e.Digital Corporation comes courtesy of Dean F. (Who I think must work for the company or its investment bankers).  When I first did a blog on EDIG back a few months ago (read it Here), he sent me a sharply worded email basically telling me that I was an idiot and didn’t know a thing about EDIG.  He may be right about the “idiot” part, but I do know something about EDIG.

That something I know is that it is hard to get a read on EDIG.  They are, ostensibly, a manufacturer of flight entertainment systems for airlines around the world.  But what they are most known for is suing anyone and everyone.  The list of people that they are suing for infringing on several flash memory patents they own is quite impressive:

Canon, Kyocera, Nokia, Pentax, Panasonic, Ikegami, HTC, Coby Electronics, DXG, Roland, Lecia Camera, Marantz, Imation, Summit Global (DBA Polaroid), Sakar, TEAC (DBA Tascam), Vtech, Wolverine Data, and Samson Technologies (DBA Zoom)

The basis of these lawsuits is (taken from a recent press release) “e.Digital asserts that products made by the listed companies infringe the Company’s U.S. patent #5491774 (’774). The ’774 patent headlines e.Digital’s Flash-R patent portfolio that comprises important techniques in the utilization of flash memory technology in recording products. The accused products range from digital cameras and camcorders to voice recorders and mobile phones.”

What Dean F. claims is that these 19 are only some of the almost 170 companies that have been identified as infringing on EDIG’s patent.  I can only imagine their new marketing slogan: “eDigital – We’ll sue the pants off you!”

The question that I have is how is EDIG going to make a “real business” out of its products and the related patented flash technology.  IF you look at EDIG’s financials, you will notice wild swings in revenues.  The base flight entertainment business is nothing spectacular (down for 2009, it generated only $233K in the last Q reported).  No patent license revenue was booked in the last Q after $10.1 was booked in the previous fiscal year.  See what I mean?  Can anyone create a projection for this company?

Having got all the negative stuff out of my system, lets look at what positives I can find.  EDIG does appear to have a strong case against these other manufacturers if you can use the anecdotal evidence of its other court victories.  The wild card is how long these actions will take, the cost and expense of them and the potential award.  It appears from past cases that EDIG is angling for monetary damages and royalty income going forward.  I wish them luck.

The Inflight systems business I like.  I took my family to visit my Dad in October and we rented two units (Not EDIG’s, but similar) on an Alaska Airlines flight and really enjoyed them. (It kept my 4 young children occupied for a very long flight).  I don’t know if they can build a real business on just that product line….I am not sure they do, either.

Finally, the chart:

EDIG has a chart that is very attractive.  It is sitting on support at around 17 cents and could be preparing for “a leg up”.

EDIG is not a bad company….I don’t want Dean or my other members to get that impression from me. In fact, when I first blogged it, it was trading only around 10 cents.  It made a run all the way up to 22 cents (good job, Mr. Soup Man!) I just have a hard time getting overly comfortable with a stock with so many unknowns.

I believe that it might be a good trade….for the short term.  Long term with EDIG scares me.  The chart setup is good and with positive news, the stock could skyrocket.  The other thing that I pointed out in my previous blog was that their capital structure is bloated…..It is hard to get a lift with such a terrible structure.

I know that I will get an email from Dean reaffirming my idiocy, but that is o.k.  I can take it.