LETTER FROM THE PRESIDENT
December 20, 1999
Dear Shareholder:
As 1999 draws to a close and we look forward to a new year, e.Digital
continues to expand its business relationships and strategic partnerships
in all areas of the portable, Internet-compatible devices industry.
We are working on important new opportunities that have emerged since the
November 3 shareholder meeting in areas relating to portable digital music
and voice devices.
As 2000 approaches we look forward to the infant Internet music industry
coming into its own, providing explosive growth opportunities for your
company. As the industry prepares for the launch of secure Internet music
formats, e.Digital is positioned to take a prominent role in the emergence
of this new marketplace. Our e.Digital music player design has been very
well received by potential licensees and OEM partners in private
presentations and at the Comdex 1999 and Webnoize 1999 trade shows, where
it was shown by Lucent Technologies and Texas Instruments.
We see Internet music as a major growing market over the next two years.
According to research by EE Times magazine and Forrester Research, the
digital music player market will grow from approximately 1.2 million units
in 1999 to a total of over 32 million units sold by 2003. Also according to
Forrester Research, digital downloading will add $1.1 billion to the U.S.
music industry by 2003.
We are frequently asked about e.Digital's business model for entering the
Internet music player market and would like to give a short description of
how the Company realizes revenues. The company has created a flexible
Internet music player design that integrates emerging standards and
technologies. e.Digital offers licensable technology, manufacturing
services and design services to its OEM customers. It is our OEM customers
or licensees who will market products to end users through retail
distribution channels. In the end, e.Digital's revenue results from a
combination of fees from licensing, non-recurring engineering services,
contract manufacturing, warranty services, and royalties.
We will license our portable Internet music player design to consumer
electronics manufacturers and/or other OEM partners. The design we have
created--featuring Lucent's ePAC music compression technology, a
programmable DSP from Texas Instruments, and CompactFlash memory from
SanDisk--is flexible and we offer services including custom industrial
design and manufacturing. The design uses secure media allowing SDMI
compatibility and can be upgraded via software downloaded from the Internet
to support future music formats and Digital Rights Management (DRM)
schemes. Multiple music codecs can be built into the design, and the player
can be adapted to use different forms of memory including SD Flash,
MultiMedia Card, IBM's microdrive or Sony's Memory Stick(TM).
While we are aware that competitors claim multi-codec support in their
music players, e.Digital offers a design with true multi-codec support for
the major secure formats without transcoding which can adversely affect
sound quality. Transcoding is the practice of taking any new music file in
a given compressed music format, and forcing it to fit another format by
recompressing it through software. This process is akin to making a
photocopy of a photocopy, using "lossy" compression at each turn.
e.Digital's MicroOS-enabled Internet music player designs support multiple
music compression algorithms in one device so that all files play in their
native formats. This process, which is invisible to end users, results in
better audio quality. Until it becomes clear which music codec(s) will be
the most popular and become de facto standards, support of multi-codecs
will be a must in portable music players over the next two years as format
wars are sorted out based on content provider and consumer choice.
As I stated at our Shareholder Meeting in November, one of the crucial
elements affecting the launch dates of portable, secure, Internet music
players is the availability of desirable, secure content on the Internet.
As we work closely with major record labels through our involvement with
SDMI, we see the foundations being built for availability of their music
libraries on the Internet. For example, Universal Music Group, the world's
biggest music company, has announced plans to launch an online music
distribution system with full electronic-commerce capability in early to
mid 2000. The availability of popular music content on the web will
increase consumer demand for portable, secure players, and will also serve
to move the industry forward in the selection of standards and preferred
music codecs. These factors influence any secure portable players now in
the works.
We expect the Internet music industry to become even more active in the
first quarter of 2000, beginning with the Consumer Electronics Show in
January. We are seeing partners ramping up for extensive PR campaigns and
believe that 2000 will be the year the Internet music industry is truly
born. New tools are emerging for the creation of secure, portable music
players, and there are a multitude of options we can offer OEM customers.
When secure technology and popular content become available, as expected
beginning in the first half of 2000, Internet music will become a real
business.
e.Digital is continuing to receive press attention for our Internet music
player design. The MWW Group is cultivating press interest in our design.
So far the design has been featured in TWICE Magazine, The Miami Herald, PC
Magazine, and online magazine etown.com. The company was featured in audio
interviews on OTCInternetStocks.com and ViaVid.com, and was included in a
report on CBSMarketWatch.com. More press is expected for e.Digital and the
Internet music player design between now and the Consumer Electronics Show
in January.
In addition to Internet music, e.Digital is working with standards relating
to still pictures, full-motion video, text, and/or voice, integrating
emerging technology and standards into portable devices according to the
needs of our OEM customers. Voice technology is emerging and will become
the standard interface with products of all varieties. Streaming video of
2-6 minutes is becoming available for portable devices and we expect
portable, downloadable video technology to become available over the next
twelve months.
e.Digital will have a presence at CES 2000 in Las Vegas January 6-9.
Details will be revealed in news releases from e.Digital and our partners
in Internet music and other areas.
e.Digital and The MWW Group have begun talking with analysts who cover OTC
stocks. Although it can be difficult to attract analyst attention as an
OTC stock, we believe coverage of e.Digital will be initiated soon.
As I stated in June, the Internet has stimulated the greatest boom in the
history of electronics and computing. Being connected to the Internet and
going digital and mobile are at the center of business and consumer
requirements. We are confident in our engineering talent, MicroOS(TM),
design expertise, and product development experience. We are successfully
positioning e.Digital as a leader in the portable, digital revolution
incorporating voice, music, and soon, full motion video into handheld
devices that connect to PC's and the Internet. We thank you, our
shareholders, for your continued support as we build e.Digital into a
globally recognized and financially successful company.
Sincerely,
Alfred H. Falk
President & CEO
Safe Harbor statement under the Private Securities Litigation Reform Act of
1995: This document contains forward-looking statements relating to future
performance, technology and product development that may impact on future
results and the future viability of the company. Actual results could be
affected or differ materially from those projected in the forward-looking
statements as a result of risk factors such as: future products and
results; echnological shifts; potential technical difficulties that could
delay new products; competition; general economic conditions in the markets
in which the company operates; the ability of the company, its customers,
and suppliers to become Year 2000 compliant; pricing pressures; and the
uncertainty of market acceptance of new products by OEM's and end-user
customers.
Note: e.Digital and MicroOS are trademarks of e.Digital Corporation. EPAC
and Lucent are trademarks or registered trademarks of Lucent Technologies.
CompactFlash and SanDisk are trademarks or registered trademarks of SanDisk
Corporation. All other company, product, and service names are the property
of their respective owners.
_____________________________________________________
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 |
