Letter From the President and the CEO; This Letter is a Direct Communication From the President and the CEO of e.Digital Corp.

Business Editors and High-Tech Writers

SAN DIEGO--(BUSINESS WIRE)--Sept. 25, 2002

e.Digital Corp. (OTCBB:EDIG)

"Dear Shareholder: As our Annual Meeting approaches we take this opportunity to provide a summary and update on our business, products, and strategies."

Annual General Meeting of Shareholders

"We have set Tuesday, November 5, 2002, as the date for our Annual General Meeting of Shareholders, which will be held at the California Center for the Arts in Escondido, California. We will provide a live audio webcast of the meeting on that day at 2:00 p.m. Pacific Standard Time and release a synopsis of the meeting on Wednesday, November 6. Details of the broadcast will be announced before the meeting.

"Proxy materials are being prepared and will be mailed to Shareholders of Record as of the Record Date (September 17, 2002). We encourage you to read your Proxy materials and return your ballot quickly. We also encourage you to take advantage of your broker's telephone and Internet-based voting systems. All ballots must be received no later than 12:00 noon Pacific Time on November 5, 2002, to be counted before the Annual Meeting."

Business Developments

"We are pleased to report that the Secured Promissory (SP) Note with a scheduled due date of October 29, 2002, has been retired early, and we have restructured the debt on more favorable terms to the company. Through long-term private institutional investors who have held shares in e.Digital for many years, the SP Note has been retired and has been replaced by an unsecured note of $750,000 at 15% annual interest. This note includes no shares or warrants, and does not place at risk ownership of the company's Intellectual Property or Patents. The unsecured note calls for monthly payments through December 2003. During very difficult economic times, we are pleased to have removed the secured note obstacle from the path of our business growth."

The Company's Strategic Direction

"The past year has been a metamorphosis for e.Digital as we added to our OEM business the branding, marketing, and selling of our own line of consumer electronics products. In less than a year since launch, e.Digital-branded digital audio players and voice recorders are being sold in CompUSA stores nationwide and are featured in the digital audio departments of several regional consumer electronics retailers and e-tailers. D&H Distributing, the nation's largest educational distributor, has recently added our products to its line, giving us access to the lucrative college and university bookstore market nationwide.

"We continue to hold meetings with and receive sales forecasts from major retailers. Due to the current slow consumer electronics retail environment, retailers have been reluctant to bring in inventory this quarter; however, we are experiencing an upswing and expect substantially increasing product orders and revenue for the holiday season. Last year, the vast majority of all MP3 player sales occurred between November and January, and retailers expect this to be the case this year as well. Consequently, the majority of anticipated revenues that were projected for the September quarter are expected to move into the October-December quarter. While we continue to work aggressively with major retailers, to date greater margins with less inventory exposure are being realized with regional retailers.

"Over the last two months we have reduced our monthly cash burn rate by greater than 30 percent, with more savings scheduled in the next quarter as we drive the company toward cash flow neutrality and future profitability. We look forward to giving further cash flow and revenue guidance for the next two quarters (October 1-March 31) at the November Shareholder's Meeting.

"To complement our sales initiatives, we are creating a compelling marketing and public relations campaign for our Odyssey line of digital audio products. The Odyssey 1000 and Odyssey 800 models in particular are being well received by retail buyers. We are capitalizing on the interest they are generating as they become available in time for the holiday selling season. Based on the success of the number one selling portable jukebox, the Apple iPod, we strongly believe the company can record substantial revenue with these products. Other jukebox products that are currently in distribution include our popular Treo 10 and Treo 15 personal digital jukeboxes, MXP 100 with removable storage media, and Odyssey flash-based digital audio players. Based on the latest information from our manufacturers, we expect the Silhouette MP3/CD players and Odyssey 300 MP3 players to be available to consumers in October.

"Other OEM products introduced to the consumer market this year that include e.Digital technology are the Classic XP3 hard-disk-drive portable digital jukebox, the Classic MP3 DataPlay-based digital audio player, and the Bang & Olufsen BeoSound2 stainless steel personal audio player. We're currently negotiating with several OEMs regarding music and video products as we ramp-up exposure of our intellectual property and product designs. We expect to announce new major OEM product developments in the October-December quarter. Private labeling of our devices with MicroOS(TM) e.Digital technology continues to be a major focus for our near-term and long-range growth."

Business Initiatives in Progress

"The Eclipse by Fujitsu Ten  initiative continues on course, as does our advancement into telematics. We completed our portion of the industrial design for Eclipse by Fujitsu Ten, and expect them to begin taking delivery of finished goods and offering the product through retail outlets this year. Under the terms of our contract, e.Digital is developing and building an initial quantity of 4,000 automotive digital music players. Total value of this first order is just under $1 million.

"The momentum we created over the past few months with the introduction of new, groundbreaking products does not stop here. Our Broadband Entertainment Business Unit is pioneering the way online music is distributed. We are developing a number of revenue sharing opportunities through relationships with content providers on our soon-to-be launched music Web site. And the subscription service we are rolling out will provide additional opportunities for revenue enhancement, as well as opportunities for e.Digital brand building and user access to a variety of music from high-profile and emerging artists.

"The launch of our new music Web site will complete our convergence of content with hardware. Furthermore, as our launch into broadband entertainment progresses, we look to expand content on the site to include digital movies, electronic books, and other digital media to create a one-stop shop for our product users to download a variety of digital content to their portable e.Digital devices. We are on the frontier of the digital entertainment revolution, and it's an exciting place to be for us and our OEM customers and partners.

"The addition of our Broadband Entertainment Business Unit has been implemented at a minimal investment and requires low maintenance going forward. We continue to work with content providers to offer a variety of music on our new music Web site and hand-held players. We firmly believe that handheld portable audio players represent the present and future of music products.

"We thank our shareholders, customers, and partners for their support in what has been a very challenging year, and we also thank our employees and board members for their continued dedication and creativity. We remain confident in our technology, products, and business, and we look forward to further announcements and developments in the coming days and meeting with you in November."

Sincerely yours,

Jim Collier, President

Alfred H. Falk, Chief Executive Officer

About e.Digital

e.Digital Corp. designs, licenses, brands, manufactures, and sells digital audio products and technologies. The company's trademarked digital audio players include the MXP(TM) 100, Treo(TM) portable digital jukebox line, Silhouette(TM) ultra-slim MP3-CD player, and Odyssey(TM) line of flash- and hard disk drive-based players. 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 MicroOS(TM) file management system to custom software and hardware development, industrial design, and manufacturing services. For more information on the company, visit www.edig.com. To shop at the e.Digital online store, 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.

Note: e.Digital and MicroOS are trademarks of e.Digital Corp. All other company, product, and service names are the property of their respective owners.