LETTER FROM THE PRESIDENT AND CEO - 4/20/04
This letter is a direct communication from the President and CEO of e.Digital Corporation (OTC:EDIG).
April 20, 2004
Dear Shareholder:
With the recent conclusion of our fiscal year, I would like to take this opportunity to provide a summary and an update on our latest business developments.
In spite of the revised outlook we provided in February for the final quarter of fiscal 2004 due to the delay in further in-flight entertainment (IFE) orders, Gateway’s acquisition of eMachines, and Eclipse by Fujitsu Ten’s non-performance as detailed in today’s press release, current business as well as OEM projects in development provide a firm foundation for e.Digital. In 2003, a great deal of development time was invested in our major technology platforms. As a result, we are leveraging this progress and expanding customer opportunities on many levels with a mitigated investment in development.
MicroOS™
Our platforms are designed to service the needs of multiple customers, in multiple markets with a wide range of customized options. e.Digital’s MicroOS™ core is the key to delivering this unparalleled flexibility. Not only is the flexibility of MicroOS appealing to OEMs, the MicroOS core is in demand as a stand-alone technology. As we have previously disclosed, we are negotiating a non-exclusive license of our MicroOS technology with a multi-billion dollar technology company. We are pleased to report after several months of negotiation, a formal agreement is under review at the executive level of this major OEM. We look forward to providing further information regarding this agreement, if and when it is finalized.
Personal Video Platform (PVP)
We are pleased to note APS, our partner in the In Flight Entertainment market, has recently appointed Sheldon Best as their new president and CEO. Mr. Best has a long and impressive history within the airline industry. His previous experience includes senior positions with United, Continental Airlines, Air Cal, European aircraft maker Aerospatiale, and with Aviation Partners Boeing. With Mr. Best’s worldwide contacts and senior leadership within the airline industry, and with logistics support from Rockwell Collins, we expect follow-on orders from APS this quarter and throughout the year for Alaska Airlines, and new orders from other airlines currently testing APS’ digEplayer™. We will announce these and other new orders as they are officially placed.
e.Digital’s Personal Video Platform extends beyond the airline industry. We are working with OEM customers on commercial products derived from our next-generation PVP.
The new PVP developments include:
• Compatibility with Microsoft’s Janus initiative
• Support for Microsoft’s Personal Media Center initiative
• Cable set-top boxes support for downloading both music and video
• Military opportunities for extensions of our PVP
• Multi-lingual support
e.Digital is currently working with new OEM customers on products incorporating these developments. The first new OEM is scheduled to unveil a new commercial e.Digital-powered PVP product at a major trade show next month. We look forward to announcing further information regarding these developments later this quarter.
Digital Audio Platform (DAP)
Many of the initiatives being undertaken for the Personal Video Platform also affect developments for the Digital Audio Platform. Support for Microsoft’s Janus and Personal Media Center initiatives as well as cable set-top box support are being integrated into e.Digital’s proprietary audio platform as well.
We believe Gateway, TGE Group, Musical, and other OEMs branding and selling digital music players will become more aggressive in marketing their products as well-known PC-based Internet music stores come on-line this summer to challenge Apple.
This year, TGE Group plans to release several e.Digital-powered products under an agreement announced in February. Similarly, products under the Musical agreement announced in January are being finalized with launch dates beginning this summer. We are working with the multi-billion dollar Asian OEM, who provides manufacturing services for the MicroOS-powered Gateway music player, on new products utilizing both our audio and video platforms for other customers they service. We are also working with new OEM customers on branded versions of our DAP. We expect commercial releases of many of these products to begin this summer and continue through the holiday selling season.
With Gateway’s acquisition of eMachines, we expect greater sales opportunities for Gateway-branded products due to eMachines’ relationships with first-tier consumer electronic retail chains and their enhanced sales and worldwide distribution channels.
Automotive Infotainment Platform
While the current impasse with Eclipse by Fujitsu Ten is regrettable, we are confident in our position and we believe this matter will settle or we will prevail in arbitration. Our confidence is based on:
• Our performance under the signed Supply Agreement with Eclipse by Fujitsu Ten;
• Significant breaches of the signed Supply Agreement by Eclipse by Fujitsu Ten;
• Eclipse by Fujitsu Ten’s signed order for $892,000 dated November 12, 2003, which they issued, but have not performed under;
• Eclipse by Fujitsu Ten’s approval of all press releases including the January 7, 2004 press release;
• The many meetings, e-mails and phone conversations wherein officials of Eclipse by Fujitsu Ten assured us, verbally and in writing, they were working in good faith on the HD 1213 project and planned to release follow-on orders and work with us on subsequent generations of the initial product;
• Our representation by the San Diego offices of leading national law firm, Gray Cary Ware & Freidenrich LLP.
One of the other business opportunities for our proprietary automotive infotainment platform we have been working on for the last several months, features video, audio and satellite compatibility for manufacture and branding by a tier one supplier to the installed automotive industry. We have made significant progress on this business opportunity, which has substantial long-term potential. Because this product is targeted at the installed automotive industry, it could be two to four years before it would become widely available, if and when we finalize an agreement with this tier one supplier. We will provide further updates regarding this development as they become available.
Summary
e.Digital’s focus on enhancing our proprietary technology platforms for OEM customers and partners has positioned us to begin reaping the benefits of the past year’s work, which was accomplished on a minimal budget. We expect APS’ hiring of Mr. Best and their recently finalized logistics partnership with Rockwell Collins will fuel orders of the digEplayer; Gateway’s acquisition of eMachines could provide much larger distribution and sales of the DMP-X20; we anticipate a favorable outcome in our arbitration with Eclipse by Fujitsu Ten. Due to the uncertainty of the timing and the exact outcome of the Eclipse by Fujitsu Ten settlement or arbitration, we are not able to provide preliminary numbers for the quarter ended March 31, 2004 at this time. As soon as we have this information, we will release the settlement or arbitration decision and the preliminary March 31, 2004 fiscal year results pending final approval by our auditors.
With the expected release of several new OEM-branded products derived from our personal audio and personal video platforms beginning this quarter and continuing throughout the year, as well as the developments we have detailed in this letter, and new developments we will be announcing in future company communications, we expect this new fiscal year will be successful for your company.
Thank you for your continued support of e.Digital.
Sincerely,
Alfred H. Falk
Chief Executive Officer
Safe Harbor statement under the Private Securities Litigation Reform of 1995: All statements made in this document, other than statements of historical fact, are forward-looking statements. Forward-looking statements are based on the then-current expectations, beliefs, assumptions, estimates and forecasts about the businesses of the Company and the industries and markets in which the company operates. Those statements are not guarantees of future performance and involve risks, uncertainties and assumptions that will be difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or implied by those forward-looking statements. More information about potential factors that could affect the Company can be found in its most recent Form 10-K, Form 10-Q and other reports and statements filed by e.Digital Corporation with the Securities and Exchange Commission (''SEC''). e.Digital Corporation disclaims any intent or obligation to update those forward-looking statements, except as otherwise specifically stated by it.
AI
