Profitability in 4Q05 (qtr just ended):

Yesterday`s news opened our eyes to a myriad of ``DigE-`` variations - many of them.

Wencor - a non-techie firm specializing in logistics support services. EDIG - an extremely techie firm specializing in cutting edge technology. So where did all these ideas for digE-variants come from?

IMO, EDIG looked at all possibilities for enhancement of the digE in an embedded environment. They also looked at the competition and what they are doing or may do. They looked at how competitors had pieces of the pie-in-the-sky, but how none had the whole enchalada. They developed a recipe, knowing what THEY were capable of doing (after all, it`s their forte), and sold the concept to Wencor. Wencor`s eyes got real big, and they said ``go for it!``. Bottom line, IMO, this whole new digEsystem is EDIG`s brainchild, they sold it (the ideas) to Wencor, and Wencor is footing the development bill. And in the end, and in this discussion, it doesn`t really matter who originated the ideas, but who can put it all together (EDIG).

Now, what was I talking about? Oh yeah, profitability in the last qtr.....

The other day I opined along these lines, suggesting that based on a couple of things we KNOW and some speculation, a breakeven or small profit may be in the offing. Basis?

We heard in last guidance that EDIG had nearly $1M in (50%) up-front payment presumably for more digEs. That would make the total about $2M, and there is a reasonable expectation that the digEs on order at year end were delivered in the last qtr. We suspect that they are making around 25%+ profit on digEs. That YE order could therefore bring us $500K+.

We also got the settlement with F-10, netting around $100K.

Now we hear of this digE-variant ladden device coming down the pike (albeit, seemingly slowly). Do you think that Wencor could/would announce such a thing (and possibly already inked a customer) if the R&D/engineering effort weren`t done or very far down the road to completion? Not likely IMO. So how`d that happen? IMO, lots of NRE effort by EDIG, funded by Wencor`s deep pockets. Now, how much funding? Probably a lot, but recogizing the close, cooperative, exclusive (probably) and mutually-beneficial relationship between EDIG and Wencor, perhaps only funding to cost (like a T&M effort) with no or little EDIG profit tacked on. But that`s okay IMO, because they may have funded enough to cover a significant portion of OH.

Now, looking at the numbers again:

OH... =~$750K for the qtr.

DigEs =~$500K profit

F-10. =~$100K net

Leaves=~$150K Shortfall

Now, ya think maybe the NRE effort could be worth a mere $50K per month (that really ain`t much), totaling ~$150K for the qtr.? Ya think maybe we got us a breakeven or possibly a profitable qtr.? Based on yesterday`s news and recognizing the effort that it MAY HAVE required recently on the part of EDIG, I strongly suspect that this is a pleasant surprise awaiting us. Also recall that email reply someone (BL?) got from RP, where RP said something to the effect that the jury is still out on profitability last qtr., even though the subject of profitability was not mentioned in the email query?

JMHO from a sorry KNOW-nuttin`! Please correct/add to the above assumptions as ya`all see fit. Please pick on the info and not the poster (me!) along the lines of my intro. Even if you think this post is a criminal act, please be civil!

SGE