By : JEFFREY DEAN AUGUST 12, 2009

What I like about EDIG is that they are profitable, growing TEN cent stock. The

company just issued a press release proudly announcing record revenues and a yearly profit for FY 2009 ending March 31, 2009. The booked $11.1 MM in revenues, a 99% increase over the previous fiscal year. Profits were an astounding $5.9 MM for the same period…and, the stock dropped like a rock. I found out why….the profits were not “in the ordinary course of business”, but rather patent enforcement awards from companies that infringed upon their patents. I do not know if that business model is sustainable.

What I don’t like about EDIG is their capital structure. They have an obscene number of shares outstanding and in float. All of the good news that they are putting out barely moves the small cap stock. In fact, once they issued their glowing PR about FY 2009 results, the stock dropped from 15 cents to 10 cents. I really enjoyed the reading the board bashers pound this stock. It seems that this penny stock is polarizing. It has a history of being pumped. In fact, it was a $25 stock almost a decade ago. Management has gorged for years in the public trough (i.e. stock issues, paying everybody in stock,etc…) and now very few trust the stock.

Just like I recommended with SPNG, they should drop a bomb in their capital structure. A buyback of a hundred million shares would help. It would only cost them $10 MM. The company actually has a decent balance sheet…some cash in the bank and no long-term debt. It has a retained loss of almost $80 million which should provide a buffer against taxes for a few years. But, their capital stucture stinks.

The small cap stock has been beat down of late and the indicators are a bit “muddy”. Stochastics are indicating that the stock is oversold (maybe we’ll get a bounce), the MACD is slightly bullish (although it is below the zero line and approaching the signal line) and the stock is in distribution. The stock has a 52 wk. range of .08 to .20. Not very impressive for a profitable company.

eDigital - Can I Dig it? I’m not sure. It is a typical penny stock and is extremely volatile and almost impossible to predict. The signs seem to point to a rally and with a decent balance sheet, the company should be around for a while. I didn’t pick up on the boards if they are a takeover candidate, but that might make sense. An acquirer wouldn’t care about their bloated capital structure. They would only care about EDIG’s patent and product portfolio.