<PAGE>   1

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

                                   FORM 10-QSB

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


                  FOR QUARTERLY PERIOD ENDED DECEMBER 31, 1998


                         Commission File Number 0-20734

                              e.DIGITAL CORPORATION
             (Exact name of registrant as specified in its charter)


<TABLE>
<CAPTION>
                    Delaware                                                None
<S>                                                               <C>
          (State or other jurisdiction of                         (I.R.S. Empl. Ident.No.)
          incorporation or organization)

13114 Evening Creek Drive South, San Diego, California                     92128
   (Address of principal executive offices)                              (Zip Code)
</TABLE>


                                 (619) 679-1504
              (Registrant's telephone number, including area code)

                           Norris Communications, Inc.
                                  (Former name)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ]

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:

Common Stock, par value $0.001                          83,741,764
               (Class)                       (Outstanding at February  11, 1999)

Transitional Small Business Disclosure Format (check one): YES [ ] NO [X ]



<PAGE>   2

e.DIGITAL CORPORATION



                                      INDEX


<TABLE>
<CAPTION>
                                                                                   Page
<S>                                                                                <C>
PART I. FINANCIAL INFORMATION

        Item 1. Financial Statements (unaudited):

               Consolidated Balance Sheets as of December 31, 1998 and
               and March 31, 1998                                                   3

               Consolidated Statements of Operations for the three and nine
               months ended December 31, 1998 and 1997                              4

               Consolidated Statements of Cash Flows for the nine
               months ended December 31, 1998 and 1997                              5

               Notes to Interim Consolidated Financial Statements                   6

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

PART II. OTHER INFORMATION

        Item 1. Legal Proceedings                                                  15
        Item 2. Changes in Securities                                              16
        Item 3. Defaults upon Senior Securities                                    16
        Item 4. Submission of Matters to a Vote of Security Holders                16
        Item 5. Other Information                                                  16
        Item 6. Exhibits and Reports on Form 8-K                                   16



SIGNATURES                                                                         17
</TABLE>



<PAGE>   3

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
e.Digital Corporation and subsidiary

                           CONSOLIDATED BALANCE SHEETS
                                    UNAUDITED

<TABLE>
<CAPTION>
                                                                                    DECEMBER 31, 1998       MARCH 31, 1998
                                                                                            $                     $
                                                                                       -----------           -----------
<S>                                                                                 <C>                     <C>
ASSETS
CURRENT
Cash and cash equivalents                                                                   20,849                62,370
Accounts receivable, net                                                                    94,599                54,659
Accounts receivable on research and development contracts                                  134,903               167,981
Inventory [note 4]                                                                          87,572               180,751
Prepaid expenses and other                                                                  12,289                10,240
                                                                                       -----------           -----------
TOTAL CURRENT ASSETS                                                                       350,212               476,000
                                                                                       -----------           -----------
Property and equipment, net                                                                 79,356               137,890
Other intangible assets, net of accumulated amortization of
   $12,001 and $9,764 respectively                                                          12,408                14,645
                                                                                       -----------           -----------
                                                                                            91,764               152,535
                                                                                       -----------           -----------
    TOTAL ASSETS                                                                           441,976               628,536
                                                                                       ===========           ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT
Accounts payable, trade                                                                    650,303               682,927
Other accounts payable and accrued liabilities                                             704,897               655,781
Current portion of term note payable [note 5]                                               48,334                48,334
15% Promissory notes, net of unamortized discount of $22,000 [note 5]                       78,000                    --
12% Convertible promissory notes, net of unamortized
   discount of $72,728  [notes 5 and 12]                                                   902,272                    --
                                                                                       -----------           -----------
Total current liabilities                                                                2,383,806             1,387,042
                                                                                       -----------           -----------
LONG-TERM [NOTE 5]
12% Secured  notes payable                                                                 450,000               500,000
Term note payable, net of current portion                                                   54,322                90,084
                                                                                       -----------           -----------
                                                                                           504,322               590,084
                                                                                       -----------           -----------
    TOTAL LIABILITIES                                                                    2,888,128             1,977,126
                                                                                       ===========           ===========
Commitments and contingencies [note 11]
PREFERRED STOCKHOLDERS' EQUITY [NOTE 6]
Series A, convertible voting preferred stock, $0.001 par value, redeemable at
$10 plus accrued and unpaid dividends at 8% cumulative,
100,000 shares authorized, 92,500 and 99,500 shares outstanding, respectively                   93                   100
Additional paid-in-capital                                                                 980,900             1,002,562
                                                                                       -----------           -----------
TOTAL PREFERRED STOCKHOLDERS' EQUITY                                                       980,993             1,002,662
                                                                                       -----------           -----------
COMMON STOCKHOLDERS' EQUITY (DEFICIENCY) [NOTE 7] Common stock, $0.001 par
value, authorized 200,000,000,
66,402,169 and 57,171,119 shares outstanding, respectively                                  66,402                57,171
Additional paid-in capital                                                              32,069,759            31,333,437
Prepaid warrants [note 8]                                                                  453,454               903,996
Contributed surplus                                                                      1,592,316             1,592,316
Accumulated deficit                                                                    (37,609,076)          (36,238,172)
                                                                                       -----------           -----------
TOTAL COMMON STOCKHOLDERS' EQUITY (DEFICIENCY)                                          (3,427,145)           (2,351,252)
                                                                                       -----------           -----------
   TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)                                 441,976               628,536
                                                                                       ===========           ===========
</TABLE>



See notes to interim consolidated financial statements



                                       3
<PAGE>   4

e.DIGITAL CORPORATION AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                    UNAUDITED


<TABLE>
<CAPTION>
                                                        Three months ended                 Nine months ended
                                                            December 31,                     December 31,
                                                      1998             1997               1998               1997
                                                        $               $                   $                  $
                                                   -----------       -----------       -----------       -----------
<S>                                                <C>               <C>               <C>               <C>
REVENUE:
   Product sales                                        80,323            60,224           154,218           330,338
   Development services                                 76,910           128,394           258,456           562,683
                                                   -----------       -----------       -----------       -----------
         Total revenues                                157,233           188,618           412,674           893,021
                                                   -----------       -----------       -----------       -----------

COST OF REVENUES:
   Cost of product sales                                56,819            58,280           127,132           301,062
   Cost of development services                        166,782           116,848           433,874           358,760
                                                   -----------       -----------       -----------       -----------
          Total cost of revenues                       223,601           175,128           561,006           659,822
                                                   -----------       -----------       -----------       -----------

Gross profit (loss)                                    (66,368)           13,490          (148,332)          233,199
                                                   -----------       -----------       -----------       -----------

OPERATING EXPENSES:
   Selling and administrative                          196,710           237,581           561,242           811,357
   Research and related expenditures                   141,079            99,232           433,568           203,631
                                                   -----------       -----------       -----------       -----------
          Total operating expenses                     337,789           336,814           994,810         1,014,988
                                                   -----------       -----------       -----------       -----------

Operating loss                                        (404,157)         (323,324)       (1,143,142)         (781,789)
                                                   -----------       -----------       -----------       -----------

OTHER INCOME (EXPENSE)
   Interest income                                         519             6,604             6,026             9,486
   Interest expense                                    (16,943)          (16,695)          (53,330)          (39,308)
   Non-cash interest [note 12]                         (28,586)               --          (140,075)               --
   Loss on disposal of property and equipment               --                --           (11,233)               --
   Other                                                    --                --           (29,150)          153,000
                                                   -----------       -----------       -----------       -----------
          Other income (expense)                       (45,010)          (10,091)         (227,762)          123,178
                                                   -----------       -----------       -----------       -----------

Loss before provision for income taxes                (449,167)         (333,415)       (1,370,904)         (658,612)
Provision for income taxes                                  --                --                --                --
                                                   -----------       -----------       -----------       -----------
Net loss                                              (449,167)         (333,415)       (1,370,904)         (658,612)
                                                   ===========       ===========       ===========       ===========

NET LOSS PER COMMON SHARE                                (0.01)            (0.01)            (0.02)            (0.02)
                                                   ===========       ===========       ===========       ===========

WEIGHTED AVERAGE COMMON SHARES                      65,213,902        56,119,927        61,456,038        44,823,993
                                                   ===========       ===========       ===========       ===========
</TABLE>



See notes to interim consolidated financial statements



                                       4
<PAGE>   5

e.DIGITAL CORPORATION AND SUBSIDIARY

                   CONSOLIDATED STATEMENTS OF CASH FLOWS
                                    UNAUDITED

<TABLE>
<CAPTION>
                                                                                           For the nine months ended
                                                                                                   December 31,
                                                                                           1998                 1997  
OPERATING ACTIVITIES                                                                        $                     $
                                                                                        ----------           ----------
<S>                                                                                     <C>                    <C>      
Net loss                                                                                (1,370,904)            (658,612)
Adjustments to reconcile net loss to net cash
     used by operating activities:
     Depreciation and amortization                                                          38,506               59,946
    (Gain) loss on disposal of property and equipment                                       11,233              (12,088)
     Services paid by issuance of common stock or warrants                                  30,000               42,708
     Non-cash interest expense                                                             140,075                   --
Changes in assets and liabilities:
     Accounts receivable                                                                   (39,940)             (69,858)
     Accounts receivable on research and development contracts                              33,078              (60,928)
     Inventory                                                                              93,179               65,095
     Prepaid expenses and other                                                             (2,049)             (11,849)
     Accounts payable, trade                                                               (32,624)             (84,472)
     Other accounts payable and accrued liabilities                                        (17,345)            (325,420)
     Advances on research and development contract                                              --             (174,341)
                                                                                        ----------           ----------
Cash (used in) operating activities                                                     (1,116,791)          (1,229,818)
                                                                                        ----------           ----------
INVESTING ACTIVITIES
Purchase of property and equipment                                                          (1,077)              (7,234)
Proceeds on disposal of property and equipment                                              12,109               80,654
                                                                                        ----------           ----------
Cash provided by investing activities                                                       11,032               73,420
                                                                                        ----------           ----------
FINANCING ACTIVITIES
Repayments under term note payable                                                         (35,762)             (35,000)
Proceeds from secured notes payable                                                             --              500,000
Proceeds from 15% promissory notes                                                         100,000              957,500
Proceeds from convertible promissory notes                                               1,000,000                   --
                                                                                        ----------           ----------
Cash provided by financing activities                                                    1,064,238            1,422,500
                                                                                        ----------           ----------
Net increase (decrease) in cash                                                            (41,521)             266,102
Cash and cash equivalents, beginning of period                                              62,370              176,158
                                                                                        ----------           ----------
Cash and cash equivalents, end of period                                                    20,849              442,260
                                                                                        ==========           ==========
SUPPLEMENTAL DISCLOSURES OF CASH INFORMATION: 
   Cash paid during the period for:
       Interest                                                                             53,329               39,308
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
   Conversion of secured notes payable to common stock                                      50,000                   --
   Common stock issued on conversion of prepaid warrants                                   450,542            2,372,509
   Common stock issued on conversion of Series A preferred stock                            74,665                   --
   Accounts payable and accruals paid by issuance of common stock                               --              420,885
   Services paid by issuance of common stock or warrants                                    30,000               42,708
   Settlement of accrued lease termination by issuance of term note                             --              182,633
   Stock dividends on Series A preferred stock                                              52,996                   --
   Common stock issued on conversion of promissory notes payable                            26,545                   --
</TABLE>



See notes to interim consolidated financial statements



                                       5
<PAGE>   6

                             e.DIGITAL CORPORATION
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
                                December 31, 1998

1. OPERATIONS
e.Digital Corporation, formerly Norris Communications, Inc., (the "Company") was
incorporated in the Province of British Columbia, Canada on February 11, 1988
and on November 22, 1994, changed its domicile from British Columbia to the
Yukon Territory, Canada. The Company further changed its domicile to Wyoming on
August 30, 1997 and on September 4, 1997 reincorporated into Delaware. The
Company is engaged through its wholly-owned subsidiary in developing and
exploiting advanced electronic product designs and technologies for the portable
computing, digital recording, mobile office and telecommunication markets.

2. BASIS OF PRESENTATION
The accompanying interim consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiary, based in San Diego, California.

The interim consolidated financial statements have been prepared 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. The
Company has incurred significant losses and negative cash flow from operations
in each of the last nine fiscal years and for the nine month period ended
December 31, 1998 and has an accumulated deficit of $37,609,076 at December 31,
1998. The Company's operational plan involves focusing on licensing and product
development on a contract basis and for the Company's own account. The Company's
ability to continue as a going concern is in doubt and is dependent upon
achieving a profitable level of operations, and if necessary, obtaining
additional financing.

These interim 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 interim consolidated
financial statements.

These interim consolidated financial statements have been prepared in accordance
with accounting principles generally accepted for interim financial information
and the instructions to Form 10-QSB. They do not include all information and
footnotes required by generally accepted accounting principles for complete
financial statements. The interim consolidated financial statements and notes
thereto should be read in conjunction with the Company's audited consolidated
financial statements and notes thereto for the fiscal year ended March 31, 1998.

The Company has implemented Statement of Financial Accounting Standards ("SFAS")
No. 128, "Earnings Per Share." SFAS No. 128 provides for the calculation of
"Basic" and "Diluted" earnings per share ("EPS"). Basic EPS includes no dilution
and is computed by dividing income available to Common Stockholders, after
deduction for cumulative unpaid dividends, by the weighted average number of
common shares outstanding for the period. Diluted EPS reflects the potential
dilution of securities that could share in the earnings of an entity, similar to
fully diluted earnings per share. The Company's losses for the periods presented
cause the inclusion of potential Common Stock instruments outstanding to be
antidilutive and, therefore, in accordance with SFAS No. 128, the Company is not
required to present a diluted EPS. Stock options, warrants, convertible
promissory notes payable, redeemable convertible preferred stock and prepaid
warrants exercisable into 45,957,934 shares of Common Stock were outstanding as
at December 31, 1998. These securities were not included in the computation of
diluted EPS because of the losses, but could potentially dilute EPS in future
years.

In the opinion of management, the interim consolidated financial statements
reflect all adjustments of a normal recurring nature necessary for a fair
statement of the results for interim periods. Operating results for the nine
month period ended December 31, 1998 are not necessarily indicative of the
results that may be expected for the fiscal year ending March 31, 1999.




                                       6
<PAGE>   7

                              e.DIGITAL CORPORATION
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
                                December 31, 1998

3. RECENT ACCOUNTING PRONOUNCEMENTS
Effective April 1, 1998, the Company adopted the Financial Accounting Standards
Board SFAS No. 130, "Reporting Comprehensive Income". This statement established
standards for reporting and display of comprehensive income and its components
(revenue, expenses, gains and losses) in a full set of general-purpose financial
statements. Reclassification of financial statements for earlier periods
provided for comparative purposes are required. The adoption of this statement
had no material impact on the Company's financial condition or results of
operation as of December 31, 1998 and for the three and nine-month periods ended
December 31, 1998 and 1997. Total comprehensive income did not differ from the
Company's net loss for the three and nine months ended December 31, 1998 or
1997.

The Company has also adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", which supersedes Statement of Financial
Accounting Standards No. 14, "Financial Reporting for Segments of a Business
Enterprise." SFAS 131 establishes standards for the way that public companies
report information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in interim
financial statements issued to the public. It also establishes standards for
disclosures regarding products and services, geographic areas and major
customers. SFAS 131 defines operating segments as components of a company about
which separate financial information is available that is evaluated regularly by
the chief operating decision maker in deciding how to allocate resources and in
assessing performance. Quarterly disclosures are not required in this first year
of adoption. Management believes that SFAS 131 will not have a significant
impact on the Company's disclosure of segment information in the future.

The Financial Accounting Standards Board ("FASB") has issued SFAS No. 132,
"Employers' Disclosure about Pensions and Other Post-retirement Benefits" and
SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 132 standardizes the disclosure requirements for pensions and other
post-retirement benefits and requires additional information on change in the
benefit obligations and fair values of plan assets that will facilitate
financial analysis. SFAS No. 133 requires companies to record derivatives on the
balance sheet as assets or liabilities, measured at fair market value. Gains or
losses resulting from changes in the values of those derivatives are accounted
for depending on the use of the derivative and whether it qualifies for hedge
accounting. The key criterion for hedge accounting is that the hedging
relationship must be highly effective in achieving offsetting changes in fair
value or cash flows.

SFAS No. 132 is effective for years beginning after December 15, 1997, and
requires comparative information for earlier years to be restated, unless such
information is not readily available. SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. Management believes that
the adoption of SFAS No. 132 and SFAS No. 133 will have no material effect on
its financial statements.

4. INVENTORY
Inventory of raw material and finished goods is recorded at the lower of cost
and net realizable value. Cost is determined on a first-in, first-out basis.
Inventories consist of the following:

<TABLE>
<CAPTION>
                   December 31, 1998   March 31, 1998
                   -----------------   --------------
<S>                <C>                 <C>     
Raw material            $ 82,932          $109,960
Finished goods             4,640            70,791
                        --------          --------
                        $ 87,572          $180,751
                        ========          ========
</TABLE>

5. CONVERTIBLE, SECURED AND TERM DEBT
15% Promissory Notes
In December 1998, the Company issued for cash $100,000 of 15% Promissory Notes
due December 31, 1999. In connection with the issuance the Company granted the
noteholders warrants exercisable into 1,000,000 shares of Common Stock at $0.10
per share until June 30, 2000. The Company calculated the fair value of the
warrants at issuance and is amortizing this amount as non-cash interest expense
over the term of the notes.

In January 1999, the Company issued for cash an additional $400,000 of 15%
Promissory Notes and warrants on 4,000,000 shares of Common Stock on the same
terms.



                                       7
<PAGE>   8

                              e.DIGITAL CORPORATION
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
                                December 31, 1998

12% Convertible Promissory Notes
In June 1998, the Company completed the sale of $1,000,000 of 12% Convertible
Promissory Notes with Limited Guaranty ("CP Notes") due May 15, 1999. The CP
Notes and interest are convertible into shares of Common Stock at $0.0875 per
share, subject to certain future adjustments. During the third fiscal quarter of
1999, a CP Note and interest in the amount of $26,545 was converted into 303,373
shares of Common Stock. At December 31, 1998 the remaining CP Notes would have
been convertible into approximately 11.1 million shares of Common Stock. See
Note 13.

In connection with the issuance of the CP Notes, the Company granted two
directors an aggregate of 2,000,000 warrants exercisable at $0.10 per share for
providing the noteholders certain guarantees and inducements. The Company
calculated the fair value of the warrants at issuance and is amortizing this
amount as non-cash interest expense over the term of the CP Notes.

12% Secured Notes Payable
In June 1997, the Company issued $500,000 of secured notes due September 30,
1999 with interest at 12%, payable quarterly in cash. The notes are
collateralized by the Company's issued and pending patents and FlashBack
technology. The notes are convertible into shares of Common Stock at a
conversion price of $0.0875 per share, subject to certain future adjustments.
Upon conversion, the note holders receive a stock purchase warrant for the
number of converted shares exercisable at the conversion price for a period of
nine years. At December 31, 1998, the $450,000 balance of these notes would have
been convertible into approximately 5.1 million shares of Common Stock with
warrants issuable on conversion and exercisable into a like number of shares at
$0.0875 per share. See Note 13.

Term Note Payable
A 10% unsecured term note was issued effective December 31, 1997 in connection
with the settlement of accrued balances owing related to the Company's former
facility lease. The Company made a principal payment of $25,000 in October 1997.
The note requires monthly payments of principal and interest of $5,000 for 38
months through November 1, 2000. At December 31, 1998, the note obligation was
$102,656 of which $48,334 was the current portion.

6. REDEEMABLE PREFERRED STOCK
The 92,500 shares of Series A Preferred Stock (the "Series A Stock") outstanding
at December 31, 1998 are convertible into shares of Common Stock computed by
dividing $10.00 plus accrued and unpaid dividends at 8% per annum by $0.0875,
subject to certain future adjustments. At December 31, 1998, the Series A Stock
was convertible into approximately 11.6 million shares of Common Stock. The
Company is required to redeem the Series A Stock on September 1, 2000 and upon
the occurrence of certain other events. See Note 7 for Preferred Stock
transactions and Note 13 for Subsequent Conversions.



                                       8
<PAGE>   9

                              e.DIGITAL CORPORATION
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
                                December 31, 1998

7. COMMON STOCKHOLDERS' EQUITY (DEFICIENCY)
The following table summarizes Common Stockholders' equity transactions during 
the nine month period ended December 31, 1998:

<TABLE>
<CAPTION>
                                                             Additional
                                                               paid-in      Prepaid      Contributed   Accumulated
                                      Shares      Amount       capital      Warrants       Surplus        Deficit          Total
                                      ------      ------       -------      --------       -------        -------          -----
<S>                                 <C>          <C>        <C>             <C>          <C>           <C>             <C>          
Balance, March 31, 1998             57,171,119   $ 57,171   $ 31,333,437    $ 903,996    $ 1,592,316   $(36,238,172)   $ (2,351,252)
Stock issued on exercise of
   prepaid warrants                  7,502,930      7,503        443,039     (450,542)            --             --              --
Stock issued on conversion of
   secured notes payable               571,428        572         49,428           --             --             --          50,000
Non-cash interest on convertible
   notes                                    --         --         44,797           --             --             --          44,797
Value assigned to 2,000,000
   warrants granted in connection
   with issuance of convertible
   promissory notes                         --         --        100,000           --             --             --         100,000
Value assigned to 571,489
   warrants issued for services             --         --         30,000           --             --             --          30,000
Stock issued on conversion of
   promissory note                     303,373        303         26,242           --             --             --          26,545
Stock issued on conversion of
   7,000 shares of Series A
   Preferred Stock                     853,319        853         73,812           --             --             --          74,665
Dividends on Series A Preferred
  Stock                                     --         --        (52,996)          --             --             --         (52,996)
Value assigned to 1,000,000
  warrants granted in connection
  with issuance of promissory notes         --         --         22,000           --             --             --          22,000
Net loss                                    --         --             --           --             --     (1,370,904)     (1,370,904)
                                    ----------   --------   ------------    ---------    -----------   ------------    ------------ 
Balance, December 31, 1998          66,402,169   $ 66,402   $ 32,069,759    $ 453,454    $ 1,592,316   $(37,609,076)   $ (3,427,145)
                                    ==========   ========   ============    =========    ===========   ============    ============ 
</TABLE>

8. PREPAID WARRANTS
At December 31, 1998, the Company had Prepaid Warrants outstanding of $453,454,
net of offering costs. The terms of the Prepaid Warrants, as amended, provide
that the face amount of the warrants or $508,108 is exercisable, without further
cash payment, into shares of Common Stock of the Company at a fixed exercise
price at $0.0875 per share, subject to certain future adjustments. The number of
shares issuable is increased for certain registration penalty shares and by 7%
per annum. At December 31, 1998, the Prepaid Warrants would have been
convertible into approximately 7.6 million shares of Common Stock. The
expiration date of the Prepaid Warrants is January 2000 at which time they
convert to shares of Common Stock. See Note 13.



                                       9
<PAGE>   10

                              e.DIGITAL CORPORATION
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
                                December 31, 1998


9. WARRANTS AND OPTIONS
At December 31, 1998, other warrants, in addition to the Prepaid Warrants, were
outstanding/exercisable into the following listed shares. Also see Note 5 for
additional warrants that may become issuable upon conversion of secured notes
payable and Note 13 for subsequent warrants exercised.

<TABLE>
<CAPTION>
                       Number of         Exercise Price
Description              Shares              U.S.$         Expiration Date
-----------              ------              -----         ---------------
<S>                    <C>               <C>               <C> 
Warrants                 33,750               4.00             June 1999
Warrants                450,000               1.75             July 1999
Warrants                 82,100               4.00           August 1999
Warrants                 20,570               0.25         February 2000
Warrants                 25,000               0.25            March 2000
Warrants              1,000,000               0.10         June 30, 2000
Warrants                 27,500               0.25            March 2001
Warrants                571,429             0.0875             June 2001
Warrants                571,428             0.0875             July 2001
Warrants                401,924               0.25             July 2001
Warrants                400,000               0.25           August 2001
Warrants                150,000            0.15625          October 2001
Warrants              2,000,000               0.10             June 2003
Warrants                128,067               0.25          October 2005
                      ---------               ----                  ----
Total                 5,861,768
                      =========
</TABLE>

The following table summarizes stock option activity for the period:

<TABLE>
<CAPTION>
                                           Number of        Weighted Average
                                             Shares          Exercise Price
<S>                                        <C>              <C>   
Outstanding at March 31, 1998              2,735,340           $ 0.24
Granted                                    1,852,660           $ 0.0875
Exercised                                         --
Expired                                      (44,000)
Canceled                                     (50,000)
                                           ---------
Outstanding at December 31, 1998           4,494,000           $ 0.15
                                           =========
Exercisable at December 31, 1998           3,624,158           $ 0.166
                                           =========
</TABLE>

Options outstanding are exercisable at prices ranging from $0.0875 to $3.65 and
expire over the period from 1999 to 2003 with an average life of 4.1 years.

10. INCOME TAXES
The Company has not provided a tax provision for the current period, due to
current losses. The Company has U.S. net operating loss carryforwards of
approximately $27,386,000 and $11,980,000 for federal and state tax purposes,
respectively, subject to certain limitations.

11. CONTINGENT LIABILITY
The Company has been notified by the Internal Revenue Service of a potential tax
liability of approximately $450,000 plus interest relating to the imposition of
withholding taxes on imputed interest from purported loans from the Company's
former Canadian parent company to operating subsidiaries. This matter is in the
early stages and the Company has engaged legal counsel to vigorously contest
this proposed tax liability and believes it has a number of valid defenses,
including that the purported loans were capital contributions. The Company also
believes that should the liability ultimately be sustained through 



                                       10
<PAGE>   11

                              e.DIGITAL CORPORATION
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
                                December 31, 1998

various appeals that the former Canadian parent company may have claims for
refunds of such withheld taxes if imputed from the subsidiaries.

12. ACCOUNTING FOR CONVERTIBLE SECURITIES AT A DISCOUNT
The position of the Securities and Exchange Commission on convertible preferred
stock and convertible debt that are in the money at the time of issuance
requires recording the discount as a non-cash dividend or interest. The imputed
dividend or interest is recognized beginning with the issuance of the security
to the first date that conversion can occur and is adjusted for certain future
changes. The CP Notes (note 5) issued in June 1998 were convertible at a
discount at the time of issuance. Therefore, the Company recorded $44,797 as
imputed non-cash interest at issuance in the first fiscal quarter.

13. SUBSEQUENT EVENTS
On January 12, 1999, the stockholders approved an increase in authorized common
shares from 120 million shares to 200 millions shares. On January 13, 1999, the
Company filed an amendment to its Certificate of Incorporation to effect the
increase in authorized common shares.

Subsequent to December 31, 1998 and through February 11, 1999, the Company
issued 2,211,442 shares of Common Stock upon the conversion of $145,599 face
value of Prepaid warrants (see Note 8). The Company issued 5,067,143 shares of
Common Stock upon the conversion of 40,000 shares of Series A Stock (see Note
6). The Company also issued 5,103,869 shares of Common Stock upon the conversion
of CP Notes in the principal amount of $413,000 plus related accrued interest
and 4,285,713 shares of Common Stock upon the conversion of 12% secured notes in
the principal amount of $375,000 (see Note 5). The Company also received cash
proceeds of $58,750 upon the exercise of warrants on 671,428 shares of Common
Stock (see Note 9).



                                       11
<PAGE>   12

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-KSB FOR THE
YEAR ENDED MARCH 31, 1998.

GENERAL
The Company has completed the transition from a manufacturing and sales
organization to an OEM (Original Equipment Manufacturer) provider of technology,
product development services, and technology licensing. The Company, as a
consequence, anticipates that the majority of its future revenues will be from
licenses, royalty fees, and private label agreements for products employing the
Company's MicroOS(TM) technology and from contract development services for and
sales to OEMs of custom digital products.

The Company recently announced $3 million of initial production orders from
Lanier Worldwide, Inc. ("Lanier") resulting from a January 1997 development and
supply agreement (the "Lanier Agreement"). The Company has designed, developed
and intends to supply, through a subcontractor, a new digital voice recorder and
computer docking station targeted for the medical industry. Management
estimates, but there can be no assurance that initial shipments pursuant to
these orders may commence in the fourth quarter ending March 31, 1999. Under the
terms of the Lanier Agreement, the Company is receiving NRE (non-recurring
engineering expenses), upon the satisfaction of certain milestones. The Lanier
Agreement contemplates that the Company will provide Lanier with manufactured
product to be sold by Lanier's sales force worldwide. From inception through
December 31, 1998 in connection therewith, the Company had received NRE of
approximately $649,000. The Lanier Agreement, as amended, is for an initial term
terminating December 2001. The quantity of product to be purchased and sold by
Lanier is to be determined by Lanier according to periodic forecast reports
submitted to the Company. The initial $3 million order is for the first five
months of such forecast.

The Company has also entered into a development agreement with Intel Corporation
("Intel") to design and develop a digital voice recorder. Under the agreement
Intel is paying non-recurring engineering fees for design and development of
prototypes.

The Company is actively pursuing licensing, private label, and OEM opportunities
in an effort to penetrate the digital sound recording and playback market.

The Company has incurred operating losses in each of the last three fiscal years
and these losses have been material. The Company incurred an operating loss of
$8.7 million in fiscal 1997 (including a restructuring charge of $2.2 million)
and $2.7 million in fiscal 1998 (including an inventory write-off of $1.3
million). The Company has reduced the level of its monthly cash operating costs
to approximately $120,000 per month. However, the Company may increase
expenditure levels in future periods to support its new MicroOS Audio Technology
and support OEM customers. Accordingly, the Company's losses are expected to
continue until such time as the Company is able to obtain supply, licensing,
royalty and development revenues sufficient to cover fixed costs of operations.
The Company continues to be subject to the risks normally associated with any
new business activity, including unforeseeable expenses, delays and
complications. Accordingly, there is no assurance the Company can or will report
operating profits in the future.

Management is focused on OEM licensing with respect to the MicroOS file system
and contract development of private label and custom-designed products for
computers, dictation systems, and computer peripherals and telecommunication
equipment. Revenues from licensing, royalties and development services, and
future product supply arrangements, if any, are expected to be subject to
significant month to month variability resulting from the limited market
penetration and license activity to date, the timing and delays associated with
OEM new product introductions and the seasonal nature of demand for consumer
electronic products. Development and OEM contracts may be delayed or terminated
by customers and are subject to a number of factors beyond the Company's
control. The termination of the Lanier Agreement would have a material adverse
effect on operations. The markets for consumer electronic products are subject
to rapidly changing customer tastes and a high level of competition. Demand for
the Company's products is expected to be influenced by OEM market success,
technological developments and general economic conditions. Because these
factors can change rapidly, customer demand for the Company's technology can
also shift quickly. The Company may not be able to respond to technical
developments by competitors because of the time required and risks involved in
the development or introduction of new or improved technology and due to limited
financial resources. 



                                       12
<PAGE>   13

RESULTS OF OPERATIONS
For the first nine months of fiscal 1999, the Company reported revenues of
$412,674, a 54% decrease from revenues of $893,021 for the first nine months of
fiscal 1998. Three customers accounted for 95% of fiscal 1999's first nine
months of revenues and two customers accounted for 75% of total revenue in the
first nine months of fiscal 1998. Any loss of a customer could have a material
adverse impact on the Company.

Revenue for the first nine months of fiscal 1999 included $154,218 of product
sales to OEMs versus $330,338 for the prior comparable period. Product sales are
less in the current period, as the prior year included sales to Sanyo under an
arrangement which has since been discontinued. Product sales for the three
months ended December 31, 1998 were $80,323 compared to the prior year's third
quarter total of $60,224, the increase is primarily due from the shipment of an
Adam Lab order. The Company does not anticipate significant product sales in
future periods until the Company can successfully produce products under the
Lanier Agreement, currently scheduled for production commencing in the fourth
fiscal quarter (ending March 31, 1999).

The Company's development arrangements are designed to produce limited current
revenues while creating proprietary OEM products to be sold to OEM customers or
to be produced under long-term license or royalty arrangements. Development
service revenue of $258,456 for the nine months ended December 31, 1998 are less
than the $562,683 for the prior year's first nine months primarily due to the
Company being in the final stage of the Lanier Agreement which accounted for
substantially all development revenues in the prior period. Development services
for the third fiscal 1999 quarter were $76,910 compared to $128,394 for the
prior year's third quarter. The decrease is consistent with the reduction in
Lanier activity. Third quarter fiscal 1999 revenue included $39,096 recognized
under the Intel development agreement.

For the nine months ended December 31, 1998, the Company reported a gross loss
of $148,332 as compared to a gross profit of $233,199 for the first nine months
of fiscal 1998. Cost of sales consisted of $127,132 of product costs and
$433,874 of contract services consisting mostly of research and development
labor being funded in part by the Lanier and Intel development agreements. The
Company has devoted additional resources over a longer than originally estimated
time period to complete the Lanier development without corresponding increases
in development revenues. This has produced the current period gross loss.
Although the Company does not anticipate any significant future contract losses,
there can be no assurance the Company can attain positive gross margins in the
future. Due to the same factors, the gross loss for the three months ended
December 31, 1998 was $66,368, compared to a gross profit of $13,490 for the
prior comparable period.

Total operating expenses (consisting of research and related expenditures and
selling and administrative expenses) for the nine months ended December 31,
1998, were $994,810, as compared to $1,014,988 for the nine months ended
December 31, 1997. Selling and administrative costs aggregated $561,242 in the
first nine months of fiscal 1999 compared to $811,357 in the prior period. The
$250,115 reduction was comprised primarily of a $65,319 decrease in compensation
and related cost, a $53,571 decrease in depreciation, amortization and business
property tax, and a $110,788 reduction in occupancy related costs. The Company
continues its efforts to control operating costs. For the third fiscal 1999
quarter, total operating expenses were $337,789 comparable to $336,814 for the
prior year's third quarter.

Research and related expenditures for the nine months ended December 31, 1998
were $433,568, as compared to $203,631, for the nine months ended December 31,
1997. An aggregate of $433,874 of development costs were incurred for contract
development work during the nine months ended December 31, 1998 and are included
in cost of revenues. Research and development costs are subject to significant
quarterly variations depending on the use of outside services, the assignment of
engineers to development projects and the availability of financial resources.
Research related expenditures for the third fiscal 1999 quarter were $141,079, a
$41,847 increase from the comparable third quarter in the prior year. The
increase can be attributed to expanded engineering activities associated with
the development of technology.

The Company reported an operating loss of $1,143,142 for the nine months ended
December 31, 1998, as compared to an operating loss of $781,789 for the nine
months ended December 31, 1997. The operating loss for the third quarter of
fiscal 1999 was $404,157 compared to $323,324 in the third quarter of the prior
year. The increase in operating losses in the current fiscal year are directly
attributable to the gross losses from development activities. Management
believes, but there can be no assurance, that investments in OEM developments
with supply or royalty provisions will provide positive margins in future
periods. The timing and amount of product sales and the recognition of contract
service revenues impact the Company's operating losses. Accordingly, there is
substantial uncertainty about future operating results and the results for the
first nine months are not necessarily indicative of operating results for future
periods or the fiscal year.



                                       13
<PAGE>   14

The Company's cash interest expense for the nine months ended December 31, 1998
was $53,329, an increase from the $39,308 for the prior period resulting from
the interest bearing debt outstanding during fiscal 1999. The Company also
incurred during the first quarter $44,797 as a one time non-cash interest
expense on convertible promissory notes convertible at a discount and recognized
during the second quarter $27,272 as non-cash interest from the amortization of
note discount.

The Company reported a net loss for the first nine months of the current fiscal
year of $1,370,904 compared to a net loss of $658,612 for the prior year's first
nine months.

LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, the Company had a working capital deficit of $2,033,593
compared to a working capital deficit of $911,042 at March 31, 1998. The Company
had approximately $87,500 of working capital invested in inventories at December
31, 1998. The decrease in working capital was a result of the Company's
continuing losses that consumed working capital during the period.

In June 1998, the Company completed the sale of $1,000,000 of 12% Convertible
Promissory Notes with Limited Guaranty due May 15, 1999 and in December 1998
sold $100,000 of 15% Promissory Notes. The proceeds are being applied for
continued operating capital. In January 1999 the Company sold an additional
$400,000 of notes.

For the nine months ended December 31, 1998, net cash decreased by $41,521. Cash
used in operating activities was $1,116,791. Major components using cash were a
net loss of $1,370,904 reduced by $38,506 of aggregate depreciation and
amortization, $11,233 of loss on disposal of property and equipment, $30,000 for
services paid by issuance of warrants and $140,075 of non-cash interest, or a
net loss use of cash of $1,151,089. The major change in assets and liabilities
providing cash from operating activities was a reduction in inventory of $93,179
and a reduction in accounts receivable on research and development contract of
$33,078. The major changes in assets and liabilities using operating cash was a
reduction in accounts payable trade of $32,624 and an increase in accounts
receivable of $39,940.

Other than cash on hand (including the January note sale) and accounts
receivable, the Company has no material unused sources of liquidity at this
time. Based on the Company's cash position assuming (i) continuation of existing
OEM development arrangements, (ii) currently planned expenditures and level of
operation, (iii) no new product sales or new development agreements; the Company
estimates it will require additional capital within the next twelve months to
meet its debts as they become due and to continue as a going concern. Given such
assumptions, the Company estimates that projected working capital requirements
will require a minimum of an additional $500,000 to continue operating for the
next twelve months. Management estimates that margins from supplying product
under the Lanier supply agreement may provide this requirement assuming
shipments commence in the fourth quarter. However actual results could differ
significantly from management plans. The actual future margins to be realized,
if any, and the timing of shipments and the amount and quantities of Lanier
orders and reorders are subject to many factors and risks, many outside the
control of the Company.

The Company's OEM and licensing business may also be able to contribute
additional funding required depending on the success of OEM and licensing
activities, however there can be no assurance thereof. Should additional funds
not be available, the Company may be required to curtail or scale back staffing
or operations and may not be able to meet its obligations as due. There can be
no assurance that additional funding will be available or on what terms.
Potential sources of such funds include exercise of outstanding warrants and
options, loans from shareholders or other debt financing or additional equity
offerings.

The Company may, from time to time, seek additional funds through lines of
credit, public or private debt or equity financing. The Company estimates that
it will require additional capital to finance future developments and
improvements to its technology. There can be no assurances that additional
capital will be available when needed. Any future financings may also be
dilutive to existing shareholders.

FUTURE COMMITMENTS AND FINANCIAL RESOURCES
The Company has an obligation and agreement with Comdisco, Inc. providing for
future payments of approximately $515,000 from time to time based on agreed upon
percentages of future equity raised. Also see Note 11 to the accompanying
interim statements.



                                       14
<PAGE>   15

The Company expects to commence production in early 1999 on the Lanier products.
Management believes it has negotiated a third party contract manufacturing
arrangement to minimize the working capital funds required for the production of
Lanier orders. The Company is subject to the risk that should this arrangement
be modified or not produce the desired results, that it would be required to
supply substantial working capital for the production of the Lanier orders. The
Company will be relying on a third party manufacturer for production of the
Lanier products and will therefore be subject to the substantial risks
associated with using a sole supplier.

The Company's plans for its MicroOS Audio(TM) technology are to continue to
develop the technology and seek OEM partnerships to exploit the technology. The
Company may require additional funds to continue development of this and other
technologies and the extent of such requirements is not presently determinable
by management.

If, in the future, operations of the Company increase significantly, the Company
may require additional funds. The Company might also require additional capital
to finance future developments, acquisitions or expansion of facilities. The
Company currently has no plans, arrangements or understandings regarding any
acquisitions.

YEAR 2000 COMPLIANCE
The Company is aware of the issues associated with the programming code in
existing computer systems as the Year 2000 approaches. The "Year 2000" problem
is concerned with whether computer systems will properly recognize date
sensitive information when the year changes to 2000. Systems that do not
properly recognize such information could generate erroneous data or cause a
system to fail. The Year 2000 problem is pervasive and complex as the computer
operation of virtually every company will be affected in some way.

The Company, like most owners of computer software, will be required to modify
significant portions of its software so that it will function properly in the
Year 2000. Preliminary estimates of the total costs to be incurred by the
Company to resolve this problem range from $10,000 to $20,000. Maintenance or
modification costs will be expensed as incurred, while the costs of new software
will be capitalized and amortized over the software's useful life.

Since the Company mainly uses third party "off-the-shelf" software, it does not
anticipate a problem in resolving the Year 2000 problem in a timely manner. The
Company is currently taking steps to ensure that its computer systems and
services will continue to operate on and after January 1, 2000. However, there
can be no assurance that Year 2000 problems will not occur with respect to the
Company's computer systems. Furthermore, the Year 2000 problem may impact other
entities with which the Company transacts business, and the Company cannot
predict the effect of the Year 2000 problem on such entities or the resulting
effect on the Company. As a result, if preventative and/or corrective actions by
the Company and those the Company does business with are not made in a timely
manner, the Year 2000 issue could have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
has not yet developed a contingency plan to operate in the event that any
noncompliant critical systems are not remedied by January 1, 2000, but the
Company intends to develop such a plan in the near future.

BUSINESS RISKS
This report contains a number of forward-looking statements that reflect the
Company's current views with respect to future events and financial performance.
These forward-looking statements are subject to certain risks and uncertainties
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 and substantial
business risk factors described above and in the Company's Annual Report on Form
10-KSB for the year ended March 31, 1998 and not to place undue reliance on the
forward-looking statements contained herein, which speak only as of the date
hereof. The Company undertakes no obligation to publicly revise these
forward-looking statements, to reflect events or circumstances that may arise
after the date hereof.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is involved in routine litigation incidental to the conduct of its
business. There are currently no material pending legal proceedings to which the
Company is a party or to which any of its property is subject.



                                       15
<PAGE>   16

ITEM 2. CHANGES IN SECURITIES

(a)     On January 12, 1999, the common stockholders approved an increase in
        authorized common shares from 120 million common shares to 200 million
        common shares. On January 13, 1999, the Company filed an amendment to
        its Certificate of Incorporation to effect the increase in authorized
        common shares. The effect of this amendment was to provide sufficient
        authorized shares for future issuance pursuant to the 1994 Stock Option
        Plan and for other corporate purposes from time-to-time. The amendment
        made no other modifications to the rights of common stockholders.

(b)     NONE

(c)     The following is a description of the equity securities sold by the
        Company during the third fiscal quarter ended December 31, 1998 that
        were not registered under the Securities Act:

        In December 1998, the Company sold for cash $100,000 of 15% Promissory
        Notes ("Notes") due December 31, 1999 to three accredited investors. The
        Notes are not convertible. In connection with the sale the Company
        issued the Noteholders warrants exercisable into 1,000,000 shares of
        Common Stock at $0.10 per share until June 30, 2000. These securities
        were offered and sold without registration under the Act, in reliance
        upon the exemption provided by Regulation D or Regulation S thereunder
        and an appropriate legend was placed on the Notes and the Warrants. The
        securities were sold by the Company without an underwriter and no
        commission was paid.

        In January 1999, the Company sold an additional $400,000 of the Notes
        and Warrants to one accredited investor on the same terms. The warrant
        issued is exercisable into 4,000,000 shares of Common Stock on the same
        terms.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

NONE

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

NONE

ITEM 5. OTHER INFORMATION

NONE

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

Exhibits:

        3.1.2   Certificate of Amendment of Certificate of Incorporation of
                Norris Communications Inc. filed with the State of Delaware on
                January 13, 1999.

        4.9     Form of 15% Promissory Note due December 31, 1999 for an
                aggregate of $500,000.

        4.10    Form of Warrant Exercisable into an aggregate of 5,000,000
                shares of Common Stock at $0.10 per share until June 30, 2000.

        27      Financial Data Schedule



                                       16
<PAGE>   17

                                   SIGNATURES

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

                                           e.DIGITAL CORPORATION


Date:   February 12, 1999                  By:  /s/RENEE WARDEN
                                                --------------------------------
                                                 Renee Warden
                                                 Controller
                                                 (Principal Financial and
                                                 Accounting Officer and duly
                                                 authorized to sign on behalf of
                                                 the Registrant)



                                       17