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It's all the way you look at it. You pull up past performances based on what you want to show. I don't know who you are trying to convince, since you stated those that bought and are holding long.
We know what our investment risks are, however, if you look at the current information posted by Sentinel and 9 miles it looks much better.
So, therefore, if you are trying to help the "newbies" what you decide to show is of no use. Why because it is so Old. The "newbies" will want to see what has been happening in the not too distant past.
3 years is water under the bridge, and the tide IMHO has changed.
Cassy, we've heard everything about the Series D. Can't you Please let it go?
Have a safe and happy 4th of July
Where did we clothe at? Volume? Tia, eom 10-4, etc. yada yada yada
This will piss off Matt.......my foot's on fire and so is e.Dig., How ever, don't let anyone nose
Actually, Sabre68 sent me the link.....so therefore, he should receive all of the credit.
Did you go all the way out into the solar system and then back to the leaf atom?
this is way OT, but if you want to see something really cool, check out this site. We are just a speck in the whole realm of things.
Have a great weekend everyone.
http://micro.magnet.fsu.edu/primer/java/scienceopticsu/powersof10/index.html
Click here: Molecular Expressions: Science, Optics and You - Powers Of 10: Interactive Java Tutorial
In the words of Robert Putman.....SOON. September if my memory serves me correctly........
Answer the question....
Maybe someday we'll see something like this happening.
http://doody36.home.attbi.com/liberty.htm
Perhaps off topic but interesting none the less:
Market's reaction to Fed rate cut
By Mark Hulbert, CBS.MarketWatch.com
Last Update: 1:13 AM ET June 27, 2003
ANNANDALE, Va. (CBS.MW) -- Why did the Dow Jones Industrials Average immediately drop 100 points after the Fed announced that it would reduce short-term interest rates by 25 basis points?
Most investors are considering that decline in the Dow ($INDU: news, chart, profile) to be nothing more than an example of the old adage "buy on the rumor, sell on the news."
But there is a more ominous possibility: The economy may be a lot weaker than originally thought, with a deflationary collapse a real possibility. On this theory, the stock market fell because it was disappointed that the Fed didn't cut rates by 50 rather than 25 basis points.
Support for this less favorable interpretation comes from several different quarters. Consider the trading history of a novel futures contract that, until the day of the Fed's announcement, traded at a Dublin-based futures Web site known as www.tradesports.com.
This contract would have paid $10 if the Fed had reduced interest rates by 50 basis points; as it turned out, because the Fed didn't cut rates by that much, it paid nothing.
Because it was thus an "all or nothing" contract, its trading price at any given time reflected the market's collective judgment of a 50-basis-point rate cut.
Its last trades prior to the Fed's Wednesday announcement were between $3.20 and $3.50 per contract, reflecting the market's judgment that there was between a 32 percent and 35 percent probability that the Fed would approve the half-point cut.
The stock market's level prior to the Fed's announcement thus already reflected around a one-in-three probability that the Fed would approve a half point cut. Because the market dropped 100 points upon learning that the Fed would not approve the larger cut, we can infer that the market thought that, all told, a 50-basis-point cut was worth about 300 points.
We therefore can guesstimate that if the Fed had approved a full half-point cut, the market would have risen 200 points instead of falling 100.
And that's remarkable. It reflects a stock market that is preoccupied -- obsessed, really -- with profound economic weakness.
Otherwise, why would stocks rally in the face of what -- had it come to pass -- could only have been characterized as a desperate action?
Richard Russell of Dow Theory Letters explains: "massive amounts of debt have been built into the US economy. In fact, the debt structure is now so incredibly high (over $30 trillion) that there is no room for correction, backing off, normal retrenchment following the great bubble boom. So it's the old story... INFLATE OR DIE. And so, dear subscribers, we better inflate."
June 26, 2003
E DIGITAL CORP (EDIG.OB)
Annual Report (SEC form 10-K)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR
CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO AND INCLUDES
FORWARD-LOOKING STATEMENTS WITH RESPECT TO THE COMPANY'S FUTURE FINANCIAL
PERFORMANCE. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CURRENTLY
ANTICIPATED AND FROM HISTORICAL RESULTS DEPENDING UPON A VARIETY OF FACTORS,
INCLUDING THOSE DESCRIBED ELSEWHERE IN THIS ANNUAL REPORT AND UNDER THE
SUB-HEADING, "RISK FACTORS - IMPORTANT FACTORS RELATED TO FORWARD-LOOKING
STATEMENTS AND
ASSOCIATED RISKS."
GENERAL
e.Digital Corporation is a holding company that operates through a wholly-owned California subsidiary of the same name. We offer engineering services to leading electronics companies to create portable digital devices that can link to PCs, the Internet and other electronic devices. We market our services and technologies to Original Equipment Manufacturers ("OEMs") with a focus on developing digital music, voice, and video players/recorders using the latest in digital storage media (a device used to store data) and technology. OEMs are business customers that license or purchase our products or our technology to embed in their own products. We offer complete reference designs (working, full-featured designs sometimes implemented as prototypes that can be customized to a customers' preferred look and feel or branded and sold as they are, according to the customer's wishes) and technology platforms (basic working technology that can be developed into a finished consumer product, or incorporated into an existing consumer product design) for private labeling by OEMs. We may sometimes integrate our OEMs' unique or proprietary features and/or technology into new products for their product lines. We focus our marketing efforts on OEMs in various digital processing markets including digital music, dictation equipment, consumer electronics, digital image and video and other electronic product markets.
We have relationships with manufacturers with facilities in the United States, China and Korea. We have expertise in developing, performing and overseeing manufacturing processes. We apply our technology and expertise in providing manufacturing supervision, documentation, and quality control services to products for our OEM customers and for our e.Digital branded products. We also use our technology to design and build "e.Digital-branded" portable digital audio players and market them to consumers through various channels. Our primary focus, however, is serving the development and manufacturing needs of our OEM customers and licensees.
Services offered include custom hardware, firmware (an instruction set programmed into a chip which determines the product's functionality and user interface), and software development, technology platform development, product design, manufacturing services, fulfillment services, warranty services, and licensing of our patented file management systems. Our revenues may result from the sale of products, fees from engineering services, fees or royalties from technology licensing, industrial order fulfillment, technical support services, warranty services and/or design services. In some cases, we rely on outside subcontractors to perform services including manufacturing, testing and certification, industrial design, and assembly.
We incurred operating losses in each of the last three fiscal years and these losses have been material. We incurred an operating loss of $5.8 million, $5.9 million and $3.9 million in fiscal year 2003, 2002 and 2001, respectively. At March 31, 2003, we had a working capital deficit of $1.4 million. Our monthly cash operating costs have decreased from approximately $500,000 per month at the end of fiscal year 2002 to the current level of approximately $225,000 per month. However, we may increase expenditure levels in future periods to support the launch of "e.Digital" branded products and expand our OEM revenue opportunities and continue advanced product and technology research and development. Accordingly, our losses are expected to continue until such time as we are able to realize supply, licensing, royalty, sales, and development revenues sufficient to cover the fixed costs of operations. We continue to be subject to the risks normally associated with any new business activity, including unforeseeable expenses, delays and complications. Accordingly, there is no guarantee that we can or will report operating profits in the future.
Since March 31, 2001, we have experienced substantial reduction in cash, projected revenues and increased costs that adversely affect our current results of operations and liquidity. Our operating plans require additional funds which may take the form of debt or equity financings. There can be no assurance that any additional funds will be available to our company on satisfactory terms and conditions, if at all. Our company's ability to continue as a going concern is in substantial doubt and is dependent upon achieving a profitable level of operations and, if necessary, obtaining additional financing.
Management of our company has undertaken steps as part of a plan to improve operations with the goal of sustaining our operations for the next twelve months and beyond. These steps include (a) branding and selling our own line of digital audio products to consumers; (b) expanding sales and marketing to OEM customers and markets; (c) controlling overhead and expenses; and (d) raising, if necessary, additional capital and/or financing.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to product returns, bad debts, inventory valuation, intangible assets, financing operations, warranty obligations, estimated costs to complete research contracts and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.
We recognize license revenue and product revenue upon shipment of a product to the customer, FOB destination or FOB shipping point depending on the specific contract term, if a signed contract exists, the fee is fixed and determinable, collection of resulting receivables is probable and there are no resulting obligations. With most of our consumer electronics retailers, we do not meet the criteria for revenue recognition upon shipment and therefore only recognize the revenue as the product is sold through our customer to the ultimate end-user. Research and development contract revenues on short-term projects or service revenue is recognized once the services or product has been delivered, the fee is fixed and determinable, collection of the resulting receivable is probable and there are no resulting obligations. If all of the service or product has been delivered and there is one element that is perfunctory to the services or product that has not been delivered, revenue will be recognized evenly over the remaining term of the undelivered element. Research and development contract revenue on long-term projects is recognized on the percentage of completion method if reasonable estimate of the costs and revenues can be determined for each of the milestones; otherwise, the revenues are recognized when the product or services have been delivered. Funds received in advance of meeting the criteria for revenue recognition are deferred and are recorded as revenue as they are earned. If the costs we incur on a contract are expected to exceed the anticipated revenue we will record the loss in the period in which the facts that give rise to the revision becomes known.
We record estimated reductions to revenue for anticipated product returns, discounts offered to our customers and volume-based incentives. If market conditions were to decline, we may take actions to increase the discounts offered for future sales which will result in an incremental reduction of revenue at the time the discounts are offered.
We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.
We provide for the estimated cost of product warranties at the time revenue is recognized. Our warranty obligation is affected by the quality of the work of our contract manufacturers, product failure rates, material usage and costs incurred in correcting a product failure. Should actual product failure rates, or service costs differ from our estimates, revisions to the estimated warranty liability would be required.
We record inventory at the lower of cost or net realizable value. Cost is determined on a first-in, first-out basis. We write down our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected, additional inventory write-downs may be required. As our business model now includes selling our own branded portable digital audio products, the risk of product obsolescence has increased. The realizable value of our inventory could deteriorate if we are unable to sell products out of our inventory due to a lack of demand for our products or due to technological changes in the industry.
RESULTS OF OPERATIONS
YEAR ENDED MARCH 31, 2003 COMPARED TO YEAR ENDED MARCH 31, 2002.
For the year ended March 31, 2003, we reported total revenues of $2,597,363, a 7.5% increase from total revenues of $2,417,034 for the year ended March 31, 2002. Revenues for the year ended March 31, 2003 included product revenue of $2,224,961, an increase of 20.1% from total product revenues of $1,852,933 for the year ended March 31, 2002. The increase in product revenues in fiscal 2003 was due to increase in unit sales of the company's branded products, offset by decreased sale prices.
Our development arrangements are designed to produce limited current revenues while creating proprietary OEM products to be sold to OEM customers or to be produced under long-term license or royalty arrangements. Service revenues were $372,402 and $564,101 for fiscal years 2003 and 2002, respectively. The 34.0% decrease in service revenue is primarily attributable to the fulfillment of our DataPlay project in 2002, offset by Bang & Olufson royalties received in 2003. The timing and amount of service revenues is dependent upon a limited number of projects. At March 31, 2003 we had $311,703 and $132,132 of deferred revenue and deferred contract charges, respectively, from NRE contracts, which will be recognized based on the terms and conditions of each agreement.
For the year ended March 31, 2003, we reported a gross loss of $899,695 compared to a gross loss of $560,946 for the year ended March 31, 2002. For fiscal 2003, costs of sales consisted of $3,365,086 of product costs and $131,972 of contract services consisting mostly of research and development labor being funded in part by the Softeq, Eclipse and APS development agreements. For fiscal 2002, costs of sales consisted of $2,578,071 of product costs and $399,909 of contract services consisting mostly of research and development labor being funded in part by the DataPlay, Musical, Bang & Olufsen, Samsung and Eclipse development agreements. Gross profit as a percentage of revenue decreased from (23.2%) in 2002 to (34.6%) in 2003, due primarily to reduced pricing on our TREO and MXP products. At the present time warranty costs are not significant. We generally sell our branded products with a six-month manufacturing warranty.
Total operating expenses (consisting of research and related expenditures and selling and administrative expenses) were $4,942,225 and $5,294,510, for fiscal 2003 and 2002, respectively. Selling and administrative costs aggregated $3,531,719 and $2,967,227 in fiscal 2003 and 2002, respectively. The $564,492 of increase in selling and administrative costs resulted primarily from an increase in personnel and benefit costs of $804,245, a loss on impairment of asset of $129,930, an increase of $70,381 in bad debts and an increase of $41,514 in insurance costs, offset by a $238,653 decrease in marketing and advertising costs.
For the year ended March 31, 2003, research and related expenditures were $1,410,506 compared to $2,327,283 for the year ended March 31, 2002. The $916,777 decrease in research and related expenditures resulted primarily from a decrease in personnel and benefit costs of $675,866 and a decrease of $222,226 in the use of outside consultants. Research and development costs are subject to significant quarterly variations depending on the use of outside services, the assignment of engineers to development projects and the availability of financial resources.
We reported an operating loss of $5,841,920 and $5,855,456 for the year ended March 31, 2003 and 2002, respectively. The increase in operating loss in fiscal 2003 compared to fiscal 2002 resulted primarily from bigger gross loss, offset by decreased operating expenses. We believe, but we cannot guarantee, that our strategy of investing in OEM developments with supply or royalty provisions, when combined with our own "e.Digital" branded products, will provide positive margins in future periods. The timing and amount of product sales and the recognition of contract service revenues impact our operating losses. Accordingly, there is uncertainty about future operating results and the results for the year ended March 31, 2003 are not necessarily reflective of operating results for future periods.
We reported interest expense of $741,435 and $234,533 for the years ended March 31, 2003 and 2002, respectively. The interest expense in 2003 consisted primarily of interest and accretion of the discount in connection with the SP Notes, and interest on the 5% SP Note and the Unsecured Notes. The interest expense in 2002 consisted primarily of interest expense on the SP Notes and the 5% SP Note and accretion of the discount in connection with the SP Notes.
We reported other expense of $1,259 for the year ended March 31, 2003, compared to other income of $242,310 for the year ended March 31, 2002. Other expense of ($1,259) in fiscal 2003 consists of Delaware and California corporate taxes. Other income in 2002 included approximately a $212,000 write-off of accounts payable that arose in the normal course of business for services rendered to the company or for goods delivered to the company that were approximately five to seven years old.
We reported a loss of $6,665,802 and $5,793,066 in fiscal 2003 and 2002, respectively.
The net loss available to stockholders for fiscal 2003 was increased in computing loss per share by accrued dividends of $61,500 on Series D stock. The net loss available to stockholders for fiscal 2002 was increased in computing loss per share by accrued dividends of $26,332 on Series C stock.
YEAR ENDED MARCH 31, 2002 COMPARED TO YEAR ENDED MARCH 31, 2001.
For the year ended March 31, 2002, we reported total revenues of $2,417,034, a 32.2% increase from total revenues of $1,828,012 for the year ended March 31, 2001. Revenues for the year ended March 31, 2002 included product revenue of $1,852,933, an increase of 24.0% from total product revenues of $1,494,747 for the year ended March 31, 2001. The increase in product revenues in fiscal 2002 was due to the launch, during the 3rd and 4th quarter, of our branded portable digital audio players on our website and through major consumer electronics retailers, offset by lower product sales to Lanier. We shipped approximately $210,000 of products to CompUSA during our last days of the fiscal 2002 that is not included in product revenues for the year ended March 31, 2002 as CompUSA didn't take possession of the shipment until early April, 2002.
Our development arrangements are designed to produce limited current revenues while creating proprietary OEM products to be sold to OEM customers or to be produced under long-term license or royalty arrangements. Service revenues were $564,101 and $333,265 for fiscal years 2002 and 2001, respectively. The 69.3% increase in service revenue is primarily attributable to recognition of NRE fees associated with the fulfillment of our DataPlay agreement. The timing and amount of service revenues is dependent upon a limited number of projects. At March 31, 2002 we had $130,212 and $91,148 of deferred revenue and deferred contract charges, respectively, from NRE contracts, which were recognized based on the terms and conditions of each agreement.
For the year ended March 31, 2002, we reported a gross loss of $560,946 compared to a gross profit of $123,436 for the year ended March 31, 2001. For fiscal 2002, costs of sales consisted of $2,578,071 of product costs and $399,909 of contract services consisting mostly of research and development labor being funded in part by the DataPlay, Musical, Bang & Olufsen, Samsung and Eclipse development agreements. For fiscal 2001, costs of sales consisted of $1,380,041 of product costs and $324,535 of contract services consisting mostly of research and development labor being funded in part by the Maycom and Samsung development agreements. Gross profit as a percentage of revenue decreased from 6.8% to (23.1%), due primarily to start-up costs relating to the launch of our branded products. We generally sell our branded products with a six-month manufacturing warranty, while the contract supply agreement on Lanier products provided a twelve-month manufacturing warranty.
Total operating expenses (consisting of research and related expenditures and selling and administrative expenses) were $5,294,510 and $3,996,323, for fiscal 2002 and 2001, respectively. Selling and administrative costs aggregated $2,967,227 and $2,039,466 in fiscal 2002 and 2001, respectively. The $927,761 of increase in selling and administrative costs resulted primarily from an increase in personnel and benefit costs of $462,860, an increase in of $78,354 in marketing and advertising costs, an increase of $268,386 for professional services, an increase in facility cost of $14,985, offset by a $46,727 decrease in travel and related costs and a decrease of $64,921 in public relations and stockholder costs.
For the year ended March 31, 2002, research and related expenditures were $2,327,283 compared to $1,956,857 for the year ended March 31, 2001. An aggregate of $191,057 and $174,831 of development costs were incurred for contract development work during fiscal 2002 and 2001, respectively, and are included in cost of revenues. The $370,426 increase in research and related expenditures resulted primarily from additional personnel and benefit costs. Research and development costs are subject to significant quarterly variations depending on the use of outside services, the assignment of engineers to development projects and the availability of financial resources.
We reported an operating loss of $5,855,456 and $3,872,887 for the year ended March 31, 2002 and 2001, respectively. The increase in operating loss in fiscal 2002 compared to fiscal 2001 resulted primarily from a negative gross profit in fiscal 2002 and increased operating expenses. We believe, but we cannot guarantee, that our strategy of investing in OEM developments with supply or royalty provisions, when combined with our own "e.Digital" branded products, will provide positive margins in future periods. The timing and amount of product sales and the recognition of contract service revenues impact our operating losses. Accordingly, there is uncertainty about future operating results and the results for the year ended March 31, 2002 are not necessarily reflective of operating results for future periods.
We reported interest expense of $234,533 and $nil for the year ended March 31, 2002 and 2001, respectively. The interest expense in 2002 consisted primarily of interest expense on the SP Notes and the 5% SP Note and accretion of the discount in connection with the SP Notes.
We reported other income of $242,310 and $50,990 for the year ended March 31, 2002 and 2001, respectively. Other income in 2002 included approximately a $212,000 write-off of accounts payable that arose in the normal course of business for services rendered to the company or for goods delivered to the company that were approximately five to seven years old.
We reported a loss of $5,793,066 and $3,646,378 in fiscal 2002 and 2001, respectively.
The net loss available to stockholders for fiscal 2002 was increased in computing loss per shares by accrued dividends of $26,332 on Series C stock. The net loss available to stockholders for fiscal 2001 was increased in computing loss per share by $3,417,094 relating to the beneficial conversion feature on the Series C stock, accretion of the discount on Series C stock of $582,905, premium on the Series C stock of $400,000, accrued dividends of $87,668 on Series A and C stock and $300,000 relating to the cumulative catch-up adjustment on the Series B stock.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2003, we had a working capital deficit of $1,427,978 compared to a working capital deficit of $2,543,657 at March 31, 2002. We had $138,795 and $910,222 of working capital invested in inventories at March 31, 2003 and March 31, 2002, respectively. We had $181,536 and $618,509 of working capital invested in accounts receivable at March 31, 2003 and March 31, 2002, respectively.
For the year ended March 31, 2003, net cash decreased by $361,313. Cash used in operating activities was $4,671,036. Major components using cash were a loss of $6,665,802 reduced by $698,594 write-down of obsolete inventory, $442,258 of accrued interest and accretion relating to the secured and unsecured promissory notes, $199,119 of depreciation and amortization, $185,085 relating to a stock option issued to a consultant and $129,930 loss on impairment of asset. The major change in assets and liabilities providing cash for operating activities was a decrease of $372,035 in accounts receivable and an increase of $181,491 in deferred revenue. The major changes in assets and liabilities using operating cash was a decrease of $180,152 in other accounts payable and accrued liabilities and an increase of $127,044 in deferred contract charges. For the year ended March 31, 2002, net cash decreased by $3,066,287. Cash used in operating activities was $5,312,559. Major components using cash were a loss of $5,793,066 reduced by $162,718 of depreciation and amortization, $202,600 of stock issued as payment to a supplier and $234,130 of accrued interest and accretion relating to the secured promissory notes. The major change in assets and liabilities providing cash for operating activities was an increase in trade accounts payable of $710,554, an increase in other accounts payable and accrued liabilities of $80,061 and an increase of $112,434 in deferred revenue. The major changes in assets and liabilities using operating cash was an increase in inventory of $894,436, an increase of $91,148 of deferred contract charges and an increase of $35,495 in prepaid expenses and other.
At March 31, 2003, we had cash on hand of $83,906. For the year ended March 31, 2003, cash provided by financing activities increased by $4,263,240. During the fiscal year ended March 31, 2003, we obtained a total of $3,475,619 from the issuance of shares of Common Stock, $1,842,000 from the issuance of Unsecured Notes and $114,121 from the exercise of stock options. During the fiscal year ended March 31, 2003, we repaid $1,200,000 of the 5% SP Notes. At March 31, 2002 we had cash on hand of $445,219. During the fiscal year ended March 31, 2002, we obtained a total of $2,200,000 of cash from the issuance of the SP Notes and the SP Notes and $241,603 and $45,500 from the exercise of warrants and stock options, respectively. Other than cash on hand and accounts receivable, we have no material unused sources of liquidity at this time. Based on our cash position at March 31, 2003 assuming (a) introduction of "e.Digital" branded products, (b) expansion of existing OEM arrangements, and (c) current planned expenditures and level of operation, we believe we have sufficient capital resources for the next three months. However actual results could differ significantly from management plans. The actual future margins to be realized, if any, and the timing of shipments and the realization of royalties are subject to many factors and risks, many outside our control.
Since March 31, 2001, we have experienced substantial reduction in cash, projected revenues and increased costs that adversely affect our current result of operations and liquidity. Our operating plans, including our plans to brand and sell our own line of digital audio products, require additional funds which may take the form of debt or equity financings. There can be no assurance that any additional funds will be available. Our company's ability to continue as a going concern is in substantial doubt and is dependent upon achieving a profitable level of operations and, if necessary, obtaining additional financing.
On September 28, 2001, we issued SP Notes for gross cash proceeds of $1,000,000 to certain accredited investors. The SP Notes mature December 31, 2002 and are secured by our accounts receivable and inventory. The interest under the SP Notes accrues at a rate of 12% per annum simple interest and is payable in one installment on the maturity date. In connection with the sale of the SP Notes, we issued warrants to purchase 750,000 shares of our Common Stock at a purchase price of
$0.75 per common share expiring September 20, 2006. The proceeds raised have been allocated to the SP Notes and warrants based on their relative fair values. On December 30, 2002, we issued 807,013 shares of Common Stock in consideration for all accrued and unpaid interest. On December 30, 2002, each of the note holders agreed to convert the unpaid principal balance totaling $1,000,000 of the SP Notes into 100,000 Series D stock.
On January 18, 2002, we issued a 5% SP Note for gross cash proceeds of $1,200,000. The 5% SP Note, originally matured on April 18, 2002 and is secured by all assets of our company including, without limitation, our intellectual property. The interest under the 5% SP Note accrued at a rate of 5% per annum simple interest and was payable in one installment on maturity date. On April 17, 2002, the 5% SP Note holder agreed to extend the maturity date of the 5% SP Note from April 18, 2002 to May 2, 2002 for no consideration. On April 29, 2002, the 5% SP Note holder agreed to extend the maturity date of the 5% SP Note from May 2, 2002 to October 29, 2002 and to reduce the interest rate from 5% to 4% in exchange for (i) a $200,000 finance fee that increased the principal amount from $1,200,000 to $1,400,000, (ii) a minimum monthly principal reduction of $100,000; (iii) an immediate principal repayment of $300,000 and (iv) repayment of accrued interest to April 18, 2002 of $15,000. On September 11, 2002, we redeemed the outstanding balance and accrued interest on the 5% SP Note
On February 6, 2002, we filed a "shelf" registration statement on Form S-3, No. 333-82272 (the "Registration Statement") to sell up to 20,000,000 shares of common stock. The Registration Statement was declared effective by the Securities and Exchange Commission on April 29, 2002. On April 31, 2002, we sold 2,830,189 shares of Common Stock for gross proceeds of $1,500,000, and utilized $300,000 to reduce the principal amount due under the 5% SP Note, $15,000 to reduce accrued interest due under the 5% SP Note, and $5,105 for offering expenses. On June 7, 2002, we sold 2,105,264 shares of Common Stock for gross proceeds of $800,000, and utilized $250,000 to reduce the principal amount due under the 5% SP Note and $1,000 for offering expenses. On December 3, 2002, we sold 425,532 shares of Common Stock for gross proceeds of $200,000 and utilized $195,000 for working capital purposes and $5,000 for offering expenses. On October 2, 2002, we sold 455,000 shares of Common Stock for gross proceeds of $182,000, and utilized $150,000 to reduce the principal amount of the Unsecured Notes and $32,000 to reduce accrued interest due under the Unsecured Notes. On November 1, 2002, we sold 446,774 shares of Common Stock for gross proceeds of $138,500 and utilized $138,500 for working capital purposes. On November 18, 2002, we sold 445,000 shares of Common Stock for gross proceeds of $133,500 and utilized $133,500 for working capital purposes. On November 27, 2002, we sold 450,488 shares of Common Stock for gross proceeds of $92,350 and utilized $92,350 for working capital purposes. On December 24, 2002, we sold 555,263 shares of Common Stock for gross proceeds of $105,500 and utilized $105,500 for working capital purposes. On January 14, 2003, we sold 678,947 shares of Common Stock for gross proceeds of $129,000 and utilized $129,000 for working capital purposes. On March 6, 2003, we sold 425,000 shares of Common Stock for gross proceeds of $80,750 and utilized $80,750 for working capital purposes. On June 10, 2003, we sold 6,161,705 shares of Common Stock for gross proceeds of $1,170,723 and utilized $203,067 to redeem all of the principal and accrued interest on the 24% Unsecured Promissory Note, $74,137 to redeem all of the principal and accrued interest on the 24% Unsecured Note to a director and $893,519 for working capital purposes.
In July 2002, we issued Unsecured Promissory Notes ("Unsecured Notes") for gross cash proceeds of $1,050,000 to certain investors to finance various purchase orders and accounts payable. The Unsecured Notes originally matured sixty days from issuance, commencing December 1, 2002. The interest under the Unsecured Notes accrued at a rate of 24% per annum simple interest and was payable in one installment on the maturity date. We have entered into a forbearance agreement with the investors through and including December 31, 2002. On December 30, 2002, we issued 397,104 shares of Common Stock in consideration for all accrued and unpaid interest. On December 30, 2002, each of the note holders agreed to convert the unpaid principal balance totaling $1,050,000 of the Unsecured Notes into 105,000 Series D stock.
On August 2, 2002, we issued 360,000 restricted shares of Common Stock to a director for gross proceeds of $120,000. The restricted shares of Common Stock do not have any registration rights.
On December 11, 2002, we issued a 15% Unsecured Note for gross cash proceeds of $750,000 to an individual. The 15% Unsecured Note, under the original term, was scheduled to mature on February 11, 2004 and payable $50,000 each month, with a final payment of $35,801 on February 11, 2004. We entered into a forbearance agreement with the noteholder through and including December 31, 2002. On December 30, 2002, we issued 137,273 shares of Common Stock in consideration for all accrued and unpaid interest. On December 23, 2002, the holder of the 15% Unsecured Note agreed to (i) extend the maturity date of the 15% Unsecured Note from February 11, 2004 to May 31, 2005; (ii) reduce the monthly payments from $50,000 to $7,500 through December 31, 2003, representing the monthly interest on the 15% Unsecured Note and (iii) $50,000 payments each month, beginning January 31, 2004.
On March 17, 2003, we issued a 24% Unsecured Note for gross cash proceeds of $42,000 to a director to finance inventory purchases. On March 31, 2003, we repaid all accrued interest and $6,938 of principal. At March 31, the principal amount due under the 24% Unsecured Note was $35,454. On April 28, 2003, we received additional gross cash proceeds of
$37,800 from the same director pursuant to this same 24% Unsecured Note. On June 10, 2003, we redeemed the outstanding balance and accrued interest on the 24% Unsecured Note.
In May 2003, we issued certain 24% Unsecured Promissory Notes for gross cash proceeds of $200,000 to certain accredited investors. The 24% Unsecured Promissory Notes mature on June 30, 2004. The interest under the 24% Unsecured Promissory Notes is payable monthly at a rate of 12% per annum, simple interest and accrues an additional interest of 12% per annum, simple interest to be paid at the earlier of redemption or maturity. On June 10, 2003, we redeemed the outstanding balance and accrued interest on the 24% Unsecured Note.
On June 10, 2003, we sold 6,161,705 shares for gross proceeds of $1,170,723 and utilized $203,067 to redeem all of the principal and accrued interest on the 24% Unsecured Promissory Notes, $74,137 to redeem all of the principal and accrued interest on the 24% Unsecured Note to a director and $893,519 for working capital purposes.
We are actively seeking equity financing and intend to use proceeds from equity sales for working capital and to repay the15% Unsecured Note. If we are unable to secure equity financing, we will attempt to renegotiate the terms of both of these notes with the lenders. There can be no guarantee that we will be able to raise additional equity and/or renegotiate the terms of the notes with the lenders. If we are able to renegotiate the terms of the notes we are unable to determine what terms the lenders may demand. If we fail to raise additional equity and/or refinance or renegotiate the terms of the notes the holders of the notes may have the right to take possession of our intellectual property and all of our assets or may have the right to operate our business and have the right to assign, sell, lease or otherwise dispose of our intellectual property and all of our assets.
We require additional capital to finance future developments and improvements to our technology. Should additional funds not be available, we may be required to curtail or scale back staffing or operations. Failure to obtain additional financings will have a material adverse affect on our company. Potential sources of such funds include exercise of outstanding warrants and options, or debt financing or additional equity offerings. However, there is no guarantee that warrants and options will be exercised or that debt or equity financing will be available when needed. Any future financing may be dilutive to existing stockholders.
As of March 31, 2003, our contractual obligations and commercial commitments are summarized below
- -
Cash Contractual Obligations by Period
------------------------------- ------------------- ---------------- ----------- --------------
Cash Contractual Obligations Total Less than 1 1-2 years 2-3 years
by Period year
------------------------------- ------------------- ---------------- ----------- --------------
15% Unsecured Note $948,301 $262,500 $600,000 $85,081
------------------------------- ------------------- ---------------- ----------- --------------
24% Unsecured Note /1/ 41,836 41,836 - -
------------------------------- ------------------- ---------------- ----------- --------------
Operating Leases /2/ 66,424 66,424 - -
------------------------------- ------------------- ---------------- ----------- --------------
Total Cash Obligations $1,056,561 $370,760 $600,000 $85,081
------------------------------- ------------------- ---------------- ----------- --------------
1 Includes accrued interest through December 31, 2003. 2 Office sublease agreement expires July 31, 2003
Certain accounts payable and the accrued lease liability reflect management's best estimate of amounts due for matters in dispute. Settlement of these liabilities may either be more or less than the amounts recorded in the unaudited interim consolidated financial statements and accordingly may be subject to measurement uncertainty in the near term.
FUTURE COMMITMENTS AND FINANCIAL RESOURCES
The accrued lease liability reflects management's best estimate of amounts due for matters in dispute. Settlement of this liability may either be more or less than the amount recorded in the audited consolidated financial statements and accordingly may be subject to measurement uncertainty in the near term.
In the future, if our operations increase significantly, we may require additional funds. We also may require additional capital to finance future developments, acquisitions or expansion of facilities. We currently have no plans, arrangements or understandings regarding any acquisitions.
In September 2000, we entered into a three-year sublease agreement expiring on July 31, 2003. We are occupying approximately 13,000 square feet with aggregate monthly lease payments of $15,967 inclusive of utilities and costs. The aggregate monthly lease payments increased to $16,606 beginning in August 1, 2002. As of March 31, 2003, the total operating lease obligation under the lease for office space is $66,424.
SELECTED QUARTERLY FINANCIAL INFORMATION
The following table sets forth unaudited income statement data for each of our last eight quarters. This unaudited quarterly financial information has been prepared on the same basis as the annual information presented elsewhere in the Form 10-K and, in the opinion of management, reflects all adjustments (consisting of normal recurring entries) necessary for a fair presentation of the information presented. The operating results for any quarter are not necessarily indicative of results for any future period.
FOR THE FISCAL YEAR ENDED MARCH 31, 2002 FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------------- ------------- ------------- -------------
Revenues $ 669,279 $ 506,996 $ 592,155 $ 655,604
Gross profit (loss) 151,996 269,780 (305,090) (677,632)
Loss for the quarter (972,628) (1,062,354) (1,864,553) (1,893,531)
Operating Loss (1,030,367) (1,080,127) (1,760,066) (1,984,896)
Loss attributable to common stockholders (985,722) (1,075,592) (1,864,553) (1,893,531)
Basic earnings per common share (0.01) (0.01) (0.01) (0.01)
Weighted average number of common and
common equivalent shares outstanding 130,175,406 130,175,406 130,402,791 130,782,909
FOR THE FISCAL YEAR ENDED MARCH 31, 2003 FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------------- ------------- ------------- -------------
Revenues $ 551,507 $ 290,290 $ 643,420 1,112,146
Gross profit (loss) (434,435) (897,938) (105,844) 538,522
Loss for the quarter (1,942,282) (2,673,578) (1,439,760) (610,182)
Operating Loss (1,805,853) (2,374,276) (1,245,669) (416,122)
Loss attributable to common stockholders (1,942,282) (2,673,578) (1,439,760) (671,682)
Basic earnings per common share (0.01) (0.02) (0.01) (0.00)
Weighted average number of common and
common equivalent shares outstanding 134,989,692 138,025,421 141,846,843 146,191,173
INFLATION
Inflation has not had any significant impact on our business.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board and the Securities and Exchange Commission also have issued new pronouncements for future implementation as discussed in our consolidated financial statements (see page F-1. As discussed in the notes to the consolidated financial statements, the implementation of these new pronouncements is not expected to have a material effect on our consolidated financial statements.
In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets. Statement 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Statement 141 also includes guidance on the initial recognition and measurement of goodwill and other intangible assets. Statement 142 prohibits the amortization of goodwill and intangible assets with indefinite useful lives. Statement 142 requires that these assets be reviewed for impairment at least annually. Intangible assets with finite lives will continue to be amortized over their estimated useful lives. The company does not expect that the adoption of the Statements to have a significant impact on the company's financial position and results of operations
In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (FAS 144), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations for a disposal of a segment of a business. FAS 144 is effective for fiscal
years beginning after December 15, 2001, with earlier application encouraged. The company adopted FAS 144 as of April 1, 2002 and does not believe it will have a material impact on the company's financial position and results of operations.
In April 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." SFAS No. 145 updates, clarifies, and simplifies existing accounting pronouncements. This statement rescinds SFAS No. 4, which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. As a result, the criteria in Accounting Principles Board No. 30 will now be used to classify those gains and losses. SFAS No. 64 amended SFAS No. 4 and is no longer necessary as SFAS No. 4 has been rescinded. SFAS No. 44 has been rescinded as it is no longer necessary. SFAS No. 145 amends SFAS No. 13 to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-lease transactions. This statement also makes technical corrections to existing pronouncements. While those corrections are not substantive in nature, in some instances, they may change accounting practice. The Company does not expect adoption of SFAS No. 145 to have a material impact, if any, on its financial position or results of operations.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." This statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF Issue 94-3, a liability for an exit cost, as defined, was recognized at the date of an entity's commitment to an exit plan. The provisions of this statement are effective for exit or disposal activities that are initiated after December 31, 2002 with earlier application encouraged. The Company does not expect adoption of SFAS No. 146 to have a material impact, if any, on its financial position or results of operations.
In October 2002, the FASB issued SFAS No. 147, "Acquisitions of Certain Financial Institutions." SFAS No. 147 removes the requirement in SFAS No. 72 and Interpretation 9 thereto, to recognize and amortize any excess of the fair value of liabilities assumed over the fair value of tangible and identifiable intangible assets acquired as an unidentifiable intangible asset. This statement requires that those transactions be accounted for in accordance with SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." In addition, this statement amends SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," to include certain financial institution-related intangible assets. The Company does not expect adoption of SFAS No. 147 to have a material impact, if any, on its financial position or results of operations.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure," an amendment of SFAS No. 123. SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require more prominent and more frequent disclosures in financial statements about the effects of stock-based compensation. This statement is effective for financial statements for fiscal years ending after December 15, 2002. SFAS No. 148 will not have any impact on the Company's financial statements as management does not have any intention to change to the fair value method.
CERTAIN FACTORS THAT MAY AFFECT OUR BUSINESS, FUTURE RESULTS AND FINANCIAL
CONDITION
In addition to the other information in this Annual Report on Form 10-K, the factors listed below should be considered in evaluating our business and prospects. This Annual Report contains a number of forward-looking statements which reflect our current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties, including those discussed below and elsewhere herein, that could cause actual results to differ materially from historical results or those anticipated. In this report, the words "anticipates," "believes," "expects," "intends," "future" and similar expressions identify forward-looking statements. Readers are cautioned to consider the specific factors described below and not to place undue reliance on the forward-looking statements contained herein, which speak only as of the date hereof. We undertake no obligation to publicly revise these forward-looking statements, to reflect events or circumstances that may arise after the date hereof.
FINANCIAL RISKS
We Have a History of Losses and May Incur Future Losses. We have incurred significant operating losses in prior fiscal years and at March 31, 2003 had an accumulated deficit of $65.0 million. We had a loss of approximately $6.7 million, $5.8 million and $3.6 million in fiscal 2003, 2002 and 2001, respectively. To date, we have not achieved profitability and given the level of operating expenditures and the uncertainty of revenues and margins, we will continue to incur losses and
negative cash flows in future periods. The failure to obtain sufficient revenues and margins to support operating expenses could harm our business.
We do not Anticipate Paying Dividends. We have never paid any cash dividends on our common stock and do not anticipate paying any cash dividends in the foreseeable future. We currently intend to retain any future earnings to fund the development and growth of our business. An investment in our common stock, therefore, may be more suitable for an investor that is seeking capital appreciation rather than current yield and, as a consequence, may be more speculative. Accordingly, investors should not purchase our common stock with an expectation of receiving regular dividends.
We Expect Our Operating Results To Fluctuate Significantly - Our quarterly and annual operating results have fluctuated significantly in the past and we expect that they will continue to fluctuate in the future. This fluctuation is a result of a variety of factors, including the following:
[] Unpredictable demand and pricing for our contract development
services;
[] Market acceptance of our e.Digtal branded products and our OEM
products by end users;
[] Uncertainties with respect to future customer product orders,
their timing and the margins to be received, if any;
[] Fluctuations in operating costs;
[] Changes in research and development costs;
[] Changes in general economic conditions;
[] Changes in technology; and
[] Short product lifecycles.
We May Experience Product Delays, Cost Overruns and Errors Which Could Adversely Affect our Operating Performance and Ability to Remain Competitive. We have experienced development delays and cost overruns associated with contract development services in the past. We may experience additional delays and cost overruns on current projects (including the sale of e.Digital branded products) or future projects Future delays and cost overruns could adversely affect our financial results and could affect our ability to respond to technological changes, evolving industry standards, competitive developments or customer requirements. Our technology, our e.Digital branded products, the results of our contract services and the products produced for OEM customers could contain errors that could cause delays, order cancellations, contract terminations, adverse publicity, reduced market acceptance of products, or lawsuits by our customers or others who have acquired our products, including OEM products.
We May Need to Obtain Additional Financing to Continue Operating our Business. We believe that with cash on hand and proceeds from existing development and production contracts and product sales, we have sufficient proceeds to meet cash requirements for the next three months. However, we may need to raise additional funds to:
[] Finance unanticipated working capital requirements;
[] Pay for increased operating expenses or shortfalls in anticipated
revenues;
[] Fund increases in research and development costs;
[] Develop new technology, products or services;
[] Respond to competitive pressures;
[] Support strategic and industry relationships; and
[] Fund the marketing of our products and services.
In the event additional funds are required, we cannot assure you that such additional financing will be available on terms favorable to us, or at all. If adequate funds are not available to us then we may not be able to continue operations or take advantage of opportunities. If we raise additional funds through the sale of equity, the sale of common stock hereunder, the percentage ownership of our stockholders will be reduced.
Unless We Obtain Adequate Financing and Increase Our Revenues We May Be Unable to Continue as a Going Concern. We have experienced substantial reduction is cash, projected revenues and increased costs that adversely affected our results of operations and cash flows. Our company has suffered recurring losses from operations. This factor, in combination with (i) reliance upon debt and new equity financing to fund the continuing, losses from operations and cash flow deficits, (ii) material net losses and cash flow deficits from operations during fiscal 2003, fiscal 2002 and prior years and (iii) the possibility that we may be unable to meet our debts as they come due, raise substantial doubt about our ability to continue as a going concern. Our company's ability to continue as a going concern is dependent upon our ability to obtain adequate financing and achieve a level of revenues, adequate to support our capital and operating requirements, as to which no assurance can be given. In the event we are unable to continue as a going concern, we may elect or be required to seek protection from our creditors by filing a voluntary petition in bankruptcy or may be subject to an involuntary petition in bankruptcy. To date, management has not considered this alternative, nor does management view it as a likely occurrence.
RISKS RELATED TO SALES, MARKETING AND COMPETITION
We May Be Unable to Successfully Compete in the Electronic Products Market Which is Highly Competitive and Subject to Rapid Technological Change. We compete in the market for electronics products which is intensely competitive and subject to rapid technological change. The market is also impacted by evolving industry standards, rapid price changes and rapid product obsolescence. Our competitors include a number of large foreign companies with U.S. operations and a number of domestic companies, many of which have substantially greater financial, marketing, personnel and other resources. Our current competitors or new market entrants could introduce new or enhanced technologies or products with features that render the company's technology or products obsolete or less marketable, or could develop means of producing competitive products at a lower cost. Our ability to compete successfully will depend in large measure on our ability to maintain our capabilities in connection with upgrading products and quality control procedures and to adapt to technological changes and advances in the industry. Competition could result in price reductions, reduced margins, and loss of contracts, any of which could harm our business. There can be no assurance that we will be able to keep pace with the technological demands of the marketplace or successfully enhance our products or develop new products that are compatible with the products of the electronics industry.
We Rely on a Limited Number of Customers for Revenue. Historically, a substantial portion of our revenues has been derived primarily from a limited number of customers. For the year ended March 31, 2003 three customers accounted for approximately 37% of our revenues. For the year ended March 31, 2002 three customers accounted for approximately 58% of our revenues The failure to receive orders for and produce e.Digital branded products or other OEM products or a decline in the economic prospects of our customers or the products we may produce for sale may have a material adverse effect on our operations.
If We Are Unsuccessful in Achieving Market Acceptance of Our Products, It Could Harm Our Business. Sales and marketing strategy contemplates sales of developed products to the electronics and computer software market, by us or our OEM customers. The failure of our company or our OEM customers to penetrate their projected markets would have a material adverse effect upon our operations and prospects. Market acceptance of our products and those of our customers will depend in part upon our ability to demonstrate and maintain the advantages of our technology over competing products.
We Have Limited Marketing Capabilities and Resources Which Makes It Difficult For Us To Create Awareness of and Demand for Our Products and Technology. We have limited marketing capabilities and resources and are primarily dependent upon in-house executives for the marketing of our e.Digital branded products, as well as our OEM and licensing business. Selling products and attracting new OEM customers requires ongoing marketing and sales efforts and expenditure of funds to create awareness of and demand for our technology. We cannot assure that our marketing efforts will be successful or result in future development contracts or other revenues.
The Failure of the Digital Music Market to Create a Market for Consumer Devices Could Harm Our Business. We believe the market for portable consumer devices to play digital music will not develop significantly until consumers are able to download popular digital recordings from the Internet. We believe the availability of popular recordings will depend on the adoption of one or more formats to limit the unauthorized reproduction and distribution of music, called "pirated" copies. Piracy is a significant concern of record companies and artists. The failure of the record industry to adopt solutions may delay or have an adverse impact on the growth of this market. This failure could harm our business. We have designed our digital music prototype to include piracy protection and to be adaptable to different music industry and technology standards. Numerous standards in the marketplace, however, could cause confusion as to whether our designs and services are compatible. If a competitor were to establish products for OEM customers with a dominant industry standard unavailable to us, our business would be harmed.
The Success of Our Business Depends on Emerging Markets and New Products. In order for demand for our technology, services and products to grow, the markets for portable digital devices, such as digital voice recorders, digital music players and other portable consumer devices, must develop and grow. If sales for these products do not grow, our revenues could decline. To remain competitive, we intend to develop new applications for our technology and develop new technology and products. If new applications or target markets fail to develop, or if our technology, services and products are not accepted by the market, our business, financial condition and results of operations could suffer.
Development of New or Improved Products, Processes or Technologies May Render Our Technology Obsolete and Hurt Our Business. The electronics, contract manufacturing and computer software markets are characterized by extensive research and development and rapid technological change resulting in very short product life cycles. Development of new or
improved products, processes or technologies may render our technology and developed products obsolete or less competitive. We will be required to devote substantial efforts and financial resources to enhance our existing products and methods of manufacture and to develop new products and methods. There can be no assurance we will succeed with these efforts. Moreover, there can be no assurance that other products will not be developed which may render our technology and products obsolete.
RISKS RELATED TO OPERATIONS
We May Not Be Able to Successfully Transition From an OEM Provider of Technology and Services to a Company That Sells and Supports Its Own Branded Products. The scale and scope of our business is changing. Since 1997, we have been an OEM provider of technology, product development services and technology licensing. In September 2001, we announced our intention to have manufactured and sell our own line of e.Digital-branded products directly to consumers. In November 2002, we announced plans to refocus our business and marketing strategy on OEM opportunities and deempahsize the production and marketing of our own branded products. Such activities have caused, and will continue to cause, us to spend substantial funds for research and development, contract manufacturing, marketing and other costs normally associated with bringing a product to market without any assurance of market acceptance and demand for our products. Our future growth and performance, as a consequence, is greatly dependent upon the successful marketing of our new e.Digital branded products and will be dependent upon the risks that are inherent in any business venture that is undergoing a major change in its scope of its operations.
We Depend On a Limited Number of Contract Manufacturers and Suppliers and Our Business Will Be Harmed By Any Interruption of Supply or Failure of Performance. We rely on Maycom Co., Ltd. for the manufacture of our MXP 100 and our wireless product developed for Softeq, Musical for the manufacture of our TREO products, Digitalway Co., Ltd. for the manufacture of our Odyssey and IFE products and Orient Power for the manufacture and assembly of the Eclipse-branded audio products. We depend on our contract manufacturers to (i) allocate sufficient capacity to our manufacturing needs, (ii) produce acceptable quality products at agreed pricing and (iii) deliver on a timely basis. If a manufacturer is unable to satisfy these requirements, our business, financial condition and operating results may be materially and adversely affected. Any failure in performance by either of these manufacturers for any reason could have a material adverse affect on our business. Production and pricing by each such manufacturer is subject to the risk of price fluctuations and periodic shortages of components. We have no supply agreements with component suppliers and, accordingly, we are dependent on the future ability of our manufacturers to purchase components. Failure or delay by suppliers in supplying necessary components could adversely affect our ability to deliver products on a timely and competitive basis in the future.
If We Lose Key Personnel or Are Unable to Attract and Retain Additional Highly Skilled Personnel Required For the Expansion of Our Activities Our Business Will Suffer. Our future success depends to a significant extent on the continued service of our key technical, sales and senior management personnel and their ability to execute our strategy. The loss of the services of any of our senior level management, or certain other key employees, may harm our business. Our future success also depends on our ability to attract, retain and motivate highly skilled employees. Competition for employees in our industry is intense. We may be unable to retain our key employees or to attract, assimilate and retain other highly qualified employees in the future. We have from time to time experienced, and we expect to continue to experience in the future, difficulty in hiring and retaining highly skilled employees with appropriate qualifications.
Because Some of Our Management are Part-Time and Have Certain Conflicts of Interest, Our Business Could Be Harmed. Our Vice President, Robert Putnam, is also a Vice President, Investor Relations of American Technology Corporation. As a result of his involvement with American Technology Corporation, Mr. Putnam has in the past, and is expected in the future to devote a substantial portion of his time to his other endeavors and only part-time services to e.Digital. Certain conflicts of interest now exist and will continue to exist between e.Digital and Mr. Putnam due to the fact that he has other employment or business interests to which he devotes some attention and he is expected to continue to do so. It is conceivable that the respective areas of interest of e.Digital and American Technology Corporation could overlap or conflict. It is possible that these factors could harm e.Digital which does not have the benefit of a full-time executive devoted to executing our strategies.
RISKS RELATED TO INTELLECTUAL PROPERTY AND GOVERNMENT REGULATION
Failing to Protect Our Proprietary Rights to Our Technology Could Harm Our Ability To Compete, as well as Our Results of Our Operations. Our success and ability to compete substantially depends on our internally developed software, technologies and trademarks, which we protect through a combination of patent, copyright, trade secret and trademark laws. Patent applications or trademark registrations may not be approved. Even when they are approved, our patents or trademarks may be successfully challenged by others or invalidated. If our trademark registrations are not approved because third parties own such trademarks, our use of these trademarks would be restricted unless we enter into arrangements with the third-party
owners, which may not be possible on commercially reasonable terms or at all. We generally enter into confidentiality or license agreements with our employees, consultants and strategic and industry partners, and generally control access to and distribution of our software, technologies, documentation and other proprietary information. Despite our efforts to protect our proprietary rights from unauthorized use or disclosure, parties may attempt to disclose, obtain or use our solutions or technologies. The steps we have taken may not prevent misappropriation of our solutions or technologies, particularly in foreign countries where laws or law enforcement practices may not protect our proprietary rights as fully as in the United States. We have licensed, and we may license in the future, certain proprietary rights to third parties. While we attempt to ensure that the quality of our brand is maintained by our business partners, they may take actions that could impair the value of our proprietary rights or our reputation. In addition, these business partners may not take the same steps we have taken to prevent misappropriation of our solutions or technologies.
We May Face Intellectual Property Infringement Claims That May Be Difficult to Defend and Costly To Resolve, Which Could Harm Our Business. Although we do not believe we infringe the proprietary rights of any third parties, we cannot assure you that third parties will not assert such claims against us in the future or that such claims will not be successful. We could incur substantial costs and diversion of management resources to defend any claims relating to proprietary rights, which could harm our business. In addition, we are obligated under certain agreements to indemnify the other party for claims that we infringe on the proprietary rights of third parties. If we are required to indemnify parties under these agreements, our business could be harmed. If someone asserts a claim relating to proprietary technology or information against us, we may seek licenses to this intellectual property. We may not be able to obtain licenses on commercially reasonable terms, or at all. The failure to obtain the necessary licenses or other rights may harm our business.
Risks Related To Government Regulation, Content And Intellectual Property Government Regulation May Subject Us to Liability and Require Us To Change The Way We Do Business. Our business is subject to rapidly changing laws and regulations. Although our operations are currently based in California, the United States government and the governments of other states and foreign countries have attempted to regulate activities on the Internet. Evolving areas of law that are relevant to our business include privacy law, copyright law, proposed encryption laws, content regulation and import/export regulations. Because of this rapidly evolving and uncertain regulatory environment, we cannot predict how these laws and regulations might affect our business. In addition, these uncertainties make it difficult to ensure compliance with the laws and regulations governing the Internet. These laws and regulations could harm us by subjecting us to liability or forcing us to change how we do business.
RISKS RELATED TO TRADING IN OUR COMMON STOCK
Investing in a Technology Stock (Such as Ours) May Involve Greater Risk Than Other Investments Due to Market Conditions, Stock Price Volatility and Other Factors. The trading price of our common stock has been subject to significant fluctuations to date, and will likely be subject to wide fluctuations in the future due to:
[] Quarter-to-quarter variations in operating results
[] Announcements of technological innovations by us, our customers
or competitors
[] New products or significant OEM design achievements by us or our
competitors
[] General conditions in the markets for the our products or in the
electronics industry
[] The price and availability of products and components
[] Changes in operating factors including delays of shipments,
orders or cancellations
[] General financial market conditions
[] Market conditions for technology stocks
[] Litigation or changes in operating results or estimates by
analysts or others
[] Or other events or factors
We do not endorse and accept no responsibility for the estimates or recommendations issued by stock research analysts or others from time to time or comments on any electronic chat boards. The public stock markets in general, and technology stocks in particular, have experienced extreme price and trading volume volatility. This volatility has significantly affected the market prices of securities of many high technology companies for reasons frequently unrelated to the operating performance of the specific companies. These broad market fluctuations may adversely affect the market price of our common stock in the future.
Low-Price Stocks and Stocks Traded on the OTC Electronic Bulletin Board are Subject to Special Regulations and may have Increased Risk. Our shares of common stock are traded on the OTC Electronic Bulletin Board, an electronic, screen-based trading system operated by the National Association of Securities Dealers, Inc. ("NASD"). Securities traded on the OTC Electronic Bulletin Board are, for the most part, thinly traded and are subject to special regulations not imposed on securities listed or traded on the NASDAQ system or on a national securities exchange. As a result, an investor may find it
difficult to dispose of, or to obtain accurate quotations as to the price of, our common stock. Sales of substantial amounts of our outstanding common stock in the public market could materially adversely affect the market price of our common stock. To date, the price of our common stock has been extremely volatile with the sale price fluctuating from a low of $0.125 to a high of $0.80 in the last twelve months. In addition, our common stock is subject to Rules 15g-1-15g-6 promulgated under the Securities Exchange Act of 1934 that imposes additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors (generally, a person with assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together with his or her spouse). For transactions covered by this rule, the broker-dealer must make a special suitability determination for the purchaser and have received the purchaser's written consent to the transaction prior to sale. Consequently, the rule may affect the ability of broker-dealers to sell the company's securities and may affect the ability of investors to sell their securities in the secondary market. The Commission has also adopted regulations which define a "penny stock" to be any equity security that has a market price (as defined) of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the regulations require the delivery, prior to the transaction, of a disclosure schedule prepared by the Commission relating to the penny stock market. The broker-dealer must also disclose the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer's presumed control over the market. Finally, monthly statements must be sent disclosing recent price information for the penny stock in the account and information on the limited market in penny stocks.
FORWARD LOOKING STATEMENTS
Important Factors Related to Forward-Looking Statements and Associated Risks. This annual report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934 and we intend that such forward-looking statements be subject to the safe harbors created thereby. These forward-looking statements include our plans and objectives of management for future operations, including plans and objectives relating to the products and our future economic performance. The forward-looking statements included herein are based upon current expectations that involve a number of risks and uncertainties. These forward-looking statements are based upon assumptions that we will design, manufacture, market and ship new products on a timely basis, that competitive conditions within the computer and electronic markets will not change materially or adversely, that the computer and electronic markets will continue to experience growth, that demand for the our products will increase, that we will obtain and/or retain existing development partners and key management personnel, that future inventory risks due to shifts in market demand will be minimized, that our forecasts will accurately anticipate market demand and that there will be no material adverse change in our operations or business. Assumptions relating to the foregoing involve judgments with respect, among other things, to future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the results contemplated in forward-looking information will be realized. In addition, as disclosed above, our business and operations are subject to substantial risks which increase the uncertainty inherent in such forward-looking statements. Any of the other factors disclosed above could cause our net sales or net income (or loss), or our growth in net sales or net income (or loss), to differ materially from prior results. Growth in absolute amounts of costs of sales and selling and administrative expenses or the occurrence of extraordinary events could cause actual results to vary materially from the results contemplated in the forward-looking statements. Budgeting and other management decisions are subjective in many respects and thus susceptible to interpretations and periodic revisions based on actual experience and business developments, the impact of which may cause us to alter our marketing, capital expenditure or other budgets, which may in turn affect our results of operations. In light of the significant uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives or plans will be achieved.
Did we clothe at $0.30? Hope we can stay at this level for the low and then keep moving up.
thanks Jay, I appreciate the honest response.
Just curious, is everything working the way you anticipated it to? Does voice activation work 1: Well 2: Good 3: Average 4: Fair 5: Poor.
How does the player work using the same 1-5 categories. My daughter's birthday is a month away and might consider buying her one.
PM me if you want.
Philo
Any opening price/volume yet?
What's bbx? tia eom
but cassy, you seem to always live in the past......perhaps the future is to hard for you to see......I like what I see.
nOW CASSY, YOU EMAIL HER AND HAVE HER RESPOND.......you always tell us to email rp.....but you won't.....
however, the company is STILL IN BUISNESS.............SO, WHAT IS YOUR POINT?????????
Is the price holding its own? How's the volume?
ROFLMAO.......EOM
Well, it appears that Chwderhed's exit point has been reached. I wonder if he/she pulled the trigger.
I thought about it, but hell, I've been in this too long to make a little profit on my most recent buys........
GOOD LUCK TO ALL, ALL WORTHY THAT IS
Someone nose somethung...........Batten the hatches........Monica's in town
Thank you for the information regarding ISO, both you and LGJ deserve a round of applause. Just don't hold your breath.
Good Point.
here's today's chart.......looks nice to me, how about youse guys?
Churak, did Cassy call you over?
Yes it was a nice day. Who wouldn't like a 25% pop on one day. Well, I for one know..........but I can't say who.....because I could get placed on Double Secret Probation.
Nepotism?
Cassy, what part don't you understand? Do you get paid for posting on this board? Your questions are only for your pleasure...........as you don't seem to understand the answers to them.
Let's see, if I ask this again and again and again, I'll get some responses and the thread will remain! You definitely have a knack...............to bad you don't have a knick and a paddywhack........or a dog.
Hallelujah Brother!!!
Oz, time to let this one die, or it will be the same as every other thing brought up.......it just goes round and round and round again.......and where it stops nobody nose
Don't forget the other side of the coin.......if you don't sell there is no loss either.
Are we retreating, or holding around 29 cents?
I thought it was a crystal obelisk
And if you click on Sonic Blue:
Digitalway
Digitalway's new USB storage product, MPIO HS100, will be using with the company's 1.5GB fixed storage element, enabling it to store large data or multimedia files within a competitive price.
Digitalway's MPIO HS100
USB Storage Unit
The MPIO HS100 storage device, which measures 43.6(W) x 84.5(H) x 14.8(D) mm, will available in retail stores in early summer. The MPIO HS100, combined with the Cornice SE, enables consumers to carry a small and portable device in hand that is able to store up to 1,000 floppy disks worth of information.
The MPIO HS100 is compatible with Windows 98, SE, ME, 2000 and XP and with Mac OS version 8.6 and later. Users can now easily carry data whereever they go and plug the storage device into any computer, or a variety of other USB-compliant devices, allowing ample bandwidth for multimedia and storage applications. The MPIO HS100 transfers data through its 2.0 USB port, which gives users the convenience of high-capacity, high-speed portable storage at a price point less than half of other USB storage manufactures' products that use conventional storage technology such as Flash memory or miniaturized hard disk drives.
The device comes with an installation CD, a USB extension cable, a carrying case, a necklace strap, user guide and a warranty card.
The Cornice SE helped Digitalway develop and deliver the MPIO HS100 by supplying an ideal balance of compact size, durability, high storage capacity, and low cost. The storage capacity and the overall cost point that Cornice SE delivers outclasses many of the conventional portable storage solutions available in today's highly competitive consumer electronics market. The Cornice SE was critical in terms of enabling Digitalway to deliver a portable USB storage device at a consumer-friendly cost.
Does it really matter. This has been spun, so many times from everyone. What difference does it really make? All the speculation is the same that has been said over and over and over again. Until we hear it directly from the Company if HP is a partner or sub contractor........who cares. If revenues are coming in because of it that's great.
The amount of bandwidth being used is amazing............
Not so much torturing their parents (they typically can turn their ears off), but the other passengers.
Any ideas as to why the Home Office is so tight lipped? It's been along time since anything (other than the 1.1 million in funding) has been released.
It also sounded like a lot of the bad reviews were done by the same people that are here 24/7 bashing it. So what is your point?