Found this on RB.
By: wolfpackvoltare
Reply To: None Wednesday, 27 Oct 1999 at 11:25 AM EDT
Post # of 87333
Richard,
The following is a copy of a response to Mr. Porcelain. The lines preceded
by ****'s are from Robert Putnam, and this was sent to Mr. Porcelain's
attention yesterday.
Best regards,
Wendy Ravenel
X-Sender: norris\robert putnam\robert@dynamics.norriscomm.com
Date: Tue, 26 Oct 1999 14:40:10 -0700
To: 401k-adviser@prodigy.net
From: Robert Putnam
Subject: Re: The-Adviser.com Research on EDIG
Cc: fred@edig.com, wendy@edig.com
>Dear Mr. Robert Putnam and Mr. Alfred Faulk:
>
>We were pleasantly surprised to receive your e-mail response in regards to
>a recent research article published on our web site - www.The-Adviser.com.
>Your disappointment that you were neither contacted nor able to respond to
>our research should be redirected elsewhere.
*** No, you wrote the article, it is directed at you.
>
>It seems that your firm did not receive or respond to the previous three
>inquires that were sent over the past two weeks via your web site
>(info@edig.com) nor to a written request sent to your e.Digital corporate
>address last week. Because we did not receive a response, we did include
>company contact information within our research so that investors could
>contact the company directly. I highlight the below information, which was
>included in our original request, for your courtesy and response:
*** We did not receive anything by e-mail or by regular mail from you to
respond to. Don't you have a telephone? That number is in ALL of our SEC
filings on the front page.
>
>Contract with Lanier - Despite your claims that a purchase order from
>Lanier for over $3 million is binding, no one from Lanier would confirm
>such fact nor were we able to locate the complete agreement in an SEC
>exhibit filing. We were only able to locate an amendment to the contract.
>Could you please clarify for us the exact timing of how the $3 million
>will be received by the Company? Actual sales as reported in your recent
>filing were $15,000. If the total value for delivered shipments to be paid
>is $3 million, then we suggest you amend your SEC filings (or indicate to
>us where we can find such in a current report). A non-binding or
>non-recourse purchase order is significantly different than a valid and
>legally collectible accounts receivable. We would be happy to speak to a
>representative from Lanier or review any filed SEC report that contradicts
>the information we reported.
*** We have a binding purchase order from Lanier. As you are well aware,
purchase orders are not usually part of SEC filings, only material
contracts. The September and December 10-Q's will give an update on the
actual dollar amounts shipped as of those dates. Who did you speak to at
Lanier?
>
>Relationship with Intel - Your recent S-3 filing indicates that future
>growth is greatly dependent upon your original equipment manufacturer
>relationship with Intel. As you confirmed in your letter to us, and as we
>suspected, there appears to be significant contractual delays and
>technological issues. This material information does not appear to be
>public information as reported in any company press release or within a
>SEC filing. We believe it should be.
*** Our response to you and our shareholders is that, "We have made
substantial progress on our contract with Intel for advanced recorder
prototypes and that the project has taken interesting turns into areas of
new technology and new OEM relationships". There are not "significant
contractual delays and technological issues", hence no need for public
disclosure until Intel and e.Digital decide when to release further
information. I must say, it appears you twist words to further your
opinion/agenda.
>Relationship with Lucent - In various SEC filings, your company refers to
>your relationship with Lucent as a strategic working partner. Based on
>information provided to us from Lucent, it appears to us that there is no
>"partnership" as implied. No one from Lucent was willing to state that the
>relationship was a partnership; rather they indicated to us that the
>relationship was more appropriately called an outsourced engineering
>service that required the delivery of prototypes. We were informed that
>despite the puffery of various press releases that there is no contractual
>agreement for e.Digital to share in any revenue attributable should Lucent
>be able to successfully sell its product. Can you confirm what, if any
>revenue would be specifically and contractually earned by e.Digital as it
>relates to the future sale of these prototypes? If a formal co-marketing
>and revenue sharing agreement exists, we suggest your SEC filings be
>adjusted to reflect the exact nature of the agreem!
>ent and perhaps an exhibit should be filed. We would be happy to report
>otherwise if we misread or missed the appropriate information in an SEC
>filing. Specifically, we encourage you to have Lucent contact us with any
>additional information or provide us with a contact that was willing to
>state otherwise. In addition, despite the millions of dollars invested
>annually by Lucent, could you please clarify why Lucent has chosen not to
>invest in your company?
*** By not contacting e,Digital or anyone within Lucent's New Ventures
Group, you have mischaracterized what both companies are working on and
accomplishing. Lucent contracted e.Digital last spring to port their EPAC
music compression technology to Texas Instrument's new class of DSP. They
also contracted with e.Digital to prototype an EPAC music player that will
feature e.Digital's MicroOS. Lucent is not trying to "sell product", they
are offering EPAC (by license) as a compression standard for
encoding/decoding music over the Internet. e.Digital is offering its
proprietary MicroOS and engineering services. Both companies are
co-marketing the above to several OEM's interested in bringing to market
secure Internet music players as soon as secure, desirable content is made
available by the five major record labels (Sony Music, Time Warner,
Universal, BMG and EMI). Neither e.Digital or Lucent ever claimed to have a
"formal co-marketing and revenue sharing agreement". Again, you have
gathered your misinformation from some other source with an obvious agenda.
Any "puffery" going on appears to be coming from you in the negative.
>
>Relationship with Sony - In July 1999, TheStreet.com first reported that
>there were rumors about an interest by Sony in your product. Our side
>byline that mentioned Sony clearly showed a question mark, which our
>regular readers and clients know, means that a rumor about an event
>exists.
*** But you never gave the source of the rumor or clarified it in your
article.
>
>Management and Related Parties - Although we have clarified our research
>that certain patents have been assigned and certain patents are
>assignable, your response to us that the Company owns rights to ALL
>patents created in full or in part by Mr. Norris directly contradicts the
>Company's SEC filings that indicates that except for digital voice
>products, e.Digital has no rights to any other inventions, designs,
>improvements or discoveries made by Mr. Norris.
*** If you've "clarified" your "research", where is the apology? I
reiterate what we wrote to you yesterday,"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." Please read the last three words,
this time. This is consistent with our SEC filings.
>
>Insider Sales - We disagree with your statement that insiders must file
>under Rule 144 when they want to sell ANY shares. A Form 144 must be filed
>by "insiders" prior to their intended sale of restricted stock (issued
>stock currently unregistered with the SEC). Filing this form results in
>each seller receiving an automatic exemption from SEC registration
>requirements. As we indicated in our original research, Mr. Norris has
>registered to sell his shares. Your S-3 SEC filing indicates he registered
>1,500,000 shares of stock thus he can sell his registered shares with no
>additional 144 filing. If this is incorrect, please clarify.
*** In our S-3 SEC filing, Mr. Norris registered 1,500,000 shares
underlying the unregistered warrants he received for personally putting up
collateral to fund the Company's operations. Even though the warrant shares
are now registered, they still bear a control legend from the transfer
agent that can only be removed under a reported 144 transaction.
>
>In addition, other Form 144 filings by Alfred H. Falk (President & CEO),
>Robert Putnam (VP, Investor Relations) and Matthews Walter (Director)
>indicate to us that management, despite their public statements about
>possible price appreciation, holds a very different view when it comes to
>their own personal holdings. Management continues to sell their shares.
*** Again, more misinformation. In a letter dated August 30, 1999 that went
on our website (and is still there) and to our shareholders we stated on
page 3 "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 470,024 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". Management continues to buy their shares! And
as for "Matthews Walter", his name is Walter "Skip" Matthews and his filing
was an initial one to show how many shares he owned as of the date he
became a director, not that he was selling shares.
>
>As you may know, although a portion of buy-side research relies on contact
>with senior management, a large percentage of buy-side research involves
>talking to vendors and suppliers. We rely extensively on information
>provided in SEC filings, read various reports and generally stay in
>contact with influential individuals and research firms that cover various
>industries. It is based on this information that we compile our research
>and advise our clients.
*** You give no names for your "influential individuals and research
firms". By what you have written, I would strongly disagree with where you
got your information on e.Digital. You certainly have an obligation to talk
to the company and its officers before publishing any kind of "research
article". That you chose not to speaks volumes about your intentions or
those that may have contracted your services.
>
>Based on the Company's current market capitalization, the informatin
>contained in your own SEC filings, the lack of strategic investments by
>your partners and the ongoing announcements of other audio technology, we
>reiterate our AVOID rating on the stock. This rating is one ranked higher
>than our SELL rating. This rating suggests that investors should NOT BUY
>THE STOCK. Our analysts issue an AVOID rating because they believe the
>stock or company in question is subject to extreme volatility that could
>result in principle loss to an immediate investment. Investors who own the
>stock should consider how this particular stock fits into their overall
>investment and tax strategy and make sell decisions accordingly.
>
*** Obviously, we disagree with your rating.
>We wish you and your company success in your endeavors. Consistent with
>our normal course of business, I am happy to reflect any clarifications,
>as appropriate, in a future follow-up to our original research report.
*** By what you have written, you obviously do not "wish" for our success.
I do hope that you will post your "clarifications", but only if you get
your facts straight or, at least, give the company the opportunity to
present its side before publishing.
>
>
>Respectfully yours,
>Michael D. Porcelain
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