LETTER FROM THE PRESIDENT
This letter is a direct communication from the President and CEO of e.Digital Corporation (OTC: EDIG).
March 29, 2001
Dear Shareholder:
This week will mark the end of the quarter and the end of e.Digital's fiscal year. While our Form 10-K is scheduled to be released before June 30, 2001, I would like to provide you with a summary and update of our activities per our Shareholder Communications policy.
Annual Summary
A year ago, a handheld Internet music player design and the Cquence Mobile products created for Lanier formed the central core of our business. While continuing to support these, we also created a selection of new voice and music product platforms over the last twelve months based on our patented MicroOS(TM) and MicroCAM(TM). We have a growing list of OEM customers, licensees and partners including such respected and pioneering companies as Intel, IBM, InterTrust, Liquid Audio, Microsoft, Dolby Laboratories, Lanier Worldwide, DataPlay, EASTECH, Lucent Technologies, Maycom, QDesign, Remote Solution/HanGo, RioPort, SanDisk, Samsung, Sony, and Texas Instruments, among others.
The past year included the development and introduction of MicroCAM, a powerful new tool based on our patented MicroOS technology. MicroCAM is a key element in our digital audio recorder/player designs. It provides a flexible interface with most major forms of storage media, both embedded and removable, rotating and static. It supports multiple copyright protection technologies. It enables portable units to transparently manage multiple voice and music compression and decompression formats, as well as manage data buffering for rotating storage media by means of our proprietary M4P2(TM) technology (Moving Media Memory Manager for Portable Products). MicroCAM also incorporates e.Digital's proprietary AMIS(TM) (Audio Manager Interface Software), PC software created to handle the seamless transfer and management of audio files between a handheld audio peripheral and PCs employing a variety of popular PC-based audio management programs.
Developed to handle the varying requirements of digital voice and music players, MicroCAM is one example of e.Digital's proprietary, modular approach. MicroCAM is a strong foundation for a new generation of products that meet OEM customers' specific needs for business and entertainment products. The foundation that we have created over the last year is the basis for your company's success in current projects and in executing our plans for the future.
To further strengthen your company's foundation, we added Bob Jecmen and Victor Ramsauer to the Board of Directors, and we have hired additional technical and engineering talent to support our development efforts and OEM projects. In spite of the current general market conditions, we are enjoying a continued influx of new business and projects. We are continuing to hire, building our foundation of technical expertise and engineering experience.
Following our business plan, we have dedicated strategic engineering resources to the development and implementation of new product platforms that include digital video for portable devices, automotive and home stereo designs, cellular phone accessories, and set-top boxes. We are working with multiple OEMs on specific applications of these MicroOS- and MicroCAM-powered platforms for inclusion in a variety of branded products.
Revenues
Revenues for the quarter ending March 31, 2001 are much improved over those for the quarter ended December 31, 2000. We shipped Cquence Mobile recorders and docking stations to OEM customer Lanier Healthcare during the March quarter, and shipments are expected to continue during the coming fiscal year. We expect more information about Lanier and their plan of operations to be forthcoming.
Our customer list continues to grow through our marketing efforts and through referrals from our OEM partners and licensees. Development work performed for our OEMs during the March quarter is expected to contribute to significant growth in non-recurring engineering (NRE) fees and royalties over the next several quarters. Revenues for the fiscal year ending March 31, 2001 are close to equaling the total revenues for the previous three fiscal years combined. The company has minimal debt and a good cash position.
HDD-Based (Hard Disk Drive-Based) Digital Jukebox Platform
Manufacturing of our HDD-based digital jukebox platform has begun with production of limited quantities. Initial production units have been and are being delivered to OEMs and the press.
OEM licensees are moving toward full-scale production of our HDD-based digital jukebox platform, only seven months after this product's conception. While there are the usual initial production and day-to-day parts issues, they are being addressed by our OEM licensees and their manufacturing facilities.
We are very pleased with the initial reception to our HDD-based digital jukebox platform. Using an embedded IBM Travelstar hard disk drive with a 5, 10, or 20 GB capacity, this platform is capable of storing several thousand of the end user's favorite songs. Our storage capacity, feature set, battery life, ease of use, and formats supported widely exceed those of other jukebox-type products currently on the market, while our costs, physical size, and component count are much smaller by comparison. We are further developing this platform to incorporate speech recognition as a way to navigate and find specific songs/files. The benefits of our HDD-based digital jukebox platform are a direct result of the strength and flexibility of our MicroCAM technology.
Based on current information provided by our OEM customers and OEM licensees, we anticipate availability of consumer products based on our HDD-based digital jukebox platform in retail distribution channels within the next quarter. Many of our announced as well as unannounced OEMs and licensees are expected to make announcements when their consumer products are formally launched.
DataPlay-Enabled Platforms
Because of our proven ability to integrate DataPlay's revolutionary digital media into product designs for multiple OEM customers, we have accelerated our development of additional DataPlay-enabled product platforms based on our MicroCAM technology.
DataPlay and e.Digital are working closely together to meet the needs of several OEM customers including those previously announced. Per our royalty-bearing agreements announced in January, e.Digital is developing two DataPlay-enabled product designs for OEM customer Samsung: a PCMCIA Storage device and an MP3 encoder/ multi-codec music player. (Please see our press release dated January 5, 2001 for more details.) We expect announcements detailing additional OEM customers and their products surrounding the consumer launch of DataPlay digital media.
Our "Orbit" music player reference design was mentioned and pictured in the March 2001 issue of Esquire magazine. With the assistance of Fleishman-Hillard, we expect to receive increasing media coverage in relation to our work on DataPlay-enabled product designs as well as our other product platforms.
We also expect to see more media coverage of DataPlay and its technology. DataPlay is receiving widespread industry support and has received investments from industry leaders including Universal Music Group, Creative Labs, Samsung and Toshiba. Three of the five major record labels-Universal Music Group, the EMI Group, and BMG-have announced that they are planning to release pre-recorded music and e-book content on DataPlay digital media. We believe that this strong support for DataPlay will contribute to increasing business for e.Digital and significant sales of our MicroCAM-based, DataPlay-enabled product platforms through multiple OEM customers.
Summary
According to IDC, digital audio player shipments worldwide are expected to increase at a compounded annual rate of 51%, from 3.3 million in 2000 to nearly 26 million in 2005. The United States is the largest market for these products. Shipments in the United States are expected to grow from 2.8 million units in 2000 to 18 million in 2005. IDC also predicts that hard-drive based jukeboxes will become increasingly popular. Portable players are expected to account for 61 percent of worldwide compressed audio device shipments by 2005, dominating the market.
Desktop PC sales growth is on the wane, while new generations of powerful digital consumer electronics products-including those using e.Digital's MicroOS- and MicroCAM-based platforms-are expected to enjoy compounded annual growth worldwide for the foreseeable future.
While I understand your desire for more details and the latest progress reports on our OEMs' consumer products, I want to emphasize that the final feature set, look and feel, retail pricing, distribution channels, and time frames for formal announcements and consumer product launches are controlled by our OEM customers and licensees. In some cases we will be working with our OEM customers for many months before their names and the details of their products are formally announced (i.e. our DataPlay-enabled product platforms). In other cases, development, manufacturing, publicity, and marketing are on more aggressive time frames to meet demand for new products. We do expect announcements concerning other product platform developments beyond DataPlay and our HDD-based digital jukebox platform in our next quarter.
I want to acknowledge and thank our sales, marketing, and administrative staff, and all the members of our talented engineering team for their long hours, dedication, and hard work in meeting the needs of our growing list of customers and licensees. Our revenues, product platforms, and number of OEM customers, licensees and new business opportunities have all substantially increased since March 2000 due to their efforts.
I want to thank you, our shareholders, for your continued support. I want to assure you that we are performing, delivering and continuing to build upon the business foundation that we have put in place over the last two years. With the assistance of our OEM partners, customers, and licensees, we look forward to announcing further developments, and more importantly, rapidly growing deliveries and consumer availability of "Powered by e.Digital Technology(TM)" products in the coming weeks and months.
Sincerely yours,
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(TM) and MicroCAM(TM) technologies to custom software and hardware development, industrial design and manufacturing services. For more information on the company, please visit www.edig.com.
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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 OEM's and end-user customers.
Note: e.Digital, MicroOS, and MicroCAM are trademarks of e.Digital Corporation. All other company, product, and service names are the property of their respective owners.
CONTACT:
e.Digital Corporation: Robert Putnam, (858) 679-1504, robert@edig.com
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