-----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, Myhh7nWHvReWo4jLjbmKeRh0wKjcpKrXDJhKF+LihdQMC5jlf7FMSZZ+VAf4Cidl lYW0wiPTgcrO9DOq3q+hmw== 0000950123-99-004623.txt : 19990517 0000950123-99-004623.hdr.sgml : 19990517 ACCESSION NUMBER: 0000950123-99-004623 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 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: 10-Q SEC ACT: SEC FILE NUMBER: 000-20190 FILM NUMBER: 99621325 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 10-Q 1 FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: March 31, 1999 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 7,382,663 shares of Common Stock, par value $.001 per share, were outstanding at May 10, 1999. Page 1 of 15 2 BITWISE DESIGNS INCORPORATED FORM 10-Q INDEX Page No. PART I FINANCIAL INFORMATION Item 1 - Financial Statements Consolidated Balance Sheets - March 31, 1999 and June 30, 1998 3-4 Consolidated Statements of Operations - Three and nine months ended March 31, 1999 and March 31, 1998 5 Consolidated Statements of Cash Flows - Nine months ended March 31, 1999 and March 31, 1998 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 6 Reports on Form 8-K 13 Safe Harbor Statement 13-14 Year 2000 Update 14-15 Signatures 15 Page 2 of 15 3 PART I FINANCIAL INFORMATION BITWISE DESIGNS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
ASSETS MARCH 31, JUNE 30, 1999 1998 (UNAUDITED) ----------- ----------- Current Assets: Cash and cash equivalents $ 1,027,202 $ 4,000,370 Accounts receivable, net of allowance for doubtful accounts of $392,968 at Mar 31, 1999 and $480,229 at June 30, 1998 6,761,496 4,609,807 Due from related parties 78,841 48,422 Inventories: Finished goods 546,607 350,277 Purchased components & raw material 1,651,564 2,860,591 Income taxes receivable 11,410 3,291 Prepaid expenses and other current assets 469,640 266,237 ----------- ----------- Total current assets 10,546,760 12,138,995 Property and equipment, net 1,647,352 776,925 ----------- ----------- Other assets: Software development costs, net 130,962 88,391 Other assets 56,318 37,508 Deferred financing costs 185,519 244,109 Excess of cost over net assets of acquired companies, net 1,361,560 1,422,526 ----------- ----------- Total assets $13,928,471 $14,708,454 =========== ===========
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 March 31, June 30, 1999 1998 (unaudited) ------------ ------------ Current liabilities: Borrowings under lines of credit $ 1,108,670 $ 1,673,275 Accounts payable 2,536,452 2,294,192 Accrued expenses and other liabilities 690,316 822,429 Current portion - mortgage payable 16,480 ------------ ------------ Total current liabilities 4,351,918 4,789,896 ------------ ------------ Long-term debt, net of discount 3,537,892 3,440,332 Mortgage payable 493,253 ------------ ------------ Total liabilities 8,383,063 8,230,228 ------------ ------------ 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: 7,410,745 7,411 7,411 Additional paid-in capital 19,846,126 19,822,159 Accumulated deficit (14,231,430) (13,274,645) ------------ ------------ 5,622,127 6,554,945 Less cost of common shares in treasury, 28,082 shares (76,719) (76,719) ------------ ------------ Total shareholders' equity 5,545,408 6,478,226 ------------ ------------ Total liabilities and shareholders' equity $ 13,928,471 $ 14,708,454 ============ ============
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 9 months ended March 31, March 31, March 31, March 31, 1999 1998 1999 1998 (unaudited) (unaudited) (unaudited) (unaudited) ----------- ----------- ------------ ------------ Net sales $ 4,681,783 $ 9,650,976 $ 15,147,286 $ 28,047,632 Cost of goods sold 3,109,429 7,206,278 9,667,155 20,473,035 ----------- ----------- ------------ ------------ Gross profit 1,572,354 2,444,698 5,480,131 7,574,597 Selling, general and administrative expenses 1,960,875 3,063,767 5,868,025 8,808,042 Product development costs 54,225 69,453 174,323 157,881 ----------- ----------- ------------ ------------ Operating loss (442,746) (688,522) (562,217) (1,391,326) Other income (expense): Interest expense (173,200) (236,037) (474,196) (651,590) Interest and other income 5,677 44,382 74,794 160,701 ----------- ----------- ------------ ------------ Loss before taxes (610,269) (880,177) (961,619) (1,882,215) Income tax expense (benefit) 1 5,999 (4,834) 42,099 ----------- ----------- ------------ ------------ Net loss ($ 610,270) ($ 886,176) ($ 956,785) ($ 1,924,314) =========== =========== ============ ============ Per share amounts: Net loss per common share ($ 0.08) ($ 0.12) ($ 0.13) ($ 0.26) =========== =========== ============ ============
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 9 months ended March 31, March 31, 1999 1998 (unaudited) (unaudited) ----------- ----------- Cash flows from operating activities: Net loss ($ 956,785) ($1,924,314) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 470,390 576,751 Provision for doubtful accounts (101,694) 186,505 Changes in operating assets and liabilities: Accts. receivable & from related parties (2,080,414) (3,511,057) Inventories 1,012,697 (944,954) Prepaid expenses & other assets (179,436) (238,505) Accounts payable and accrued expenses 110,147 1,207,254 Income taxes (8,119) 19,067 Other (707) (1) ----------- ----------- Net cash used in operating activities (1,733,921) (4,629,254) ----------- ----------- Cash flows from investing activities: Property and equipment expenditures (1,053,087) (152,878) Software development costs (111,871) (57,979) Trademarks and Patents (19,417) Other (1,501) ----------- ----------- Net cash used in investing activities (1,184,375) (212,358) ----------- ----------- Cash flows from financing activities: Incr/(Decr) borrowings on lines of credit, net (564,605) 316,250 Borrowings of long-term debt, net of deferred issuance costs 3,609,420 Borrowings on mortgage debt 509,733 Principal payments - capital lease obligations (9,191) Principal payments - long-term debt (1,601) Exercise of common stock options 82,291 ----------- ----------- Net cash provided by/(used in) financing activities (54,872) 3,997,169 ----------- ----------- Net decrease in cash & cash equivalents (2,973,168) (844,443) Cash and cash equivalents, beginning of year 4,000,370 2,863,847 ----------- ----------- Cash and cash equivalents, end of period $ 1,027,202 $ 2,019,404 =========== ===========
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 9 months ended March 31, March 31, 1999 1998 (unaudited) (unaudited) -------- -------- Interest Paid $403,422 $462,485 Income Taxes Paid $ 3,284 $ 26,347 Additional Paid in Capital Resulting from Issuance of Detachable Warrants for Debt $650,411 Issuance of Warrants for Services $ 23,967 $ 67,910 Conversion of Debt to Common Stock 25,000
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 subsidiary 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 March 31, 1999 and June 30, 1998 and results of operations and cash flows for each of the periods presented. 2. The results of operations for the three and nine months ended March 31, 1999 and 1998 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-K for the fiscal year ended June 30, 1998. 4. In June 1998, Bitwise completed the sale of one of its subsidiaries, System Solutions Technology, Inc. (SST) for $4,000,000. The transaction was in the form of a sale of all of the stock of SST. The Company received approximately $3,600,000 in cash and approximately $400,000 worth of inventory and accounts receivable. 5. The Company adopted Statement of Financial Accounting Standards Board SFAS 130, "Reporting Comprehensive Income" in fiscal year 1999. There was no comprehensive income to report, other than net income, for the three and nine months ended March 31, 1999 and 1998. 6. During the three and nine months ended March 31, 1999, no common stock warrants were exercised. 7. The following represents the reconciliation of the basic and diluted earnings per share amounts for the three and nine months ended March 31, 1999 and 1998.
Months Ended March 31, -------------------------------------------------------- 1999 1998 ---- ---- Three Nine Three Nine ----- ---- ----- ---- Net loss $ (610,270) $ (956,785) $ (886,176) $(1,924,314) Weighted average shares 7,410,745 7,410,745 7,374,005 7,380,484 Basic and diluted EPS $ (.08) $ (.13) $ (.12) $ (.26)
The impact of options, warrants and convertible notes was antidilutive to the calculation of basic and dilutive loss per share and were accordingly excluded from the calculation. Page 8 of 15 9 NEW ACCOUNTING STANDARDS 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 June 30 1999, and for comparative interim periods beginning the fiscal year ending June 30, 2000. The adoption of this standard is not expected to have a significant impact on the Company's consolidated financial statements. In June 1998, the Financial Accounting Standards Board also issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," (SFAS 133). SFAS 133 establishes a new model for accounting for derivatives and hedging activities. This statement is effective for fiscal years beginning July 1, 2000. 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-Q. RESULTS OF OPERATIONS THE THREE AND NINE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE THREE AND NINE MONTHS ENDED MARCH 31, 1998. The Company realized a consolidated net loss of $610,270 ($.08 per share) for the three months ended March 31, 1999 compared to a consolidated net loss of $886,176 ($.12 per share) for the three months ended March 31, 1998. For the nine months ended March 31, 1999 the Company realized a consolidated net loss of $956,785 compared to a consolidated net loss of $1,924,314 for the nine months ended March 31, 1998. The Company had consolidated net sales of $4,681,783 and $9,650,976 for the three months ended March 31, 1999 and 1998, respectively, and $15,147,286 and $28,047,632 for the nine months ended March 31, 1999 and 1998, respectively. The consolidated sales decrease for the quarter and the nine months ended March 31, 1999 is due to the sale of one of the Company's subsidiaries, System Solutions Technology, Inc. (SST) in June 1998. SST had sales of $4,109,922 and $11,594,435 for the three and nine months ended March 31, 1998, respectively. Bitwise sales of the DocStar product line were $2,367,314 and $8,338,978 for the three and nine months ended March 31, 1999, respectively, compared to $2,655,458 and $8,105,827 for the three and nine months ended March 31, 1998, respectively. For the Company's subsidiary DJS Marketing Group, Inc. (DJS) sales were $2,314,469 and $6,808,308 for the three and nine months ended March 31, 1999, respectively, compared to $2,885,596 and $8,347,370 for the three and nine months ended March 31, 1998, respectively. The Company's net loss improvement for the three and nine months ended March 31, 1999 is due to a combination of reductions in operating costs, increase in profits from DJS and growth in sales of the DocStar product line. Bitwise incurred a pre tax loss of $741,623 and $1,286,394 for the three and nine months ended March 31, 1999, respectively, compared to a pre tax loss of $904,631 and $2,001,586 for the same periods last year. DJS realized a reduction in sales, however DJS reports an increase in profit due to an increase in gross profit margins as DJS shifted its business from hardware sales to a business model that produced more service revenue such as network and internet services in addition to hardware sales. DJS was also able to reduce operating costs. DJS had pre tax profits of $131,354 and $324,775 for the three and nine months ended March 31, 1999, respectively, compared to pre tax profits/(losses) of $(4,991) and $23,008 for the same periods last year. Page 10 of 15 11 Bitwise recognized approximately $1,232,000 of net sales to selected customers in December, 1998 with deferred payment terms of up to 180 days. These customers have a right to cancel and return 50% to 100% of the purchased products during the deferred payment period. These sales were recorded net of expected potential sales returns of approximately $308,000 and represents a longer than normal term supply of product to these customers. In connection with these agreements, the Company also will incur and has accrued for certain obligations to these customers, including the subsidy of the cost of a dedicated DocStar sales specialist. As of March 31, 1999, $103,000 of these sales has been returned. Consolidated gross profit for the three months and nine months ended March 31, 1999 was $1,572,354 and $5,480,131, respectively, compared to $2,444,698 and $7,574,597 for the same periods last year. This reduction is due to the sale of SST in June 1998. The consolidated profit margin was 33.6% and 36.2% for the three and nine months ended March 31, 1999, respectively, compared to 25.3% and 27.0% for the same periods last year. Gross profit margin is defined as gross profit as a percentage of sales. The increase in gross profit margin is due to the sale of SST and the continued growth of Bitwise and it's DocStar product which has significantly higher gross profit margins than products and services provided by both SST and DJS. 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 $1,960,875 and $5,868,025 for the three and nine months ended March 31, 1999, respectively, compared to $3,063,767 and $8,808,042 for the same periods last year. S,G&A expenses decreased as a result of the sale of SST, which reported S,G&A expenses of $758,413 and $2,192,901 for the three and nine months ended March 31, 1998. The remainder of the decrease is due to cost cutting by Bitwise and DJS. As a percentage of sales, S,G&A costs increased from 31.7% and 31.4% for the three and nine months ended March 31, 1998 to 41.9% and 38.7% for the three and nine months ended March 31, 1999. This increase is due to the sale of SST. Bitwise historically has had higher S,G&A expenses than any of the subsidiary companies because of it's organization structure which includes sales, training and service personnel stationed around the country to serve the national dealer network. This has resulted in high payroll and travel and living expenses. In addition, Bitwise incurs significant advertising and marketing costs to market DocStar nationally. The subsidiaries typically sold in a localized area and only employ personnel in their local region and incur minimal advertising and marketing costs. Interest expense totaled $173,200 and $474,196 for the three and nine months ended March 31, 1999, respectively, compared to $236,037 and $651,590 for the same periods last year. The decrease is due to the sale of SST which recorded $44,556 and $153,237 of interest expense during the three and nine months ended March 31, 1998. The decrease was also due to lower Page 11 of 15 12 borrowing levels for DJS offset by higher borrowing levels for Bitwise. Interest rates decreased during the nine months ended March 31, 1999 compared to the same period last year. Product development expenses, excluding capitalized costs and including amortization of capitalized costs relate to software development for the DocStar product line incurred by Bitwise. These costs (decreased)/increased from $69,453 and $157,881 for the three and nine months ended March 31, 1998, respectively, to $54,225 and $174,323 for the three and nine months ended March 31, 1999, respectively. Bitwise has a policy of capitalizing qualified software development costs and amortizing those costs over three years as product development expense. 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 March 31, 1999 totaled $4,047,625, net of discounts; $3,975,000 of this amount, undiscounted, relates to convertible notes payable which mature on August 11, 2002. $509,733 relates to a mortgage loan. The Company has a working capital line of credit facility totaling $1,500,000, of which approximately $400,000 was available at March 31, 1999. The line is collateralized by accounts receivable, inventory and all other assets of Bitwise. The interest rate is prime plus 2% per annum. The line of credit agreement includes covenants which require the Company to maintain a minimum tangible net worth, a maximum debt-to-tangible net worth and a minimum amount of working capital on a consolidated basis. The Company is not in compliance with it's minimum tangible net worth covenant or it's minimum working capital covenant at March 31, 1999. The Company is negotiating with it's lender to waive these two covenant violations. DJS has a wholesale line of credit facility for $625,000 which is supported by a guaranty furnished by one of DJS's vendors and expressly limited to purchases from this vendor. At March 31, 1999, $483,063 was outstanding. The line is non-interest bearing and payment terms are net 40. The line is collateralized by all assets of DJS. In June 1998, the Company sold SST for $4,000,000. The Company received approximately $3,600,000 in cash and approximately $400,000 in accounts receivable and inventory. The proceeds were used for the working capital needs of the Company and to reduce bank borrowings at DJS. The Company has received certain claims from the buyer of SST for indemnification under the agreements governing its sale. The parties are currently negotiating the amount of such claim. There can be no assurance that the result of such negotiations will be resolved in the Company's favor. Property, plant and equipment expenditures totaled $1,053,087 and capitalized software development expenditures totaled $111,871 for the nine months ended March 31, 1999, respectively. There were no purchase commitments outstanding or contemplated. The Company is constructing a new Page 12 of 15 13 office/production facility with an estimated cost of approximately $2,500,000 in Schenectady, NY. The Company has been awarded a grant from the Empire State Development Corporation (an agency of New York state) for $1,000,000 to be used for construction of this facility. Funding will be received in stages as the facility is built. The Company has a construction/permanent mortgage with a local bank for $1,400,000, the balance outstanding at March 31, 1999 was $509,733. The Grant stipulates that the Company is obligated to achieve certain annual employment levels at the Schenectady site between January 1, 2001 and January 1, 2005 or some or all of the grant will have to be repaid. The Company anticipates that cash expected to be provided by operations together with borrowings under its lines of credit will be sufficient to satisfy normal operating obligations. The Company has significantly reduced fixed overhead costs. A combination of this reduction in costs and anticipated sales growth from both DocStar and future products is expected to satisfy it's cash needs along with borrowings on its lines of credit. The Company experienced a net loss of $956,785 during the nine months ended March 31, 1999. To date, the Company has been largely dependent on its ability to sell additional shares of its common stock or other securities or other financing 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 and the Company's ability to reduce overhead expenses. If the Company is unable to attain projected sales levels for its DocStar systems, is unable to implement cost reduction strategies, or comply with debt covenant requirements it may be necessary to raise additional capital to fund operations and meet its obligations. There is no assurance that such funding will be available. In February 1999, the Company announced that it had reached agreement for a $15 million secured line of credit for targeted acquisitions, with a lender. Subsequently, the parties mutually agreed to terminate those negotiations. PART II OTHER INFORMATION Item 6 Reports on Form 8-K (a) The following Reports on Form 8-K were filed by the Company during the last quarter: None (b) Exhibits None SAFE HARBOR STATEMENT Certain statements in this Form 10-Q, 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 Page 13 of 15 14 Securities Litigation Reform Act of 1995 (the Act). The 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-Q 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-K for the year ended June 30, 1998, 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. YEAR 2000 UPDATE The Company has completed its company-wide Year 2000 Project (Project). The Project addressed the issue by performing a survey on all desktop computers and servers to ensure Year 2000 compliance. The survey concluded that all of the Company's computer systems use hardware that is Year 2000 compliant. Most of the Company's third party software and operating systems are Microsoft(TM) based and believed to be Year 2000 compliant. The Project also included the evaluation of it's third-party accounting systems. These systems have already been upgraded to Year 2000 Versions purchased from the applicable vendors. The Company's document imaging product, DocStar is Year 2000 compliant. The Project also included the evaluation of the Company's third party suppliers as Company operations could be affected by the interruption of significant suppliers. This evaluation included discussions with each critical vendor to ascertain their compliance with Year 2000 issues. The Company does not believe any of it's critical vendors has a Year 2000 compliance problem and the Company believes that alternate sources are available for substantially all components the Company purchases. The cost of the Project including software upgrades and hardware surveys was immaterial (estimated to be less than $25,000). The failure to correct a material Year 2000 problem could result in an interruption in, or a failure of, certain normal business activities or operations. Such failures could materially and adversely affect the Company's results of operations, liquidity and financial condition. Due to the general uncertainty inherent in the Year 2000 problem, resulting in part from the uncertainty of the Year 2000 readiness of third party suppliers and customers, the Company is unable to determine Page 14 of 15 15 at this time whether the consequences of Year 2000 failure will have a material impact on the Company's results of operations, liquidity or financial condition. However, the Company believes that with the implementation its Year 2000 Project that the possibility of significant interruptions of normal operations should be reduced. 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 May 14, 1999 /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 9-MOS JUN-30-1999 JUL-01-1998 MAR-31-1999 1,027,202 0 7,233,305 (392,968) 2,198,171 10,546,760 2,842,260 (1,194,908) 13,928,471 4,351,918 0 0 20 7,411 5,537,977 13,928,471 15,147,286 15,147,286 9,667,155 15,709,503 0 0 (474,196) (961,619) 4,834 (956,785) 0 0 0 (956,785) (.13) (.13)
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