1.) e.Digital Corporation (“EDIG”, “the company”) is a Delaware corporation that operates through its wholly-owned California corporation e.Digital Corporation.
2.) e.Digital Corporation is located at 13144 Evening Creek Drive South, San Diego, CA 92128.
3.) EDIG’s common stock trades on the National Association of Securities Dealers OTC Bulletin Board System under the ticker symbol EDIG.
4.) On or about June 28th, 1999, EDIG filed a Form 10KSB40 with the Securities and Exchange Commission (“Commission”) for the fiscal year ending March 31st, 1999, reporting the company’s 58,600 shares or “approximately” two and one half percent (2.5%) investment interest in JABRA Corporation (“JABRA”).
5.) According the aforementioned June 1999 filing, the company’s investment in JABRA is accounted for, using the cost method, at $nil.
6.) At the time of the filing date JABRA was a privately held California corporation located at 9171 Towne Centre Drive, Suite #500, San Diego, CA 92122.
7.) On or about May 22nd, 2000, JABRA announced that it had agreed to be acquired by GN Netcom for Forty-Million United States Dollars ($40,000,000) plus additional earn-out payments totaling a maximum of Thirty-Five Million United States Dollars ($35,000,000).
8.) GN Netcom is part of GN Great Nordic, a Danish-based group traded on the Copenhagen Stock Exchange, and located at Metalbuen 66, P.O. Box 201, 2750 Ballerup, Denmark.
9.) On or about June 27th, 2000 EDIG filed a Form 10KSB40 with the Commission for the fiscal year ending March 31st, 2000, which made no reference to the company’s previously reported investment interest in JABRA.
10.) In addition, the aforementioned June 2002 filing made no reference to a disposition of the company’s previously reported investment interest in JABRA.
11.) On or about August 25th, 2000, JABRA announced GN Netcom’s acquisition of JABRA was completed and finalized.
12.) The acquisition price was Forty-Million United States Dollars ($40,000,000) which was paid in the form of Two-Million Eighteen-Thousand Sixty (2,018,060) GN Great Nordic shares of “DKK 4 nominal value” and Three Hundred-Thousand United States Dollars ($300,000) in cash.
13.) In addition, the acquisition price also called for earn-out payments totaling a maximum of Thirty-Five Million United States Dollars ($35,000,000) primarily to be paid in GN Great Nordic treasury stock.
14.) On or about August 14th, 2001 EDIG filed a Form 10QSB with the Commission for the quarterly period ending July 30th, 2001, reporting a gain on the sale of investment totaling Thirty-Thousand One-Hundred Twenty Four United States Dollars ($30,124). However the filing failed to provide additional information respective to this gain.
15.) On or about June 28th, 2002 EDIG filed a Form 10K with the Commission for the fiscal year ending March 31st, 2002, reporting a gain on the sale of investment totaling Thirty-Thousand One-Hundred Twenty Four United States Dollars ($30,124).
16.) In the section of the aforementioned June 2002 filing titled “INDEX TO FINANCIAL STATEMENTS”, page F-7 titled “NOTES TO CONSOLIDATED FINANCIAL STATEMENTS”, item 6 titled “OTHER INCOME”, the company describes the Thirty-Thousand One-Hundred Twenty Four United States Dollars ($30,124) in proceeds as a “$30,124 gain from the sale of investments which had previously been written down to $nil”.
17.) Throughout the life of the company, the company’s investment interest in JABRA is the only investment the company has accounted for at a cost-basis of $nil, as filed with annual reports with the Commission.
18.) Some or all members of EDIG’s Officers and members of the Board of Directors have signed their name to some or all of company’s aforementioned filings with the Commission.
19.) e.Digital Corporation, its Officers, and Board of Directors have violated the antifraud provision of federal securities laws, specifically Section 13(b)(2) of the Securities Exchange Act of 1934 and Rules 13(b)(2)-1, 13(b)(2)-2 thereunder by:
a.) failing to keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect transactions and dispositions of the company’s investment interest in JABRA,
b.) failing to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that the company’s transactions in JABRA are recorded as necessary (I) to permit preparation of financial statements in conformity with generally accepted accounting principles or any other criteria applicable to such statements, and (II) to maintain accountability for the company’s investment interest in JABRA,
c.) failing to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that the recorded accountability for the company’s investment interest in JABRA is compared with the existing investment interest in JABRA at reasonable intervals and appropriate action is taken with respect to any differences.
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