Supplied by stokesart
Reply To: None Monday, 25 Oct 1999 at 6:13 PM EDT
Post # of 86746
EDIG response to The-Advisor.com
FYI, this is the response to the article that appeared today on
"The-Insider.com".
Wendy Ravenel
-------------------------------------------------------------
October 25, 1999
Michael D. Porcelain
The-Adviser.com
Questions@The-Adviser.com
Dear Mr. Porcelain:
We are writing in response to your article titled "E-Digital - The Next
Walkman", published today on The-Adviser.com. We understand that your
site
does not guarantee the accuracy or completeness of its material, but we
feel the need to address a number of half-truths and errors included in
your article about e.Digital Corporation, and hope that in some way
this
information can be conveyed to your readers.
First, we would like to clarify e.Digital's business model. It is
incorrect to label the company as "The Next Walkman". We have the first
pure software flash file management system. We are also a company that
offers an engineering partnership for the world's leading electronics
companies to link portable digital devices to PCs and the Internet. Our
engineering services range from the licensing of e.Digital's patented
MicroOST file management system to custom software and hardware
development, design and manufacturing services.
In the first paragraph you state that "the stock has increased from
$.10 to
$2.50." but you include no time frame for the change, nor do you
indicate
why you selected those numbers as having any special significance. EDIG
is
currently trading between $1.41 and $1.44.
A note in the margin asks, "Agreements with Sony?", yet this is not
addressed in the copy. e.Digital has not announced or published any
information indicating that it has agreements or formal relationships
with
Sony. The margin note only serves to spread a rumor, and does no good
for
your readers, your investors, your site, or our company.
The second paragraph characterizes e.Digital as being "involved in
flash
memory". This is only half true. It would be more correct to say that
the
company is involved in the file management of flash-memory-based
portable
devices. Our patented MicroOS technology allows portable products to
connect to PC's and the Internet, to download data and manage that data
on
the portable device and record, play, insert, edit, and/or delete the
data/voice/music using simple commands.
While it is true that most recent attention on the company focuses on
its
involvement in the portable Internet music player market, the fact is
that
the company's current revenue stream comes from licensing its
technology
for use in portable voice recorders for heavy dictation users. Customer
Lanier Worldwide, Inc., a $1.6 billion subsidiary of Harris Corp.,
accounts
for most of our revenue, and is focused on portable voice recorder
applications for business use in the medical and legal markets.
Your paragraph detailing the Company's contract with Lanier also
contains
false and very damaging opinions. The initial purchase order from
Lanier
for over $3 million worth of product is indeed binding, and shipments
of
their Cquence Mobile product, which began June 15, are continuing and
will
continue, per our contract which runs through December 2001. To state
that
the "total revenue for the five month shipment appears to be only
$15,000"
demonstrates that you did not collect current information or fully
understand past information published by the company. The initial order
is
indeed expected to fulfill Lanier's first five full months of needs
based
on their sales projections. The total paid to e.Digital for the
shipments
will be the face value of the Purchase Order. When the initial order is
complete, we expect additional orders, and there is also a potential
for
developing enhancements to existing products or developing new products
altogether for Lanier. The two companies enjoy a close professional
relationship that has resulted in a powerful, valuable product that is
quickly being adopted by the medical community.
The paragraph in your article detailing the Company's agreement with
Intel
incorrectly states that "Intel was supposedly designing and making
prototypes.", when in fact e.Digital is designing the prototypes, with
input from Intel and its customers. The involvement of
recently-introduced
new technology and additional OEM's have affected the timing of
delivery,
but at Intel's request, the Company cannot release further details. The
two companies enjoy very close professional relations, and look forward
to
exploiting future business opportunities together.
You include a false and very damaging opinion when you state that
"there is
no formal agreement or relationship with Lucent nor is there one
pending."
e.Digital and Lucent first began working together more than a year ago.
In
February 1999, e.Digital announced that it had been commissioned by
Lucent
to create a second-generation prototype digital music player. An April
21,
1999 announcement originating from Lucent makes reference to the fact
that
it contracted e.Digital to create a hardware and software reference
design
for a secure, portable Internet music player featuring Lucent's EPAC
music
compression software, and based on e.Digital's MicroOST Audio and a DSP
from Texas Instruments. The two companies enjoy a close professional
relationship in a fiercely competitive new industry, and continue a
co-marketing arrangement to promote the music player design to a number
of
potential licensees.
Your paragraph outlining Management and Related Parties makes a false
statement about patent ownership that could easily have been remedied
with
minimal research. The Company owns rights to all its patents created in
full or in part by Mr. Norris, and in addition, the Company retains the
rights to Mr. Norris' future developments and patents relating to our
current product lines.
The number of shares outstanding has increased in the past year, due to
warrants as indicated. The pricing of those warrants, between $.10 and
$.25, was set at a time when the stock had been trading between $.05
and
$.08 for several months. This also represents long-term debt which
earlier
this year was converted to equity and was covered in the company's most
recent 10-K.
The "Technology" paragraph states, "a.contract with Sanyo was
terminated
after only a few years." The agreement with Sanyo was MEANT to be
temporary. Sanyo agreed to purchase and resell all remaining inventory
of
our FlashbackT and VoiceLinkT digital voice recording products. The
agreement was satisfactory to everyone involved, and to say that "the
contract with Sanyo was terminated after only a few years" implies a
negative result which is simply not true. The two companies continue to
maintain dialogue about potential opportunities in the portable,
digital
voice recorder market.
The "Technology" paragraph also states, "an attempt to become an OEM
manufacturer was a complete failure resulting in large write-offs". The
company's attempt to produce and market its own retail product line is
what
resulted in large write-offs and losses. Simply put, the company did
not
have an adequate marketing budget to make itself a household name, even
though it created an outstanding line of digital voice recording and
downloading products. In early 1997 the Company began focusing on the
business of providing OEM technology, intellectual property, design
services, R&D, and manufacturing services for name-brand customers.
This
has resulted in diminished losses, and has brought us contracts and
relationships positioning e.Digital as an important player in the
emerging
portable, digital future.
Some of your additional comments on technology seem disconnected from
the
products and services we provide. The portable voice and music
applications for our technology are best described as hand-held devices
where cost, power, and memory are at a premium, and connection to a PC
and
the Internet are necessary. Palmtop computers could benefit from adding
our MicroOS to manage files on flash memory, but MicroOS certainly is
not
intended to replace the Palm OS or Windows CE, both of which need to
support multiple applications such as word processors, spreadsheets,
and
calendar functions, and are based on Pentium-type processors. MicroOS
is
used in flash-memory-based hand-held products whose main processor is a
DSP
or low-powered microprocessor. Our dealings with current and
prospective
customers indicate that business applications are rapidly developing
around
such tools, especially relating to dictation and voice-to-text and
text-to-voice features.
We wish to address your statements about Mr. Norris in the "Financing"
paragraph. Mr. Norris has registered warrants in relation to a past
financing in which he personally put up collateral to fund the
Company's
operations. As we are sure you are aware, any officer of a public
company
must file in accordance with Rule 144 before selling any shares, and no
such filing has been made, nor are there any plans for Mr. Norris to
file
under Rule 144 to sell shares.
Regarding the registration of stock, we have already covered the
activities
of Mr. Norris. Per the terms of our $3 million financing completed at
the
end of June, we were contractually bound to file a registration
statement
no later than 30 days after receipt of the funds (June 24th). Of the 13
million shares registered in July, 2,752,615 shares were registered in
connection with the June financing with the balance being registered
for
prior financings. The majority of the individuals and entities named in
the registration statement have been investors in our company for
several
years and have supported our company in the past. While we can't speak
for
every one of them, we believe most of them will hold their shares for
long-term capital gains treatment and expected appreciation in the
price of
the stock.
It is disappointing to see a journalist take a hatchet to our company
publicly without having researched current information and without
having
contacted the company for input before writing and publishing said
article.
We do look forward to your site providing additional facts and updates
on
e.Digital Corporation. We encourage you to call the company at (858)
679-1504, or visit our web site at www.edig.com. We have been, and
continue to be, very positive about e.Digital and its present standing
as
well as its bright future, and would welcome the opportunity to talk to
you
in person.
Sincerly,
Alfred H. Falk Robert Putnam
President & CEO Vice President, Investor Relations
_____________________________________________________
Wendy Ravenel
Investor Relations/Public Relations
e.Digital Corporation
13114 Evening Creek Drive South
San Diego, CA 92128
(858)679-1504 PHONE
(858)486-3922 FAX
Note new area code (858) as of June 1999
edig.com
investor@edig.com
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