Business Editors
SAN DIEGO--(BUSINESS WIRE)--Jan. 31, 2000--e.Digital Corporation
(OTC: EDIG) In a letter to shareholders of e.Digital Corporation
issued this morning, President & CEO Fred Falk speaks at length about
the company's current and future prospects. He talks about the
company's MicroOS technology, quarterly results, recent trade show
activity, and the emerging Internet music industry. He also outlines
new potential markets for the company's handheld digital recording
technology.
The following is a direct communication from e.Digital president
and CEO Fred Falk:
Dear Shareholder:
On occasion I have addressed the shareholders of e.Digital to
provide an update on our progress. Because many of you are new
shareholders of the company, please allow me to summarize our recent
progress and answer some of the questions we are fielding about
e.Digital, its technology and its future.
CES (The Consumer Electronics Show) 2000
Because of the successful showing of our technology at the
Consumer Electronics Show (CES) 2000 in Las Vegas earlier this month,
we have received unprecedented interest from new OEMs (Original
Equipment Manufacturers). At CES, our MicroOS(TM)-enabled Internet
music player design was shown by IBM and Texas Instruments in their
respective technology suites. Our technology news releases from CES
received strong response from OEMs interested in e.Digital's
technology and its importance in the rapidly emerging Internet music
industry.
At CES, we met with companies in the home audio and the
automotive audio industries who recognize that portable digital audio
player technology is quickly merging into their markets. These
companies see the advantages of our design and technology across
multiple platforms. I anticipate new business opportunities will
emerge for our Internet music player technology in these two large
industries in addition to the portable player industry.
NASDAQ
Many of you have called or e-mailed us asking about the timing of
our NASDAQ application. I am pleased to report that we believe
e.Digital meets all the requirements for a NASDAQ listing and we are
filing our NASDAQ application this week. A NASDAQ listing will be
important for e.Digital to attract mainstream analyst coverage, as
well as institutional investors beyond our current base. Please
remember, the listing process and the timing of our planned listing is
determined by NASDAQ.
Quarterly Results for the period ended December 31, 1999
Because our latest financials are important for our NASDAQ
application, we have filed our Form 10-Q for the quarter ended
December 31, 1999 today, ahead of our normal filing schedule. The
complete report is on file with the SEC and can be viewed online at
www.sec.gov by searching their EDGAR financial database for
"e Digital". Revenues of $118,000 for the quarter reflect that some
OEM shipments were temporarily delayed by industry-wide year-end
shortages of flash memory and technical start-up issues by one of our
contract manufacturers. We expect these conditions to be temporary and
believe the December shortages will not materially impact planned
total shipments for our fiscal year ending March 31, 2000. We continue
to control our operating costs while maximizing the innovations from
our technical team.
e.Digital's revenue results from a combination of fees from
licensing, non-recurring engineering services, manufacturing services,
warranty services, industrial design services, and royalty payments
(per unit). The majority of our revenue stream will come from up front
licensing fees and ongoing royalty payments from contracts with
licensees like the one announced January 5 with Maycom. We believe
this business model provides the highest return for our shareholders.
Strategic Relationships and Business Opportunities
Over the past two years we have announced strategic relationships
with a number of industry leaders who share our vision of a new
generation of powerful digital devices that incorporate, voice, music,
data, images and full-motion video. We have forged and cultivated
relationships with Lucent, IBM, Intel, Texas Instruments, Liquid
Audio, Lydstrom, QDesign, SanDisk, Toshiba, Matsushita, RioPort and
others. These relationships are opening multiple revenue opportunities
for our technology.
Through our participation in the recording industry's Secure
Digital Music Initiative (SDMI) over the last year, and our membership
in IBM's VoiceTIMES alliance, e.Digital is helping build the
foundation for the portable Internet devices industry. Different
beneficial technologies are converging in ever-more-compact portable
devices. Compatibility between future products is insured when
standards are set and agreed to in the development stage. These
portable devices will include Flash memory and IBM Microdrive(TM)
technology as the storage media. Our MicroOS file management system
supplies the intelligence inside this new generation of digital
products.
Through our patented MicroOS technology, we enable the
convergence of multiple standards and technologies into small,
powerful, hand-held devices. We offer our OEM customers and licensees
a full menu of options. We work with--and plan to continue working
with--the companies and organizations that set these standards.
We are also a full service OEM technology provider with the
capability to incorporate our technology, perform the Industrial
Design, and oversee manufacturing of the finished, OEM-branded
product.
MicroOS(TM)
When flash memory became available for data storage several years
ago, it was primarily used as backup memory. Data or code written to
flash was WORM (write once, read many), difficult to edit, erase, or
write data. In 1995, e.Digital was the first company to create and
market a voice recorder using removable flash memory, a product that
was later branded and sold by Sanyo. Out of these efforts, we
developed a proprietary flash file management system named MicroOS(TM)
that is the basis of our designs to this day. MicroOS is protected by
four patents containing dozens of claims. All of these patents and
their rights are the exclusive property of e.Digital.
MicroOS simplifies the design of products that use flash memory
to store voice, image, text, or full-motion video files in portable
devices. It also enables the portable devices we develop to easily
exchange information with desktop computers, and through desktops,
with intranets and the Internet. According to Semico Research, the
global growth of flash memory devices will grow from sales of $4
billion in 1999 to sales of $8.5 billion in 2001.
MicroOS is a pure software flash file management system that is
compact yet robust, and incorporates such features as:
-0-
*T
Wear leveling - dictates use of cells within the flash to prevent
uneven wear
Power management - important in portable, battery-powered devices
User interface - enables record, edit, insert, delete, play, fast
forward and rewind functions with an intuitive command set
Bad block management - enables use of flash even if sectors
become unusable
*T
Portable device companies and consumer electronics companies
recognize the importance of having an effective and robust flash file
management system that enables all of these functions to take place in
microseconds, while remaining transparent to the end user. MicroOS is
proven effective and is extremely well suited for use in portable
devices where physical space, cost, and memory are at a premium, but
where maximum flexibility and functionality are a must.
Internet Music Industry
As projected by Forrester Research, 32 million portable Internet
music player units will be sold by 2003.
Our licensing agreement with Maycom is especially significant,
not only because they are the first licensee of our portable Internet
music player design, but also because of their manufacturing
reputation and capabilities. Maycom has the proven ability to get
branded, quality products to the consumer market quickly. We expect
this arrangement to produce licensing fees and ongoing royalties for
e.Digital. Royalties from Maycom and future licensees of our portable
Internet music player design are expected to range up to $10 per unit.
e.Digital's Internet music player design offers native
multi-codec (coder/decoder) support that does not require transcoding
music files. Transcoding is the practice of recompressing audio files
through software to fit a single codec, resulting in reduced sound
quality. Our designs have the ability to support several codecs
natively, including Lucent's ePAC(TM), Dolby's AAC(TM), Microsoft's
WMA(TM), MP3(TM), and others, making sure each file is decoded
directly, without copying or further compression. This is very
important to artists and the recording industry who desire to have the
best audio fidelity possible in these new second generation Internet
music players. The January 29, 2000 issue of BILLBOARD magazine
includes a special insert about Lucent Technologies and features
e.Digital's multi-codec Internet music player design.
Because we work with the SDMI on supporting emerging technologies
and standards, we have the opportunity to guide our OEMs in bringing
to market second generation Internet music players. We have in place
the industrial designs, partners, and manufacturing relationships to
support secure desirable music content from the mainstream artists and
record labels as soon as it is posted. Our SDMI participation is
valuable as we are aware of the latest developments in digital rights
management systems (DRMS), music codecs, and watermarking technology.
Our MicroOS-enabled Internet music player design manages music files
seamlessly and transparently, so that the consumer need not be
concerned with codecs, etc.
Several recent events are significant to the development of
secure music distribution over the Internet. The Time Warner/AOL
merger represents major progress toward joining mainstream music
content with secure Internet distribution. The Time Warner/EMI merger
paves the way for established musicians and major record labels to
distribute their content over the Internet for download. In an article
entitled "A Little Net Music?", in the February 7 issue of Business
Week Magazine, AOL President Robert Pittman predicts, "Just like the
record industry got a shot in the arm when CDs came along, they'll get
another shot in the arm with online music." With AOL's 22 million
subscribers and Time Warner's 12 million cable subscribers and close
to 30% ownership of the world record industry, we believe that between
Warner/EMI and the other major record labels, the Internet music
industry is poised for explosive growth. We have been working
diligently to position our technology to bring OEM-branded players to
market to support the Internet music revolution.
Voice and Full Motion Video Applications
e.Digital is also pursuing opportunities in the digital dictation
arena. We are active in IBM's VoiceTIMES Initiative, whose goals
include developing standards for the use of voice technology in a
variety of products and platforms. We have built compatibility into
our product designs not only for music but also for dictation and
audio books.
As voice-to-text and text-to-voice technology improves we again
state our vision that devices that talk and listen--rather than
relying on typing, miniature keyboards, or pen-based systems--are the
wave of the future.
With Apple Computers currently positioning the iMac as a movie
machine, users are beginning to store video files in quantity on their
PCs and Macs. We are developing reference designs of our technology to
support downloaded video files in portable products. With the recent
emergence of IBM's 340 MB Microdrive(TM), and increases in flash
memory capacity, these types of applications are now possible in
portable devices.
Emerging Standards
We are closely monitoring developments such as Bluetooth(TM), NTT
DoCoMo(TM), and other emerging protocols that give people wireless
Internet access away from their desks. We welcome new technologies
like Transmeta's recently introduced Crusoe(TM) Processor. We readily
embrace these types of new standards, maintain contact with their
developers and advocates, and strive to incorporate relevant
technologies and standards into our designs for the benefit of our OEM
customers and licensees.
As wireless phones add more features, that industry is beginning
to include removable storage media. This represents a substantial
opportunity for e.Digital to incorporate our technology into future
generations of wireless phones.
Final Thoughts
I believe that the current portable Internet products industry is
at the same point in its growth as the wireless phone industry was
approximately seven years ago. We are just beginning to see markets
develop for portable products converging voice, music, video, and text
data. Our goal is to make e.Digital a standard in millions of
Internet-related digital products. The Internet-enabled handheld
revolution has begun and e.Digital is positioned to participate in the
rewards of this revolution this year and for years to come.
Sincerely,
Alfred H. Falk
President and 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; technological 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. IBM, Microdrive, and VoiceTIMES are trademarks
or registered trademarks of IBM Corporation. All other company,
product, and service names are the property of their respective
owners.
--30--eb/sf*
CONTACT: e.Digital Corp.
Robert Putnam or Wendy Ravenel, 858/679-1504
robert@edig.com or wendy@edig.com
Or
The MWW Group (for e.Digital)
Matthew Messinger, 201/964-2377
mmessing@mww.com
KEYWORD: CALIFORNIA
INDUSTRY KEYWORD: COMPUTERS/ELECTRONICS NETWORKING INTERNET
MUSIC ELECTRONIC GAMES/MULTIMEDIA TELECOMMUNICATIONS SOFTWARE
HARDWARE TRADESHOW
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