Letter from EDIG to Shareholders:
August 30, 1999
Dear Shareholder:
From time to time, I have written to shareholders regarding our current
business and future prospects. The intent of this letter is to provide you
with a summary of e.Digital's current activities, describe our plans for
the future, and outline our expectations regarding upcoming events and
announcements. While I, too, share your concerns about the recent
volatility in the price of the stock, I want to assure you that the company
continues to maintain excellent business relations with its customers and
partners and is in sound financial condition.
VOICE/DICTATION PRODUCTS
LANIER
As announced June 15, we are shipping Cquence Mobile? digital handheld
voice recorders and docking stations to Lanier, and are continuing to
fulfill their initial purchase order of over $3 million. Revenue from this
project is expected to create positive cash flow for e.Digital by the end
of this calendar year, and as we near completion of the initial order, we
expect to receive additional orders from Lanier for the Cquence Mobile
product line. Early reports are that the recorders and docking stations are
being well received by the medical community. Our current contract with
Lanier is effective through December 2001.
INTEL PROJECT AND IBM VOICETIMES ALLIANCE
We are continuing to make significant progress on the Intel voice recorder
prototypes with the project taking some interesting new turns into areas of
new technology development that we expect will be very beneficial to
e.Digital. We remain on track with IBM, Intel, Philips and our other
VoiceTIMES Alliance partners in setting new protocols for voice recording
in portable digital devices. Because of the structure of this alliance, it
is expected that founder IBM will take the lead in announcing progress and
developments.
MUSIC PRODUCTS
SECURE DIGITAL MUSIC INITIATIVE (SDMI)
Developments are underway this week at the current SDMI meeting in Italy
which I am attending that will affect the time, place, and manner in which
the five major record labels distribute music over the Internet. Their
announcements about the availability of desirable content in
securely-distributed formats on the Internet will push a greater demand by
consumers for portable devices with which to play that content.
e.DIGITAL/LUCENT INTERNET MUSIC PLAYER
e.Digital and Lucent are currently in negotiations with several potential
licensees for their portable, secure Internet music player design. The
finished products will be branded, marketed, and launched according to our
licensees' product introduction schedules. Those schedules in turn will be
affected by the availability of content by the five major record labels
that are the founding members of the SDMI and control over 85% of the
world's most popular music content.
To insure the maximum impact and success for a secure Internet music player
product, there needs to be a variety of desirable music content available
for downloading to the player. With a minimum of desirable, secure music
content currently available for distribution on the Internet, Internet
music players introduced to market too early will not be successful. In
fact, we expect that players brought out too soon will be quickly overtaken
by higher quality Internet music players which will play a wide variety of
content from the major music labels.
The major record labels at the forefront of the SDMI hold the key to
finalizing this infrastructure by announcing when desirable content will be
available and what music compression formats (codecs) they will support.
While we believe Lucent's EPAC continues to be the best codec available,
e.Digital's MicroOS supports all of the top codecs and has the ability to
support multiple codecs on a single Internet music player device.
FINANCIAL POSITION
REVENUE AND OVERALL FINANCIAL HEALTH
e.Digital's patented MicroOS? is applicable to a wide variety of portable
digital devices, supporting all types of data including voice, music and
video. The majority of our revenue is expected to come from engineering
design and manufacturing services as well as licenses and royalty fees in
the emerging handheld voice and music products market. With a burn rate of
approximately $125,000 per month, over $3 million in the bank, and
increasing revenue from the Lanier shipments, e.Digital is in the best
financial position of its history.
S-3 REGISTRATION
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
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
supported our company in the past. While I can't speak for every one of
them, I believe most of them will exercise (purchase) their warrants (with
the proceeds going to the company) and hold the shares for expected
appreciation in the price of the stock.
INSIDER PURCHASES AND SALES
Occasionally, officers of the company will exercise (purchase) and sell a
small percentage of their stock options in order to finance the exercise
(purchase) of larger blocks of shares and pay the associated costs (to the
company and Uncle Sam). In May and July, officers sold a total of 125,000
shares and then used the proceeds to purchase 477,024 shares through stock
options exercised. This month, an officer purchased an additional 390,160
shares through stock options exercised to bring the total purchased by
officers in the last four months to 867,184 shares. We, like all long-term
shareholders, want to own more shares and we intend to hold our shares for
long-term capital gains treatment and expected appreciation in our stock
price. We have been, and continue to be, very positive about e.Digital and
its present standing as well as its bright future.
BOARD OF DIRECTORS
The recent addition of two outside Directors, Skip Matthews and Allen
Cocumelli, to e.Digital's Board of Directors greatly strengthens the
experience of the body responsible for making major strategic decisions for
the company. Mr. Cocumelli has been involved with Simple Network
Communications, Inc. (SimpleNet) since its inception in 1996 and has been
through two acquisitions there, first by broadcast.com, then by Yahoo!. He
possesses tremendous knowledge and hands-on experience in developing and
growing a small, technology oriented business. His contacts in the Internet
community and technology sector will be extremely valuable assets to the
company.
Skip Matthews, who on August 1 joined our Board after a successful 25-year
career at Intel Corp., brings a great wealth of knowledge, expertise and
business relationships to our Board. He has already begun involving himself
in our strategic business plans and his participation and guidance, along
with Allen's, will have a positive impact on the positioning of our company
as a leader in pioneering PC and Internet compatible handheld devices.
PUBLIC RELATIONS FIRM
As our company's contacts multiply, and its technology is exposed to wider
and wider audiences, it is extremely important to manage and promote its
visibility. We are in process of interviewing and evaluating Public
Relations firms, and expect to announce our selection very soon. Coupled
with our own in-house efforts, an outside Public Relations firm will
enhance and improve the company's image and exposure to the digital
recording industry, trade press, Wall Street, and the investing public.
ANNUAL SHAREHOLDERS MEETING
The date has been set for our next Annual General Meeting of Shareholders.
The meeting will be held Wednesday, November 3, at 2:00 p.m. at the Rancho
Bernardo Inn in San Diego, California. We look forward to this opportunity
to meet with all of our shareholders.
We are continuing to focus on the day-to-day business of developing
advances in our technology, supporting current customers and bringing in
additional business and OEMs. Our highest priority remains enhancing and
increasing shareholder value by providing vital technology to enable the
portable, digital future.
Sincerely,
Alfred H. Falk
President and CEO
# # #
Safe Harbor statement under the Private Securities Litigation Reform Act of
1995: This press release 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.
_____________________________________________________
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 |
