LETTER FROM THE PRESIDENT & CEO
This letter is a direct communication from the President and CEO of e.Digital Corporation (OTC: EDIG).
December 20, 2002
Dear Shareholder:
I am pleased to provide a brief summary of your company's progress and business this holiday season.
We have personnel in Korea and in the United States who have been working long hours on manufacturing our new OdysseyTM 1000 portable digital jukebox. After overcoming manufacturing startup issues, we are pleased to announce that the first Odyssey 1000s are scheduled to ship to our headquarters by air later today. Because of holiday traffic and Customs we cannot guarantee that we will begin making consumer shipments before Christmas. We will send notification and begin processing Odyssey 1000 orders as soon as we have completed final in-house product inspections.
Because of consumer, e-tail and retail interest in the Odyssey 1000, we expect our initial production run to sell through quickly. We also generated media interest due to internal public relations efforts and from the November 24 coverage in PARADE Weekly magazine. We expect this interest to continue at the official launch of the Odyssey 1000 at CES 2003, January 9 - 12 in Las Vegas.
Our manufacturing partner, Digitalway, Inc. of Korea, is concurrently building feature- differentiated Odyssey 1000 units for their use in Asia--where their OEM and branded products are the #1 selling digital audio products--as well as in Europe and North America. Through Digitalway and other OEMs we expect this important new product, based on our patented MicroOS™ technology, to be licensed with variable features for sale around the world. Each licensed unit is expected to display our "Powered by e.Digital Technology" tag line; e.Digital will be credited as the developer and we will receive licensing fees and royalties for each unit sold.
The e.Digital-branded Odyssey 1000 includes VoiceNavTM, so even users with thousands of songs can "Just Say It to Play It." The Odyssey 1000 also delivers outstanding sound quality including SRS Labs' WOW Effect audio technology for rich bass and a wide, 3-D listening experience. The USB 2.0 transfer protocol downloads music at up to 8 MB per second, and even users with USB 1.1 cards will experience a faster transfer rate with this product. With a 20 GB hard drive and "mass storage device" support, a PC with Windows Explorer will recognize the Odyssey 1000 as a portable hard drive, making it extremely handy as a portable backup hard drive for digital photos, videos, or any other type of data file.
The OEM side of our business continues to grow as we focus on increasing our revenues in this area. Portable digital audio and video product platforms remain at center stage in our development. We are experiencing increasing demand for our MicroOS technology, and our engineering and manufacturing services from OEMs around the world.
We have made substantial progress on our first portable hard disk drive-based In-Flight Entertainment (IFE) system in association with APS and a major U.S. airline. With APS, we are in discussions and negotiations with other airlines and content providers who are expected to become partners in this new system. The protections inherent in our IFE system provide international content providers an attractive platform and a new revenue source. We are quickly moving forward with design and manufacturing schedules for the system and we expect to provide further product and business updates in early 2003.
The development and design of the Eclipse by Fujitsu Ten automotive stereo product has been largely completed and we are moving into the manufacturing stage. Based on forecasts by Eclipse by Fujitsu Ten, the first-generation products are scheduled to be available in the first quarter of calendar 2003. This is when we expect to begin recording revenues from sales of this product line. Additional OEM projects, both completed and in process, will be announced as appropriate and timed according to the launch plans of our OEM customers and partners.
Our online store is extremely busy and orders are outstripping last year's pace for consumer electronics sales during the December quarter. E-tail sales also appear to be ahead of traditional retail sales for our branded consumer product lines this holiday season. As final retail and e-tail numbers are reported to us we will be in a better position to announce sales and revenue numbers for the December quarter. To date, revenue for the December quarter is much improved over the September quarter. Based on the expected deliveries of the first IFE systems, Eclipse by Fujitsu Ten automotive stereo products, full launch of the Odyssey 1000, and other developments, the first calendar quarter of 2003 is expected to show continuing revenue growth.
Our online marketing initiatives have received a boost from MP3.com's review of our Treó 15 portable digital jukebox product, proclaiming it has an "outstanding dollar-to-gigabyte ratio". Treo 15 has been highlighted for several weeks as MP3.com's #1 recommended MP3 hardware "Product Pick" for holiday shoppers.
Through the assistance of our Chairman, Alex Diaz, we have acquired www.edigital.com and will begin making use of this domain as our primary URL in early 2003.
We have negotiated an agreement with our short-term note holders to restructure the notes on terms favorable to the company. We expect this agreement to be formalized before the end of this month and details will be filed with the Securities and Exchange Commission upon completion.
We are preparing for the International Consumer Electronics Show (CES) in Las Vegas January 9-12. Our booth in the Las Vegas Convention Center South Hall, #31173, will showcase the official launch of our Odyssey 1000, as well as MXP 100, Treo 15, Odyssey 100, Odyssey 200, and Odyssey 300 branded consumer electronics products, and will also have information on OEM platforms featuring digital audio and video support. We are planning to have products and technology platform demonstrations in several OEM customers' and partners' booths as well as in technology suites and pavilions. We will be releasing more information regarding our participation at CES 2003 in the days leading up to the show.
While we are working in difficult industry and economic circumstances, we look forward to 2003 being much improved over 2002. We are executing our business strategy and we look forward to releasing further information regarding our progress on e.Digital-branded and OEM-branded consumer electronics products as well as our growing OEM development, design, and manufacturing business.
From all of us at e.Digital, we wish you and your families a healthy and happy Holiday Season.
Sincerely,
Alfred H. Falk
President and CEO
About e.Digital
e.Digital Corporation designs, licenses, brands, manufactures, and sells digital audio products and technologies. The company's trademarked digital audio players include the MXP TM 100, TreóTM portable digital jukebox line, SilhouetteTM ultra-slim MP3-CD player, and OdysseyTM line of flash- and hard disk drive- based players. e.Digital launched WeDigMusic.com to complement its digital audio players by providing consumers with a one-stop-shop for streaming and downloading music from thousands of artists on the Web. The company also offers an engineering partnership for the world's leading electronics companies to link portable digital devices to PCs and the Internet. e.Digital develops and markets to consumer electronics manufacturers complete end-to-end solutions for delivery and management of open and secure digital media with a focus on music, voice and video players/recorders, and automotive infotainment and telematics systems. Other applications for e.Digital's technology include portable digital music players and voice recorders; desktop, laptop, and handheld computers; PC peripherals; cellular phone peripherals; e-books; video games; digital cameras; and digital video recorders. Engineering services range from the licensing of e.Digital's patented MicroOSTM file management system to custom software and hardware development, industrial design, and manufacturing services. For more information on the company, please visit www.edig.com. To shop in the e.Digital online store, please visit www.edigital-store.com.
# # #
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. Factors that may affect the Company's businesses, financial condition and operating results include future products and results, technological shifts, potential technical difficulties that could delay new products and services, competition, pricing pressures, the uncertainty of market acceptance of new products and services by OEM's and end-user customers, effects of changes in the economy, consumer spending, the ability of the Company to maintain relationships with strategic partners and suppliers, the ability of the Company to timely and successfully develop, maintain and protect its technology and product and service offerings and execute operationally, the ability of the company to attract corporate financing and the ability of the Company to attract and retain qualified personnel. These factors may also include, but are not limited to, general market conditions, the Company's ability to develop new products to meet market demand, the Company's ability to maintain cost controls, the mix of products and services the Company's customers require and the effects of natural disasters, international conflicts and other events beyond the Company's control. 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 with the Securities and Exchange Commission ("SEC"). e.Digital disclaims any intent or obligation to update those forward-looking statements, except as otherwise specifically stated by it.
Editors Note: e.Digital, MicroOS, and Odyssey are trademarks or registered trademarks of e.Digital Corporation. SRS WOW Effect is a trademark of SRS Labs, Inc. All other company, product, and service names are the property of their respective owners.
