<PAGE>

e.Digital Corporation and subsidiary

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                        For the three months ended
                                                                                 June 30,
                                                                           2006             2005
                                                                            $                $
                                                                     ----------------------------------
<S>                                                                            <C>             <C>
Revenues:
   Products                                                                    21,105          965,730
   Services                                                                         -           32,479
                                                                     ----------------------------------
                                                                               21,105          998,209
                                                                     ----------------------------------
Cost of revenues:
   Products                                                                    16,612          822,642
   Services                                                                         -            4,875
                                                                     ----------------------------------
                                                                               16,612          827,517
                                                                     ----------------------------------
Gross profit                                                                    4,493          170,692
                                                                     ----------------------------------
Operating expenses:
   Selling and administrative                                                 335,569          338,644
   Research and related expenditures                                          352,609          361,921
                                                                     ----------------------------------
          Total operating expenses                                            688,178          700,565
                                                                     ----------------------------------

Operating loss                                                               (683,685)        (529,873)
                                                                     ----------------------------------
Other income (expense):
   Interest income                                                              7,989            5,213
   Interest expense                                                          (447,410)        (121,316)
   Other                                                                         (470)          (1,300)
                                                                     ----------------------------------
          Other income (expense)                                             (439,891)        (117,403)
                                                                     ----------------------------------
Loss and comprehensive loss for the period                                 (1,123,576)        (647,276)
Accrued dividends on the Series D and EE Preferred stock                      (33,708)         (43,100)
                                                                     ----------------------------------
Loss attributable to common stockholders                                   (1,157,284)        (690,376)
                                                                     ==================================
Loss per common share - basic and diluted                                       (0.01)           (0.00)
                                                                     ==================================

Weighted average common shares outstanding                                200,431,000      175,208,630
                                                                     ==================================
</TABLE>

See notes to interim consolidated financial statements


                                       4
<PAGE>

e.Digital Corporation and subsidiary

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                    For the three months ended
                                                                                               June 30
                                                                                      2006              2005
OPERATING ACTIVITIES                                                                    $                 $
                                                                                 ----------------   --------------
<S>                                                                                   <C>                <C>
Loss for the period                                                                   (1,123,576)        (647,276)
Adjustments to reconcile loss to net cash used in operating activities:
     Depreciation and amortization                                                        12,448           16,022
     Accrued interest and accretion relating to secured promissory notes                  28,125           28,125
     Amortization of debt discount in connection with repricing of conversion
         and warrants related to 12% convertible subordinated promissory notes           367,677           58,045
    Stock-based compensation                                                              56,437                -
Changes in assets and liabilities:
     Accounts receivable, trade                                                            2,670           28,642
     Prepaid expenses and other                                                          (37,111)        (443,213)
     Accounts payable, trade                                                             108,054          (23,858)
     Other accounts payable and accrued liabilities                                      (28,125)         (24,998)
     Customer deposits                                                                    19,670          246,940
     Accrued employee benefits                                                            35,912           27,577
     Deferred rent                                                                         5,966                -
     Deferred revenue                                                                          -           (8,335)
                                                                                 ----------------   --------------
Cash (used in) operating activities                                                     (551,853)        (742,329)
                                                                                 ----------------   --------------
INVESTING ACTIVITIES
Purchase of property and equipment                                                             -                -
                                                                                 ---------------------------------
Cash (used in) investing activities                                                            -                -
                                                                                 ---------------------------------
FINANCING ACTIVITIES
Payment on 15% Unsecured Note                                                             (3,891)          (5,061)
                                                                                 ---------------------------------
Cash (used in) provided by financing activities                                           (3,891)          (5,061)
                                                                                 ---------------------------------
Net increase (decrease) in cash and cash equivalents                                    (555,744)        (747,390)
                                                                                 ----------------   --------------
Cash and cash equivalents, beginning of period                                         1,058,723        1,289,253
                                                                                 ----------------   --------------
Cash and cash equivalents, end of period                                                 502,979          541,863
                                                                                 ================   ==============

Supplemental schedule of noncash investing and financing activities:
   Cash paid for interest                                                                 51,608           35,146
   Deemed dividends on Series D and EE preferred stock                                    33,708           43,100
   Discount on 12% Convertible Subordinated Promissory Notes                             367,677          120,062
</TABLE>

See notes to interim consolidated financial statements


                                       5
<PAGE>

1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION

e.Digital Corporation is a holding company that operates through a wholly-owned
California subsidiary of the same name and is incorporated under the laws of
Delaware. The Company provides engineering services, product reference designs
and technology platforms to customers focusing on the digital video/audio and
player/recorder markets. The Company has innovated a proprietary secure digital
video/audio technology platform ("DVAP") and produces the eVU(TM) mobile
entertainment device for the travel and recreational industries. The Company
also believes it has a potentially important portfolio of patents for licensing
related to the use of flash memory in portable devices.

These unaudited consolidated financial statements have been prepared by
management in accordance with accounting principles generally accepted in the
United States and with the instructions to Form 10-Q and Article 10 of
Regulation S-X on a going concern basis, which contemplates the realization of
assets and the discharge of liabilities in the normal course of business for the
foreseeable future. These interim consolidated financial statements do not
include all of the information and footnotes required by accounting principles
generally accepted in the United States for complete financial statements. In
the opinion of management, the unaudited consolidated financial statements
reflect all adjustments considered necessary for a fair statement of the
Company's financial position at June 30, 2006, and the results of operations and
cash flows for the periods presented, consisting only of normal and recurring
adjustments. All significant intercompany transactions have been eliminated in
consolidation. Operating results for the three months ended June 30, 2006 are
not necessarily indicative of the results that may be expected for the fiscal
year ending March 31, 2007. For further information, refer to the Company's
consolidated financial statements and footnotes thereto for the year ended March
31, 2006 filed on Form 10-K.

The Company has incurred significant losses and negative cash flow from
operations in each of the last three years and has an accumulated deficit of
$78,295,671 at June 30, 2006. At June 30, 2006, the Company had a working
capital deficiency of $3,604,766. Substantial portions of the losses are
attributable to marketing costs for new technology and substantial expenditures
on research and development of technologies. The Company's operating plans
require additional funds that may take the form of debt or equity financings.
There can be no assurance that any additional funds will be available. The
Company's ability to continue as a going concern is in substantial doubt and is
dependent upon achieving a profitable level of operations and obtaining
additional financing.

Management has undertaken steps as part of a plan to improve operations with the
goal of sustaining our operations for the next twelve months and beyond. These
steps include (a) controlling overhead and expenses; (b) expanding sales and
marketing to new business customers and new markets and (c) raising additional
capital and/or obtaining financing.

There can be no assurance the Company can successfully accomplish these steps
and it is uncertain it will achieve a profitable level of operations and obtain
additional financing. There can be no assurance that any additional financings
will be available to the Company on satisfactory terms and conditions, if at
all. In the event the Company is unable to continue as a going concern,
management may elect or be required to seek protection from creditors by filing
a voluntary petition in bankruptcy or may be subject to an involuntary petition
in bankruptcy. To date, management has not considered this alternative, nor does
management view it as a likely occurrence.

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, and
disclosures of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. These
consolidated financial statements do not give effect to any adjustments which
would be necessary should the Company be unable to continue as a going concern
and therefore be required to realize its assets and discharge its liabilities in
other than the normal course of business and at amounts different from those
reflected in the accompanying consolidated interim financial statements.

2. RECENT ACCOUNTING PRONOUNCEMENTS

In December 2004, the FASB finalized SFAS No. 123(R), "Share-Based Payment,"
which requires companies to measure and recognize compensation costs for all
share-based payments (including stock options) at fair value, effective for
interim or annual periods beginning after June 15, 2005. On April 15, 2005, the
U.S. Securities and Exchange Commission (the "SEC") announced a deferral of the
effective date of SFAS No. 123(R) until the first interim or annual reporting
period of the first fiscal year beginning on or after June 15, 2005. Effective
April 1, 2006, the Company adopted the provisions of SFAS No. 123(R) as
discussed in Footnote 4, Stock-Based Compensation.

                                       6
<PAGE>

In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of
Financial Assets," which provides an approach to simplify efforts to obtain
hedge-like (offset) accounting. This statement amends FASB Statement No. 140,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities," with respect to the accounting for separately recognized
servicing assets and servicing liabilities. The statement (1) requires an entity
to recognize a servicing asset or servicing liability each time it undertakes an
obligation to service a financial asset by entering into a servicing contract in
certain situations; (2) requires that a separately recognized servicing asset or
servicing liability be initially measured at fair value, if practicable; (3)
permits an entity to choose either the amortization method or the fair value
method for subsequent measurement for each class of separately recognized
servicing assets or servicing liabilities; (4) permits at initial adoption a
one-time reclassification of available-for-sale securities to trading securities
by an entity with recognized servicing rights, provided the securities
reclassified offset the entity's exposure to changes in the fair value of the
servicing assets or liabilities; and (5) requires separate presentation of
servicing assets and servicing liabilities subsequently measured at fair value
in the balance sheet and additional disclosures for all separately recognized
servicing assets and servicing liabilities. SFAS No. 156 is effective for all
separately recognized servicing assets and liabilities as of the beginning of an
entity's fiscal year that begins after September 15, 2006, with earlier adoption
permitted in certain circumstances. The statement also describes the manner in
which it should be initially applied. Management does not expect the adoption of
SFAS 156 to have a material effect on results of operations or financial
condition.

In June 2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty
in Income Taxes--an Interpretation of FASB Statement No. 109" ("FIN 48"). FIN 48
clarifies the accounting for uncertainty in income taxes recognized in a
company's financial statements in accordance with SFAS No. 109, "Accounting for
Income Taxes." FIN 48 prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. FIN 48 is effective for
fiscal years beginning after December 15, 2006. The Company is currently
reviewing this new standard to determine its effects, if any, on results of
operations or financial position.

3. LOSS PER SHARE
Stock options, warrants and convertible preferred stock exercisable into
64,446,302 shares of common stock were outstanding as at June 30, 2006. These
securities were not included in the computation of diluted loss per share
because they are antidilutive, but they could potentially dilute earnings per
share in future periods.

The loss attributable to common stockholders was increased during the three
months ended June 30, 2006 and 2005 by accrued dividends of $33,708 and $43,100,
respectively. The loss attributable to common stockholders is computed as
follows:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
                                                                                      Three Months Ended June 30,
                                                                                       2006                 2005
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>                           <C>
Loss and comprehensive loss                                                $    (1,123,576)              $(647,276)
Dividends on Series D and EE preferred stock                                       (33,708)                (43,100)
---------------------------------------------------------------------------------------------------------------------------
Loss attributable to common stockholders                                   $    (1,157,284)              $(690,376)
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

4. STOCK -BASED COMPENSATION

The Company has adopted stock plans as summarized in Note 8 below. The Company
adopted Statement of Financial Accounting Standards ("SFAS") No. 123 (Revised
2004), "Share -Based Payment", effective April 1, 2006. SFAS 123R requires the
recognition of fair value of stock compensation as an expense in the calculation
of net income. The Company recognizes stock compensation expense ratably over
the vesting period of individual option grants. The Company has no awards with
market or performance conditions. All stock compensation recorded during the
quarter ended June 30, 2006 has been accounted for as an equity instrument.
Prior to April 1, 2006 the Company followed the Accounting Principles Board
("APB") Opinion 25, "Accounting for Stock Issued to Employees", and related
interpretations for stock compensation.

                                       7
<PAGE>

The Company elected the modified prospective transition method for adopting SFAS
123R. Under this method, the provisions of SFAS 123R apply to all stock-based
awards granted or other awards granted that are subsequently reclassified into
equity. The fair values of options issued in prior periods are not revised for
comparative purposes and the financial statements of prior interim and fiscal
periods do not reflect any restated amounts. The unrecognized expense of awards
not yet vested as of April 1, 2006, the date of SFAS 123R adoption, is now being
recognized as an expense in the calculation of net income using the same
valuation method (Black-Scholes) and assumptions disclosed in the Company's
previous filings.

The Company's employee stock options have various restrictions that reduce
option value, including vesting provisions and restrictions on transfer, among
others, and are often exercised prior to their contractual maturity. The Company
plans to issue shares on each option exercise and has no plans to repurchase
option shares. Under the provisions of SFAS 123R the Company recorded $56,437 of
stock compensation expense in its unaudited Statement of Operations for the
three months ended June 30, 2006 ($31,433 included in selling and administrative
costs and $25,004 included in research and related expenditures). All of this
expense relates to prior year awards vesting after April 1, 2006 as no options
were granted in the fiscal quarter ended June 30, 2006, the first period after
the adoption of SFAS 123R. Accordingly, there was no weighted-average estimated
fair value of options granted for the first quarter. The weighted-average
estimated fair value of unvested options was $0.07 at April 1, 2006 and the
weighted-average estimated fair value of options vested during the first quarter
was $0.09.

Based on historical experience of option pre-vesting cancellations and future
expectations, the Company has assumed an annualized forfeiture rate of 5%. Under
the true-up provisions of SFAS 123R, the Company will record additional expense
if the actual forfeiture rate is lower than we estimated, and will record a
recovery of prior expense if the actual forfeiture is higher than estimated.

Since the Company has a net operating loss carryforward as of June 30, 2006, no
excess tax benefit for the tax deductions related to stock-based awards were
recognized in the Statement of Operations for the quarter ended June 30, 2006.
Additionally, no incremental tax benefits were recognized from stock options
exercised in the quarter ended June 30, 2006 that would have resulted in a
reclassification to reduce net cash provided by operating activities with an
offsetting increase in net cash provided by financing activities.

SFAS 123R requires the Company to present pro forma information for the
comparative period prior to the adoption as if the Company had accounted for all
employee stock options under the fair value method of the original SFAS 123. The
following table illustrates the effect on net loss and loss per share if the
Company had applied the fair value recognition provisions of SFAS 123 to
stock-based employee compensation to the prior-year period.

<TABLE>
<CAPTION>
         -----------------------------------------------------------------------------------------------
                                                                                          Three Months
                                                                                             Ended
                                                                                         June 30, 2005
         -----------------------------------------------------------------------------------------------
<S>                                                                                          <C>
         Net loss attributable to common shareholders                                        $(690,376)
         Plus: Stock-based employee compensation expense included in reported net
         loss                                                                                       -0-
         Less:  Total stock-based employee compensation expense determined using
                    fair value based method                                                      37,707
                                                                                       -----------------
         Pro forma net loss attributable to common stockholders                              $(728,083)
                                                                                       =================
         Net loss per common share - basic
           and diluted - pro forma                                                              ($0.00)
                                                                                       =================
         Net loss per common share - basic
           and diluted - as reported                                                            ($0.00)
                                                                                       =================
</TABLE>

During the three months ended June 30, 2005, under APB 25, the Company estimated
the fair value of each stock award at the grant date by using the Black-Scholes
option-pricing model with the following weighted average assumptions used for
grants in 2005: dividend yield of zero percent for each period; expected
volatility of 76 percent; risk-free interest rates of 3.02 percent; and expected
life of 2.5 years.

                                       8
<PAGE>

The amortization of stock compensation under SFAS 123R for the period after its
adoption, and under APB 25 or SFAS 123 (pro forma disclosure) for the period
prior to the adoption of SFAS 123R was done in accordance with Financial
Accounting Standards Board ("FASB") Interpretation ("FIN") No. 28. The total
estimated compensation cost of options granted but not yet vested as of April 1,
2006 of approximately $341,000 is expected to be recognized over the weighted
average period of 1.9 years.

5. PROMISSORY NOTES

12% Convertible Subordinated Promissory Notes

In October 2005, the Company's 12% Subordinated Promissory Notes were modified
by extending the maturity date to December 31, 2006 and to increase the maximum
allowable note amount from $1,000,000 to $1,500,000 and all $500,000 of
additional notes were sold. Noteholders acquiring 12% Subordinated Promissory
Notes on or after October 26, 2005 are entitled to receive a royalty equal to
(i) the principal of the 12% Subordinated Promissory Note purchased divided by
(ii) $500,000 multiplied by (iii) Twenty Dollars ($20.00) for each entertainment
device sold during the calendar years of 2006, 2007 and 2008. The outstanding
12% Subordinated Promissory Notes were also amended such that the principal
amount was convertible and on February 24, 2006 the conversion price was
adjusted from $0.19 per share to $0.08 per share pursuant to an antidilution
adjustment. A debt discount of $1,225,590 was recorded to reflect the value of
the reduced conversion price of the debt and the value of repricing 2,000,000
warrants originally granted to holders and this amount is being amortized over
the remaining term of the notes. At June 30, 2006 the unamortized debt discount
was $735,354.

Unsecured Promissory Notes

At June 30, 2006 the Company had two 15% unsecured promissory notes outstanding
as follows:

<TABLE>
<CAPTION>
<S>                                                                                      <C>
         15% unsecured note, as amended effective June 30, 2006,
           principal and interest due at maturity on December 31, 2006                   $750,000
         15% unsecured note, as restated effective June 30, 2006, monthly payments
           of $5,000 due with the balance of principal and interest due at maturity
           on December 31, 2006                                                           290,188
                                                                                       ----------
                                                                                       $1,040,188
                                                                                       ==========
</TABLE>

6. STOCKHOLDERS' EQUITY

The following table summarizes stockholders' equity transactions during the
three-month period ended June 30, 2006:

<TABLE>
<CAPTION>
-------------------------------- ------------------------ ------------------------ ---------------- ----------- -------------
                                                                                      Additional
                                     Preferred stock            Common stock           Paid-in                    Accumulated
                                   Shares      Amounts       Shares      Amounts       Capital      Dividends      Deficit
-------------------------------- ---------- ------------- ------------- ---------- ---------------- ----------- -------------
<S>                                 <C>     <C>            <C>           <C>          <C>           <C>         <C>
Balance, March 31, 2006             98,500  $  1,210,000   200,431,000   $200,431     $ 73,710,110  $(402,305)  $(77,172,095)
Accrued dividends on Series D
Preferred Stock                          -             -             -          -                -    (28,721)             -
Accrued dividends on Series EE
Preferred Stock                          -             -             -          -                -     (4,987)             -
Non-cash stock  based
compensation                             -             -             -          -           56,437          -              -

Loss for the period                      -             -             -          -                -          -     (1,123,576)
-------------------------------- ---------- ------------- ------------- ---------- ---------------- ----------- -------------
Balance, June 30, 2006              98,500  $  1,210,000   200,431,000   $200,431     $ 73,766,547  $(436,013)  $(78,295,671)
-------------------------------- ---------- ------------- ------------- ---------- ---------------- ----------- -------------
</TABLE>

7. PREFERRED STOCK

Convertible Non-Redeemable Series D

On December 30, 2002, the Company issued 205,000 shares of 12% Series D
non-redeemable convertible preferred stock (the "Series D Stock") with a stated
value of $10 per share. Dividends of 12% per annum are payable, with certain
exceptions, either in cash or in shares of common stock at the Company's
election. The conversion price for each share of Series D Stock is $0.08 subject
to certain adjustments if the Company issues shares at prices lower than $0.08.
At June 30, 2006 the 96,000 shares of the Series D Stock outstanding were
convertible into 17,038,027 shares of common stock. The Series D Stock shall be
subject to automatic conversion on December 31, 2007.

                                       9
<PAGE>

Convertible Redeemable Series EE

On November 30, 2004, the Company issued 18,500 shares of 8% Series EE
Convertible Preferred Stock (the "Series EE Stock") at a per share price of $100
for an aggregate amount of $1,850,000. The Series EE Stock is redeemable in
certain instances at the Company's option eighteen month upon the occurrence of
certain triggering events. Dividends of 8% 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 EE Stock, is convertible into fully
paid and nonassessable shares of common stock at a conversion price $0.08 per
share, subject to certain adjustments if the Company issues shares at prices
lower than $0.08. At June 30, 2006, the 2,500 shares of Series EE Stock
outstanding were convertible into 3,529,109 shares of common stock. The Series
EE Stock shall be subject to automatic conversion on or about November 30, 2006
subject to certain conditions.

8. OPTIONS AND WARRANTS

Options

The Company has stock options outstanding under two stock option plans. The 1994
Stock Option Plan entitled certain directors, key employees and consultants of
the Company to purchase common shares of the Company. The 1994 Plan covered a
maximum aggregate of 14,000,000 shares, as amended and expired on August 18,
2004. At June 30, 2006 there were options outstanding on 3,856,666 common shares
pursuant to the 1994 Plan.

The 2005 Equity-Based Compensation Plan was approved by the stockholders on
August 5, 2005 and covers a maximum aggregate of 10,000,000 common shares. The
Company may grant incentive options, nonstatutory options, stock appreciation
rights or restricted stock awards to employees, directors or consultants. At
June 30, 2006 there were options outstanding on 7,190,000 common shares pursuant
to the 2005 Plan with 2,810,000 options available for future grant under the
2005 Plan.

The following table summarizes stock option activity for the period:

<TABLE>
<CAPTION>
                                                                                        Weighted average
                                                                 Shares                  exercise price
                                                                    #                          $
--------------------------------------------------------------------------------------------------------
<S>               <C> <C>                                     <C>                           <C>
Outstanding March 31, 2006                                    11,071,666                    0.1885
Granted                                                                -                         -
Canceled/expired                                                 (25,000)                     2.00
Exercised                                                              -                         -
--------------------------------------------------------------------------------------------------------
Outstanding June 30, 2006                                     11,046,666                    0.1844
--------------------------------------------------------------------------------------------------------
Exercisable at June 30, 2006                                   5,534,163                    0.2209
--------------------------------------------------------------------------------------------------------
</TABLE>

Options outstanding are exercisable at prices ranging from $0.09 to $1.43 and
expire over the period from 2006 to 2011 with an average life of 3.8 years.

Share warrants
The Company has outstanding share warrants as of June 30, 2006, granted in
connection with private placements and convertible notes payable, entitling the
holders to purchase one common share for each warrant held as follows (subject
to certain future antidilution price protection):

<TABLE>
<CAPTION>
                                       Number of               Exercise Price
Description                        Common Shares                  Per Share $              Expiration Date
----------------------------------------------------------------------------------------------------------
<S>                                       <C>                            <C>                      <C>
Warrant                                   37,500                         0.08           September 30, 2006
Warrant                                1,600,000                         0.08                June 30, 2007
Warrant                                3,070,000                         0.08            November 30, 2007
Warrant                                4,687,500                         0.10            February 28, 2009
Warrant                                4,687,500                         0.09             February 4, 2007
----------------------------------------------------------------------------------------------------------
Total                                 14,082,500                         0.09 Average
----------------------------------------------------------------------------------------------------------
</TABLE>

                                       10
<PAGE>

No warrants were granted, exercised or expired during the three months ended
June 30, 2006. Subsequent to June 30, 2006 a total of 37,500 warrants were
exercised at $0.08 per share.

9. LITIGATION

On May 12, 2006, the Company became aware of a complaint filed on May 4, 2006
against it and certain of officers and employees by digEcor, Inc., ("digEcor")
in the Third Judicial District Court of Utah, County of Salt Lake. The complaint
alleges breaches of contract, unjust enrichment, breaches of good faith and fair
dealing, fraud, negligent misrepresentation, and interference with prospective
economic relations. digEcor is seeking, among other things, an injunction to
prevent the Company from selling or licensing certain digital rights management
(DRM) technology "to any other party besides digEcor" and "from engaging in any
competition with digEcor until after 2009." digEcor is also seeking "actual
damages" of $793,750 and "consequential damages...not less than an additional
$1,000,000." The Company believes this action is related to a purchase order
placed in the normal course of business on November 11, 2005 for 1,250
digEplayers with contract manufacturer, Maycom Co., Ltd. ("Maycom"). Maycom was
paid progress payments with final payments made in full for the order by the
Company, and directly by digEcor, in March 2006. Maycom has failed to timely
deliver the order resulting in this complaint. The Company has received recent
verbal and written assurances from Maycom that they intend to perform under the
purchase order but there can be no assurance thereof or the impact this may have
on the litigation.

In August 2006 the Company filed a motion seeking to amend its response and
counterclaims including seeking an injunction against digEcor from manufacturing
and selling their planned next generation player based on alleged improper use
of the Company's confidential information.

The Company is unable to determine at this time the impact this complaint and
matter may have on its financial position or results of operations if Maycom
does not timely fulfill its obligation and the Company is unable to deliver
product to digEcor in a timely manner. The Company has not recognized any
revenue or costs related to products associated with this order. The Company
intends to seek restitution from Maycom for any damages it may incur from this
matter and the digEcor complaint though recovery is not assured. At March 31,
2006 the Company recorded an impairment charge of $603,750 to expense as cost of
revenues the value of deposits made to Maycom that became impaired as a result
of Maycom's nonperformance.

10. COMMITMENTS AND CONTINGENCIES

The Company depends on contract manufacturers to (i) allocate sufficient
capacity to our manufacturing needs, (ii) produce acceptable quality products at
agreed pricing and (iii) deliver on a timely basis. If a manufacturer is unable
to satisfy these requirements, the Company's business, financial condition and
operating results may be materially and adversely affected. Any failure in
performance by either of these manufacturers for any reason could have a
material adverse affect on the Company's business. Production and pricing by
each such manufacturer is subject to the risk of price fluctuations and periodic
shortages of components. The Company does not have supply agreements with
component suppliers and, accordingly, it is dependent on the future ability of
its manufacturers to purchase components. Failure or delay by suppliers in
supplying necessary components could adversely affect the Company's ability to
deliver products on a timely and competitive basis in the future.

In March 2006 the Company entered into a sixty-two month lease, commencing June
1, 2006, for approximately 4,800 square feet with an aggregate payment of $5,805
excluding utilities and costs. The aggregate payments adjust annually with
maximum aggregate payments totaling $6,535 in the fifty-first through the
sixty-second month.

11. MAJOR CUSTOMERS AND SUPPLIERS

The Company operates in one major line of business, the development, manufacture
and marketing of electronic products. Sales to one customer comprised 100% of
revenue for the three months ended June 30, 2006. Sales to one customer
comprised 99% of revenue for the three months ended June 30, 2005.

12. INCOME TAX

At June 30, 2006, a 100% valuation allowance has been provided to offset the net
deferred tax assets arising from available net operating loss carryforwards as
management believes it is not more likely than not that the deferred tax asset
will be realized.

                                       11
<PAGE>

The Company has U.S. federal net operating loss carryforwards available at March
31, 2006 of approximately $55,250,000 [2005 - $53,300,000] that will begin to
expire in 2006. The Company has state net operating loss carryforwards of
$17,600,000 [2005 - $16,400,000] that will begin to expire in 2006. The
difference between federal and state net operating loss carryforwards is due to
certain percentage limitations of California loss carryforwards and to expired
California carryforwards.

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations

THE FOLLOWING DISCUSSION INCLUDES FORWARD-LOOKING STATEMENTS WITH RESPECT TO THE
COMPANY'S FUTURE FINANCIAL PERFORMANCE. ACTUAL RESULTS MAY DIFFER MATERIALLY
FROM THOSE CURRENTLY ANTICIPATED AND FROM HISTORICAL RESULTS DEPENDING UPON A
VARIETY OF FACTORS, INCLUDING THOSE DESCRIBED BELOW AND UNDER THE SUB-HEADING,
"BUSINESS RISKS." SEE ALSO THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR
ENDED MARCH 31, 2006.

Cautionary Note on Forward Looking Statements

In addition to the other information in this report, the factors listed below
should be considered in evaluating our business and prospects. This report
contains a number of forward-looking statements that reflect our current views
with respect to future events and financial performance. These forward-looking
statements are subject to certain risks and uncertainties, including those
discussed below and elsewhere herein, that could cause actual results to differ
materially from historical results or those anticipated. In this report, the
words "anticipates," "believes," "expects," "intends," "future" and similar
expressions identify forward-looking statements. Readers are cautioned to
consider the specific factors described below and not to place undue reliance on
the forward-looking statements contained herein, which speak only as of the date
hereof. We undertake no obligation to publicly revise these forward-looking
statements, to reflect events or circumstances that may arise after the date
hereof.

General

We are a holding company that operates through our wholly-owned California
subsidiary of the same name and is incorporated under the laws of Delaware. We
provide engineering services, product reference designs and technology platforms
to customers focusing on the digital video/audio and player/recorder markets. We
have innovated a proprietary secure digital video/audio technology platform
("DVAP") that can be applied to produce complex consumer electronic products. In
2003 our DVAP was applied to an in-flight entertainment ("IFE") device, the
digEplayer, for one customer. To date, we have delivered over 8,000 digEplayers
for airline use.

In December 2005 we announced our latest proprietary DVAP device, the eVU(TM)
mobile entertainment device. The rugged eVU features sharp images on a 7" high
resolution LCD screen, a 40 GB hard drive, high audio fidelity, dual stereo
headphone jacks, embedded credit card reader/processor, touch screen
capabilities, full feature graphical user interface, patent-pending hardware
security technology, and 10 hours of high resolution video playback on a single
battery charge. We also have the capability to add features and customize the
product for select customers.

We also believe we have a potentially important portfolio of patents for
licensing related to the use of flash memory in portable devices and we are
investigating monetizing our patent portfolio.

Our primary strategy for future quarters is to produce branded eVU devices for
customer orders. eVU is targeted at business opportunities for secure hard
drive-based closed system video products loaded with desirable movie,
television, music, informational, and educational content, rented or provided to
customers. We have commenced initial eVU deliveries to select target customers.
We are focused on U.S. and international companies in the healthcare, military,
and travel and leisure industries who desire to brand and market eVU to
consumers at their facilities. We have developed logistic and secure content
solutions to enable customers to rapidly deploy, operate and maintain eVUs for
target customers. In addition to offering eVUs for sale we expect to provide eVU
solutions on a periodic payment program.

                                       12
<PAGE>

Overall Performance

We have incurred significant operating losses and negative cash flow from
operations in the current period and in each of the last three fiscal years and
these losses have been material. We have an accumulated deficit of $78,295,671
and a a working capital deficit of $3,604,766 at June 30, 2006. We have
experienced a substantial reduction in cash that adversely affects our
liquidity. Our operating plans require additional funds that may take the form
of debt or equity financings. There can be no assurance that any additional
funds will be available to our company on satisfactory terms and conditions, if
at all. Our company's ability to continue as a going concern is in substantial
doubt and is dependent upon achieving a profitable level of operations and
obtaining additional financing.

Management has undertaken steps as part of a plan to improve operations with the
goal of sustaining our operations for the next twelve months and beyond. These
steps include (a) controlling overhead and expenses; (b) expanding sales and
marketing to business customers and markets and (c) raising additional capital
and/or obtaining third party financing.

For the three months ended June 30, 2006:

      o     Our revenues were $21,000. Sales to one customer accounted for 100%
            of our revenues and our results have been highly dependent on the
            timing and quantity of orders by this customer and the potential of
            other customers. At June 30, 2006 we had approximately $1.2 million
            of orders in production for this customer but delivery by our
            contractor is behind schedule and not assured (See Note 9 -
            Litigation, above). Although we expect growing orders for eVU
            players in future quarters we do not expect future digEplayer orders
            as our customer has announced an alternative supplier has been
            selected for a replacement product. The failure to obtain eVU orders
            or delays of future orders could have a material impact on our
            operations.

      o     We recorded a gross profit of $4,500 compared to a gross profit of
            $170,700 for the first quarter of fiscal 2006. Gross profit
            decreased due to the decrease in product being completed and shipped
            and the digEcor litigation that has hindered the closing of volume
            eVU orders.

      o     Operating expenses were $688,000 a decrease from $700,600 for the
            first quarter of 2006 due primarily to reduced personnel and legal
            costs in the current period.

      o     Other income and expenses were a net expense of $440,000 consisting
            primarily of interest expense of $447,410 including non-cash
            interest of $367,700 related to amortization of debt discount.

      o     Our net loss increased to $1.1 million from $647,000 for the
            comparable three months ended June 30, 2006 and the net loss
            attributable to common stockholders after non-cash deemed and
            imputed dividends on preferred stock increased to $1.1 million from
            $0.7 million for the quarter ended June 30, 2006.

Our monthly cash operating costs have been on average approximately $180,000 per
month for the period ending June 30, 2006. However, we may increase expenditure
levels in future periods to support and expand our revenue opportunities and
continue research and development. The introduction of the eVU may also require
additional expenditures, the amount and timing not currently estimable by
management. Accordingly, our losses are expected to continue until such time as
we are able to realize revenues and margins sufficient to cover our costs of
operations. We may also face unanticipated technical or manufacturing obstacles
and face warranty and other risks in our business See Part II, Item 1A (Risk
Factors) below.

                                       13
<PAGE>

Critical Accounting Policies

Management's Discussion and Analysis of Financial Condition and Results of
Operations is based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of our financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues, and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, estimates are evaluated, including those
related to revenue recognition, allowance for doubtful accounts, and intangible
assets, taxes, impairment of long-lived assets, product warranty, stock-based
compensation, and contingencies and litigation. These estimates are based on
historical experience and on various other assumptions that we believe to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates. There has been no material change to our critical accounting policies
and estimates from the information provided in our Form 10-K for March 31, 2006,
except for the adoption of SFAS No. 123(R).

We do not have off-balance sheet arrangements, financings, or relationships with
unconsolidated entities or other persons, also known as "special purposes
entities" (SPEs).

Results of Operations

Three months ended June 30, 2006 compared to three months ended June 30, 2005
For the first three months of fiscal 2007, we reported total revenues of $21,105
a 98% decrease from total revenues of $998,209 for the first three months of
fiscal 2006. Product revenues for the quarter ending June 30, 2006 were $21,105
compared to $965,730 for the quarter ending June 30, 2005. The decrease in
product revenue for the first three months ended June 30, 2006, resulted from
the digEplayer order delay described further in Note 9 above, no new orders for
digEplayers and the digEcor litigation which has hindered closing volume eVU
orders. We expect growing orders for eVU players in future quarters but do not
expect future digEplayer orders as our customer has announced an alternative
supplier has been selected for a replacement product.

We had no service revenues for the three months ended June 30, 2006 as we
focused on our internally developed eVU product. We had service revenues of
$32,479 for the comparable quarter of the prior year.

Cost of sales includes manufacturing costs for products sold, operation costs
associated with product support and other costs associated with the delivery of
engineering support and services. Cost of sales for the three months ended June
30, 2006 consisted of $16,612 of product costs. Cost of sales for the three
months ended June 30, 2005 consisted of $822,642 of product costs and $4,875 of
service costs, consisting primarily of manufacturing costs associated with the
production of in-flight entertainment devices that were shipped in the period.
Although we do not anticipate any significant future contract losses, we cannot
guarantee that we can maintain positive gross margins in the future or with
future customers.

Gross profit for the first three months of fiscal 2006 was $4,493 compared to
$170,692 for the first three months of fiscal 2005. Gross profit as a percent of
sales for the first quarter of fiscal 2007 was 21% compared to 17% for the same
period last year. Gross profit percentage is highly dependent on sales, price,
volume, purchasing costs and overhead allocations. Gross margins may vary
significantly from period to period. At the present time, warranty costs are not
significant.

Selling and administrative expenses include payroll, employee benefits, and
other costs associated with finance, customer support functions, facilities and
depreciation expenses. Selling and administrative costs for the three months
ended June 30, 2006, was $335,569 compared to $338,644 for the first three
months of fiscal 2006. Recent quarterly selling and administrative expenses have
been relatively constant as we maintained staffing levels and had no significant
outside selling costs. However in the future we may incur additional legal costs
associated with current litigation costs and additional costs to comply with
Section 404 of the Sarbanes-Oxley Act.

Research and development expenses include payroll, employee benefits, and other
costs associated with product development. Research and development expenses may
also include third-party development and programming costs. Research and related
expenditures for the three months ended June 30, 2006 were $352,609, as compared
to $361,921 for the three months ended June 30, 2005. The decrease of $9,312 can
be attributed to the decrease of $25,888 in personnel and related costs and a
decrease of $33,096 for consulting and professional services offset by an
increase of $42,178 in startup production costs associated with the development
of our eVU player. Research and development costs are subject to significant
quarterly variations depending on the use of outside services, the assignment of
engineers to development projects, reimbursement by OEM contracts and the
availability of financial resources.

                                       14
<PAGE>

We reported an operating loss of $683,685 for the three months ended June 30,
2006, as compared to an operating loss of $529,873 for the three months ended
June 30, 2005. The increased operating loss resulted primarily from the reduced
margins of $166,000 offset by reduced operating expenses of $12,000 in spite of
increased non-cash stock-based compensation expense of $56,000 in the current
quarter due to the change in reporting option costs. We believe, but we cannot
guarantee, that our strategy of investing in digital video and audio platform
developments will provide positive margins in the future periods. The timing and
amount of product sales and the recognition of contract service revenues impact
our operating losses. Accordingly, there is uncertainty about future operating
results and the results for the three months ended June 30, 2006 are not
necessarily indicative of operating results for future periods or the fiscal
year.

We reported interest expense of $447,410 for the three months ended June 30,
2006 versus $121,316. The increase in interest expense can be attributed to the
amortization of the debt discount associated with our convertible subordinated
notes.

We reported a loss for the first three months of fiscal 2007 of $1,123,576 as
compared to a loss of $647,276 for the prior first three months of fiscal 2005.

The loss attributable to common stockholders for the three months ended June 30,
2006 and 2005 was $1,157,284 and $690,376, respectively. Included in the loss
attributable to common stockholders for the period ending June 30, 2006 were
accrued dividends on the Series D and Series EE stock of $28,721 and $4,987,
respectively. Included in the loss attributable to common stockholders for the
period ending June 30, 2005 were accrued dividends on the Series D and Series EE
stock of $33,450 and $9,650, respectively.

Liquidity and Capital Resources

At June 30, 2006, we had working capital deficit of $3,604,766 compared to a
working capital deficit of $2,516,367 at March 31, 2006. Cash used in operating
activities for the three month period ended June 30, 2006 was $551,853 resulting
primarily from the $1,123,576 loss for the period reduced by non-cash expenses
of $464,687 and further impacted by a decrease of $2,670 in accounts receivable,
an increase of $37,111 in prepaid expenses, an increase of $108,054 in accounts
payable, an increase of $13,753 accruals and an increase of $19,670 in customer
deposits.

For the three months ended June 30, 2006 and 2005, cash used in financing
activities was $3,891 and $5,061, respectively resulting from principal payments
on the 15% unsecured notes.

At June 30, 2006, we had no net accounts receivable as compared to $2,670 at
March 31, 2006. Receivables can vary dramatically due to the timing of product
shipments and contract arrangements on development agreements.

At June 30, 2006, we had cash and cash equivalents of $502,979. Other than cash
and cash equivalents, we have no material unused sources of liquidity at this
time. We have no material commitments for capital expenditures or resources.
Based on our cash position and assuming currently planned expenditures and level
of operation, we believe we will require approximately $1.5 million of
additional funds for the next twelve months of operations. We will also be
required to renegotiate the terms or make payments on our 15% unsecured debt of
approximately $1.1 million due at December 31, 2006 and our $1.5 million of
convertible debt if it is not converted prior to maturity at December 31, 2006.
However, actual results could differ significantly from management plans. We
believe we may be able to obtain some additional funds from future product
margins from product sales but actual future margins to be realized, if any, and
the timing of shipments and the amount and quantities of shipments, orders and
reorders are subject to many factors and risks, many outside our control.
Accordingly we will need to seek equity or debt financing in the next twelve
months for working capital and we may need to seek equity or debt financing for
payment of existing debt obligations and other obligations reflected on our
balance sheet.

There can be no guarantee that we will be able to raise additional equity or
debt financing, if required, and/or renegotiate the terms of debts as they
arise. We may also require additional capital to finance future developments and
improvements to our technologies or develop new technologies and market our
products.

Should additional funds not be available, we may be required to curtail or scale
back staffing or operations. Failure to obtain additional financings will have a
material adverse affect on our Company. Potential sources of such funds include
exercise of outstanding warrants and options, or debt financing or additional
equity offerings. However, there is no guarantee that warrants and options will
be exercised or that debt or equity financing will be available when needed. Any
future financing may be dilutive to existing stockholders.

                                       15
<PAGE>

Future Commitments and Financial Resources

As of June 30, 2006, our contractual obligations and commercial commitments are
summarized below:

<TABLE>
<CAPTION>
  Cash Contractual Obligations by Period         Total       Less than 1 year    1 - 2 years     2 - 3 years     Over 3 years
<S>                                          <C>                <C>               <C>             <C>             <C>
12% Subordinated Convertible
Promissory Notes (1)                          $ 1,590,000        $ 1,590,000       $        -      $        -      $        -

15% Unsecured Promissory Notes (2)              1,117,915          1,117,915                -               -               -
Operating Lease (3)                               369,873             58,056          144,253         153,038          14,526
                                          ---------------- ------------------ ---------------- --------------- ---------------
Total cash obligations                        $ 3,077,788        $ 2,765,971        $ 144,253       $ 153,038       $  14,526
                                          ================ ================== ================ =============== ===============
</TABLE>

      1     Includes estimated interest to maturity at December 31, 2006 and
            that the notes are not converted to common stock.

      2     Includes two 15% unsecured notes and estimated future interest
            payments to maturity at December 31, 2006.

      3     Office sublease agreement.

We have an accrued lease liability of $515,000 that arose in the normal course
of business for equipment. This amount is approximately ten years old. The
accrued lease liability reflects management's best estimate of amounts due for
matters in dispute. Settlement of this liability may either be more or less than
the amount recorded in our consolidated financial statements and accordingly may
be subject to measurement uncertainty in the near term.

In the future, if our operations increase significantly, we may require
additional funds. We also may require additional capital to finance future
developments, acquisitions or expansion of facilities. We currently have no
plans, arrangements or understandings regarding any acquisitions.

In March 2006, we entered into a sixty-two month lease, commencing June 1, 2006,
for approximately 4,800 square feet at 16770 West Bernardo Drive, San Diego,
California with an aggregate payment of $5,805 excluding utilities and costs.
The aggregate payments adjust annually with maximum aggregate payments totaling
$6,535 in the fifty-first through the sixty-second month.

We believe this facility is adequate to meet our needs for the next twelve
months given current plans. However should we expand our operations, we may be
required to obtain additional space or alternative space. We believe there is
adequate availability of office space in the general vicinity to meet our future
needs.

Item 3. Quantitative and Qualitative Disclosure about Market Risk

Market risk represents the risk of loss that may impact our financial position,
results of operations or cash flows due to adverse changes in market prices,
including interest rate risk and other relevant market rate or price risks.

Our exposure to market risk for changes in interest rates relates primarily to
our investment in cash and cash equivalents of $502,979 and our debt of
$2,540,188. We do not use derivative financial instruments in our investment
portfolio and due to the nature of our investments, do not expect our operating
results or cash flows to be significantly affected by potential changes in
interest rates. At June 30, 2006, the market value of these investments, which
were all classified as cash and cash equivalents and certificate of deposit, and
debt approximated cost.

Item 4. Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) that are designed to ensure that information required to be
disclosed in our reports filed under the Exchange Act, is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms, and that such information is accumulated and communicated to our
management, including our Chief Executive Officer and Interim Chief Accounting
Officer, as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and management necessarily was required to apply its
judgment in evaluating the cost-benefit relationship of possible controls and
procedures.

                                       16
<PAGE>

We carried out an evaluation under the supervision and with the participation of
management, including our Chief Executive Officer and Interim Chief Accounting
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures as of June 30, 2006, the end of the period covered by
this report. Based on that evaluation, our Chief Executive Officer and Interim
Chief Accounting Officer concluded that our disclosure controls and procedures
were effective at the reasonable assurance level as of June 30, 2006.

There have been no changes in our internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the
quarter ended June 30, 2006 that materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.

In our Annual Report on Form 10-K at March 31, 2006 we disclosed a material
weakness related to closing our general ledger and the preparation of our Form
10-Q for the quarter ended September 30, 2005 that resulted in a restatement. We
believe we have implemented actions to address the deficiency and to enhance the
reliability and effectiveness of our control procedures.

We are a non-accelerated filer and are required to comply with the internal
control reporting and disclosure requirements of Section 404 of the
Sarbanes-Oxley Act for fiscal years ending on or after July 15, 2007. Although
we are working to comply with these requirements, we have only fifteen employees
and these employees work at one location. The small number of employees is
expected to make compliance with Section 404 - especially with segregation of
duty control requirements - very difficult and cost ineffective, if not
impossible. While the SEC had indicated it expects to issue supplementary
regulations easing the burden of Section 404 requirements for small entities
like us, such regulations have not yet been issued.

PART II.       OTHER INFORMATION

Item 1. Legal Proceedings
On May 12, 2006, we became aware of a complaint filed on May 4, 2006 against us
and certain of our officers and employees by digEcor, Inc., ("digEcor") in the
Third Judicial District Court of Utah, County of Salt Lake. The complaint
alleges breaches of contract, unjust enrichment, breaches of good faith and fair
dealing, fraud, negligent misrepresentation, and interference with prospective
economic relations. digEcor is seeking, among other things, an injunction to
prevent us from selling or licensing certain digital rights management (DRM)
technology "to any other party besides digEcor" and "from engaging in any
competition with digEcor until after 2009." digEcor is also seeking "actual
damages" of $793,750 and "consequential damages...not less than an additional
$1,000,000." We believe this action is related to a purchase order placed in the
normal course of business on November 11, 2005 for 1,250 digEplayers with
contract manufacturer, Maycom Co., Ltd. ("Maycom"). Maycom was paid progress
payments with final payments made in full for the order by the Company, and
directly by digEcor, in March 2006. Maycom has failed to timely deliver the
order resulting in this complaint. We have received recent verbal and written
assurances from Maycom that they intend to perform under the purchase order but
there can be no assurance thereof or the impact this may have on the litigation.

In August 2006 we filed a motion seeking to amend our response and counterclaims
including seeking an injunction against digEcor from manufacturing and selling
their planned next generation player based on alleged improper use of the
Company's confidential information.

We are unable to determine at this time the impact this complaint and matter may
have on our financial position or results of operations if Maycom does not
timely fulfill its obligation and we are unable to deliver product to digEcor in
a timely manner. We have not recognized any revenue or costs related to products
associated with this order. We intend to seek restitution from Maycom for any
damages we may incur from this matter and the digEcor complaint though recovery
is not assured. At March 31, 2006 we recorded an impairment charge of $603,750
to expense as cost of revenues the value of deposits made to Maycom that became
impaired as a result of Maycom's nonperformance.

                                       17
<PAGE>

Item 1A. Risk Factors

Set forth below and elsewhere in this report and in other documents we file with
the SEC are risks and uncertainties that could cause our actual results to
differ materially from the results contemplated by the forward-looking
statements contained in this report and other public statements we make. See
"Cautionary Note on Forward Looking Statements" within this document. If any of
the following risks actually occurs, our business, financial condition, or
results of operations could suffer. In that case, the trading price of our
common stock could decline, and you may lose all or part of your investment.

The risk factors described below do not contain any material changes from the
Risk Factors described under Item 1A of Part I of our Annual Report on Form 10-K
for March 31, 2006, except as follows:

      |X|   We updated our risk factor related to limited customers to reflect
            the fact that we do not expect future orders for the digEplayer.

      |X|   We added a new risk factor under "Risks Related to Intellectual
            Property and Government Regulation" regarding risks associated with
            the requirement to implement Section 404 of the Sarbanes-Oxley Act
            in future periods.

Financial Risks

     We Have a History of Losses and May Incur Future Losses. We have incurred
     significant operating losses in prior fiscal years and as of the fiscal
     year ended and March 31, 2006 we had an accumulated deficit of $77.2
     million. We had losses of approximately $3.1 million, $2.4 million and $2.5
     million in fiscal years 2006, 2005 and 2004, respectively. To date, we have
     not achieved profitability and given the level of operating expenditures
     and the uncertainty of revenues and margins, we will continue to incur
     losses and negative cash flows in future periods. The failure to obtain
     sufficient revenues and margins to support operating expenses could harm
     our business.

     We do not Anticipate Paying Dividends. We have never paid any cash
     dividends on our common stock and do not anticipate paying any cash
     dividends in the foreseeable future. We currently intend to retain any
     future earnings to fund the development and growth of our business. An
     investment in our common stock, therefore, may be more suitable for an
     investor that is seeking capital appreciation rather than current yield
     and, as a consequence, may be more speculative. Accordingly, investors
     should not purchase our common stock with an expectation of receiving
     regular dividends.

     We Expect Our Operating Results to Fluctuate Significantly - Our quarterly
     and annual operating results have fluctuated significantly in the past and
     we expect that they will continue to fluctuate in the future. This
     fluctuation is a result of a variety of factors, including the following:

      o     Unpredictable demand and pricing for our contract development
            services
      o     Market acceptance of our business customers' products by end users
      o     Uncertainties with respect to future customer product orders, their
            timing and the margins to be received, if any
      o     Fluctuations in operating costs
      o     Changes in research and development costs
      o     Changes in general economic conditions
      o     Changes in technology
      o     Short product lifecycles

     We May Experience Product Delays, Cost Overruns and Errors Which Could
     Adversely Affect our Operating Performance and Ability to Remain
     Competitive. We have experienced development delays and cost overruns
     associated with contract development services in the past. We may
     experience additional delays and cost overruns on current projects or
     future projects. Future delays and cost overruns could adversely affect our
     financial results and could affect our ability to respond to technological
     changes, evolving industry standards, competitive developments or customer
     requirements. Our technology, the results of our contract services and the
     products produced for our customers could contain errors that could cause
     delays, order cancellations, contract terminations, adverse publicity,
     reduced market acceptance of products, or lawsuits by our customers or
     others who have acquired our products, including customers branded
     products.

                                       18
<PAGE>

     We Need to Obtain Additional Financing to Continue Operating our Business.
     We believe that cash on hand and proceeds from existing development and
     production contracts and product sales, are not sufficient to meet cash
     requirements for the next twelve months. We anticipate the need to raise
     additional funds to:

      o     Finance working capital requirements
      o     Pay for increased operating expenses or shortfalls in anticipated
            revenues
      o     Fund increases in research and development costs
      o     Develop new technology, products or services
      o     Respond to competitive pressures
      o     Support strategic and industry relationships
      o     Fund the production and marketing of our products and services

     We cannot assure you that such additional financing will be available on
     terms favorable to us, or at all. If adequate funds are not available to us
     then we may not be able to continue operations or take advantage of
     opportunities. If we raise additional funds through the sale of equity,
     including common stock, the percentage ownership of our stockholders will
     be reduced.

     Unless We Obtain Adequate Financing and Increase Our Revenues We May Be
     Unable to Continue as a Going Concern. We have experienced substantial
     reduction in cash, projected revenues and increased costs that adversely
     affected our results of operations and cash flows. Our company has suffered
     recurring losses from operations. This factor, in combination with (i)
     reliance upon debt and new equity financing to fund the continuing, losses
     from operations and cash flow deficits, (ii) material net losses and cash
     flow deficits from operations during fiscal year 2007 to date, fiscal year
     2006 and in prior years and (iii) the possibility that we may be unable to
     meet our debts as they come due, raise substantial doubt about our ability
     to continue as a going concern. Our company's ability to continue as a
     going concern is dependent upon our ability to obtain adequate financing
     and achieve a level of revenues, adequate to support our capital and
     operating requirements, as to which no assurance can be given. In the event
     we are unable to continue as a going concern, we may elect or be required
     to seek protection from our creditors by filing a voluntary petition in
     bankruptcy or may be subject to an involuntary petition in bankruptcy. To
     date, management has not considered this alternative, nor does management
     view it as a likely occurrence. Our auditors have included in their report
     an explanatory paragraph describing conditions that raise substantial doubt
     about our ability to continue as a going concern.

Risks Related to Sales, Marketing and Competition

     We May Be Unable to Successfully Compete in the Electronic Products Market
     Which is Highly Competitive and Subject to Rapid Technological Change. We
     compete in the market for electronics products which is intensely
     competitive and subject to rapid technological change. The market is also
     impacted by evolving industry standards, rapid price changes and rapid
     product obsolescence. Our competitors include a number of large foreign
     companies with U.S. operations and a number of domestic companies, many of
     which have substantially greater financial, marketing, personnel and other
     resources. Our current competitors or new market entrants could introduce
     new or enhanced technologies or products with features that render the
     company's technology or products obsolete or less marketable, or could
     develop means of producing competitive products at a lower cost. Our
     ability to compete successfully will depend in large measure on our ability
     to maintain our capabilities in connection with upgrading products and
     quality control procedures and to adapt to technological changes and
     advances in the industry. Competition could result in price reductions,
     reduced margins, and loss of contracts, any of which could harm our
     business. There can be no assurance that we will be able to keep pace with
     the technological demands of the marketplace or successfully enhance our
     products or develop new products that are compatible with the products of
     the electronics industry.

                                       19
<PAGE>

     We Rely on a Limited Number of Customers for Revenue. Historically, a
     substantial portion of our revenues has been derived primarily from a
     limited number of customers. One customer, Mezzo, accounted for
     approximately 100% of revenues for the year ended June 30, 2006. We do not
     expect future orders from digEcor and if we are unable to obtain new
     customers for our new eVU product reduced sales may have a material adverse
     effect on our operations. In May 2006, the company and certain of its
     officers were sued by digEcor. We are unable to determine at this time the
     impact this litigation and matter may have on our financial position or
     results of operations.

     If We Are Unsuccessful in Achieving Market Acceptance of Our Products, It
     Could Harm Our Business. Sales and marketing strategy contemplates sales of
     developed products to the electronics and computer software market by our
     customers. The failure of our customers to penetrate their projected
     markets would have a material adverse effect upon our operations and
     prospects. Market acceptance of our products and those of our customers
     will depend in part upon our ability to demonstrate and maintain the
     advantages of our technology over competing products.

     We Have Limited Marketing Capabilities and Resources Which Makes It
     Difficult For Us to Create Awareness of and Demand for Our Products and
     Technology. We have limited marketing capabilities and resources and are
     primarily dependent upon in-house executives for the marketing of our
     products, as well as our licensing business. Selling products and
     attracting new business customers requires ongoing marketing and sales
     efforts and expenditure of funds to create awareness of and demand for our
     technology. We cannot assure that our marketing efforts will be successful
     or result in future development contracts or other revenues.

     The Success of Our Business Depends on Emerging Markets and New Products.
     In order for demand for our technology, services and products to grow, the
     markets for portable digital devices, such as digital recorders and digital
     video/music players and other portable consumer devices, must develop and
     grow. If sales for these products do not grow, our revenues could decline.
     To remain competitive, we intend to develop new applications for our
     technology and develop new technology and products. If new applications or
     target markets fail to develop, or if our technology, services and products
     are not accepted by the market, our business, financial condition and
     results of operations could suffer.

     Development of New or Improved Products, Processes or Technologies May
     Render Our Technology Obsolete and Hurt Our Business. The electronics,
     contract manufacturing and computer software markets are characterized by
     extensive research and development and rapid technological change resulting
     in very short product life cycles. Development of new or improved products,
     processes or technologies may render our technology and developed products
     obsolete or less competitive. We will be required to devote substantial
     efforts and financial resources to enhance our existing products and
     methods of manufacture and to develop new products and methods. There can
     be no assurance we will succeed with these efforts. Moreover, there can be
     no assurance that other products will not be developed which may render our
     technology and products obsolete.

Risks Related to Operations

     We Depend On a Limited Number of Contract Manufacturers and Suppliers and
     Our Business Has Been and Will Be Harmed By Any Interruption of Supply or
     Failure of Performance. We rely on two suppliers for manufacturing the
     digEplayer and eVU products. We depend on our contract manufacturers to (i)
     allocate sufficient capacity to our manufacturing needs, (ii) produce
     acceptable quality products at agreed pricing and (iii) deliver on a timely
     basis. If a manufacturer is unable to satisfy these requirements, our
     business, financial condition and operating results may be materially and
     adversely affected. Any failure in performance by our manufacturer for any
     reason could have a material adverse affect on our business. Production and
     pricing by such manufacturer is subject to the risk of price fluctuations
     and periodic shortages of components. We have no supply agreements with
     component suppliers and, accordingly, we are dependent on the future
     ability of our manufacturer to purchase components. Failure or delay by
     suppliers in supplying necessary components could adversely affect our
     ability to deliver products on a timely and competitive basis in the
     future. Failure to deliver by one supplier has had a significant impact on
     our operations.

                                       20
<PAGE>

     If We Lose Key Personnel or Are Unable to Attract and Retain Additional
     Highly Skilled Personnel Required For the Expansion of Our Activities Our
     Business Will Suffer. Our future success depends to a significant extent on
     the continued service of our key technical, sales and senior management
     personnel and their ability to execute our strategy. The loss of the
     services of any of our senior level management, or certain other key
     employees, may harm our business. Our future success also depends on our
     ability to attract, retain and motivate highly skilled employees.
     Competition for employees in our industry is intense. We may be unable to
     retain our key employees or to attract, assimilate and retain other highly
     qualified employees in the future. We have from time to time in the past
     experienced, and we expect to continue to experience in the future,
     difficulty in hiring and retaining highly skilled employees with
     appropriate qualifications.

     Because Some of Our Management are Part-Time and Have Certain Conflicts of
     Interest, Our Business Could Be Harmed. Our Vice President, Robert Putnam,
     is also investor relations of American Technology Corporation. As a result
     of his involvement with American Technology Corporation, Mr. Putnam has in
     the past, and is expected in the future to devote a substantial portion of
     his time to other endeavors and only part-time services to e.Digital.
     Certain conflicts of interest now exist and will continue to exist between
     e.Digital and Mr. Putnam due to the fact that he has other employment or
     business interests to which he devotes some attention and he is expected to
     continue to do so. It is conceivable that the respective areas of interest
     of e.Digital and American Technology Corporation could overlap or conflict.

Risks Related to Intellectual Property and Government Regulation

     Failing to Protect Our Proprietary Rights to Our Technology Could Harm Our
     Ability to Compete, as well as Our Results of Our Operations. Our success
     and ability to compete substantially depends on our internally developed
     software, technologies and trademarks, which we protect through a
     combination of patent, copyright, trade secret and trademark laws. Patent
     applications or trademark registrations may not be approved. Even when they
     are approved, our patents or trademarks may be successfully challenged by
     others or invalidated. If our trademark registrations are not approved
     because third parties own such trademarks, our use of these trademarks
     would be restricted unless we enter into arrangements with the third-party
     owners, which may not be possible on commercially reasonable terms or at
     all. We generally enter into confidentiality or license agreements with our
     employees, consultants and strategic and industry partners, and generally
     control access to and distribution of our software, technologies,
     documentation and other proprietary information. Despite our efforts to
     protect our proprietary rights from unauthorized use or disclosure, parties
     may attempt to disclose, obtain or use our solutions or technologies. The
     steps we have taken may not prevent misappropriation of our solutions or
     technologies, particularly in foreign countries where laws or law
     enforcement practices may not protect our proprietary rights as fully as in
     the United States. We have licensed, and we may license in the future,
     certain proprietary rights to third parties. While we attempt to ensure
     that our business partners maintain the quality of our brand, they may take
     actions that could impair the value of our proprietary rights or our
     reputation. In addition, these business partners may not take the same
     steps we have taken to prevent misappropriation of our solutions or
     technologies.

     We May Face Intellectual Property Infringement Claims That May Be Difficult
     to Defend and Costly to Resolve, Which Could Harm Our Business. Although we
     do not believe we infringe the proprietary rights of any third parties, we
     cannot assure you that third parties will not assert such claims against us
     in the future or that such claims will not be successful. We could incur
     substantial costs and diversion of management resources to defend any
     claims relating to proprietary rights, which could harm our business. In
     addition, we are obligated under certain agreements to indemnify the other
     party for claims that we infringe on the proprietary rights of third
     parties. If we are required to indemnify parties under these agreements,
     our business could be harmed. If someone asserts a claim relating to
     proprietary technology or information against us, we may seek licenses to
     this intellectual property. We may not be able to obtain licenses on
     commercially reasonable terms, or at all. The failure to obtain the
     necessary licenses or other rights may harm our business.

     Risks Related To Government Regulation, Content And Intellectual Property
     Government Regulation May Subject Us to Liability and Require Us to Change
     The Way We Do Business. Our business is subject to rapidly changing laws
     and regulations. Although our operations are currently based in California,
     the United States government and the governments of other states and
     foreign countries have attempted to regulate activities on the Internet.
     Evolving areas of law that are relevant to our business include privacy
     law, copyright law, proposed encryption laws, content regulation and
     import/export regulations. Because of this rapidly evolving and uncertain
     regulatory environment, we cannot predict how these laws and regulations
     might affect our business. In addition, these uncertainties make it
     difficult to ensure compliance with the laws and regulations governing the
     Internet. These laws and regulations could harm us by subjecting us to
     liability or forcing us to change how we do business.

                                       21
<PAGE>

     Failure to Achieve and Maintain Effective Internal Controls in accordance
     with Section 404 of the Sarbanes-Oxley Act Could Have a Material Adverse
     Effect On Our Business. As a public company, we will be required to
     document and test our internal financial control procedures in order to
     satisfy the requirements of Section 404 of the Sarbanes-Oxley Act, which
     will require annual management assessments of the effectiveness of our
     internal controls over financial reporting and a report by our independent
     auditors that both addresses management's assessments and provides for the
     independent auditor's assessment of the effectiveness of our internal
     controls. During the course of our testing, we may identify deficiencies
     which we may not be able to remediate in time to meet our deadline for
     compliance with Section 404, and we may also identify inaccuracies or
     deficiencies in our financial reporting that could require revisions to or
     restatement of prior period results. Testing and maintaining internal
     controls also will involve significant costs and can divert our
     management's attention from other matters that are important to our
     business. We may not be able to conclude on an ongoing basis that we have
     effective internal controls over financial reporting in accordance with
     Section 404, and our independent auditors may not be able or willing to
     issue a favorable assessment of our conclusions. Failure to achieve and
     maintain an effective internal control environment could harm our operating
     results and could cause us to fail to meet our reporting obligations and
     could require that we restate our financial statements for prior periods,
     any of which could cause investors to lose confidence in our reported
     financial information and cause a decline, which could be material, in the
     trading price of our common stock.

Risks Related to Trading in Our Common Stock

     Investing in a Technology Stock (Such as Ours) May Involve Greater Risk
     Than Other Investments Due to Market Conditions, Stock Price Volatility and
     Other Factors. The trading price of our common stock has been subject to
     significant fluctuations to date, and will likely be subject to wide
     fluctuations in the future due to:

      o     Quarter-to-quarter variations in operating results
      o     Announcements of technological innovations by us, our customers or
            competitors
      o     New products or significant design achievements by us or our
            competitors
      o     General conditions in the markets for the our products or in the
            electronics industry
      o     The price and availability of products and components
      o     Changes in operating factors including delays of shipments, orders
            or cancellations
      o     General financial market conditions
      o     Market conditions for technology stocks
      o     Litigation or changes in operating results or estimates by analysts
            or others
      o     Or other events or factors

     We do not endorse and accept any responsibility for the estimates or
     recommendations issued by stock research analysts or others from time to
     time or comments on any electronic chat boards. The public stock markets in
     general, and technology stocks in particular, have experienced extreme
     price and trading volume volatility. This volatility has significantly
     affected the market prices of securities of many high technology companies
     for reasons frequently unrelated to the operating performance of the
     specific companies. These broad market fluctuations may adversely affect
     the market price of our common stock in the future.

                                       22
<PAGE>

     Low-Price Stocks and Stocks Traded on the OTC Electronic Bulletin Board are
     Subject to Special Regulations and may have Increased Risk. Our shares of
     common stock are traded on the OTC Electronic Bulletin Board, an
     electronic, screen-based trading system operated by the National
     Association of Securities Dealers, Inc. ("NASD"). Securities traded on the
     OTC Electronic Bulletin Board are, for the most part, thinly traded and are
     subject to special regulations not imposed on securities listed or traded
     on the NASDAQ system or on a national securities exchange. As a result, an
     investor may find it difficult to dispose of, or to obtain accurate
     quotations as to the price of, our common stock. Sales of substantial
     amounts of our outstanding common stock in the public market could
     materially adversely affect the market price of our common stock. To date,
     the price of our common stock has been extremely volatile with the sale
     price fluctuating from an intra-day low of $0.07 to a high of $0.22 in the
     last twelve months. In addition, our common stock is subject to Rules
     15g-1-15g-6 promulgated under the Securities Exchange Act of 1934 that
     imposes additional sales practice requirements on broker-dealers who sell
     such securities to persons other than established customers and accredited
     investors (generally, a person with assets in excess of $1,000,000 or
     annual income exceeding $200,000 or $300,000 together with his or her
     spouse). For transactions covered by this rule, the broker-dealer must make
     a special suitability determination for the purchaser and have received the
     purchaser's written consent to the transaction prior to sale. Consequently,
     the rule may affect the ability of broker-dealers to sell the Company's
     securities and may affect the ability of investors to sell their securities
     in the secondary market. The Commission has also adopted regulations which
     define a "penny stock" to be any equity security that has a market price
     (as defined) of less than $5.00 per share or an exercise price of less than
     $5.00 per share, subject to certain exceptions. For any transaction
     involving a penny stock, unless exempt, the regulations require the
     delivery, prior to the transaction, of a disclosure schedule prepared by
     the Commission relating to the penny stock market. The broker-dealer must
     also disclose the commissions payable to both the broker-dealer and the
     registered representative, current quotations for the securities and, if
     the broker-dealer is the sole market maker, the broker-dealer must disclose
     this fact and the broker-dealer's presumed control over the market.
     Finally, monthly statements must be sent disclosing recent price
     information for the penny stock in the account and information on the
     limited market in penny stocks.

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

(a)  NONE
(b)  NONE
(c)  NONE

Item 3. Defaults Upon Senior Securities

NONE

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

NONE

Item 5. Other Information

(a) NONE
(b) NONE

Item 6. Exhibits

Exhibit 31.1 - Certification pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, signed by William
Blakeley, President (Principal Executive Officer).

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

Exhibit 32.1 - Certification pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by William
Blakeley, President (Principal Executive Officer) and Robert Putnam, Interim
Accounting Officer (Principal Accounting Officer).


                                       23
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                 e.DIGITAL CORPORATION

Date:    August 14, 2006         By: /s/ ROBERT PUTNAM
                                     ----------------------------------------
                                         Robert Putnam, Interim Chief Accounting
                                         Officer (Principal Accounting and
                                         Financial Officer and duly authorized
                                         to sign on behalf of the Registrant)


                                       24