Mr. Moran: M-Systems was founded 15 years ago to develop flash data storage. In fact, we introduced the concept of the flash disk into the market, and we have been focused on applications with this technology throughout our history. During the year, we have made tremendous progress, bringing to market better technology, smaller size, enhanced features and greater functionality. It has developed from a small niche into a very attractive market; one that, especially as of late, is growing rapidly. Today, we focus primarily on two markets with two core product families. One is DiskOnKey, which we invented in 1999. This is a device that plugs into any computer using the USB port. On the surface, it is a floppy replacement, but it is actually much more than that. It allows users to easily and conveniently store large amounts of data on a portable, virtually error-proof device. With its strong processor, DiskOnKey offers many enhanced features beyond simple storage, including the ability to run applications directly from the device, security, bootability and read-only access. In addition, we have established two subsidiaries to further differentiate DiskOnKey from other products in the market; The first subsidiary, called Key Computing, is working with third party software vendors to encourage DiskOnKey-specific application development and to create devices based on the DiskOnKey Technology Platform that offer unique functionality based on resident applications targeting mainly corporations. Our second subsidiary, SmartCaps, is developing hardware add-ons that will allow adding different consumer electronics applications to the DiskOnKey. The first such Cap, which was announced not long ago, is an MP3 player and voice recorder that uses DiskOnKey as the storage medium. We have many other very exciting ideas and I expect great things from both of these initiatives. During its relatively short life, we have already had wonderful success with the DiskOnKey. Since the product’s introduction in 2000, we have had sales of 6 million in 2001; 27 million in 2002; and expect over 75 million this year. The second product line is DiskOnChip. This is a product that was originally introduced in 1996. When we brought it to market, the DiskOnChip was primarily designed as a storage medium for Set-top Boxes, Internet Appliances and other embedded systems. We succeeded nicely in these markets but when we recognized that these markets lacked the high growth potential that we sought for, we began to adapt the product to meet the needs of other, larger markets. It was with this in mind that we created the Mobile DiskOnChip as a local storage solution for mobile handsets and PDAs. This is an ideal solution for manufacturers of smart phones, which are gaining acceptance among users who need additional features and functions, color displays, the ability to load software and store data. As a result, we have seen / are starting to see great success with this product, almost doubling our sales of the product from quarter to quarter. In 2002, which was the first year we were active in this market, our sales were less than 2 million dollars; we expect to complete 2003 with about 15 million in sales and we expect to continue this rapid sales growth through 2004. We already have numerous design wins, with nearly every leading mobile handset manufacturer. We are gaining similar acceptance among PDA manufacturers including Sony, who selected the Mobile DiskOnChip for its CLIÉ handheld.
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