SECURITY AGREEMENT

THIS SECURITY AGREEMENT (this “ Agreement ”) is made and entered into as of March 23, 2007, by e.Digital Corporation, a Delaware corporation and e.Digital Corporation, a California corporation (collectively, “ Debtor ”) in favor of ASI Capital Corporation, a Nevada corporation (“ Secured Party ”).

1.   Security Interest . For a valuable consideration, the receipt and adequacy of which is hereby acknowledged, and to secure the payment and performance of the obligations hereinafter described, Debtor hereby conveys, transfers and assigns to Secured Party, and grants to Secured Party a security interest in, those assets of Debtor described in Exhibit A attached hereto (the “ Collateral ”). Debtor further agrees to execute such financing statements and to take whatever other actions are requested by Secured Party to perfect and continue Secured Party’s security interest in the Collateral. Upon request of Secured party, Debtor will deliver to Secured Party any and all of the documents evidencing or constituting the Collateral and Debtor will note Secured Party’s interest upon any and all chattel paper if not delivered to Secured Party for possession by Secured Party.

2.   Obligations Secured . This Agreement and the security interest created hereby are given for the purpose of securing: (a) payment of the indebtedness evidenced by that certain 18% Secured Promissory Notes, of even date herewith, in the aggregate principal amount of Seven Hundred Fifty Thousand Dollars ($750,000) payable by Debtor in favor of Secured Party (the “ Note ”) and (b) the performance of each agreement of Debtor contained in the Note and any and all amendments, modifications, renewals and/or extensions thereof.

3.   Representations and Warranties . Debtor represents, warrants and agrees that, except for liens currently held by Summit Financial Resources, L.P. which the Debtor believes have been paid and are of no effect: (a) Debtor now has and will continue to have title to the Collateral, free and clear of any liens, security interests, encumbrances, defenses or other claims except as set forth herein; (b) no financing statement covering the Collateral, or any part thereof, is on file in any public office, except in favor of Secured Party; (c) Debtor will execute all documents and take all such other actions(s) as Secured Party directs to create and perfect a security interest in the Collateral including, without limitation, delivery to Secured Party of ownership documents for the Collateral which evidence Secured Party’s lien against the Collateral; (d) Debtor will, at its sole cost and expense, defend any claims that may be made against the Collateral; (e) Debtor will not, without Secured Party’s prior written consent, transfer, sell, lease, encumber, conceal or otherwise dispose of the Collateral or any interest therein, other than sales of inventory for adequate consideration in the ordinary course of business; (f) the Collateral will not be used in violation of any applicable laws, rules or regulations; and (g) Debtor will pay and discharge all taxes and liens on the Collateral prior to delinquency.

4.   Secured Party’s Right to Cure . If Debtor shall fail to perform any obligation hereunder, Secured Party may, but shall not be obligated to, perform the same, and the cost thereof shall be payable by Debtor to Secured Party immediately upon demand, shall bear interest at the rate set forth in the Note, and shall be secured by this Agreement.

5.   Remedies . Upon the occurrence of an event of default under the Note or hereunder, all obligations secured hereby shall, at Secured Party’s option, immediately become due and payable without notice or demand, and Secured Party shall have in any jurisdiction where enforcement hereof is sought, in addition to all other rights and remedies which Secured Party may have under law, all rights and remedies of a secured party under the California Uniform Commercial Code and, in addition, the following rights and remedies all of which may be exercised with or without further notice to Debtor:

(a) to settle, compromise or release on terms acceptable to Secured Party, in whole or in part, any amounts owing on the Collateral;

(b) to enforce payment and prosecute any action or proceeding with respect to any and all of the Collateral;

(c) to extend the time of payment, make allowances and adjustments and issue credits in Secured Party’s name or in the name of Debtor;