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`7315 E. Fleskvisw Englewood. Colol"sdo 80111' Flhone 303-793-0060
`
`10 October 1985
`
`Dear Shareholder:
`
`The four months since our last shareholder letter have been busier
`than ever for your company. Among the highlights:
`*
`
`The first digital audio recording and live radio broadcast from a
`CompuSonics DSP-IOOO pilot production floppy disk recorder/player
`was accomplished last month in Colorado Springs, Colorado on a local
`AM station.
`
`*
`
`*
`
`*
`
`~ '.'
`
`We have signed the Memorandum of Understanding for Co-Marketing with
`AT&T Communications. This is the direct result of a series of
`successful telerecording tests and demonstrations which culminated
`in August with New York City to Chicago and back digital audio
`communications between two CompuSonics DSP-2002s with AT&T ACCUNET
`Switched 56 service providing the channel.
`
`~egoLiations in Tokyo with Sansui Electric Company and Nissho
`Electronics have, in our opinion, yielded firm and cost effective
`price/delivery quotations for manufacture of our DSP-lOOO floppy
`disk recorder/player printed circuit board assemblies. Stuffed and
`tested boards will be air-freighted to our US subcontractor who
`completes the units by adding disk drives, firmware and ~ower
`supplies to the bo~rds, installs the works in finished cases, audio
`tests, then ships them to our d~stributors and OEM customers.
`
`The new Eastman Kodak disk drives with custom Helix Technologies
`heads have tested well and are being used in pilot production units.
`
`Congratulation~ to Jchn Stautner on his recent move up to the
`positio~ of ~cesident of CompuSonics Video Corporation, an
`affiliated company. More on this in my next shareholder letter.
`
`AT&T's agreement to promote our telerecording system with their ACCUNET
`service should help us in terms of market penetration for our DSP-2002
`professional audio computer. Audio recording and production facilities
`will be able to digitally transmit and receive music using special
`telephone lines. At present, high priority audio material is either
`physically transfered by courier, or encoded onto high bandwidth
`satellite channels. The cost of those methods is much higher than
`telerecording for most applications. AT&T's commitment to telerecording
`may hasten the arrival of that day, in the not too distant future, when
`the technology will filter down to the consumer level, allowing
`all-electronic purchases, transfers and digital recording of high
`Udelit~' audio from any music dealer's DSP-2000 to the DSP-lOOO in your
`living room.
`
`CDN026382
`
`Page 00001
`
`

`

`Acceptance of the DSP-2002 continues to mount. One of the entertainment
`industry's most talented audio engineers, Bob Lifton, has installed one
`in his New York recording studio. Bob is the current president of the
`Society of Professional Recording Studios. Among his numerous credits
`is the audio engineering for the "Live Aid" concert's US portion.
`According to Lifton, the DSP-2002 solves his toughest audio for video
`editing jobs in a fraction of the time he previously needed using
`conventional recording equipment, razor blade and splicing tape.
`
`The first group of DSP-lOOO pilot production units have been used
`extensively for trade show demonstrations, field testing, and laboratory
`evaluation. As a result of all this, we discovered that performance and
`reliability could be improved with a few modifications to the circuit
`design. These revisions have b~en accomplished, and a second pilot
`production run is underway. After verification of the revised circuit,
`the next step will be to begin mass production of the boards in Japan.
`
`As I mentioned in my previous letter, all early production floppy disk
`recorders will be directed towards the broadcast industry market,
`presently dominated by cartridge tape equipment. This strategy has a
`number of advantages over proceeding directly towards the consumer
`DSP-lOOO. Most importantly, success in the broadcast equipment market
`will buy us breathing room to finalize the consumer version of the
`DSP-IOOO. Showroom demonstrator level consumer units utilizing more
`advanced disk drives will be featured in our booth at the Winter
`Consumer Electronics Show in Las Vegas.
`
`CompuSonics' PR campaign continues to make waves with stories in "High
`Technology", "Venture", "Broadcast Management and Engineering",
`"Billboard" and many other industry publications.
`I expect the media to
`continue its close coverage of our progress as consumer interest in
`digital audio products grows.
`A new twist to the media campaign will
`begin this fall as DSP-IOOOs begin arriving in l~rger numbers in radio
`stations.
`Listen for your favorite radio show (,n-air personality to
`mention his use of CompuSonics digital audio gear.
`
`As always, thanks for your calls and letters!
`
`Sincerely,
`
`~=--. >$
`
`------- --
`President ~ -
`
`David M. Schwartz
`
`CDN026383
`
`Page 00002
`
`