ZACKS RESEARCH ON EDIG - (Part 3)
CUSTOMERS
The Company has revenue producing contracts or arrangements with the following
customers:
Lanier Agreement
The Company recently announced $3 million of initial production orders from
Lanier resulting from a January 1997 development and supply agreement (the
"Lanier Agreement"). The Company has designed, developed and produced a new
digital voice recorder and computer docking station for the medical industry.
The contract provides that e.Digital will supply product under the agreement
through December 2001. In May 1999 the Company commenced production, through a
subcontract manufacturer, and in June commenced initial customer shipments
pursuant to purchase orders. The supply agreement provides for rolling six month
requirement forecasts and three month advance orders.
Lanier is one of the world's largest providers of document management solutions,
services and support with over $1.6 billion in annual revenues. Lanier markets,
sells and services a wide array of tailored solutions. Lanier was the first to
market centralized digital dictation systems and the new recorder and docking
station is Lanier's first portable digital dictation system with advanced
features to interface with computerized digital dictation systems.
e.Digital is shipping a handheld recorder and docking station to Lanier
Healthcare, a Lanier business unit. These products represent the Cquence Mobile
portion of Lanier's Cquence line of products for the medical industry. The
Cquence line is an integrated medical document management solution that manages
medical documents from creation, completion, distribution and retention. Cquence Mobile
offers healthcare providers a mobile digital dictation unit and computer interface with a
number of new advanced features.
Intel Agreement
In August 1998, e.Digital signed an agreement to design and develop a digital
voice recorder for Intel. Intel is financing the design and prototypes which use
MicroOS and utilize advanced text-to-speech and speech-to-text technologies.
e.Digital will receive license fees and royalties from any future production
products, and in derivatives of the development effort. The prototype is
expected during 1999.
Intel is the market leader in microprocessors. Advanced digital recorders
require advanced processors to process speech-to-text and text-to-speech
applications.
Lucent Projects
e.Digital has produced certain prototype equipment based on purchase orders from
Lucent. The use of e.Digital technology allowed Lucent to present its audio
compression technology and Cognicity's watermarking technologies at a
demonstration in Beverly Hills and Manhattan in late October 1998. e.Digital's
technology was used to playback digital audio via the Internet from Manhattan to
the Beverly Hills demonstration. In January 1999, Lucent demonstrated
e.Digital's first-generation digital music player at the Midem International
Music Market trade show in Cannes, France. e.Digital has recently completed a
second-generation device which was demonstrated in May 1999 at PC Magazine
Editor's day. e.Digital's latest EPAC Internet music player offers high
security, copyright protection and CD-transparent sound quality.
Lucent and e.Digital are actively demonstrating and marketing their digital
music solution to participants in the digital music arena including (a)
providers of infrastructure technology, products and services, (b) providers of
online music services, (c) Internet retrieval and portal companies, and (d)
online music retailers.
The Company is also porting Lucent's EPAC compression algorithm software to the
new class of Texas Instrument DSPs pursuant to a purchase order from Lucent.
This effort is an example of e.Digital's digital signal processing consulting
services.
Other Projects
The Company has performed development services for other customers from time to
time. e.Digital has received several follow-on orders to supply daughterboards
to ADAMLAB for their SuperHawk Voice Output Communication Aid (VOCA). ADAMLAB is
a Regional Educational Service Agency (RESA) project in Michigan dedicated to
providing low-cost voice technology to speech-challenged individuals and
students. The orders stem from a July 1997 development agreement between the two
companies, where e.Digital developed voice recording components for ADAMLAB
employing MicroOS software.
STANDARDS
The Company believes that a successful solution for mobile business commerce and
digital music commerce must incorporate technical and industry standards.
e.Digital is participating in the standard-setting initiatives.
Voice Technology Initiative for Mobile Enterprise Solutions (VoiceTIMES)
e.Digital along with IBM, Intel and four other leaders in speech recognition and
mobile technologies announced in April 1999 the formation of VoiceTIMES.
VoiceTIMES goal is to coordinate the technical requirements needed for companies
to build and deploy solutions using voice technologies and handheld mobile
devices. With the growth of mobile devices and increasing demand for network
access, the VoiceTIMES initiative was formed to define specifications for how
voice commands and information are transmitted and received by existing and
future mobile devices. The VoiceTIMES alliance aims to eliminate the
complexities for the consumer and solutions integrator and provide future
generations standard compliant speech-enabled mobile products.
As a charter member, the Company believes the VoiceTIMES alliance will expand
opportunities for e.Digital to develop speech-based mobile information gathering
devices and leverage existing product designs and technology into additional
industry solutions and products.
Secure Digital Music Initiative (SDMI)
The SDMI was officially announced in December 1998 and is sponsored by the
Recording Industry of America (RIAA) to develop an open standard for the secure
digital delivery of recorded music. Over 200 companies are participating in this
effort. To date, this effort has focused on requirements for consumer portable
music devices, such as the e.Digital hand-held music player. Through e.Digital's
association with Lucent, e.Digital has been attending SDMI meetings as Lucent's
technical representative and participating in these efforts.
The worldwide recording industry recognized that many companies are developing
approaches to provide security for music that is digitally distributed via CD,
high-density disc, the Internet and other means. The SDMI goal is to encourage a
marketplace of interoperable products that will benefit consumers and spur
innovation. SDMI compliant devices expected by the end of calendar 1999 are
expected to accept any content in any format the manufacturer allows. Phase 2
SDMI compliant devices are expected to accept open formats and only reject
pirated copies of new content released after Phase 2 compliant music creation
and playback technology becomes available in the future.
e.Digital believes the SDMI standards will allow the rapid development and
growth of the digital distribution of music on the Internet and the demand for
portable players and related devices.
TECHNOLOGY AND SERVICES
The Company's technology and services are focused on providing digital solutions
for the portable device marketplace.
MicroOS Core Technology
The Company's core MicroOS technology is an efficient, portable storage memory
file management system. The patented software architecture takes a unique
approach to file management that is robust, high-speed and efficient. This
approach is suited for the high-speed portable product market because it
requires minimal micro-controller support while providing broad product
functionality. This architecture offers OEMs the ability to reduce new product
development time and time to market, as well as produce a product featuring a
reduced chip count and correspondingly lower cost and power requirements.
The Company's design caters to ultra-miniature applications by reducing the need
for a high power micro-controller by paring down code to fit and run efficiently
on low-cost micro-controllers while preserving memory for other functions. The
software stores and manipulates compressed voice, data, image or video files. It
supports various flash memory formats including CompactFlash, Intel Miniature
Card and IDE hard disks as well as the new IBM microdrive technology. Unlike
less robust systems, MicroOS can support an unlimited number of files,
directories, and subdirectories and is fully MS-DOS compatible. It is also
easily adaptable to function with Microsoft Windows CE platforms. The system is
written in the programming language "C" to facilitate porting to other
environments.
For developers of voice and data recording devices, digital cameras and other
multimedia products, the intricacies of incorporating full-featured Flash memory
can add costly obstacles to a successful product release. These products require
a software system that will deliver Flash-based features and functionality to
users managing digital data for reliability in operations such as play, record,
edit, delete, insert, and rewind.
MicroOS Audio Technology
The Company has employed MicroOS in portable digital recorders and extended the
technology for implementation into various product concepts. One extension is
the Company's MicroOS Audio technology, which utilizes Lucent's EPAC compression
technology. MicroOS Audio provides the means for CD-quality, stereo music and
high-bandwidth speech and music playback from a CompactFlash cartridge, other
removable flash memory or embedded memory. Record, edit and playback functions
are encoded and a PC interface links the portable unit to the computer. Inherent
in the combined technology, is a storage algorithm providing the ability to
watermark information, providing protection against piracy. The MicroOS Audio
technology is easily adaptable to other compression technologies, such as mp3,
AC3 and MSA4.0 and others.
MicroOS Audio's features include instant access to recorded material,
computer/Internet compatible files, a computer standard interface and
adaptability to various industry standard removable flash memory devices. The
advantages of the MicroOS Audio stereo technology over portable CD players
include its small size, low power consumption, use of re-recordable media,
inexpensive computer interface/compatibility and no moving parts. In addition to
being a stand-alone, ultra compact, portable stereo, the MicroOS Audio
technology can be integrated into a variety of products, such as laptop or
hand-held PC's, pagers, cellular phones, PDAs and other portable devices.
Services
e.Digital offers developers of electronic products a portfolio of services
within the broad categories of design services, development services and
manufacturing services.
e.Digital offers services to perform design projects for electronic components
and portable products. When developers of electronic products lack the
experience or resources to work with portable storage media to do their own
design work, or they want to keep internal engineers and designers on other
work, e.Digital's design services help perform component and product design.
e.Digital offers design services in areas such as integrated circuit design, the
design and incorporation of custom digital signal processing solutions, wireless
communication, computer and Internet connectivity and physical product design.
e.Digital has expertise in embedded systems, digital and analog integrated
circuit design, wireless, multimedia, Internet and computer connectivity, DSP
customization, flash memory interface and related fields. Generally, the Company
contracts actual physical product design to independent firms.
In addition to design, the Company's engineers can perform development services
aimed to convert designs into functional reference designs, prototypes and/or
end products. The Company also is experienced in arranging for manufacturing
services including factory hand-off and development of test procedures.
MARKETING AND SALES
e.Digital uses its internal sales and marketing, primarily two executives of the
Company, to target electronic product developers and manufacturers. Targeted OEM
customers include dictation equipment manufacturers, Internet music
participants, digital camera developers and developers of other portable
products. The Company anticipates that it will hire at least one technical sales
representative during fiscal 2000 to expand its marketing and sales activities.
In December 1997, the Company established a business development agreement on a
commission basis with TEKSEL Co. Ltd. of Tokyo, Japan wherein TEKSEL represents
e.Digital's MicroOS to the Japanese market. TEKSEL is a distributor of advanced
U.S. technology products by major technology companies. To date, the Company has
not expended any significant effort to pursue the Japanese market through
supporting TEKSEL but intends to do so during fiscal 2000.
The Company primarily markets its services through its strategic and industry
relationships and technical articles in trade and business journals. The Company
may in the future employ limited and selected advertising in targeted
publications.
MANUFACTURING AND DISTRIBUTION
The Company has established what it believes is the beginning of a strategic
manufacturing relationship with Eltech Electronics, Inc. and its Malaysian
affiliate Eltech Electronics Technology ("Eltech") to provide the Company's OEM
customers with leading edge turnkey electronic product tooling and manufacturing
capacity. The first project with Eltech has been the Lanier digital recorder and
docking station on which initial production commenced in late May 1999 with June
1999 shipments. In December 1998 the Company entered into a one year
manufacturing agreement with Eltech to produce the Lanier products.
The Company believes this relationship may be used for future products under
development but neither party is so bound. The Company's strategy is to arrange
for the production of products for its OEM customers on a turn-key basis,
wherein the Company limits its need for working capital to finance inventory,
production and receivable financing. In other instances the Company may enter
into licensing and royalty agreements with OEM customers who have existing
manufacturing abilities or arrangements.
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