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Could be some very good news coming to us in the next day or so. Bullish trading pattern in the stock the last two days suggests that significant positions are being established.
Notice that the lower Bollinger Band was never seriously broken at any time during the recent stock price weakness:
http://stockcharts.com/def/servlet/SC.web?c=EDIG,uu[w,a]dacayiay[dc][pd20,2!i!f][vc60][iUk14!Lc20]&a...
Today the stock has moved towards the middle of the bands.
Good news regarding the registration statement and an equity sale would certainly move the stock towards the top of the bands (currently $1.01) very quickly.
JimC
Exactly.
First, we do not know that the order was as represented (i.e. 50 units for 75 stores needs over a 10 day period.)
Next, we cannot be certain that the initial order was not far larger. In fact, it is my understanding that between Good Guys and CompUSA the entire existing inventory of e.Digital products was absorbed.
As I recall, that inventory was approximately $1 million. At an average of $200 per unit, that would correspond to 5,000 units.
It is also my understanding that the Good Guys order was about half of the size of the CompUSA order. That would put it at about 1,600 units.
That breaks down to 21 units per Good Guys location. If that initial order has already been exhausted, in the five weeks since the initial shipment then sales are proceeding at approximately 0.6 units per store per day.
Of course my estimates might be off as well, but I suspect that they are closer to the truth than can be inferred from a simple extrapolation of heybrad's report.
JimC
It would appear to most observers that Jim Collier has accomplished a tremendous amount in the brief period of time (one year) that he has been associated with e.Digital.
I suggest that you step back, consider where the company was and where it is today and then decide if his performance merits your patience.
Sometimes share prices do not respond immediately to company progress, even significant progress. Remember that the overall enviroment has been very negative during the past year (recession, 9/11 attack, Enron scandal, etc.) and that e.Digital has certainly suffered from its own capital funding concerns.
I submit that when the financial structure is solidified with new equity capital and the company can aggressively pursue its expansion plans the direction of the share price trend will change dramatically.
What would a quarter in which the company achieved $10 million in revenue do for the share price? That is obviously the target that the company is aiming at for the fourth quarter of this year. (It would take sales of that magnitude to achieve a neutral cash flow and that is what Jim Collier forecast in his conference call.)
The hardest time to invest is when conditions look the worst. That is also when the biggest future gains are established, however.
E.Digital is clearly more attractive as an investment today than it was one year ago, two years ago, three years ago, etc.
- Several products are in the marketplace now and by all accounts are not only superb technically, but are selling very well. This includes the only voice-controlled digital audio player on the market.
- More retailers are being added each month and already include two of the largest consumer electronics retailers - CompUSA and Good Guys for e.Digital-branded products and Circuit City for an OEM product.
- More OEMs have been added including one of the most prestigious consumer electronics companies in the world, Bang & Olufsen and the top automotive infotainment company, Fujitsu Ten.
- Partnerships are stronger than ever. IBM features two e.Digital products in its own annual report.
- New technology (Fujitsu telematics and DivX video) has been introduced this year.
- An entirely new class of consumer digital audio devices (DataPlay) is about to hit the market using e.Digital technology under the MTV brand. Samsung and Toshiba are both expected to launch DataPlay devices designed by e.Digital.
- A dynamic new management team is in place and has delivered on every promise made to the shareholders this past year. This includes several individuals with extensive and successful backgrounds in marketing consumer electronics products and great personal relationships with all of the major retailers.
- A very sophisticated end-to-end design, manufacturing, importing, warehousing, retail distribution system has been developed with APL Direct Logistics and has been been employed to rapidly bring new products to market.
- Revenues are climbing rapidly. We have been told that the most recent quarter exceeded the previous quarter's revenue, despite the fact that retail shipments had just commenced at the end of March. The current (June 30) quarter should far surpass the March quarter due to those shipments. I recently posted an analysis which demonstrated that revenues could exceed a $50 million/year rate by the fourth quarter of the current year with the addition of just one more major consumer electronics retailer and adequate capital to support inventory expansion.
- Within a few months e.Digital will begin receiving both design and manufacturing revenues for automotive infotainment products marketed by Fujitsu Ten - the premier brand in that field.
- Revolutionary DivX video devices are being designed in conjunction with that technology leader and will be available later this year.
- Investor relations have improved. The company now conducts quarterly conference calls to answer all shareholder questions directly and posts its answers for all to see on its website.
- The capital structure of the company is about to be greatly enhanced by a large equity infusion which will support a more rapid expansion in retail channels.
So despite the constant harping of various bashers and critics on other message boards, in what way is this company worth less as a long-term investment than it was one, two or three years ago?
Because the price is lower? A rational man would look at that as an opportunity, not a symptom.
JimC
Since Jim Collier's e-mail specifies that the loan was renegotiated on favorable terms to e.Digital, what will the local basher community say when they discover (as I believe very likely) that no warrants or other consideration was given in exchange for the term extension.
And what of the grand theory promulgated on Raging Bull (by that same sorry crew) that the loan was merely a device to steal the company from the shareholders.
Clearly that is absolutely without merit, isn't it?
If the lender wanted to declare a default for the express purpose of gaining control, why wait two weeks. And as I pointed out in another message recently, the lender actually would not gain ownership, but rather would simply gain access to sufficient assets to retire its loan - no more!
Yet I will shocked if any of the bashers acknowledges the simple fact that there is no conspiracy, no scam, no illegal manipulation here - just a little company with great technology and bright prospects that is finally reaching beyond its infancy.
The reality we are all witnessing here is that e.Digital is growing up and becoming a real enterprise, capable of delivering products and technology and supporting its shareholders expectations for the firm.
Maybe someday the bashers will realize that all of their pathetic theories are made of the same hot air that fills their sad little craniums.
JimC
BoSox, Nice to see confirmation of the Treo's popularity here in Chicago! I live within walking distance of that store.
No, I thought your comments on my post were well-stated. For that matter richardosborne's comments were also good - I just am more optimistic about the prospects for e.Digital sales than he is.
The reason that I posted my original message was simply to give a logical basis for expecting e.Digital to quickly ramp its sales up to a level at least twenty times greater than they have achieved in the past.
Obviously the margins, wholesale prices, sales rates, locations carrying the product and working capital needed to support such sales are all simply speculation on our part.
We can each add to the discussion from our own perspective.
But I find it most interesting that even the most vicious bashers on Raging Bull have not seriously challenged the basis of my projection.
Certainly I could be off (either high or low), but I believe that all now agree that e.Digital has stepped forward onto a much larger stage and that its prospects can only improve once it resolves its current capital funding needs.
JimC
P.S. I went to school in Boston a long time ago - great sports town!
I am only directly familiar with the sales achieved at one CompUSA location - in downtown Chicago. That location received one dozen Treo 10 units near the very end of March. Today (two weeks later) all are gone. So this one location achieved a sales rate of approximately one unit per day.
As the product is sold word of mouth will add to demand. Most buyers will demonstrate it to their friends, adding to demand.
Also, additional outlets (assuming e.Digital is able to sell to otherswill increase exposure to more consumers further adding to demand.
Again, it is my contention (based in part on optimistic comments from Jim Collier) that e.Digital will be selling to many more retailers later this year.
Consequently the number of outlets may be far higher than 700 and the actual sales/location per day may not be critical to support my projections.
Richard, My post was very conservative. As I detailed in my message, the number of potential retail locations which might carry e.Digital products exceeds 10,000 (even without adding in such mass merchants as Walmart, Target, etc.)
I purposely chose to assume that EDIG added only one new retailer and ran my projections on that basis.
If, as I believe likely, Mr. Collier's representatives are successful in obtaining much more widespread exposure for e.Digital's products, those numbers will seem very, very conservative.
On the other hand, your assumption that it is prudent to cut my assumed retail locations in half makes no sense. If a Best Buy or other retailer decides to carry the products they will likely do so at all locations, just as Good Guys and CompUSA have. So either assume that EDIG will never add another retailer or accept my (conservative) increase in the locations to the 700+ level.
And as for the 1 unit/location per day assumption, one needs only look at the reports on this message board to see that CompUSA seems to be selling at nearly that pace already. And as the product becomes more widely exposed that sales pace should only grow larger.
JimC
e.Digital Near-Term Retail Opportunities
Currently two EDIG products, the MXP-100 and the first generation Treo 10 are being sold at Good Guys, CompUSA and TigerDirect. Good Guys has 75 locations, CompUSA has 221 locations and TigerDirect has a large e-commerce presence.
Other likely retail distributors for EDIG products are Best Buy (420 locations plus 1,300 Musicland stores), Circuit City (627 locations) and RadioShack (over 7,200 locations).
Many other e-commerce retailers are also likely to carry e.Digital products and, of course, there is e.Digital's own on-line store.
If we assume that just one of these major retailers is added to e.Digital's distribution channel over the next year that would increase the number of electronics retailer store locations carrying EDIG products from the current 296 to at least 716 locations and possibly as high as 10,000 locations (including RadioShack and Musicland).
Let's take the 716 locations as a starting point and further assume that each location can sell just one EDIG product per day. (From early reports it appears that CompUSA and Good Guys may already be approaching this sales rate.) That gives 21,480 units per month. At an average wholesale price of $200 that would generate monthly sales to e.Digital of $4.3 million.
At an average gross margin rate of 20% (fairly common for successful consumer electronics manufacturers) that $4.3 million in sales produces $860,000 in gross profit each month to cover operating expenses and fund additional growth. (Currently EDIG's operating expenses are about $500,000 per month.)
If these retailers each carried one month's inventory of EDIG products the production cost to e.Digital would cost $3.44 million. Since the retailers would likely pay on 30 day terms this is all that e.Digital would need to invest in working capital to fund its sales. Again, those sales would be at a monthly rate of $4.3 million and an annual rate of $51.6 million if each of the assumed 716 retail locations sold just one EDIG product per day!
Consider the current equity registration offering. If e.Digital sells half of the twenty million shares at an average price of $1/share it raises $10 million. $2.5 million would be used to retire existing debt, $3.5 million could be invested in inventory for retailers and $4 million held to cover operating expense until operations hit the break-even level.
Are these sales projections reasonable? Remember that Jim Collier said in the recent conference call that he expected the company to be at a break-even cash flow level by the fourth quarter of the current fiscal year. Clearly the company has similar expectations.
Now add in licensing revenue from the DataPlay roll-out, substantial revenue from the telematics relationship with Fujitsu 10 and future DivX video products.
Put all of this together and I think that it is easy to see why a substantial equity investor would be interested in funding e.Digital's substantial growth opportunities.
JimC
It's amusing to watch the bashers on RB yell that the stock price is "down on heavy volume" today. If EDIG closes in the green (at .90) will they then yell that it was "up on heavy volume" or simply slink away?
Actually, the volume is just a bit above average today at about 430,000 (so far) and the price is just a bit down (.87 at the moment).
A simple and effective store display for e.Digital would be to get IBM's permission to reprint the photo from IBM's annual report and add some text which described e.Digital's implementation of IBM technology. That should impress most shoppers who wonder about the quality of a product with which they may not be familar.
Volume and Volatility History
I have noticed that on any day in which the price moves up or down the local basher community begins screaming that any up movement is meaningless because "the volume is light" or any down movement is a sign of "massive dumping" or "off-shore shorting."
As usual you may ignore their rantings since they are simply untrue. The reality is that both the volume and the daily volatility (price range from low to high) is about the same this year as last.
For the first 63 trading days of 2002 (through 4/3) the average daily volume has been 384,017 shares. The average daily trading volume for all of 2001 was 377,202 shares.
Excluding the first 2 weeks (the CES period) for both years gives an average of 314,200 shares this year compared to 325,388 shares last year.
Average volatility this year has been 7.3% of each day's opening price compared to 8.7% of each day's opening price last year. Again, excluding the CES period gives an average volatility of 6.5% this year compared to 8.1% last year.
Here are the monthly average volume and volatility data:
Apr'02 282,400 5.3% (3 days)
Mar'02 327,670 6.3%
Feb'02 315,474 7.8%
Jan'02 514,214 8.0%
Dec'01 377,202 8.7%
Nov'01 378,215 6.0%
Oct'01 282,174 7.0%
Sep'01 451,720 12.1%
Aug'01 218,117 6.5%
Jul'01 195,162 5.4%
Jun'01 225,571 5.4%
May'01 323,700 7.7%
Apr'01 272,900 7.6%
Mar'01 348,241 11.2%
Feb'01 441,547 11.1%
Jan'01 1,004,400 15.4%
You will note that there is no basis for the claim that massive shorting is underway (or has already occurred) prior to the anticipated sale of 5 - 10 million shares by e.Digital. The volume simply does not support that charge.
Nor is there any evidence that interest in the company has diminished, using volume as a measure of that sentiment. Volume has been remarkably consistent for the past 15 months.
As usual the best explanation for price movement is an examination of the general market first, the industry sector second and the company last. The overall market has been trending down since March 10. The technology sector has fallen more than the general market. And EDIG is affected by investor concerns over refinancing its debt.
I believe that the upcoming sale of equity will end that company-specific concern and reverse the recent share price trend.
JimC
I spoke to Ran Furman today and confirmed some speculation about the status of the equity registration statement. The SEC made its comments after an extensive review and the response required approval by several partners of e.Digital's public accountants (Ernst & Young). The comments required just making some additional disclosures in the registration statement and three years of financial data. Nothing major.
The process is now in the hands of the SEC reviewer. No additional comments on other subjects are likely, simply a review of the responses made by e.Digital to the previous comments. Generally any subsequent comments can be handled with a phone conference between the SEC, the company and the company's auditors. That should be complete this week.
At that time the company will probably issue a press release announcing that the registration statement is effective. I stressed to Ran Furman that some investors are concerned about this issue and that the company could remove this uncertainty (and the consequent negative impact on the share price) by announcing that the registration statement had been approved.
He stressed again that the equity sale would include only common stock - no warrants, preferred stock or options. Consequently, despite the misleading claims by various bashers, there will be no overhang (of future share adjustments) after the transactions take place.
Business continues to grow and the new relationships with Good Guys and CompUSA are developing very well. I have a feeling that we will hear other good news in the next week or so.
JimC
Off-topic, but as a little holiday present to those who read this board, I have found over the years that many PCs suffer from similar problems - lack of available RAM, processing slowdowns caused by programs running in the background and registry/file defragmentation which slows access time. There are a number of great programs available (for free) which can alleviate these problems. I have listed some of these below for your use.
Here are the sites where you can download the latest versions of those programs:
ZoneAlarm - a great firewall that can protect your PC from external attacks by hackers:
http://download.cnet.com/downloads/0-10105-100-8034258.html?tag=st.dl.10001-103-1.lst-7-1.8034258
CNET CatchUp - a program that scans your PC and provides you with a list of updates available for all of your software with links to the download sites:
http://download.cnet.com/downloads/0-10106-100-8581683.html
Ad-Aware - a great program to scan your files and detect any spyware that you might downloaded. These advertising programs invade your privacy and often slow down your system with hidden resident programs:
http://download.cnet.com/downloads/0-10106-100-9496406.html?tag=st.dl.10001-103-1.lst-7-1.9496406
Cacheman - a nice program that may speed up your system by managing your cache memory more efficiently. Great wizards to guide you through the process:
http://download.cnet.com/downloads/0-10106-100-8831023.html?tag=st.dl.10001-103-1.lst-7-1.8831023
Another bit of advice - Clean out your registry on a regular basis with Microsoft's Regclean available free in a download:
http://download.cnet.com/downloads/0-10106-100-881470.html?tag=st.dl.10001-103-1.lst-7-1.881470
or better yet, buy a program like Ontrack Fix-It that can do the job for you more efficiently.
http://www.ontrack.com/systemsuite/
Fix-It is the best general utility program that I have found and really does a great job in protecting your system by backing up key files, defragmenting your files & registry and performing a lot of other useful tasks.
I have no connection to any of these programs other than that of a satisfied user.
Have a nice holiday.
JimC
From the looks of it, this amendment should suffice to answer any SEC comments on the S-3. The changes were pretty minor.
I'd expect approval within two weeks if the SEC has no additional comments.
I have had quite a bit of experience with registration statements for equity and debt sales. The SEC does not like to go back and forth on these documents. It is not a negotiating process. They simply make all of their comments to the company and then just check to make sure that they are all answered.
Again, I don't see any real risk that the stock sale will be delayed much beyond the next two weeks. Remember, the SEC does not pass upon the suitability of an investment, only upon whether the company has fully complied with all disclosure requirements. That is their primary focus.
With assurance that there has been full disclosure of the relevant business conditions, history, use of proceeds and risk elements, the SEC then feels that it is up to any potential buyer to decide whether the investment is a good one.
JimC
Good news to continue from EDIG
Over the next few weeks we can expect a number of very positive developments to be announced by e.Digital.
Among the most likely events:
1. Approval of the share registration filing by the SEC, with an immediate sale of 5 to 10 million shares to a single large entity. This will raise $5 to $10 million initially which will be used to repay debt and finance a rapid expansion of e.Digital's retail presence.
2. Official launch of DataPlay media with widespread and very heavy public relations efforts sponsored by DataPlay's primary equity investors (especially the record labels) and its partners.
3. Additional retail distribution agreements for EDIG. Primary candidates are Best Buy, RadioShack and Circuit City. I believe that the Renegade (manufactured by Maycom as the MP-50) will see widespread availability at one of these three retailers in the near future.
4. A PC/EDIG digital audio player bundling agreement. IBM and Gateway seem to be the most likely prospects here.
5. Production initiated on the Fujitsu Ten Eclipse infotainment systems which will trigger a rapidly growing revenue stream for the company.
6. DataPlay OEMs using e.Digital technology and reference designs will begin shipping to retail outlets.
As these developments occur the share price is likely to rise and this will enable EDIG to raise even more cash from the shares now being registered. These funds will finance addition inventory for retail distribution and cover all operating expenses for the next couple of years.
As Jim Collier pointed out in his recent conference call, all EDIG products enjoy positive operating margins "at or above the industry average." As sales ramp up this will insure substantial cash flow back to the company.
Jim Collier's business plan calls for the company to reach the point at which operating earnings cover all cash expenditures by the end of this year, thereby eliminating the need for additional equity placements.
Since operating expenses are now about $500,000 per month and industry gross margins are about 17%, that suggests that sales revenues will be running at an annual rate of at least $30 million within four quarters.
Given the current size of Fujitsu's automotive business and the prior ramp-up success of Creative's Nomad it would seem likely that e.Digital could easily achieve that goal.
JimC
The significance of today's announcement cannot be over-stressed. E.Digital now has a major OEM/ODM relationship under which it will receive both design and manufacturing revenues.
Think of the progression over the past five months:
In November the company launched its own products on its own e-commerce website. This gave EDIG a real product to sell to consumers and to demonstrate to both OEMs and to retailers. Gross margins opportunities from selling on an owned website are large, but exposure opportunities to large numbers of consumers are limited.
In December the company sold its first consumer products through an OEM to a major retailer (the Musical XP-3 at Circuit City). This opened a new revenue opportunity in product design licensing fees. Here, however, the OEM offering the product had no national brand name to enhance sales.
In January the first high-profile OEM was announced - the Evolution/MTV DataPlay audio player. Here the potential is huge since the underlying technology may someday replace the standard CD as the music and data storage medium of choice.
In February the company announced its first major retailer relationship for its own branded products. Good Guys will give e.Digital exposure to huge numbers of consumers in the most influenial region of the country. This will also set the stage for other retailer relationships - with some announcements expected before the end of this month.
Now in March the first major name OEM (Fujitsu) has announced that not only will its audio products be designed by e.Digital, but it is trusting the manufacture of those products to this company. This gives EDIG both the marketing muscle of Fujitsu in the automotive telematics/infotainment sector and the revenue opportunities of a manufacturer. It will not be up to e.Digital to market the product and convince a consumer to try this new brand, but rather to simply supply the needs of Fujitsu and ride that firm's coattails in the marketplace.
The progress the company has made in the last few months is nothing short of amazing to this five-year shareholder.
No wonder Jim Collier is so excited and talks openly about EDIG not being so little for very much longer!
JimC
LOL, yeah! Sorry for the typo. But that reminds me that my very first IBM PC, with an 8088 processor running at 4.7 Mhz, 64 KB of RAM, two 5.25 inch floppy drives (no hard drive) and a color monitor cost my company $3,995 in 1982.
How far we have come in the past twenty years!
FGATOR spotted EDIG products at GoodGuys.com website.
http://www.goodguys.com/srchresults_key.asp
Check out the Treo at $299, the MXP-100 w1GB Microdrive at $3999 and the MXP-100 Sport w512MB Microdrive at $349
(Drop down the ''Any Brand'' box to find e.Digital)
All are currently listed as "Out of Stock"
Clarification on Musical XP-3 royalties/licensing fees
During the recent conference call there was an ambiguous (in my mind) statement about the royalties/licensing fees to be paid to e.Digital by Musical on the XP-3 jukebox.
The statement was made that no such payments would be made until the quarter which begins April 1, 2002. However, it was not clear whether payments had been earned on the sales made at Circuit City prior to that date.
I spoke to Ran Furman today to clarify this matter and he confirmed that Musical will pay e.Digital royalties/licensing fees for all sales made to date. That is, e.Digital did earn such fees last November/December when the product was introduced, but the accounting and transfer of funds will not occur until April.
He also said that many of the clarification statements which have been made in e-mails (e.g. from Jim Collier to shareholders who send him questions) would soon appear in a new investor Q&A section on their website.
It is clear to me that the company is taking great steps forward in its efforts to deliver relevant information to all shareholders.
JimC
Still more comments from Jim Collier:
By: BMPSKR
22 Feb 2002, 01:17 PM EST Msg. 914506 of 914510
Jim Collier responds to my questions>>>>>
Dear Mr Collier,
It has been reported that OEMs for e.digitals music player designs backed out and that is the reason for the direct retail approach that EDIG is now pursueing. I have the following questions related to this:
[Jim Collier]
I'm not sure that I would use the term "backed out" when referring to OEM manufacturers in regard to the portable digital audio player market. That is certainly true with Intel. They pulled out of the CE market entirely. However, other OEMs have been very reluctant to move aggressively into this market because of uncertainty on general consumer acceptance of the technology beyond the tech savvy crowd. The demise of Napster certainly contributed to their reluctance. The large number of low cost/low end flash players that have shown up on the market has also forced a general expectation of lower pricing on higher capacity products. This has benefited companies such as our partner, Musical. We expect them to do very well this year with low cost large capacity music players. That will benefit e.Digital on a royalty basis.
1. Does this refer to jukebox players only or does it include flash based players like the MP-2000 as well?
[Jim Collier]
Please see above.
2. Does Musical plan to market more jukebox designs than just the Circuit City XP-3?
[Jim Collier]
We are working with Musical on several new products.
3. Is EASTECH still going to pursue music player market with EDIG designs or have they discountinued this effort? I guess what i'm asking is can edig expect anything from them in the way of royalyies in the near future?
[Jim Collier]
Eastech has completed at least one design around our basic reference design. At this time it isn't clear what their specific plans are for this product.
4. What "OEM- Branded" products does the following statement from the 1.16.02 Letter to Shareholders refer? Does it refer to Dataplay only or does it include Jukebox and flash based player designs as well?
[Jim Collier]
Currently, there are a number of OEM branded products in the works using our technology with DataPlay designs. We continue to work closely with B&O on their flash based products and I have already addressed the Musical jukebox products.
"We expect to release news about retail availability of OEM-branded and e.Digital-branded products as well as further information about licensing and distribution throughout this quarter."
5. Is there hope that OEMs may now step up to the plate and license E.Digital jukebox player designs or is this on the back burner.
[Jim Collier]
Current OEM interest has shifted to ODM solutions rather than license fee relationships. We have demonstrated that we can develop and bring products to market very rapidly and get them into distribution and provide superior aftermarket support with our global supply chain.
Thank you,
XXXXXXXX
Sentinel, I took the liberty of copying your questions and answers from Jim Collier on the Agora and Silicon Investor boards (with proper credit to you, of course.)
I then noticed that the original post was deleted and a new post created here. If there are any significant changes please post the updates on Agora and Silicon Investor.
Nice job on the questions!
Jim Collier's answers certainly show that he values communications with shareholders. I think that he deserves kudos for his willingness to address these questions in writing.
JimC
Comments on the Conference Call
I listened to the recorded conference call last night and noted some interesting points which seem to have been overlooked by many:
Revenue Projection - By stating that revenues for the current quarter will exceed those of the prior quarter the company may be giving an indication of the size of the retail contracts which are expected. First, consider that the prior period sales of $592,000 included about $89,000 from Lanier. No further sales are expected from Lanier. This drops the base to $503,000, with two months of on-line product sales accounting for about $366,000. Next, it is likely that on-line sales are somewhat lower following the burst of initial shareholder purchases and the end of the holiday season. Also, the Treo has been out of stock for several weeks, further cutting into current on-line sales.
If we assume on-line sales generate $300,000 in this quarter and engineering services add another $100,000 that gives $400,000 for the quarter. No MTV/Evolution player lincensing fees are likely prior to March 31, so if the current quarter sales are $700,000 (a conservative increase) that means that the first retail shipments (which will cover only the month of March) must be at least $300,000. Not bad, considering that we can expect other retailers to be added soon.
Factor in reorders and the addition of other retailers and you can project sales well over $10 million per year from retail distribution.
Profitability - I assume that "revenue neutral" means cash inflows are expected to equal cash outflows within the next few quarters. Assume that occurs in four quarters and that cash outflows have risen to $650,000 per month by that time (as retail distribution grows). That implies that gross profit and licensing fees would equal about $2 million in that quarter. How much would be from licensing? Half? Say licensing is $1,000,000 that quarter. Given an industry average of 18% gross margins on consumer electronics, that would require retail shipments of $5.5 million in that quarter to generate the required $1 million gross profits to add to the licensing income needed to break-even on a cash basis. This seems consistent with the comments under Revenue Projection above.
Gross Margins - Positive gross margins are expected on all new products, at or above the consumer electronics industry standard.
Ownership of Treo Trademark - A comment was made that part of the high expense in the quarter was the cost of acquiring the rights to the Treo trademark. Not only does this mean no payments to the prior owner but it may lead to some favorable settlement and/or arrangement with Handspring down the road.
No Additional Equity Charges From Preferred Stock - The largest charge to earnings last year was due to the non-cash charges associated with the various preferred stock placements over the past couple of years. Those charges were all taken in the last quarter and no further such items are expected. Going forward the company expects to use common shares when necessary to raise cash. This is very significant for a number of reasons. First, by eliminating preferred stock and the price adjustment feature they eliminate any possible shorting incentive from the equity source. Second, the new equity investor has exactly the same motivation as the rest of the common shareholders to see the price rise. Third, the cost of equity financing and the amount of dilution is known precisely on the day of the transaction. This is a great improvement in capital structure.
New Equity Investor - The company confirmed that the lender of the $1 million 5% loan is a large potential equity investor with the right of first refusal on all equity placements. Clearly this is an interested party who has been given substantial access to the company's financial condition and business prospects. A very good development both for the cash source it represents and for the confirmation that those business prospects are very, very promising.
New Treo - As expected, the next generation of the Treo will have substantial improvements over the current version - smaller, lighter, greater storage capacity and ultrafast USB 2.0 support. Product availability is expected in the next two months.
Other Retail Customers - From previous letters and several comments made in the conference call it seems clear that other retail customers are expected soon. I personally expect the next such announcement to be one of the national consumer electronics chains (RadioShack, Best Buy or Circuit City).
In summary, no bad news, no major announcements (but none were expected) and there was quite a bit of information presented in the call if you listened carefully. It certainly could have been better organized (and I will submit some suggestions for improvements to the company) but it marks a big step in bringing the e.Digital into a more professional approach to investor relations.
One idea for better communications would be to add a frequently asked questions section to the website. Common shareholder questions could be addressed there with new questions and answers added each month. This would eliminate several of the most common problems we currently see and enable the company to concentrate on bigger issues in the quarterly conference call.
JimC
A few questions to ponder this evening:
First ask yourself the most important question: Do you think that the Entity that is apparently ready to pour up to $24 million (at today's closing price) into e.Digital is looking backwards at the revenue that the company generated in a few weeks on its own website, or forward at the potential that the company has shown in its products, technology and business partnerships?
OK, now a few more questions to ponder:
Don't you think it is likely that e.Digital has shared a lot more with the Entity than they have with us in these public communications?
And again, ask yourself why has the stock has gone up by 20% (and 45% from the panic-sellers low price) since the shelf registration was filed?
Could there be a lot more going on than we have been told so far?
Don't you think that it is just a bit unusual that e.Digital management is so confident about future prospects that they have announced a regular program of open web conferences with analysts, media and shareholders. Could it be that they expect to reveal some very good things in the very near future?
Note: I said "up to $24 million" above. The fact is that e.Digital is registering 20 million shares and in their registration statement they calculated the potential proceeds as being in excess of $20 million.
But my comments are equally valid if the Entity takes "only" a $10 million position in e.Digital common stock.
Remember, this would not be a preferred offering with a subsequent price adjustment provision as has been the case in the past. These would be common shares, putting this Investor on the same plane as the rest of the shareholders and with a powerful incentive to see the company succeed and thereby achieve a great return on that investment.
I like being in the position of being on the same side of (and with exactly the same upside as) such an Investor, don't you?
Securities laws prohibit the company from announcing any equity investment until the SEC has approved the registration statement. Those same regulations also severely limit what the company can say while a registration is underway. The restrictions relate to what is known as "conditioning the market."
However, the S-3 contains the body of the $1.2 million loan agreement and section 4 of that loan essentially require e.Digital to do an equity placement of at least $10 million.
That same section then prohibits the company from taking most actions over the next year (through January 18, 2003) which would have the effect of diluting the interest of a new equity investor.
It is conjecture, but well-founded based upon the available information at hand, that e.Digital has an understanding with a party connected to that organization (which provided that $1.2 million loan) to sell it that block of equity.
See my recent posts for other comments about this possibility.
JimC
Comments on the shelf filing for the sale of equity:
I spoke to both Fred and Jim Collier and confirmed essentially all of the comments that I made in my post last night (reproduced with some additional comments below.)
There will be a letter to the shareholders on Monday that will lay out the company's business strategy in great detail and will be very positive in my opinion.
First you must understand what a shelf registration really means. As the analogkid posted last night:
"Shelf registration: A procedure that allows firms to file one registration statement covering several issues of the same security. SEC Rule 415, adopted in the 1980s, allows a corporation to comply with registration requirements up to two years prior to a public offering of securities. With the registration "on the shelf," the corporation, by simply updating regularly filed annual, quarterly, and related reports to the SEC, can go to the market as conditions become favorable with a minimum of administrative preparation and expense."
http://biz.yahoo.com/f/g/ss.html
The shares have not yet been sold and the sales will not begin until the registration statement has been approved by the SEC.
1. This is the first time that I can recall EDIG selling common shares rather than preferred stock (convertible into common). This is significant improvement in funding approaches because the previous preferred issues always provided a price adjustment feature which led to charges (some justified perhaps) that the preferred holders could short the common without risk since their preferred shares would adjust in price to compensate them. The worst instance of this was an offering in 1998 that ultimately led to a huge share increase for very little net proceeds to Norris. (That offering was done before Fred became CEO.)
A common share offering on the other hand, while dilutive to current shareholders, is fixed in impact and takes away any potential shorting opportunity.
2. The fact that this is a shelf registration gives e.Digital the opportunity to sell the shares over time, rather than all at once. Clearly they would need several million dollars right away to pay off the loan due 4/18/02 and to replenish their cash reserves, but the balance can be drawn as business needs require. If favorable announcements are made over the next few months (as indicated in the 1/16/02 CEO/President letter) the stock would rise and these shares would generate more cash when sold. This gives the company a great deal of flexibility to raise capital as needed and when market conditions are appropriate.
3. Until approved by the SEC, a shelf registration puts certain restrictions on the company's ability to promote itself since securities lawyers will caution the company against "conditioning the market" for the stock. The language of the document is necessarily dour and full of warnings about possible risks to potential investors. But it also limits the company's range of conversation at the time of the filing. That would explain the terseness of today's press release. I expect the company to be far more positive about its business opportunities in the letter which we can expect next week (in conjunction with the 10Q filing.)
4. The size of the offering suggests to me that the company is preparing to fund a buildup of inventory. Given the company's tight cash position this would likely be due to significant retail orders for the products. Potential acquisitions are mentioned as well. In my follow-up call I asked Fred what kind of companies are most attractive to e.Digital and both he and Jim Collier said that they have a great interest in acquiring companies with expertise in wireless technology to assist them in pursuing a number of very huge opportunities in automotive telematics.
5. The 5% $1.2 million loan on 1/18/02 should have been disclosed in the 1/16/02 CEO/President's letter, in my opinion. The fact that its terms call for such a short time period until maturity is an indication that it may have been made by parties will be buying some of the shares of this offering. It has the earmarks of a bridge loan to me (short duration, relatively small amount and secured by all of the company's assets.)
6. There was no registration of the warrants issued in conjunction with the $1 million 12% loan. Therefore those shares will not be added to the market in the near future.
Since those warrant holders had the right to demand a piggyback registration on any new shares issued, the fact that they are standing pat suggests that they have confidence that the share price will be higher down the road and are not looking to jump ship here.
I expect that the company will answer many of the open issues raised by today's action in their communications next week. Those who react with panic and sell shares in the next couple of days without waiting to hear those answers may regret their actions.
When a stock holds its ground after the announcement of a share offering, as EDIG did today despite non-stop hammering by bashers hoping to shake investors' confidence, you are being told by the market that the company's use of the share proceeds will add value to the shareholders over time.
EDIG is a company that is poised to grow very rapidly and I think that the forthcoming letter will give us all a roadmap of how management intends to take us up to the next level.
JimC
Tinroad, that briefing by Metaresearch looks like it is about four days late.
Short addendum to my prior post.
This might seem minor, but you could cut down on your bandwidth needs a tiny bit by eliminating the word "Post" prior to the number of each post on the summary page. It is unnecessary.
Also, are you considering a spell check and a post editing feature that enables the author to correct minor errors for a period of time after submitting the post (SI has this feature and it helps nitpickers like myself to fix our own errors.)
JimC1997
As the traffic to this site grows and more messages are posted, you might find that efficiency is improved if you would quote the first two lines of each message on the summary page, rather than just a couple of words.
Many messages are quite short and two lines may be sufficient to enable many to be read at the summary page level.
Thanks for building a great site. The large Raging Bull EDIG community is really starting to shift over here as the primary board. Look forward to many improvements in the future, but understand the need for patience.
JimC1997
Comments on Fred's letter
I've read through Fred's latest letter and have these initial observations:
1. The letter puts quite a bit of emphasis on trade-marked technology tools
(MicroOS, MicroCAM, M4P2, AIMS)
This suggests that the licensing efforts have become more differentiated, with the company building a rationale for various prices depending upon the technology package employed in the design. It is good to see the company working to increase the perceived value of its engineering services through branding.
2. Engineering staff increases were mentioned, perhaps to reassure that the company continues to grow.
3. In line with the staff increases it was noted that engineering resources have been dedicated to developing new products in four areas:
- Digital video
- Automotive stereo
- Home stereo
- Cellular phone accessories
- Set top boxes
4. e.Digital is working with multiple OEMs to develop branded products in the above applications.
5. Lanier shipments have resumed at a more normal level and seem more likely to continue under the new ownership of the Lanier medical voice products group, but nothing definitive was stated.
6. Revenues would appear to be about $600,000 in the March 31, 2001 quarter. I would guess that about $75,000 will be engineering fees and about $525,000 from cQuence shipments. These revenue estimates can be derived by considering prior years' revenues and the statement that total fiscal year revenue will be "close to equaling the total revenues for the previous three fiscal years combined." Here I read "close to" as meaning "somewhat less."
7. I suspect that little or no revenues will be derived from digital audio players in the fiscal year just ending. Most of the year's revenue is from Lanier. Since the financial results for this quarter will not be released until about June 30, which is also the end of the first quarter of the next year, the company will be in a much better position to discuss music player revenue prospects when the 10-K is actually filed. I do not regard revenues for the year past as significant indicators for the future. Of far more importance is the company's cash situation until the revenues from music players begins to arrive. In this regard Fred simply states that the company has "a good cash position." As shipments of jukeboxes ramp up, the cash flow should be quite good. I would estimate that the licensing income from monthly shipments of about 50,000 juke boxes, coupled with normal Lanier shipments, should be sufficient to cover the company's current cash outflow and bring it to a break-even financially.
8. The much-talked-about production delay speculation was dismissed as "usual initial production and day-to-day parts issues that are being addressed". Clearly Fred does not regard these problems as significant.
9. There was mention, for the first time, of a 5 GB hard disk drive jukebox platform, in addition to the 10 GB and 20 GB versions that we have heard about previously.
10. The speech recognition development for control of HDD jukeboxes was mentioned right after discussing the IBM Travelstar hard drive. I continue to believe that this next generation jukebox will be utilizing IBM's voice technology.
11. Availability of the jukebox at retail was stated to be "within the next quarter" leaving a wide range of possible introduction dates.
12. "Unannounced OEMs and licensees" were referred to, suggesting that contracts have been signed but not yet disclosed. Those relationships will be disclosed only when the products are ready for launch.
13. The relationship with Samsung was clarified by stating that the two DataPlay devices (PCMCIA storage device and a digital music encoder/player) developed for Samsung for the CES are part of a "royalty-bearing agreement"
14. Additional OEM customers with other DataPlay devices are expected to be announced when DataPlay launches its media. This is reported to be in October, 2001.
15. Media coverage should pick up thanks to the work of Fleishman-Hillard.
16. Finally, perhaps most intriguing was the reference to "annoucements concerning other product platforms beyond DataPlay and our HDD-based jukebox platform in the next quarter."
Fred clearly hears the concerns expressed by the shareholders and this would appear to be part of a new program to increase communications with the investors while maintaining compliance with Regulation FD (the SEC prohibition on selective disclosure of material facts and projections.)
I haven't taken the time yet to scan the other message boards, but I suspect that the usual crew of bashers are doing their best to downplay or attack this letter. I suggest that investors form their own opinions and ignore the rantings of that small group of miscreants.
I believe that the letter is informative and straight-forward. The company seems to be making good progress on its business plan and many exciting, positive developments are alluded to by Fred.
You can either believe management and confidently wait for the progress to translate into superior growth for the company, or you can walk away from your shares just before we begin to realize the shareprice appreciation which would occur from business success.
The choice is yours. For me, I have decided. I am going to continue to add to my position.
JimC
LGJ, you need to agree upon a policy for basher removal right away.
The discussion here can stay focused on EDIG if and only if the bashers are kept out. Otherwise you will find this board bogged down in endless comments back and forth to and about the bashers.
I suggest that you remove anyone, without delay, who has an established record as a basher on Raging Bull. Zero tolerance should be the rule.
For those who come here under new aliases, I suggest a simple private message vote to delete troublesome members.
Fifteen negative votes to your private mailbox here and you then decide whether to remove the person. Fifteen votes should be sufficient to eliminate any problem of simple animosity between members here. And if a basher isn't offending at least fifteen people (highly unlikely, IMO) he should be welcome to stay.
A simple message deletion isn't sufficient, IMO, because it still allows the basher to disrupt the board and that is all that they are looking for.
I hope that this is my last message related to bashers!
JimC
Here is a great site that is filled with information on PDAs and Heldheld PCs:
http://palmtops.miningco.com/gadgets/palmtops/mbody.htm
Here is another site (related to the above) that is focused on portable entertainment devices, such as digital audio players:
http://portables.about.com/gadgets/portables/mbody.htm
JimC
Tinroad, what do you think about moving all of the EDIG discussion here from Raging Bull?
This site seems to have far more features, such as private messages, and the moderator can filter out the bashers when they show up. It would be best if there was a means to simply ban obnoxious posters permanently, but a quick delete should keep the discussion on a positive note.
It also seems faster (although the page views are probably quite low right now) than Raging Bull or Agora.
If enough of the regulars from Raging Bull just dropped that board, this could become the primary discussion board.
JimC
Hi minimogul, this board reminds me of Silicon Investor in the good old days.
Thanks LGJ!
JimC