-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DYfgoI7JsUqDPpaSqeTsgVuIBXkrCsYT1LVw0Imdu+XN6VrV0O2EmTLzoq/Qs8sZ wWhzdJ2t4tiCJAK9WLp/bw== 0000950123-98-001539.txt : 19980218 0000950123-98-001539.hdr.sgml : 19980218 ACCESSION NUMBER: 0000950123-98-001539 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980217 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BITWISE DESIGNS INC CENTRAL INDEX KEY: 0000885074 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPUTERS [3571] IRS NUMBER: 141673067 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-20190 FILM NUMBER: 98540973 BUSINESS ADDRESS: STREET 1: BLDG 50 ROTTERDAM INDUSTRIAL PK CITY: SCHENECTADY STATE: NY ZIP: 12306 BUSINESS PHONE: 5183569741 MAIL ADDRESS: STREET 1: BLDG 50 ROTTERDAM INDUSTRIAL PARK CITY: SCHENECTADY STATE: NY ZIP: 12306 10QSB 1 BITWISE DESIGNS, INC. 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: December 31, 1997 / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to ________________ Commission File No. 0-20190 BITWISE DESIGNS, INC. (Exact name of small business issuer as specified in its charter) Delaware 14-1673067 (State or other jurisdiction of (I.R.S.Employer incorporation or organization) Identification No.) Technology Center, Rotterdam Industrial Pk, Schenectady,NY, 12306 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code:(518) 356-9740 Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / 7,369,720 shares of Common Stock, par value $.001 per share, were outstanding at February 9, 1997. Page 1 of 15 2 BITWISE DESIGNS INCORPORATED FORM 10-QSB INDEX Page No. -------- PART I FINANCIAL INFORMATION Item 1 - Financial Statements Consolidated Balance Sheets - December 31, 1997 and June 30, 1997 3-4 Consolidated Statements of Operations - Three and six months ended December 31, 1997 and December 31, 1996 5 Consolidated Statements of Cash Flows - Six months ended December 31, 1997 and December 31, 1996 6-7 Notes to Consolidated Financial Statements 8-9 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 10-13 PART II OTHER INFORMATION Item 4 Submission of Matters to a Vote of Security Holders 13-14 Item 5 Other Information 14 Item 6 Reports on Form 8-K 14 Safe Harbor Statement 14-15 Signatures 15 Page 2 of 15 3 PART I FINANCIAL INFORMATION BITWISE DESIGNS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
ASSETS DECEMBER 31, JUNE 30, 1997 1997 (UNAUDITED) ----------- ----------- Current Assets: Cash and cash equivalents $ 3,740,628 $ 2,863,847 Accounts receivable, net of allowance for doubtful accounts of $328,775 at Dec. 31, 1997 and $189,126 at June 30, 1997 7,637,872 7,219,539 Due from related parties 213,835 216,465 Inventories 2,982,237 3,137,332 Income taxes receivable 8,650 Prepaid expenses and other current assets 486,257 176,338 ----------- ----------- Total current assets 15,060,829 13,622,171 Property and equipment, net 909,627 998,781 ----------- ----------- Other assets: Software development costs, net 102,286 81,059 Other assets 39,666 39,822 Deferred financing costs 286,738 Excess of cost over net assets of acquired companies, net 4,065,742 4,182,932 ----------- ----------- Total assets $20,464,888 $18,924,765 =========== ===========
See accompanying notes to the consolidated financial statements. Page 3 of 15 4 BITWISE DESIGNS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY DECEMBER 31, JUNE 30, 1997 1997 (UNAUDITED) ------------ ------------ Current liabilities: Borrowings under lines of credit $ 3,194,182 $ 4,219,877 Accounts payable 2,325,508 2,956,270 Accrued expenses and other liabilities 659,200 542,550 Current portion of long-term debt 549 1,601 Current portion of obligations under capital leases 4,629 10,200 Income taxes payable 4,251 ------------ ------------ Total current liabilities 6,188,319 7,730,498 ------------ ------------ Long-term debt, net of current portion 3,400,292 Obligations under capital leases, net of current portion 1,297 ------------ ------------ Total liabilities 9,588,611 7,731,795 ------------ ------------ Shareholders' equity: Preferred stock -$.10 par value, 5,000,000 shares authorized: Series A -200 shares issued and outstanding 20 20 Common stock-$.001 par value; 20,000,000 shares authorized; shares issued: 7,369,720 at December 31, 1997 and 7,367,720 at June 30, 1997 7,370 7,368 Additional paid-in capital 19,718,034 18,996,591 Accumulated deficit (8,848,724) (7,810,586) ------------ ------------ 10,876,700 11,193,393 Less cost of common shares in treasury, 338 shares (423) (423) ------------ ------------ Total shareholders' equity 10,876,277 11,192,970 ------------ ------------ Total liabilities and shareholders' equity $ 20,464,888 $ 18,924,765 ============ ============
See accompanying notes to the consolidated financial statements. Page 4 of 15 5 BITWISE DESIGNS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE 3 MONTHS ENDED FOR THE 6 MONTHS ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1997 1996 1997 1996 (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) ------------ ------------ ------------ ------------ Net sales $9,027,801 $15,198,015 $18,396,656 $26,756,531 Cost of goods sold 6,448,727 12,656,821 13,266,757 21,784,468 ------------ ------------- ------------ ------------ Gross profit 2,579,074 2,541,194 5,129,899 4,972,063 Selling, general and administrative expenses 2,832,319 2,814,303 5,744,275 5,666,811 Product development costs 45,325 43,808 88,428 87,770 ------------ ------------ ------------ ------------ Operating loss (298,570) (316,917) (702,804) (782,518) Other income (expense): Interest expense (284,139) (104,939) (415,553) (193,616) Interest and other income 63,128 14,457 116,319 57,628 ------------ ------------ ------------ ------------ Loss before taxes (519,581) (407,399) (1,002,038) (918,506) Income tax expense 6,001 17,593 36,100 32,993 ------------ ------------ ------------ ------------ Net loss ($ 525,582) ($ 424,992) ($1,038,138) ($ 951,499) ============ ============ ============ ============ Per share amounts: Net loss per common share ($ 0.07) ($ 0.06) ($ 0.14) ($ 0.13) ============ ============ ============ ============
See accompanying notes to the consolidated financial statements. Page 5 of 15 6 BITWISE DESIGNS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE 6 MONTHS ENDED DECEMBER 31, DECEMBER 31, 1997 1996 (UNAUDITED) (UNAUDITED) ----------- ----------- Cash flows from operating activities: Net loss ($1,038,138) ($ 951,499) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 377,277 332,202 Provision for doubtful accounts 129,281 30,662 Changes in operating assets and liabilities: Accts. receivable & from related parties (544,984) (2,678,603) Inventories 155,095 (386,099) Prepaid expenses & other assets (163,893) (93,948) Accounts payable and accrued expenses (514,112) 953,424 Income taxes 12,901 8,000 Other (1) (7,184) ----------- ----------- Net cash used in operating activities (1,586,574) (2,793,045) ----------- ----------- Cash flows from investing activities: Property and equipment expenditures (68,609) (233,984) Software development costs (45,466) (49,798) Trademarks (25,000) Other (1,500) ----------- ----------- Net cash used in investing activities (115,575) (308,782) ----------- ----------- Cash flows from financing activities: Incr/(Decr) borrowings on lines of credit, net (1,025,695) 1,141,130 Incr/(Decr) borrowings of long-term debt, net of deferred issuance costs 3,608,368 (16,667) Principal payments - capital lease obligations (6,868) (19,385) Dividends (7,610) Payment of deferred offering costs (29,940) Exercise of common stock warrants 654,014 Exercise of common stock options 3,125 ----------- ----------- Net cash provided by financing activities 2,578,930 1,721,542 ----------- ----------- Net increase (decrease) in cash & cash equivalents 876,781 (1,380,285) Cash and cash equivalents, beginning of year 2,863,847 3,377,305 ----------- ----------- Cash and cash equivalents, end of period $ 3,740,628 $ 1,997,020 =========== ===========
See accompanying notes to the consolidated financial statements. Page 6 of 15 7 BITWISE DESIGNS, INC. AND SUBSIDIARIES SUPPLEMENTAL CASH FLOW DISCLOSURES ----------------------------------
OTHER SUPPLEMENTAL INFORMATION: FOR THE 6 MONTHS ENDED DECEMBER 31, DECEMBER 31, 1997 1996 (UNAUDITED) (UNAUDITED) ------------- ------------- Interest Paid $197,187 $182,738 Income Taxes Paid $26,000 $25,894 Additional Paid in Capital Resulting from Issuance of Detachable Warrants for Debt $650,411 Issuance of Warrants for Services $67,910
See accompanying notes to the consolidated financial statements. Page 7 of 15 8 BITWISE DESIGNS, INC. ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. The consolidated financial statements include the accounts of Bitwise Designs, Inc. and its wholly-owned subsidiaries, System Solutions Technology, Inc. and DJS Marketing Group, Inc. (the Company). All significant intercompany accounts and transactions have been eliminated in consolidation. The management of the Company believes the accompanying unaudited consolidated financial statements contain all adjustments necessary to fairly present the financial position as of December 31, 1997 and June 30, 1997 and results of operations and cash flows for each of the periods presented. 2. The results of operations for the three and six months ended December 31, 1997 and 1996 are not necessarily indicative of the results to be expected for the full year. 3. Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these consolidated financial statements be read in conjunction with the annual consolidated financial statements and notes thereto included in the Company's Form 10-KSB for the fiscal year ended June 30, 1997. 4. In April 1997, Bitwise completed the sale of one of its subsidiaries, Electrograph Systems, Inc. 5. In August 1997, the Company concluded an offering with an offshore bank for $4,000,000 in gross proceeds ($3,600,000 in net proceeds after expenses) in the form of unsecured, convertible, bearer notes, payable in its entirety on August 11, 2002, with 400,000 detachable Common Stock Purchase Warrants. The $650,411 value of the warrants has been recorded as discount on the debt and is being amortized over the term of the debt. The notes accrue interest at 8%, payable semiannually, in arrears. The holder of $50,000 principal amount or more may convert the notes into common stock commencing November 1, 1997 until August 11, 2002 at the rate of $3.25 per share. The Warrants are exercisable at $3.25 per share of common stock from November 1, 1997 until August 11, 2002. 6. During the six months ended December 31, 1997, 2,000 common stock options were exercised at an aggregate exercise price of $3,125 and no common stock warrants were exercised. 7. The Company adopted Statement of Financial Accounting Standards Board, SFAS 128, "Earnings per Share" in fiscal year 1998. The following represents the reconciliation of the basic and diluted earnings per share amounts for the three and six months ended December 31, 1997 and 1996. Amounts presented for 1996 as originally presented conform with the provisions of SFAS No. 128. Page 8 of 15 9
MONTHS ENDED DECEMBER 31, ---------------------------------------------------------- 1997 1996 ---- ---- THREE SIX THREE SIX ----- --- ----- --- Net loss ($525,582) ($1,038,138) ($424,992) ($951,499) Weighted average shares 7,368,024 7,368,301 7,210,674 7,050,788 Basic and diluted EPS ($.07) ($.14) ($.06) ($.13)
8. In October 1997, the Company announced the signing of a letter of intent to sell two subsidiaries, DJS Marketing Group, Inc. and System Solutions, Inc. to MSTC, Inc. The letter of intent contemplates a sale price of $6,000,000 with $4,000,000 payable in cash and $2,000,000 payable in a promissory note. The transaction as presently contemplated, will be in the form of a stock sale and MSTC will be assuming all liabilities of the subsidiaries. Management believes the sale of these two subsidiaries will allow the Company to focus all of its resources on the Imaging Division. The sale may result in a loss and management is unable to determine at this time the amount of any such loss. Consummation of the transaction is subject to completion of due diligence by MSTC, Inc., negotiation and execution of a definitive agreement, approval of the board of directors of each entity and approval of the stockholders of Bitwise Designs, Inc. The parties are currently proceeding with due diligence and negotiation of the terms of the purchase agreement. NEW ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 requires reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general purpose financial statements. This statement will be effective for annual and interim financial statements beginning the fiscal year ending 1999, and will require reclassification of prior periods. The adoption of this standard is not expected to have a significant impact on the Company's consolidated financial statements. In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information." SFAS No. 131 requires expanded reporting of information about operating segments in interim and annual financial statements, including certain descriptive information about products and services, geographic areas, and major customers. This statement will be effective for annual financial statements beginning the fiscal year ending 1999, and for interim periods beginning the fiscal year ending 1999. The adoption of this standard is not expected to have a significant impact on the Company's consolidated financial statements. Page 9 of 15 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF ITEM 2. FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following analysis of the financial condition and results of operations of the Company should be read in conjunction with the Company's consolidated financial statements and notes contained elsewhere in this Form 10-QSB. RESULTS OF OPERATIONS THE THREE AND SIX MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THE THREE AND SIX MONTHS ENDED DECEMBER 31, 1996. The Company realized a consolidated net loss of $525,582 ($.07 per share) and $1,038,138 ($.14 per share) for the three and six months ended December 31, 1997, respectively. This compares to a net loss of $424,992 ($.06 per share) and $951,499 ($.13 per share) for the three and six months ended December 31, 1996, respectively. The Company had consolidated net sales of $9,027,801 and $18,396,656 for the three and six months ended December 31, 1997, respectively. During the same periods last year the Company had consolidated net sales of $15,198,015 and $26,756,531, respectively. The Company's 1998 fiscal year ends June 30, 1998. The sales decrease for the six months ended December 31, 1997 compared to last year is due to the sale of one of the Company's subsidiaries, Electrograph Systems, Inc. in April 1997. In the same six month period in fiscal 1997 Electrograph had sales of $5,374,463 and $9,921,120 for the three and six months ended December 31, 1996 which were included in the consolidated financial statements. Offsetting this decrease was an increase in sales from the Company's Imaging Division. The Imaging Division experienced a 50% increase in sales from $3,632,098 for the six months ended December 31, 1996 to $5,450,369 for the six months ended December 31, 1997. Imaging sales for the three months ended December 31, 1997 and 1996 were $3,230,213 and $1,935,971, respectively. Gross profit for the three and six months ended December 31, 1997 totaled $2,579,074 and $5,129,899, respectively, compared to $2,541,194 and $4,972,063 for the same periods last year. The gross profit margin was 28.6% and 27.9% for the three and six months ended December 31, 1997, respectively, compared to 16.7% and 18.6% for the same periods last year. The gross profit margin (which is defined as gross profit as a percentage of sales) increased during the current fiscal year compared to the prior year due to the growth of the Company's DocStar product line which has significantly higher margins than other product lines of the Company. The increase is also due to the sale of Electrograph which historically had a relatively low gross profit margin compared to other divisions of the Company. Selling, general and administrative expenses (S,G&A) consist of all other Company expenses except product development costs and interest. S,G&A expenses amounted to $2,832,319 and $5,744,275 for the three and six months ended December 31, 1997, respectively, compared to $2,814,303 and $5,666,811 for the same Page 10 of 15 11 periods last year. S,G&A expenses increased primarily related to increased payroll costs, commissions, travel and living etc. due to sales increases especially in the Imaging Division. These increases were partially offset by the sale of Electrograph. As a percentage of sales, S,G&A costs increased from 18.5% and 21.2% for the three and six months ended December 31, 1996 to 31.4% and 31.2% for the three and six months ended December 31, 1997. The increase reflects the sale of Electrograph which historically has had a relatively low S,G&A cost to sales percentage. Interest expense totaled $284,139 and $415,553 for the three and six months ended December 31, 1997, respectively, compared to $104,939 and $193,616 for the same periods last year. The increase is due to the issuance of $4 million of convertible notes in August 1997. The increase is also due to increased borrowings by the Company under an existing line of credit caused by an increase in sales (especially in the Imaging Division) and related increases in average inventory and accounts receivable. Interest rates increased slightly during the six months ended December 31, 1997 compared to the same period last year. Product development expenses relate primarily to software development of the Company's DocStar product line and remained consistent during the six months ended December 31, 1997 ($88,428) compared to the prior year ($87,770). The Company has a policy of capitalizing software development costs and amortizing those costs over three years as product development expense. For the quarter ended December 31, 1997 the consolidated net loss is due to losses incurred by the Company's subsidiary, System Solutions Technology, Inc. which experienced a decrease in sales for the quarter as demand for computer peripheral equipment declined. Management believes the decline is temporary in nature and due to seasonality. The quarterly loss is also due to an increase in interest expense related to the issuance of convertible notes in August 1997 (described more fully in the footnote 5) as well as other increases in corporate S,G&A expenses. The loss for the six months ended December 31, 1997 is also due to the losses incurred by the Imaging Division during the quarter ending September 30, 1997. This Division realized a small profit for the quarter ended December 31, 1997. The Imaging Division manufactures the DocStar product line. This product line is sold nationally through the office equipment dealer channel. The Company continues to recruit new dealers across the country which results in significant personnel, advertising, marketing and travel expenditures. The Company expects to incur additional losses during the short-term as a result of the significant start-up costs associated with marketing a new product on a national basis. In comparing the loss for the six months ended 12/31/97 to the prior year period, the prior year loss would have been significantly larger if Electrograph's results had not been included in the prior year results. Page 11 of 15 12 The Company's salable products rely on software applications. The Company also relies on systems of other parties in regard to its business, accounting and operational software. The Company believes that its salable products, as well as its significant business, accounting and operations software are year 2000 compliant. However, there can be no assurance that the Company will not experience difficulties with the conversion of these systems. The Company's business, financial condition or results of operations could be materially adversely affected by the failure of its systems and application or those operated by other parties to properly manage dates beyond 1999. LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of funds to date have been the issuance of equity and the incurrence of third party debt. The principal balance of long-term debt at December 31, 1997 totaled $3,400,841, net of issuance discount. The gross amount of $4,000,000 is not due and payable until August 2002. The Company also has two working capital lines of credit totaling $6,500,000 which are collateralized by all accounts receivable, inventory and all other assets of the Company and its subsidiaries. At December 31, 1997 the total outstanding balance was $3,194,182. One of the credit lines, in the principal amount of $3,500,000, may only be utilized by DJS. The other line of credit of $3,000,000 may be utilized by Bitwise and System Solutions Technology, Inc. (SST). Each company's availability under the $3,000,000 line is based on a formula of accounts receivable and inventory and may not exceed $3,000,000 in total. In the event that the Company completes the sale of the DJS Marketing, Inc. and System Solutions Technology, Inc. subsidiaries the credit lines will be reduced accordingly. The debt accrues interest at rates ranging from the prime rate plus 1.7 5% to 2% per annum. The line of credit agreements include various covenants which require the Company and the subsidiaries to maintain a minimum tangible net worth, maximum debt to tangible net worth, a certain annual profitability level and for DJS a minimum tangible current ratio. They also require delivery of periodic financial information and quarterly audits conducted by the lender. At December 31, 1997 Management believes that the Company was in compliance with all of the above mentioned financial covenants. In August 1997, the Company received $4,000,000 in gross proceeds for the issuance of unsecured, convertible debt with Common Stock Purchase Warrants. Net proceeds totaled approximately $3,600,000 after expenses. The Company used these proceeds for working capital expenses, primarily related to the DocStar product line. Property, plant and equipment expenditures totaled $68,609 for the six months ended December 31, 1997. There were no purchase commitments outstanding or contemplated. Page 12 of 15 13 The Company anticipates that cash expected to be provided by operations together with the proceeds from the sale of Electrograph, the August 1997 private offering and borrowings under its lines of credit will be sufficient to satisfy normal operating obligations. Assuming the sale of SST and DJS is consummated the Company will receive proceeds of approximately $6,000,000, with $4,000,000 received at closing and the remainder received over time. The proceeds will be used for the Company's working capital needs. The Company experienced a net loss of $1,038,138 during the six months ended December 31, 1997. To date, the Company has been largely dependent on its ability to sell additional shares of its common stock or other securities to fund its operating deficits. Under its current operating plan to obtain a national acceptance of the DocStar product line, the Company's ability to improve operating cash flow is highly dependent on the market acceptance of DocStar. If the Company is unable to attain projected sales levels for its DocStar systems, it may be necessary to raise additional capital to fund operations and meet its obligations. However, there can be no assurance such funds will be available, if and when needed. PART II OTHER INFORMATION Item 4 Submission of Matters to a Vote of Security Holders ANNUAL MEETING OF STOCKHOLDERS On December 10, 1997 the Company held its Annual Meeting of Stockholders in Albany, New York. Holders of the Company's Common Stock and Series A Preferred Stock of record on October 28, 1997 (the "Record Date") were entitled to receive notice of, and attend, the Annual Meeting. At the Record Date, there were 7,367,720 shares of Common Stock issued and outstanding and entitled to vote at the Annual Meeting and 200 shares of Series A Preferred Stock issued and outstanding and entitled to vote. Of the total outstanding shares of Common Stock, 5,835,465 shares (79%) were represented at the Annual Meeting either in person or by proxy. At the Annual Meeting, stockholders were asked to (i) elect seven (7) directors to the Board of Directors for a term of one year and (ii) adopt certain proposed changes to the Company's Non-Executive Director Stock Option Plan ("Director Plan") which amendments, among other things, removes a restriction on the aggregate number of shares eligible for issuance under the Director Plan, increases the number of annual grants to directors under the Director Plan, removes certain value limitations of options granted under the Director Plan, removes vesting requirements for options granted under the Director Plan and makes certain other changes to the Director Plan. All of the nominees for director were elected to the Board of Directors and the proposed changes to the Director Plan adopted. Page 13 of 15 14 The results of the voting were as follows: (i) Election of Directors The names of the seven (7) persons elected to the Board of Directors for a term of one (1) year, and the votes cast for and against each nominee are set forth below: Nominee Votes For Votes Against - -------------------------------------------------------------------------------- John T. Botti 5,782,679 52,786 Ira C. Whitman 5,782,679 52,786 Donald J. Payne 5,782,679 52,786 J. Edward Sheridan 5,786,479 48,986 Edward N. Patrone 5,786,479 48,986 Charles C. Johnston 5,786,479 48,986 Stevan A. Kriegsman 5,786,479 48,986 (ii) Proposal to Amend the Non-Executive Director Stock Option Plan For Against Abstain Not Voted - -------------------------------------------------------------------------------- 4,953,800 314,341 40,343 526,981 Item 5 Other Information In October 1997, the Company announced the signing of a letter of intent to sell two subsidiaries, DJS Marketing Group, Inc. and System Solutions, Inc. to MSTC, Inc. The letter of intent contemplates a sale price of $6,000,000 with $4,000,000 payable in cash and $2,000,000 payable in a promissory note. The transaction as presently contemplated, will be in the form of a stock sale and MSTC will be assuming all liabilities of the subsidiaries. Management believes the sale of these two subsidiaries will allow the Company to focus all of its resources on the Imaging Division. The sale may result in a loss and management is unable to determine at this time the amount of any such loss. Consummation of the transaction is subject to completion of due diligence by MSTC, Inc., negotiation and execution of a definitive agreement, approval of the board of directors of each entity and approval of the stockholders of Bitwise Designs, Inc. The parties are currently proceeding with due diligence and negotiation of the terms of the purchase agreement. Item 6 Reports on Form 8-K The following Reports on Form 8-K were filed by the Company during the last quarter: None SAFE HARBOR STATEMENT Certain statements in this Form 10-QSB, including information set forth under Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the Act). The Page 14 of 15 15 Company desires to avail itself of certain "safe harbor" provisions of the Act and is therefore including this special note to enable the Company to do so. Forward-looking statements in this Form 10-QSB or hereafter included in other publicly available documents filed with the Securities and Exchange Commission, reports to the Company's stockholders and other publicly available statements issued or released by the Company involve known and unknown risks, uncertainties and other factors which could cause the Company's actual results, performance (financial or operating) or achievements to differ from the future results, performance (financial or operating) or achievements expressed or implied by such forward-looking statements. Such future results are based upon management's best estimates based upon current conditions and the most recent results of operations. These risks include, but are not limited to risks associated with the market acceptance of the DocStar product line, competition, pricing and technological changes and other risks as discussed in the Company's filings with the Securities and Exchange Commission, in particular its Annual Report on Form 10-KSB for the year ended June 30, 1997, and Registration Statement on Form S-3 declared effective on July 30, 1996 all of which risk factors could adversely affect the Company's business and the accuracy of the forward-looking statements contained herein. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BITWISE DESIGNS INCORPORATED February 17, 1998 /s/ John T. Botti - ----------------- ----------------- DATE JOHN T. BOTTI PRESIDENT & CHIEF EXECUTIVE OFFICER /s/ Dennis H. Bunt ------------------ DENNIS H. BUNT CHIEF FINANCIAL OFFICER Page 15 of 15 EX-27 2 FINANCIAL DATA SCHEDULE
5 6-MOS JUN-30-1998 JUL-01-1997 DEC-31-1997 3,740,628 0 8,180,482 (328,775) 2,982,237 15,060,829 1,932,862 (1,023,235) 20,464,888 6,188,319 0 20 0 7,370 10,868,887 20,464,888 18,396,656 18,396,656 13,266,757 19,099,460 0 129,281 415,553 (1,002,038) 36,100 (1,038,138) 0 0 0 (1,038,138) (.14) (.14)
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