LETTER FROM THE PRESIDENT
September 19, 2000
Dear Shareholder:
As we prepare for our Annual General Meeting of Shareholders on November 9, 2000, I would like to provide a brief update on the company’s activities and business strategies in addition to the enclosed financial reports and proxy materials.
Revenue Growth
We are beginning to realize the revenue growth we have anticipated. For the current quarter, ending September 30, 2000, revenue is expected to total over one million dollars, surpassing the combined total revenue of our last two completed fiscal years. Based on current contracts and additional business we expect to receive, we expect stronger financials and record revenues to underscore the significance of our innovative technologies in the portable, digital world.
We continue shipping Cquence Mobile digital voice recording products to OEM customer Lanier Worldwide, Inc. Lanier has announced that they intend to sell their voice products (dictation) business to a yet-unnamed buyer. We believe that the buyer will accelerate the rollout and marketing of the Cquence Mobile line, introduced to consumers in May 2000, as it represents the state of the art in digital dictation. This product connects with the PC and is the primary data collector for a complete document management system. We are confident that our work in digital voice products—based on our own patented technology and incorporating voice-to-text capabilities and text-to-voice features from third parties—is paving the way for additional business.
We have been approached by a number of companies interested in using our technology and services to create a variety of portable, digital products. Several of our current projects are expected to result in increased OEM business, additional contracts, and increased revenues.
MicroOS
We are focused on our efforts to make e.Digital and MicroOS standards in the Internet download devices industry. MicroOS is increasingly recognized as a robust, compact, flexible basis for a number of portable digital devices. It supports any type of data including text, voice, full-motion video, still images, or music, and is compatible with a variety of popular removable storage media including CompactFlash, SD Card, Multimedia Card, IBM's Microdrive, and DataPlay's rotating media. We are integrating rotating media into portable devices to take advantage of their larger storage capacities and lower costs relative to Flash memory. We still believe the future holds many applications for Flash memory in portable devices, but we foresee a market quickly emerging for less expensive, removable, rotating media and have already incorporated several into our designs as options for our licensees and OEM customers. Our early involvement with new storage media such as IBM's Microdrive and DataPlay is one of the reasons OEM customers are attracted to our state-of-the-art product design services.
Corporate Positioning
Because of the industries connected with our technology and services: digital dictation products; DSPs; digital music players; cell phones; automotive and home stereo components; set-top boxes; voice recognition products; Flash memory; and rotating storage media, we have created and maintain significant partnerships and relationships with industry giants in a variety of sectors. In many cases these companies are the source of referrals and OEM business.
The world of consumer electronics is being revolutionized, and we are proud of the leadership position we have achieved. We are recognized as innovators and we continue to focus on strengthening our reputation for creativity, innovation, and reliability in the OEM market for portable digital devices and engineering design services.
Internet Music Industry
Many of the developments we anticipated in the Internet music industry are becoming reality. Readily-available, secure music content is the key to moving this industry forward, and the news is filled with encouraging developments from the major record labels. Better quality music codecs, advanced security, and online distribution channels are currently emerging, creating a legitimate online music market and increasing consumer awareness and demand for Internet music players. Multiple OEM opportunities have come before us, and we are currently in various stages of integrating our technology into set-top boxes, cell phones, cell phone accessories, pocket-size players, digital jukeboxes, automotive stereo products, home stereo components, PC peripherals, and portable, stand-alone music players.
Regardless of the outcomes of well-publicized music industry copyright infringement lawsuits, our flexible Internet music player and jukebox designs will benefit end users by including support for a variety of popular music formats, including MP3, AAC, WMA, ATRAC3, and ePAC, as well as popular Digital Rights Management Systems and a variety of different storage media. Our flexibility helps us take advantage of confusion in the marketplace and gives us a competitive edge in a dynamic new industry in which 32 million units are expected to sell by 2003, according to Forrester Research.
Portable Music Players
To date, we have announced three customers for our portable Internet music player technologies: Maycom, QDesign, and Remote Solution/HanGo. Maycom, our first licensee, continues to move forward with plans to begin shipments of their Merit brand MP2000 product containing e.Digital technology to the European market. The MP2000 supports multiple music codecs: MP3; WMA; and AAC; and it includes security measures to help protect against the proliferation of illegally copied files. We are very proud of this product, resulting from a collaboration between engineers at Maycom and e.Digital, and are particularly pleased with the outstanding sound quality and feature set of this pocket-sized unit. Details regarding retail pricing and distribution channels for the Merit MP2000 will be forthcoming from Maycom.
In addition to retail distribution, Maycom and e.Digital are co-marketing the MP2000 design to OEMs as a first- or second-generation music player product to be private labeled and distributed this year in Asian, U.S., and worldwide markets.
Our project with QDesign, announced in August, is moving forward. Expected initial ship dates have been moved back to accommodate product enhancements requested by QDesign, and the units are now expected to reach them by the end of September. This project, which will showcase QDesign's new QDX technology as well as the combined designs of e.Digital and Maycom to a select group of executives in the digital music industry, represents a very valuable opportunity for us that could lead to additional orders from QDesign or other OEM companies who are exposed to the product during this project.
We are particularly excited about the new product we are creating with OEM customer Remote Solution/HanGo. This product will be Remote Solution/HanGo's second-generation product in the portable Internet jukebox market, and it is also being marketed to several name-brand OEM customers in the electronics, computer, and audio industries as a stand-alone or bundled product. The unit, named Cleo™, has the potential to be one of the hottest new consumer electronics products of 2001, regardless of the timing of release of large quantities of online music content from the major record labels. Cleo users will be able to replace stacks of their CDs with one handheld unit that's smaller than any CD player. It can store and play back up to 2,000 songs on its rugged, miniature 6.4 GB hard drive, and its convenience will give many music lovers a reason to switch from CD players. Cleo's extended battery life, user-friendly organization features, superior sound quality, and multi-codec support will set the standard for large capacity, portable jukebox products.
Additions to Board of Directors
We have recently added Robert Jecmen, formerly of Intel Corporation, to our Board of Directors. Mr. Jecmen, along with other outside board members Victor Ramsauer, Walter "Skip" Matthews, and Allen Cocumelli, Chairman, add valuable perspective and experience that will be vital as we continue our rapid growth.
Shareholder Meeting and Voting
During our Shareholder Meeting on November 9, at 2:00 p.m. Pacific Standard Time, we will provide a live audio broadcast for those unable to attend, and an audio replay will be available afterward. Details of these arrangements will be announced before the meeting.
Last year there were approximately 35,000 individual shareholder accounts holding shares in e.Digital. As of this year's September 11 Record Date, that has increased to just over 100,000. We encourage you to read your Proxy materials thoroughly and return your ballot as quickly as possible. We also encourage you to take advantage of your broker's online voting systems and online delivery of proxy materials where available. All ballots must be returned no later than noon on November 9, 2000, to be counted before the Annual Meeting.
NASDAQ Application
While we know that the application process has taken longer than anticipated, our NASDAQ application remains open and pending. Based on the last round of questions regarding current and future business, we believe we are close to the end of the review of our application. We will issue a Press Release regarding NASDAQ's decision as soon as it is made available.
Summary
The past year has been extraordinary for your company. The capabilities, adaptability, and dedication of our employees and our board have positioned e.Digital for success. We continue to add to our board, management, and staff, individuals who contribute their leadership, talents, and skills to meeting our goals as a company, and ultimately contribute to shareholder value. Advances in Internet technology and portable device markets make us more certain than ever that our contributions in portable technology and design, integration, and connectivity will be well rewarded financially.
We look forward with great anticipation and excitement to sharing more about our relationships, revenues, products, and expected contracts before, during, and after this year's Shareholder Meeting.
Sincerely,
Alfred H. Falk
President and CEO
About e.Digital
e.Digital Corporation offers an engineering partnership for the world’s leading electronics companies to link portable digital devices to PCs and the Internet. e.Digital develops and markets to consumer electronics manufacturers complete end-to-end solutions for delivery and management of open and secure digital media with a focus on music players/recorders and portable digital voice recorders. Engineering services range from the licensing of e.Digital’s patented MicroOS™ file management system to custom software and hardware development, industrial design and manufacturing services. For more information on the company, visit www.edig.com.
# # #
Safe Harbor statement under the Private Securities Litigation Reform 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 solve latent Year 2000 compliance issues; pricing pressures; and the uncertainty of market acceptance of new products by OEMs and end-user customers.
Note: e.Digital and MicroOS are trademarks of e.Digital Corporation. All other company, product, and service names are the property of their respective owners.
CONTACTS:
e.Digital Corporation: Robert Putnam, (858) 679-1504, robert@edig.com
The MWW Group (for e.Digital): Matt Messinger, Public Relations, (201) 964-2311, mmessing@mww.com |
