UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

______________________

FORM 10-K/A

AMENDMENT NO. 1

(Mark One)

  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 2004

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

AUTHENTIDATE HOLDING CORP.
(Exact Name of Issuer as Specified in Its Charter)

Delaware	14-1673067
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

2165 Technology Drive Schenectady, N.Y. 12308
(Address of principal executive offices) (Zip Code)

Issuer's telephone number, including area code (518) 346-7799

________________________________________________________________

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of Each Class	Name of Each Exchange on Which Registered
None	(I.R.S. Employer Identification No.)

Securities registered pursuant to Section 12(g) of the Exchange Act:

Common Stock, par value $.001 per share
(Title of class)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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    No

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes    No

     State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter (December 31, 2003): $304,867,492.

APPLICABLE ONLY TO CORPORATE REGISTRANTS

     Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 33,093,524 as of September 1, 2004.

DOCUMENTS INCORPORATED BY REFERENCE

     List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933.

None

__________________________

TABLE OF CONTENTS

PART II

Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	3
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	17
Item 8.	Financial Statements and Supplemental Data	18

PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K 19

Signatures

Signatures 24

Forward-looking Statements and Factors That May Affect Future Results

     This Annual Report on Form 10-K/A, including Item 7 (“Management's Discussion and Analysis of Financial Condition and Results of Operations”), contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. When used in this report, the words “believe,” “anticipate,” “think,” “intend,” “plan,” “will be,” “expect”, and similar expressions identify such forward-looking statements. Such statements regarding future events and/or our future financial performance are subject to certain risks and uncertainties, which could cause actual events or our actual future results to differ materially from any forward-looking statement. Such risks and uncertainties include among other things, the availability of any needed financing, our ability to implement our business plan for various applications of our technologies, the impact of competition, the management of growth, and other risks and uncertainties that may be detailed from time to time in our reports filed with the securities and exchange commission. In light of the significant risks and uncertainties inherent in the forward-looking statements included herein, the inclusion of such statements should not be regarded as a representation by us or any other person that our objectives and plans will be achieved.

EXPLANATORY NOTE

     We are filing this Amendment No. 1 to our Annual Report on Form 10-K for the fiscal year ended June 30, 2004 as filed with the Securities and Exchange Commission (SEC) on September 13, 2004, in response to comments by the Staff of the SEC in connection with their review of our Annual Report on Form 10-K for June 30, 2004. This Form 10-K/A does not reflect events occurring after the filing of the original Form 10-K except as disclosed in footnote 23 to the financial statements filed with this Form 10-K/A. Further, this Form 10-K/A does not modify or update the disclosures in the original Form 10-K in any way other than as required to reflect the amendments set forth below.

     The following is a summary of the items of our original Form 10-K that are amended by this Form 10-K/A and a brief summary of the changes.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation

• We are amending disclosures in our Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the original Form 10-K solely to reflect the reclassification of our investments in auction rate securities as marketable securities, as reflected in the amended financial statements filed herewith.

Item 7A. Qualitative and Quantitative Disclosure of Market Risk

• We are amending disclosures in this section of the original Form 10-K solely to reflect the reclassification of our investments in auction rate securities as marketable securities, as reflected in the amended financial statements filed herewith.

Item 15. Exhibits, Financial Statement Schedule and Reports on Form 8-K

• This Form 10-K/A amends the balance sheet and statement of cash flows included in the financial statements contained in the original Form 10-K to reflect the reclassification of our investments in auction rate securities as marketable securities and not as cash equivalents. Our statement of operations and statement of shareholders' equity are not affected by this amendment.

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• In addition, we have amended Footnotes 1 and 16 to the financial statements included in the original Form 10-K to explain this reclassification in greater detail. We have also added new footnote 23 to these financial statements which note references certain events that occurred subsequent to the end of the 2004 fiscal year.

The amended financial information contained herein is a reclassification of the information disclosed in the original Form 10-K and this Form 10-K/A does not restate the financial statements or other financial information included in the original Form 10-K.

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Item 7. MANAGEMENT’s DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

Overview

We are involved in the development of security software technology, document imaging software products and systems integration services and products. Our products include DocStar document imaging software products, the Authentidate authentication and security software products and system integration services and sale of computer products through our DJS subsidiary. We also offer, through our Trac Medical Solutions subsidiary, the CareCert™ Internet-based medical forms processing service. Authentidate products are sold by Authentidate, Inc., Trac Medical Solutions, Inc., and Authentidate International, AG. Approximately $1.4 million in revenues during the fiscal year ended June 30, 2004 were generated from our Authentidate-related businesses. The balance of our revenues generated during the 2004 fiscal year were derived from our DocStar and DJS segments.

DJS is an authorized sales and support provider for software products such as Microsoft Solutions and Lotus Notes. DJS sells computer hardware and provides software and integration services to businesses to meet their data management needs.

DocStar develops and sells document imaging software and depending on the customer, may bundle the software with computer hardware to offer customers a turn-key solution.

We established our Authentidate subsidiary during the fiscal year ended June 30, 2000 to engage in the business of providing end users with a software-based security service designed to accept and store a digital code through the Internet which enables users to prove the authenticity of the date, time and the content of any electronic document. The Authentidate product was released for sale in May, 2001. We contemplate that product integration development work will be necessary for some applications or customers. We are in the process of selling this product and began to record revenue during the fiscal year ended June 30, 2002. We currently own approximately 98% of Authentidate, Inc.

On July 31, 2002, we entered into a strategic alliance agreement with the United States Postal Service to serve as the preferred provider of the USPS Electronic Postmark^® (EPM) service. Under the terms of the agreement, our subsidiary, AuthentiDate, Inc., provides the management, technology and support for the United States Postal Service’s EPM system. The USPS is the vendor of the EPM to the end user. The USPS Electronic Postmark^® provides evidence that the content of a document or file existed at a specific date and time and is intended to protect the integrity of the document or file by ensuring that it cannot be altered without detection. The EPM uses our patent pending technology offering highly sophisticated encryption methodology ensuring document authenticity and is intended to be able to be added to any application regardless of the computing platform or operating system. As described above, although we have not attained the current revenue metric provided in our agreement with the Postal Service, we have been negotiating new metrics and believe we have reached an agreement in principle. If we are unsuccessful in completing these negotiations or are not able to achieve the original metric, the Postal Service may terminate our agreement. In order to facilitate this product launch, we entered into development and promotional agreements with Microsoft Corporation and an affiliate of Microsoft in order to create the necessary software interfaces to Microsoft Office^®. We announced a general release of this product on October 21, 2003. Authentidate may generate revenues both from the sale of EPM transactions and professional services.

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In March 2002, we acquired all the outstanding capital stock of Authentidate International, AG. We previously owned 39% of the Authentidate International. Authentidate International sells the Authentidate product in the European marketplace and is currently focusing on the German market. Authentidate International entered into revenue generating agreements with end users and resellers during the 2004 fiscal year through which it expects to realize revenue from a combination of installation and transactions fees.

We also organized Trac Medical Solutions during the fiscal year ended June 30, 2001 in order to develop a business model to apply the Authentidate technology to the medical supply business relating to the automation and processing of Certificates of Medical Necessity. During the fiscal year ended June 30, 2002, Trac Medical Solutions developed its CareCert™ service and entered into its first revenue-generating agreements during the 2003 fiscal year. In March 2003, we acquired the outstanding minority interest of Trac Medical Solutions (approximately 14%) and now own 100% of Trac Medical Solutions. In February 2004, Trac Medical Solutions entered into an agreement with Homecare Association, LLC pursuant to which Trac Medical Solutions markets its CareCert service directly to the membership community of the American Association for Homecare. In connection with that agreement, Trac Medical Solutions engaged bConnected Software, Inc. to develop an enhanced version of its CareCert service and to provide marketing and reselling services. Trac Medical Solutions generates revenues through license fees, maintenance fees, the sale of transactions and through professional services.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to new product launches, revenue recognition, bad debts, inventory obsolescence, recoverability of goodwill, other intangible assets, software capitalization and other long-lived assets and deferred tax assets and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results for which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates under different assumptions.

We believe the following critical accounting policies require significant judgments and estimates used in the preparation of our consolidated financial statements.

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Revenue from the sale of products is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the selling price is fixed and collectibility is reasonably assured. Service revenue is recognized as such services are provided. We enter into transactions that represent multiple-element arrangements. These arrangements include combinations of licensing, transactions, set-up fees and maintenance and support fees. Multiple-element transactions are assessed to determine whether they can be separated into more than one unit of accounting. A multiple-element arrangement is separated into more than one unit of accounting if all of the following criteria are met: (a) the delivered item has value to the customer on a standalone basis; (b) there is objective and reliable evidence of the fair value of the undelivered item; and (c) if the arrangement includes a general right of return relative to the delivered item, delivery or performance of the delivered item is considered probable and substantially in our control. If these criteria are not met, then revenue is deferred until such criteria are met or until the period over which the last undelivered element is delivered, which is typically the life of the contract agreement.

We provide a one year warranty on hardware products that we assemble. On products distributed for other manufacturers, the original manufacturer warrants the product. Warranty expense was not significant to any of the years presented.

We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

We write down our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of the inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write downs may be required.

We have capitalized goodwill related to our acquisitions of Authentidate, Inc., Authentidate International AG and Trac Medical Solutions, Inc., for which the recoverability of such capitalized goodwill is highly dependent on the future success of the marketing and sales of such product. If the product is not well received by the market place and our future forecasted revenue and profitability from such product launch is less than anticipated, the carrying value of goodwill and other long-lived assets may be impaired and require an impairment charge.

We record a full valuation against our deferred tax assets when we believe it is more likely than not that such deferred tax assets will not be realized.

The following analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and notes contained elsewhere in this Form 10-K.

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Results of Operations

Fiscal Year 2004 Compared to Fiscal Year 2003

We realized a consolidated net loss of $15,669,193 ($.59 per share) and $9,839,309 ($.50 per share) for the fiscal years ended June 30, 2004 and 2003, respectively.

As reported in Footnote 17 (Segment Information) to the Consolidated Financial Statements appearing in this Form 10-K, the net loss is the result of losses incurred primarily by our Authentidate segment and from corporate expenses, primarily interest expense. Our Authentidate segment has incurred significant sales, marketing, development and general administrative expenses this year and last in an effort to complete the product development efforts and generate sales.

Our consolidated net loss is $5,829,884 more in 2004 as compared to 2003. DocStar reported an increase in segment profit from $796,866 in 2003 to $847,727 in 2004 and DJS realized an increase in segment profit from $146,917 in 2003 to $264,692 in 2004. The Authentidate segment, which includes Authentidate, Authentidate International and Trac Medical Solutions reported a decrease in segment losses from $5,974,728 in 2003 to $5,632,923 in 2004.

Consolidated net sales were $19,242,071 and $25,286,471 for the fiscal years ended June 30, 2004 and 2003, respectively. As reported in Footnote 17 to our Consolidated Financial Statements, most of the decrease is due to a decrease in sales realized by DJS. The decrease in DJS’ sales from $17.1 million to $11.6 million was primarily the result of a decrease in low-margin direct hardware sales this year compared to last year. One customer represented approximately 36% of DJS’ net sales for fiscal 2004. Sales also increased in the Authentidate segment for the fiscal year ended June 30, 2004 by $4,000. DocStar sales decreased $507,000 for the fiscal year ended June 30, 2004 as compared to the prior fiscal year due to the fact that DocStar had fewer system sales but more software sales, which have a lower average selling price.

Consolidated gross profit for the fiscal years ended June 30, 2004 and 2003 were $6,829,488 and $6,116,635, respectively. This increase is due primarily to the decrease in the cost of sales experienced by our DocStar division.

Our consolidated gross profit margin was 35.5% and 24.2% for the years ended June 30, 2004 and 2003, respectively. DJS realized an increase in profit margins compared to last year due to the decrease in direct hardware sales, discussed above, as we sold fewer low margin computers and peripheral devices. DJS realized a gross profit margin of 15.8% in 2004 compared to 11.8% in 2003. There was also an increase in gross profit margins for DocStar during the 2004 fiscal year. DocStar’s gross profit margin increased from 64.2% to 72.8% from 2003 to 2004. This increase is due to reduced direct material costs due to better purchasing and a general reduction in component parts throughout the computer industry and reduction in direct labor because of a strategic shift in the business away from hardware and into software-only sales. The Authentidate segment realized a gross profit of $409,657 in 2004 compared to a gross loss of $269,592 in 2003 due to an increase in sales at Authentidate International. Gross profit margin is defined as gross profit as a percentage of sales.

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Selling, general and administrative expenses (S,G&A) consist of all our other expenses except product development costs and interest. S,G&A expenses amounted to $14,032,170 and $12,600,901 for the years ended June 30, 2004 and 2003, respectively. This increase in S,G&A expenses is primarily the result of increased selling costs in the Authentidate segment, including personnel and advertising.

As a percentage of sales, S,G&A costs were 72.9% and 49.8% for the years ended June 30, 2004 and 2003, respectively. This percentage increase is primarily due to the increase in selling costs, discussed above.

Product development expenses, excluding capitalized costs, primarily relate to software development for the Authentidate Segment. These costs were $2,377,613 and $2,534,777 for the years ended June 30, 2004 and 2003, respectively. We have a policy of capitalizing qualified software development costs after technical feasibility has been established and amortizing those costs over three years as cost of sales. The amortization expense of software development costs amounted to approximately $291,000 and $1.1 million for each of the years ended June 30, 2004 and 2003, respectively.

Goodwill impairment was $1,178,765 and $0 for the years ended June 30, 2004 and 2003, respectively. We completed our annual impairment test in the fourth quarter of 2004, using a discounted cash flow model for all reporting units, and determined that a writeoff of goodwill of $1,178,765 was required in the DJS reporting unit. The DJS goodwill writeoff was required due to the growth slow-down in the technology sector causing DJS’ 2004 operating results to fall short of management’s expectations. As a result, we reduced DJS’s cash flow and operating results forecast for future periods.

Interest expense was $6,231,981 and $871,856 for the years ended June 30, 2004 and 2003, respectively. The increase is primarily due to the non-cash writeoff of unamortized beneficial conversion feature, unamortized debt discount and unamortized deferred financing costs aggregating $5.6 million due to the conversion of an aggregate principal amount of $8,895,300 of convertible debentures to common stock, which is more fully explained in Footnote 18 to the Consolidated Financial Statements in this Form 10-K. Prior to such conversion, we recognized approximately $300,000 as amortization expense for the year ended June 30, 2004. In addition, we were required to pay interest on the convertible debentures in the amount of 7% per annum which resulted in interest expense of approximately $170,000 for the year ended June 30, 2004. Finally, we incurred minor additional interest expense during the fiscal year ended June 30, 2003 as a result of new equipment and software leases entered into by the Authentidate segment and by DJS from borrowings on its line of credit. The current balance on this line of credit is approximately $571,600.

During the fiscal year ended June 30, 2004, interest and other income increased to $1,304,400 as compared to $572,500 for the fiscal year ended June 30, 2003. This $731,900 increase was primarily due to the non-cash grant income of $732,000 and an increase in interest income of approximately $450,000 earned on cash and cash equivalents and marketable securities. In the fiscal year ended June 30, 2003, we recognized approximately $438,000 in other income related to the September 11, 2001 attack in New York City.

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Fiscal Year 2003 Compared to Fiscal Year 2002

We realized a consolidated net loss of $9,839,309 ($.50 per share) and $9,951,402 ($.69 per share) for the fiscal years ended June 30, 2003 and 2002, respectively.

As reported in Footnote 17 (Segment Information) to the Consolidated Financial Statements appearing in this Form 10-K, the net loss is the result of losses incurred primarily by our Authentidate segment. Our Authentidate segment has incurred significant sales, marketing, development and general administrative expenses this year and last in an effort to complete the product development efforts and generate sales.

The consolidated net loss is $112,093 less in 2003 as compared to 2002. DocStar reported an increase in segment profit from $287,859 in 2002 to $796,866 in 2003 and DJS realized an increase in segment profit from $96,801 in 2002 to $146,917 in 2003. The Authentidate segment, which includes Authentidate, Authentidate International and Trac Medical Solutions reported an increase in segment losses from $5,723,055 in 2002 to $5,974,728 in 2003.

Consolidated net sales were $25,286,471 and $16,642,904 for the fiscal years ended June 30, 2003 and 2002, respectively. As reported in Footnote 17 to our Consolidated Financial Statements, most of the increase is due to an increase in sales realized by DJS as a result of its shift in the product mix of sales. The increase in DJS sales from $9.9 million to $17.1 million was primarily the result of an increase in direct computer hardware sales this year compared to last year. During the fiscal year ended June 30, 2002, DJS had a significant amount of indirect sales. In an indirect sale DJS passes the hardware sale on to a national distributor or manufacturer and realizes a fee from the distributor and DJS records this fee as a sale. The fee is generally a percentage of the total sale. In a direct sale DJS would purchase the hardware from the distributor or manufacturer and resell it to its customer and would record the entire hardware sale. In a direct sale, the sales revenue is much higher than an indirect sale and so is the cost of sale. However, in either scenario the gross profit dollars are about the same. The DJS sales mix of direct sales to indirect sales is dictated by market conditions and is determined by the customer and/or vendor. One company represented approximately 73% of DJS’s net sales for fiscal 2003 as compared to 22% for fiscal 2002. Sales also increased in the Authentidate segment for the fiscal year ended June 30, 2003 by $1.3 million (of which approximately $0.8 million related to Authentidate International) as a result of increased customer acceptance of Authentidate software services. DocStar sales increased slightly for the fiscal year ended June 30, 2003 as compared to the prior fiscal year.

Consolidated gross profit for the fiscal years ended June 30, 2003 and 2002 were $6,116,635 and $4,552,369, respectively. This increase is due to the decrease in the cost of sales experienced by our DocStar division. The Authentidate segment also realized a smaller gross loss in fiscal 2003 as compared to fiscal 2002 due to an increase in sales, as mentioned above.

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Our consolidated gross profit margin was 24.2% and 27.4% for the years ended June 30, 2003 and 2002, respectively. DJS realized a decrease in profit margins compared to last year due to the shift in product mix discussed above, as direct sales have a lower gross profit margin than indirect sales. In addition, the DJS profit margins have been negatively affected by competitive pressure in the current economy. DJS realized a gross profit margin of 11.8% in 2003 compared to 20.8% in 2002 Offsetting the reduced profit margins of DJS was an increase in gross profit margins for DocStar. DocStar’s gross profit margin increased from 54.2% to 64.2% from 2002 to 2003. This increase is due to reduced direct material costs due to better purchasing and a general reduction in component parts throughout the computer industry and because of a strategic shift in the business away from hardware and into software-only sales. The Authentidate segment realized a gross loss of $269,592 in 2003 compared to $1,175,669 in 2002. Gross profit margin is defined as gross profit as a percentage of sales.

Selling, general and administrative expenses (S,G&A) consist of all our other expenses except product development costs and interest. S,G&A expenses amounted to $12,600,901 and $11,470,073 for the years ended June 30, 2003 and 2002, respectively. This increase in S,G&A expenses is primarily the result of our consolidation of the financial statements of Authentidate International for the entire 2003 fiscal year. During the fiscal year ended June 30, 2002, Authentidate International was treated as an unconsolidated affiliate until we acquired 100% of the capital stock of Authentidate International in March 2002, at which time it became a fully consolidated subsidiary.

As a percentage of sales, S,G&A costs were 49.8% and 68.9% for the years ended June 30, 2003 and 2002, respectively. This percentage decrease is primarily due to the increase in consolidated sales as discussed above.

Interest expense was $871,856 and $124,824 for the years ended June 30, 2003 and 2002, respectively. The increase is primarily due to interest accrued on $6.4 million of convertible debentures which were issued during October 2002 and May 2003. We recorded non-cash interest expense of approximately $489,000, during the year ended June 30, 2003, relative to the amortization of debt discount on the convertible debentures, which is more fully explained in Footnote 18 to the Consolidated Financial Statements in this Form 10-K. In addition, we are required to pay interest on the convertible debentures in the amount of 7% per annum which resulted in interest expense of approximately $171,000 for the year ended June 30, 2003. Finally, we incurred minor additional interest expense during the fiscal year ended June 30, 2003 as a result of new equipment and software leases entered into by the Authentidate segment and by DJS from borrowings on its line of credit. The current balance on this line of credit is approximately $878,000.

During the fiscal year ended June 30, 2003, interest and other income increased to $572,000 as compared to $180,000 for the fiscal year ended June 30, 2002. This $392,000 increase was primarily due to amounts we received as compensatory payments from various funding sources due to the events of September 11, 2001 as our subsidiary, Authentidate, Inc., maintains its headquarters in lower Manhattan.

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Product development expenses, excluding capitalized costs, primarily relate to software development for the Authentidate Segment. These costs were $2,534,777 and $2,170,173 for the years ended June 30, 2003 and 2002, respectively. We have a policy of capitalizing qualified software development costs after technical feasibility has been established and amortizing those costs over three years as cost of sales. The amortization expense of software development costs amounted to approximately $1.1 million for each of the years ended June 30, 2003 and 2002.

Liquidity and Capital Resources

Our primary sources of funds to date have been the issuance of equity securities and the incurrence of third party debt. The principal balance of long-term debt at June 30, 2004 totaled $256,239, of which $88,239 relates to a note payable to our Chief Executive Officer in connection with the purchase of 100 shares of Series A Preferred Stock. The balance relates to a note payable to Empire State Development Corporation for the repayment of a grant, as more fully described below.

As discussed in further detail below, in February 2004, we sold a total of 5,360,370 common shares in private placements pursuant to Section 4(2) of the Securities Act and Rule 506, promulgated thereunder. We realized gross proceeds of $73,705,000 from these transactions and received net proceeds of approximately $69.1 million after payment of offering expenses and broker commissions.

Our DJS subsidiary has a $2.5 million revolving line of credit with a financial institution which is collateralized by all assets of DJS and which we agreed to guarantee. The agreement restricts DJS from making cash advances to AHC without obtaining a waiver from the financial institution. The interest rate is prime plus 1.75% with a minimum prime rate of 7%. DJS may borrow on this line based on a formula of qualified accounts receivable and inventory. The outstanding balance on this line of credit was $571,622 at June 30, 2004.

Property and equipment expenditures totaled $241,897, capitalized software development expenditures totaled $433,794 and other intangible assets expenditures totaled $491,903 for the year ended June 30, 2004, respectively. There are no significant purchase commitments outstanding.

In June 1999, we completed construction of a new office and production facility in Schenectady, New York for approximately $2,300,000. We were awarded a grant totaling $1,000,000 from the Empire State Development Corporation (ESDC) (an agency of New York state) to be used towards the construction of this facility. The grant stipulated that we were obligated to achieve certain annual employment levels between January 1, 2002 and January 1, 2004 or some or all of the grant will have to be repaid. Although we did not achieve the agreed upon employment levels, we entered into an agreement with the ESDC regarding the repayment of the grant award. Beginning September 2003, we agreed to repay $268,000 of the grant amount at the rate of $10,000 per month, interest free. As a result of this arrangement, we recognized $732,000 of the deferred grant amount as other income during the fiscal year ended June 30, 2004. The remaining $268,000 of the grant amount was reclassified as long-term debt. During fiscal 2004, we repaid $100,000 of this amount. The remainder of the financing for the new facility, totaling approximately $1.4 million, was provided by a local financial institution in the form of a mortgage loan. We repaid the full amount of the mortgage in March 2004.

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Cash Flows

During the fiscal year ended June 30, 2004, we incurred a net loss of $15,669,193. Cash used in operating activities totaled $6,659,728 for the year ended June 30, 2004 compared to $5,189,117 used in operating activities for the year ended June 30, 2003. Our cash and marketable securities balances increased from $3,460,446 at June 30, 2003 to $73,989,823 at June 30, 2004, due to private financings which was offset by our operating losses.

To date, we have been largely dependent on our ability to sell additional shares of our common stock or other securities to fund our operating deficits. Under our current operating plan to introduce our Authentidate technology, our ability to improve operating cash flow is highly dependent on the market acceptance of our Authentidate related businesses. As described below, during the fiscal year ended June 30, 2004, we consummated four separate private placements of our securities and received a net aggregate amount of approximately $71.9 million from such transactions.

Our available cash balance and marketable securities at June 30, 2004 totaled $73,989,823. We believe that our existing cash and cash equivalents and marketable securities will be sufficient to meet our working capital and capital expenditure requirements for the foreseeable future.

Our future capital requirements may vary materially from those now planned. The amount of capital that we will need in the future will depend on many factors, including:

• our relationships with suppliers and customers;

• the market acceptance of our products;

• the levels of promotion and advertising that will be required to launch our new products and achieve and maintain a competitive position in the marketplace;

• price discounts on our products to our customers;

• our pursuit of strategic transactions;

• our business, product, capital expenditure and research and development plans and product and technology roadmaps;

• the levels of inventory and accounts receivable that we maintain;

• capital improvements to new and existing facilities;

• technological advances; and

• our competitors’ response to our products.

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Financing Activities

2004 Fiscal Year

During the 2004 fiscal year we completed the private financings described below in order to address our working capital needs.

On September 12, 2003, we completed the sale of $2,470,000 of our securities to certain accredited investors pursuant to Section 4(2) of the Securities Act of 1933, as amended, and Regulation D, promulgated thereunder. We received net proceeds of approximately $2,300,000, after paying all fees and expenses. We have been applying these proceeds to working capital and general corporate purposes. In the transaction, we sold $2,470,000 of convertible debentures to the investors and warrants to purchase an aggregate of 247,000 shares of common stock. The debentures are convertible into shares of our common stock at an initial conversion price of $3.00 per share and the warrants are exercisable into shares of common stock at an initial price of $3.00 per share. The other terms and conditions of the debentures and warrants are the same as set forth in the debentures and warrants issued in the first tranche of this transaction in October 2002. As previously discussed, the convertible debentures issued in this transaction were converted into shares of common stock during the fiscal quarter ended December 31, 2003.

We also issued warrants to purchase an aggregate of 49,400 shares of common stock to certain consultants for services rendered in connection with this transaction which are exercisable at $3.00 per share. The consultants also received a cash fee equal to 6% of the gross proceeds we received.

Further, on September 22, 2003, we completed the sale of 166,667 shares of common stock to an additional accredited investor pursuant to Section 4(2) of the Securities Act of 1933, as amended, and Regulation D, promulgated thereunder for $500,000. We have been applying these proceeds to working capital and general corporate purposes. In addition, we also issued warrants to purchase an aggregate of 50,000 shares of common stock to the investor in this transaction. The per share purchase price of the common stock and the per share exercise price of the warrants is $3.00. The investor also agreed to a twelve-month “lock-up” provision restricting the resale of the securities. We also issued warrants to purchase an aggregate of 10,000 shares of our common stock to a consultant for services rendered in connection with this transaction which are exercisable at $3.00 per share. The consultants also received a cash fee equal to 6% of the gross proceeds we received.

In February 2004, we completed private offerings of our common stock to certain accredited investors pursuant to Section 4(2) of the Securities Act of 1933, as amended and Regulation D, promulgated thereunder. We sold a total of 5,360,370 common shares at a price of $13.75 per share and realized gross proceeds of $73,705,000. After payment of offering expenses and broker commissions we realized approximately $69.1 million in net proceeds. We will use the proceeds to strengthen our balance sheet, develop a back-up data center for Authentidate Inc. as well as for sales and marketing activities and general corporate purposes.

12

The securities sold in each of the foregoing transactions were restricted securities under the terms of Regulation D and may not be transferred or resold for a period of one year, except pursuant to registration under the Securities Act or an exemption thereunder. Pursuant to registration rights agreements entered into with the investors in these financings, registration statements were filed with and declared effective by the Securities and Exchange Commission registering the shares of common stock sold in or issuable pursuant to these transactions.

2003 Fiscal Year

During the 2003 fiscal year we consummated various private placements to address our cash needs, as described below. During the quarter ended September 30, 2002, we consummated a private placement of our securities pursuant to Rule 4(2) of the Securities Act of 1933, as amended, and/or Rule 506 promulgated thereunder. The securities were offered at a purchase price of $3.03 per unit. We sold an aggregate of 660,077 units of our securities, each unit comprised of one share of common stock and one warrant to purchase .20 shares of common stock. The warrants are exercisable at $3.26 per share for a period of five years from the date of issuance. We received approximately an aggregate of $1,955,000 in net proceeds after payment of expenses. The proceeds were used to fund business development, marketing and sales efforts for the Authentidate software services, along with our general working capital needs.

In October 2002, we sold convertible debentures with a face value of $3,700,000 to institutional investors and warrants to purchase 444,000 shares of common stock. The debentures are convertible into shares of our common stock at an initial conversion price of $2.50 per share. The debentures are due three years from the date of issuance and accrue interest at the rate of 7% per annum, payable quarterly in arrears. At our option, the interest may be paid in either cash or additional shares of common stock. The warrants are exercisable for a period of four years from the date of issuance and are initially exercisable at $2.50 per share. The conversion price of the debentures and the exercise price of the warrants are subject to adjustment in the event we issue common stock or securities convertible into common stock at a price per share of common stock less than the conversion price or exercise price on the basis of a weighted average formula. In addition, the conversion price of the debentures and the exercise price of the warrants are subject to adjustment at any time as the result of any subdivision, stock split, combination of shares or recapitalization. As previously reported, the convertible debentures issued in this transaction were converted into shares of common stock during the fiscal year ended June 30, 2004.

In this transaction we were granted the option to sell another $2,470,000 of convertible debentures to the same investors provided that our common stock maintains a trading price at or above $3.00 per share for the 15 trading days preceding the election to sell additional debentures. As described above, we exercised this right in September 2003.

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In May 2003, we completed a similar sale of convertible debentures in the amount of $2,725,300 and warrants to purchase 419,279 shares of common stock to certain institutional and accredited investors. The debentures are convertible into shares of our common stock at an initial conversion price of $2.60 per share. The debentures are due three years from the date of issuance and accrue interest at the rate of 7% per annum, payable quarterly in arrears. At our option the interest may be paid in either cash or additional shares of common stock. The warrants are exercisable for a period of five years from the date of issuance and 50% of the warrants are initially exercisable at $2.60 per share and the remaining 50% of the warrants are initially exercisable at $2.86 per share. The conversion price of the debentures and the exercise price of the warrants are subject to adjustment at any time as the result of subdivision, stock split, combination of shares or recapitalization. As previously reported, the convertible debentures issued in this transaction were converted into shares of common stock during the fiscal year ended June 30, 2004.

Mr. J. David Luce, who serves as a non-executive member of our Board of Directors participated in this financing and purchased $250,000 aggregate principal amount of convertible debentures and received 38,462 common stock purchase warrants. Further, J&C Resources, LLC, an entity affiliated with Mr. Charles C. Johnston, who also serves as a non-executive member of our Board of Directors, purchased $250,000 aggregate principal amount of convertible debentures and received 38,462 common stock purchase warrants in this financing.

The securities sold in the above offerings were restricted securities under the terms of Regulation D and may not be transferred or resold for a period of one year, except pursuant to registration under the Securities Act or an exemption hereunder. Pursuant to registration rights agreements entered into with the investors in these financings, registration statements were filed with and declared effective by the Securities and Exchange Commission registering the shares of common stock sold in or issuable pursuant to these transactions.

Other Events

During the quarter ended December 31, 2003, we exercised our right to require the holders of an aggregate amount of $8,895,300 of convertible debentures to convert the entire outstanding principal amount of their debentures into shares of our common stock. The conversion of these debentures has resulted in our issuance of an aggregate amount of 3,351,527 shares of our common stock to the holders of the debentures. The specific debentures subject to this conversion requirement are an aggregate principal amount of $3,700,000 of convertible debentures issued in October 2002, an aggregate principal amount of $2,725,300 of convertible debentures issued in May 2003 and an aggregate principal amount of $2,470,000 of convertible debentures issued in September 2003. We expensed the debt discount as interest expense related to these debenture issues during the quarter ended December 31, 2003. During the year ended June 30, 2004 and prior to the conversion, we recognized approximately $300,000 of amortization expense related to the beneficial conversion feature and debt discounts. During the year ended June 30, 2004, upon conversion, we expensed the entire balance of unamortized beneficial conversion feature and debt discount and charged approximately $5.1 million to interest expense, all of which is a non cash interest charge. In addition, we expensed all unamortized deferred financing costs related to these three debenture issues during the year ended June 30, 2004, in the amount of approximately $500,000 as interest expense. We will save approximately $623,000 in interest payments annually as a result of these conversions.

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In April 2003, the audit committee of our Board of Directors approved our plan to purchase all of the outstanding Series A Preferred Stock from our Chairman and Chief Executive Officer. Our Series A Preferred Stock provides the holder with the ability to elect a majority of our Board of Directors. We agreed with our Chief Executive Officer on a total purchase price for this transaction of $850,000 which represents a discount as compared to the appraised value of the shares of Series A Preferred Stock of $1.1 million, which was determined by an independent appraisal and valuation firm. Our Board ordered this valuation prior to agreeing upon the purchase price for the shares of Series A Preferred Stock. The purchase was consummated in June 2003. At the closing, $70,000 was paid in cash, $485,000 was offset against loans owed to us by our Chief Executive Officer and the remainder will be paid in monthly installments of $15,000, without interest, which payments commenced July 2003. As of June 30, 2004, we owed $88,239 to our Chief Executive Officer under this arrangement. Subsequent to the fiscal year end, we repaid this note in full.

During the quarter ended March 31, 2003, we acquired the remaining outstanding shares of capital stock of our subsidiary, Trac Medical Solutions, Inc., previously held by four other shareholders. Prior to the acquisition, we owned 85.8% of the outstanding stock of Trac Medical. As a result of the acquisition, we now own 100% of Trac Medical. Pursuant to the Stock Purchase Agreement dated as of March 13, 2003, we issued an aggregate of 130,000 shares of our common stock to the sellers, and also issued to the sellers who will continue as employees of Trac Medical 20,000 options to purchase shares of common stock at an exercise price equal to the closing price of our common stock as of the closing date of the transaction. In addition, these sellers were eligible to receive up to an aggregate amount of 75,000 additional shares of our common stock in the event that Trac Medical achieved certain sales and income performance targets during the twelve month period from October 1, 2002 to September 30, 2003. Upon achievement of each performance target, we will recognize compensation expense for such additional shares based on the fair value of the shares issued. Additional bonus options of up to 525,000 options may be granted in fiscal year 2005 if certain sales and income performance targets are met in these years. Upon achievement of these performance targets, the bonus options will be issued to the employees at an exercise price equal to the fair value of our common stock on the grant issuance date. The performance targets have not been achieved as of June 30, 2004. In addition, the sellers agreed to place an aggregate of 52,000 shares of the common stock issued to them into a six month escrow to provide for potential breaches of representations and warranties contained in the Stock Purchase Agreement regarding the financial condition and operations of Trac Medical. The parties completed the transaction effective on March 18, 2003. These shares have been released from escrow to the sellers.

We are the defendant in a third party complaint filed by Shore Venture Group, LLC in Federal District Court in Pennsylvania. The third party complaint was filed against us on May 7, 2001. Shore Venture is the defendant to an action commenced by Berwyn Capital. The third party complaint alleges a claim for breach of contract and seeks indemnification. A trial was held in October, 2002 and we are currently awaiting the verdict of the judge. Management believes that the claim will not have a material adverse impact on our financial condition, results of operations or cash flows.

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We have also been advised of a claim by Shore Venture Group concerning additional shares of the Common Stock of our subsidiary, Authentidate, Inc. and one of our patent applications. We are continuing to conduct settlement negotiations with Shore Venture in an effort to resolve all claims between the parties. If the settlement results in our purchase of Shore Venture’s interest in Authentidate in excess of the then fair value of the Authentidate shares, such excess may be recorded as a charge to operations. Based on the settlement negotiations held between the parties to date, management believes that the resolution of all of our claims with Shore Venture will not have a materially adverse effect on our financial condition.

Contractual Commitments

The following is a summary of the contractual commitments associated with our debt and lease obligations, as well as our purchase commitments as of June 30, 2004:

		Payment due by period
			Less than						More than 5
Contractual Obligations*		Total	1 year		1-3 years			3-5 years	years
Long-term Debt Obligations (1)	$	256,239	$	208,239	$	48,000	$	0	$	0
Capital Lease Obligations (2)	$	117,672	$	81,625	$	36,047	$	0	$	0
Operating Lease Obligations (2)	$	933,475	$	535,237	$	398,238	$	0	$	0
Purchase Obligations		N/A		N/A		N/A		N/A	N/A
Total	$	1,307,386	$	825,101	$	482,285	$	0	$	0

(1)	Long-term debt obligations consist of $168,000 payable to the Empire State Development Corporation and a note payable of $88,239 payable to our Chief Executive Officer in connection with the purchase 100 shares of Series A Preferred Stock, which note was paid in full subsequent to the fiscal year ended June 30, 2004. The long-term debt amounts exclude interest.
(2)	Capital and operating lease obligations consist of leases for equipment and facilities.
*	We have certain royalty commitments associated with the sale and licensing of certain products. Royalty expense is generally based on a percentage of underlying revenues which we may derive from our products. At June 30, 2004 we had no royalty liability.

Off-Balance Sheet Arrangements

We have not created, and are not party to, any special-purpose or off-balance sheet entities for the purpose of raising capital, incurring debt or operating parts of our business that are not consolidated into our financial statements. We do not have any arrangements or relationships with entities that are not consolidated into our financial statements that are reasonably likely to materially affect our liquidity or the availability of our capital resources. We have entered into various agreements by which we may be obligated to indemnify the other party with respect to certain matters. Generally, these indemnification provisions are included in contracts arising in the normal course of business under which we customarily agree to hold the indemnified party harmless against losses arising from a breach of representations related to such matters as intellectual property rights. Payments by us under such indemnification clauses are generally conditioned on the other party making a claim. Such claims are generally subject to challenge by us and to dispute resolution procedures specified in the particular contract. Further, our obligations under these arrangements may be limited in terms of time and/or amount and, in some instances, we may have recourse against third parties for certain payments made by us. It is not possible to predict the maximum potential amount of future payments under these indemnification agreements due to the conditional nature of our obligations and the unique facts of each particular agreement. Historically, the Company has not made any payments under these agreements that have been material individually or in the aggregate. As of June 30, 2004, we were not aware of any obligations under such indemnification agreements that would require material payments.

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Effects of Inflation and Changing Prices

The impact of general inflation on our operations has not been significant to date and we believe inflation will continue to have an insignificant impact on us. However, price deflation in the major categories of components we purchase for DocStar has been substantial and is anticipated to continue through fiscal 2004. Typically, new components such as new generations of microprocessors and new optical disk drive technologies etc. are introduced at premium prices, by its vendors. During this period, we earn lower margins on our products. As the life cycle progresses competitive pressures could force vendor prices down and thus improve our profit margins. We do not believe that competitive pressures will require us to lower our DocStar selling price. Because much of DJS’s business is service-related, price deflation has less of an impact on DJS’s profits. We do not believe that the impact of inflation will have a significant impact on our Authentidate business lines.

New Accounting Pronouncements

There were no new accounting pronouncements issued during fiscal year 2004 that require adoption by us.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

We have approximately $74 million invested in cash, cash equivalents and marketable securities as of June 30, 2004. We do not believe that any of our financial instruments have significant risk associated with market sensitivity. Our exposure to financial market risks from changes in foreign currency exchange rates has been minimal to date and we are only minimally impacted by changes in interest rates. However, in the future, we may enter into transactions denominated in non-U.S. currencies or increase the level of our borrowings, which could increase our exposure to these market risks. We have not used, and currently do not contemplate using, any derivative financial instruments.

Interest Rate Risk

At any time, fluctuations in interest rates could affect interest earnings on our cash and cash equivalents. We believe that the effect, if any, of reasonably possible near term changes in interest rates on our financial position, results of operations, and cash flows would not be material. Currently, we do not hedge these interest rate exposures. The primary objective of our investment activities is to preserve capital. We have not used derivative financial instruments in our investment portfolio. At June 30, 2004, our cash, cash equivalents and marketable securities totaled $73,989,823, most of which was invested in money market accounts, certificates of desposit, auction rate securities and non-interest bearing checking accounts.

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Item 8. Financial Statements and Supplemental Data

     The Financial Statements and Supplementary Data Schedule are annexed hereto.

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PART IV

Item 15.  Exhibits, Financial Statement
                Schedules and Reports on Form 8-K

(a)(1)	Financial Statements
	The following Financial Statements of AHC are included in Part II, Item 8 of this report:
	•	Report of Independent Registered Public Accounting Firm;
	•	Consolidated Balance Sheets as of June 30, 2004 and 2003;
	•	Consolidated Statements of Operations for the years ended June 30, 2004, 2003 and 2002;
	•	Consolidated Statements of Shareholders’ Equity for the years ended June 30, 2004, 2003 and 2002;
	•	Consolidated Statements of Cash Flows for the years ended June 30, 2004, 2003 and 2002; and
	•	Notes to Consolidated Financial Statements
(a)(2)	Financial Statement Schedules

The following consolidated financial statement schedule for each of the three years in the period ended June 30, 2004 is included pursuant to item 15 (d):

Schedule II, Valuation and Qualifying Accounts

(a)(3) Exhibits

The exhibits designated with an asterisk (*) are filed herewith. All other exhibits have been previously filed with the Commission and, pursuant to 17 C.F.R. §230.411, are incorporated by reference to the document referenced in brackets following the descriptions of such exhibits. Certain portions of exhibits marked with the symbol (‡) have been granted confidential treatment by the Securities and Exchange Commission. Such portions were omitted and filed separately with the Securities and Exchange Commission. Certain portions of exhibits marked with the symbol (#) have been omitted and are subject to our request for confidential treatment by the Securities and Exchange Commission. Such portions have been omitted and filed separately with the Commission.

Item No.	Description
2.1	Form of Stock Purchase Agreement dated as of March 4, 2002 by and among Authentidate Holding Corp., Authentidate International AG and PFKAcquisition Group I, LLC. (Exhibit 2.1 to Form 8-K dated March 15, 2002).
3.1	Certificate of Incorporation of Bitwise Designs, Inc.-Delaware (Exhibit 3.3.1to Registration Statement on Form S-18, File No. 33-46246-NY)

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3.1.1	Certificate of Designation of Series B Preferred Stock (Exhibit 3.2.1 to Form 10-KSB dated October 4, 1999)
3.1.2	Certificate of Amendment to Certificate of Incorporation (filed as Exhibit 3 to Definitive Proxy Statement dated February 16, 2001 as filed with the Securities and Exchange Commission).
3.1.3	Certificate of Designations, Preferences and Rights and Number of Shares of Series C Convertible Preferred Stock (Exhibit 4.1 to Form 10-Q dated May 14, 2001).
3.1.4	Certificate of Amendment of Certificate of Designations, Preferences and Rights and Number of Shares of Series C Convertible Preferred Stock (Exhibit 3.1.4 to Form 10-K dated September 26, 2001).
3.1.5	Certificate of Amendment of Certificate of Designations, Preferences and Rights and Number of Shares of Series B Convertible Preferred Stock (Exhibit 3.1 to Form 10-Q for the quarter ended December 31, 2002).
3.2	By-Laws, as amended (Exhibit 3.2.1 to Form 10-Q for the quarter ended March 31, 2004).
4.1	Form of Common Stock Certificate (Exhibit 4.1 to Registration Statement on Form S-18, File No. 33-46246-NY)
4.2	Form of Series B Preferred Stock Certificates (Exhibit 4.5 to the Registration Statement on form SB-2, File No. 33-76494).
4.3	Form of Warrant issued to certain individuals in fiscal year ended June 30, 2001 (Exhibit 4.7 to Form 10-K dated September 26, 2001).
4.4	Form of Warrant Agreement issued to certain Warrant holders dated as of February 19, 2002 (Exhibit 10.1 to Form 8-K dated March 19, 2002).
4.5	Form of Warrant issued in connection with Unit Offering (Exhibit 4.12 to Form 10-K dated September 30, 2002).
4.6	Form of Warrant , dated as of October 25, 2002, issued in connection with private placement (Exhibit 4.2 to Form 8-K dated October 25, 2002).
4.7	Form of Warrant , dated as of May, 2003, issued in connection with private placement (Exhibit 4.2 to Form 8-K dated May 30, 2003).
4.8	Form of Warrant , dated as of September 12, 2003, issued in connection with private placement (Exhibit 4.2 to Form 8-K dated September 15, 2003).
4.9	Form of Warrant , dated as of September 22, 2003, issued in connection with private placement (Exhibit 4.1 to Form 8-K dated September 22, 2003).
10.1	1992 Employee stock option plan (Exhibit 10.10 to Registration Statement on Form S-18, File No. 33-46246-NY).
10.2	1992 Nonexecutive Directors stock option plan (Exhibit 10.11 to Registration Statement on Form S-18, File No. 33-46246-NY)

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10.3	Agreement with Prime Computer, Inc. (Exhibit 10.14 to Registration Statement on Form S-18, File No. 33-46246-NY)
10.4	Agreement with Mentor Computer Graphics Ltd. (Exhibit 10.15 to Registration Statement on Form S-18, File No. 33-46246-NY)
10.5	Agreement and Plan of Merger by and among Bitwise Designs, Inc., Bitwise DJS, Inc., certain individuals and DJS Marketing Group, Inc. dated March 6, 1996 (Exhibit 2 to Form 8-K dated March 22, 1996)
10.6	Employment Agreement between John Botti and the Company dated January 1, 2000 (Exhibit 10.27 to the Company’s Form 10-KSB dated June 30, 2000).
10.7	Employment Agreement between Robert Van Naarden and Authentidate.com, Inc. dated July 5, 2000 (Exhibit 10.29 to the Company’s Form 10-KSB dated June 30, 2000).
10.8‡	Joint Venture Agreement between The Company, Authentidate, Inc. and Windhorst New Technologies, Agi.G (Exhibit 10.30 to the Company’s Form 10-KSB dated June 30, 2000)
10.9‡	Technology License Agreement between The Company, Authentidate, Inc. and Windhorst New Technologies, Agi.G (Exhibit 10.31 to the Company’s Form 10-KSB dated June 30, 2000)
10.10	2000 Employee Stock Option Plan (filed as Exhibit 2 to Definitive Proxy Statement dated February 16, 2001 as filed with the Securities and Exchange Commission).
10.11	Form of Security Exchange Agreement entered into between Authentidate Holding Corp., Authentidate, Inc. and certain security holders of Authentidate, Inc. (Exhibit 10.15 to the Company’s Form 10-K dated September 26, 2001)
10.12	Underlease Agreement of Authentidate, Inc. for a portion of the 43rd Floor at 2 World Financial Center. (Exhibit 10.17 to the Company’s Form 10-K dated September 26, 2001)
10.13	2001 Non-Executive Director Stock Option Plan (filed as Exhibit A to Proxy Statement dated December 18, 2001, as filed with the Commission).
10.14	Form of Letter of Credit dated as of May 6, 2002 between DJS Marketing Group, Inc. and Transamerica (filed as Exhibit 10.2 to Form 10-Q dated May 15, 2002).
10.15	Form of Unit Purchase Agreement entered into between Authentidate Holding Corp. and certain investors (Exhibit 10.21 to Form 10-K dated September 30, 2002).
10.16	Form of Registration Rights Agreement entered into between Authentidate Holding Corp. and certain investors (Exhibit 10.22 to Form 10-K dated September 30, 2002).

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10.17‡	Strategic Alliance Agreement between Authentidate Holding Corp., Authentidate, Inc. and United States Postal Service dated as of July 31, 2002. (Exhibit 10.23 to Form 10-K dated September 30, 2002).
10.18	Form of Securities Purchase Agreement entered into between Authentidate Holding Corp. and certain investors, dated as of October 25, 2002 (Exhibit 10.1 to Form 8-K dated October 25, 2002).
10.19	Form of Registration Rights Agreement entered into between Authentidate Holding Corp. and certain investors, dated as of October 25, 2002 (Exhibit 10.2 to Form 8-K dated October 25, 2002).
10.20	Form of Securities Purchase Agreement entered into between Authentidate Holding Corp. and certain investors, dated as of May 21, 2003 (Exhibit 10.1 to Form 8-K dated May 30, 2003).
10.21	Form of Registration Rights Agreement entered into between Authentidate Holding Corp. and certain investors, dated as of May 21, 2003 Exhibit 10.2 to Form 8-K dated May 30, 2003)
10.22	Form of Securities Purchase Agreement entered into between Authentidate Holding Corp. and certain investors, dated as of September 12, 2003 (Exhibit 10.1 to Form 8-K dated September 15, 2003).
10.23	Form of Registration Rights Agreement entered into between Authentidate Holding Corp. and certain investors, dated as of September 12, 2003 (Exhibit 10.2 to Form 8-K dated September 15, 2003).
10.24	Form of Securities Purchase Agreement entered into between Authentidate Holding Corp. and a certain investor, dated as of September 22, 2003 (Exhibit 10.1 to Form 8-K dated September 22, 2003).
10.25	Form of Registration Rights Agreement entered into between Authentidate Holding Corp. and a certain investor, dated as of September 22, 2003 (Exhibit 10.2 to Form 8-K dated September 22, 2003).
10.26	Form of Securities Purchase Agreement dated as of January 28, 2004 (Filed as Exhibit 10.1 to Current Report on Form 8-K dated February 5, 2004).
10.27	Form of Registration Rights Agreement (Filed as Exhibit 10.2 to Current Report on Form 8-K dated February 5, 2004).
10.28#	Agreement among Trac Medical Solutions, Inc., Homecare Association, LLC and bConnected Software, Inc. dated February 12, 2004 (Exhibit 10.1 to Form 10-Q for the quarter ended March 31, 2004).
10.29#	Product Development and License Agreement between Trac Medical Solutions, Inc. and bConnected Software, Inc. dated February 12, 2004 (Exhibit 10.2 to Form 10-Q for the quarter ended March 31, 2004).
10.30	2000 Employee Stock Option Plan, as amended (filed as Exhibit B to Definitive Proxy Statement dated December 31, 2003 as filed with the Securities and Exchange Commission).

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10.30.1	Form of Stock Option Award Pursuant to 2000 Employee Stock Option Plan, as amended. (Filed as Exhibit 10.30.1 to Annual Report on Form 10-K for the year ended June 30, 2004).
10.31	2001 Non-Executive Director Stock Option Plan, as amended (filed as Exhibit D to Definitive Proxy Statement dated December 31, 2003, as filed with the Securities and Exchange Commission).
10.31.1	Form of Stock Option Award Pursuant to 2001 Non-Executive Director Stock Option Plan, as amended. (Filed as Exhibit 10.31.1 to Annual Report on Form 10-K for the year ended June 30, 2004.)
10.32	Employment Agreement between John T. Botti and Authentidate Holding Corp. (Filed as Exhibit 10.32 to Annual Report on Form 10-K for the year ended June 30, 2004).
10.33	Offer Letter to Peter R. Smith (Filed as Exhibit 10.33 to Annual Report on Form 10-K for the year ended June 30, 2004).
14	Code of Ethics (Exhibit 14 to Form Annual Report on Form 10-K for the fiscal year ended June 30, 2003).
21	Subsidiaries of Registrant (Filed as Exhibit 21 to Annual Report on Form 10-K for the year ended June 30, 2004).
23*	Consent of PricewaterhouseCoopers LLP
31.1*	Certification of Chief Executive Officer
31.2*	Certification of Chief Financial Officer
32*	Section 1350 Certification of Chief Executive Officer and Chief Financial Officer

(b)	Reports on Form 8-K
	During the quarter ended June 30, 2004 we filed the following reports on Form 8-K:

Date of Report	Item(s)	Description
May 11, 2004	7, 8, 12	Announcement of quarterly financial information, including related press release and announcement of change of fiscal year end.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

AUTHENTIDATE HOLDING CORP.

By: /s/ Surendra B. Pai

Surendra B. Pai

Chief Executive Officer and President

By: /s/ Dennis H. Bunt

Dennis H. Bunt

Chief Financial Officer and

Principal Accounting Officer      

Dated: September 6, 2005

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AUTHENTIDATE HOLDING CORP. AND SUBSIDIARIES
VALUATIONS AND QUALIFYING ACCOUNTS

Schedule II
		Column A		Column B		Column C		Column D			Column E
						Additions
		Balance at		Additions		Charged to
		Beginning of		Charged to		Other					Balance At
Description		Period		Expense		Accounts		Deductions			End of Period
Allowance for doubtful accounts
Year ended June 30:
2004	$	460,740	$	74,908			$	(114,732	)	$	420,916
2003	$	609,185	$	58,688			$	(207,133	)	$	460,740
2002	$	532,241	$	53,965	$	54,289	$	(31,310	)	$	609,185
Reserve for slow moving or obsolete inventory
Year ended June 30:
2004	$	187,369	$	54,781			$	(65,749	)	$	176,401
2003	$	458,045	$	137,610			$	(408,286	)	$	187,369
2002	$	788,151	$	234,976			$	(565,082	)	$	458,045
Allowance for Note Receivable
Year ended June 30:
2004	$	0	$	0			$	0		$	0
2003	$	100,000	$	0			$	(100,000	)	$	0
2002	$	0	$	100,000			$	0		$	100,000

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EXHIBIT INDEX

The exhibits designated with an asterisk (*) are filed herewith. All other exhibits have been previously filed with the Commission and, pursuant to 17 C.F.R. §230.411, are incorporated by reference to the document referenced in brackets following the descriptions of such exhibits. Certain portions of exhibits marked with the symbol (‡) have been granted confidential treatment by the Securities and Exchange Commission. Such portions were omitted and filed separately with the Securities and Exchange Commission. Certain portions of exhibits marked with the symbol (#) have been omitted and are subject to our request for confidential treatment by the Securities and Exchange Commission. Such portions have been omitted and filed separately with the Commission.

Item No.	Description
2.1	Form of Stock Purchase Agreement dated as of March 4, 2002 by and among Authentidate Holding Corp., Authentidate International AG and PFK Acquisition Group I, LLC. (Exhibit 2.1 to Form 8-K dated March 15, 2002).
3.1	Certificate of Incorporation of Bitwise Designs, Inc.-Delaware (Exhibit 3.3.1 to Registration Statement on Form S-18, File No. 33-46246-NY)
3.1.1	Certificate of Designation of Series B Preferred Stock (Exhibit 3.2.1 to Form 10-KSB dated October 4, 1999)
3.1.2	Certificate of Amendment to Certificate of Incorporation (filed as Exhibit 3 to Definitive Proxy Statement dated February 16, 2001 as filed with the Securities and Exchange Commission).
3.1.3	Certificate of Designations, Preferences and Rights and Number of Shares of Series C Convertible Preferred Stock (Exhibit 4.1 to Form 10-Q dated May 14, 2001).
3.1.4	Certificate of Amendment of Certificate of Designations, Preferences and Rights and Number of Shares of Series C Convertible Preferred Stock (Exhibit 3.1.4 to Form 10-K dated September 26, 2001).
3.1.5	Certificate of Amendment of Certificate of Designations, Preferences and Rights and Number of Shares of Series B Convertible Preferred Stock (Exhibit 3.1 to Form 10-Q for the quarter ended December 31, 2002).
3.2	By-Laws, as amended (Exhibit 3.2.1 to Form 10-Q for the quarter ended March 31, 2004).
4.1	Form of Common Stock Certificate (Exhibit 4.1 to Registration Statement on Form S-18, File No. 33-46246-NY)
4.2	Form of Series B Preferred Stock Certificates (Exhibit 4.5 to the Registration Statement on form SB-2, File No. 33-76494).
4.3	Form of Warrant issued to certain individuals in fiscal year ended June 30, 2001 (Exhibit 4.7 to Form 10-K dated September 26, 2001).

26

4.4	Form of Warrant Agreement issued to certain Warrant holders dated as of February 19, 2002 (Exhibit 10.1 to Form 8-K dated March 19, 2002).
4.5	Form of Warrant issued in connection with Unit Offering (Exhibit 4.12 to Form 10-K dated September 30, 2002).
4.6	Form of Warrant , dated as of October 25, 2002, issued in connection with private placement (Exhibit 4.2 to Form 8-K dated October 25, 2002).
4.7	Form of Warrant , dated as of May, 2003, issued in connection with private placement (Exhibit 4.2 to Form 8-K dated May 30, 2003).
4.8	Form of Warrant , dated as of September 12, 2003, issued in connection with private placement (Exhibit 4.2 to Form 8-K dated September 15, 2003).
4.9	Form of Warrant , dated as of September 22, 2003, issued in connection with private placement (Exhibit 4.1 to Form 8-K dated September 22, 2003).
10.1	1992 Employee stock option plan (Exhibit 10.10 to Registration Statement on Form S-18, File No. 33-46246-NY).
10.2	1992 Nonexecutive Directors stock option plan (Exhibit 10.11 to Registration Statement on Form S-18, File No. 33-46246-NY)
10.3	Agreement with Prime Computer, Inc. (Exhibit 10.14 to Registration Statement on Form S-18, File No. 33-46246-NY)
10.4	Agreement with Mentor Computer Graphics Ltd. (Exhibit 10.15 to Registration Statement on Form S-18, File No. 33-46246-NY)
10.5	Agreement and Plan of Merger by and among Bitwise Designs, Inc., Bitwise DJS, Inc., certain individuals and DJS Marketing Group, Inc. dated March 6, 1996 (Exhibit 2 to Form 8-K dated March 22, 1996)
10.6	Employment Agreement between John Botti and the Company dated January 1, 2000 (Exhibit 10.27 to the Company’s Form 10-KSB dated June 30, 2000).
10.7	Employment Agreement between Robert Van Naarden and Authentidate.com, Inc. dated July 5, 2000 (Exhibit 10.29 to the Company’s Form 10-KSB dated June 30, 2000).
10.8‡	Joint Venture Agreement between The Company, Authentidate, Inc. and Windhorst New Technologies, Agi.G (Exhibit 10.30 to the Company’s Form 10-KSB dated June 30, 2000)
10.9‡	Technology License Agreement between The Company, Authentidate, Inc. and Windhorst New Technologies, Agi.G (Exhibit 10.31 to the Company’s Form 10-KSB dated June 30, 2000)
10.10	2000 Employee Stock Option Plan (filed as Exhibit 2 to Definitive Proxy Statement dated February 16, 2001 as filed with the Securities and Exchange Commission).

27

10.11	Form of Security Exchange Agreement entered into between Authentidate Holding Corp., Authentidate, Inc. and certain security holders of Authentidate, Inc. (Exhibit 10.15 to the Company’s Form 10-K dated September 26, 2001)
10.12	Underlease Agreement of Authentidate, Inc. for a portion of the 43rd Floor at 2 World Financial Center. (Exhibit 10.17 to the Company’s Form 10-K dated September 26, 2001)
10.13	2001 Non-Executive Director Stock Option Plan (filed as Exhibit A to Proxy Statement dated December 18, 2001, as filed with the Commission).
10.14	Form of Letter of Credit dated as of May 6, 2002 between DJS Marketing Group, Inc. and Transamerica (filed as Exhibit 10.2 to Form 10-Q dated May 15, 2002).
10.15	Form of Unit Purchase Agreement entered into between Authentidate Holding Corp. and certain investors (Exhibit 10.21 to Form 10-K dated September 30, 2002).
10.16	Form of Registration Rights Agreement entered into between Authentidate Holding Corp. and certain investors (Exhibit 10.22 to Form 10-K dated September 30, 2002).
10.17 ‡	Strategic Alliance Agreement between Authentidate Holding Corp., Authentidate, Inc. and United States Postal Service dated as of July 31, 2002. (Exhibit 10.23 to Form 10-K dated September 30, 2002).
10.18	Form of Securities Purchase Agreement entered into between Authentidate Holding Corp. and certain investors, dated as of October 25, 2002 (Exhibit 10.1 to Form 8-K dated October 25, 2002).
10.19	Form of Registration Rights Agreement entered into between Authentidate Holding Corp. and certain investors, dated as of October 25, 2002 (Exhibit 10.2 to Form 8-K dated October 25, 2002).
10.20	Form of Securities Purchase Agreement entered into between Authentidate Holding Corp. and certain investors, dated as of May 21, 2003 (Exhibit 10.1 to Form 8-K dated May 30, 2003).
10.21	Form of Registration Rights Agreement entered into between Authentidate Holding Corp. and certain investors, dated as of May 21, 2003 Exhibit 10.2 to Form 8-K dated May 30, 2003)
10.22	Form of Securities Purchase Agreement entered into between Authentidate Holding Corp. and certain investors, dated as of September 12, 2003 (Exhibit 10.1 to Form 8-K dated September 15, 2003).
10.23	Form of Registration Rights Agreement entered into between Authentidate Holding Corp. and certain investors, dated as of September 12, 2003 (Exhibit 10.2 to Form 8-K dated September 15, 2003).

28

10.24	Form of Securities Purchase Agreement entered into between Authentidate Holding Corp. and a certain investor, dated as of September 22, 2003 (Exhibit 10.1 to Form 8-K dated September 22, 2003).
10.25	Form of Registration Rights Agreement entered into between Authentidate Holding Corp. and a certain investor, dated as of September 22, 2003 (Exhibit 10.2 to Form 8-K dated September 22, 2003).
10.26	Form of Securities Purchase Agreement dated as of January 28, 2004 (Filed as Exhibit 10.1 to Current Report on Form 8-K dated February 5, 2004).
10.27	Form of Registration Rights Agreement (Filed as Exhibit 10.2 to Current Report on Form 8-K dated February 5, 2004).
10.28#	Agreement among Trac Medical Solutions, Inc., Homecare Association, LLC and bConnected Software, Inc. dated February 12, 2004 (Exhibit 10.1 to Form 10-Q for the quarter ended March 31, 2004).
10.29#	Product Development and License Agreement between Trac Medical Solutions, Inc. and bConnected Software, Inc. dated February 12, 2004 (Exhibit 10.2 to Form 10-Q for the quarter ended March 31, 2004).
10.30	2000 Employee Stock Option Plan, as amended (filed as Exhibit B to Definitive Proxy Statement dated December 31, 2003 as filed with the Securities and Exchange Commission).
10.30.1	Form of Stock Option Award Pursuant to 2000 Employee Stock Option Plan, as amended. (Filed as Exhibit 10.30.1 to Annual Report on Form 10-K for the year ended June 30, 2004).
10.31	2001 Non-Executive Director Stock Option Plan, as amended (filed as Exhibit D to Definitive Proxy Statement dated December 31, 2003, as filed with the Securities and Exchange Commission).
10.31.1	Form of Stock Option Award Pursuant to 2001 Non-Executive Director Stock Option Plan, as amended. (Filed as Exhibit 10.31.1 to Annual Report on Form 10-K for the year ended June 30, 2004.)
10.32	Employment Agreement between John T. Botti and Authentidate Holding Corp. (Filed as Exhibit 10.32 to Annual Report on Form 10-K for the year ended June 30, 2004).
10.33	Offer Letter to Peter R. Smith. (Filed as Exhibit 10.33 to Annual Report on Form 10-K for the year ended June 30, 2004).
14	Code of Ethics (Exhibit 14 to Form Annual Report on Form 10-K for the fiscal year ended June 30, 2003).
21	Subsidiaries of Registrant (Filed as Exhibit 21 to Annual Report on Form 10-K for the year ended June 30, 2004).
23*	Consent of PricewaterhouseCoopers LLP
31.1*	Certification of Chief Executive Officer
31.2*	Certification of Chief Financial Officer
32*	Section 1350 Certification of Chief Executive Officer and Chief Financial Officer

29

Authentidate Holding Corp. and Subsidiaries
Consolidated Financial Statements (and Report of Independent Registered Public Accounting Firm)
June 30, 2004, 2003 and 2002

Authentidate Holding Corp. and Subsidiaries
Index
June 30, 2004, 2003 and 2002

	Page(s)
Report of Independent Registered Public Accounting Firm	F-1
Consolidated Financial Statements
Balance Sheets	F-2
Statements of Operations	F-3
Statements of Shareholders’ Equity	F-4-5
Statements of Cash Flows	F-6
Notes to Consolidated Financial Statements	F-7-34

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders
of Authentidate Holding Corp. and Subsidiaries

In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of Authentidate Holding Corp. and Subsidiaries at June 30, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2004 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

Albany, New York
September 3, 2004, except for the paragraph appearing under “Revisions in the Classification of Certain Securities” in Note 1, as to which the date is August 16, 2005

F-1

Authentidate Holding Corp. and Subsidiaries
Consolidated Balance Sheets
June 30, 2004 and 2003

		2004			2003
	(As Reclassified—See Note 1)
Assets
Current assets
Cash and cash equivalents		$	25,064,823		$	3,460,446
Restricted cash			365,116			—
Marketable securities			48,925,000			—
Accounts receivable, net of allowance for doubtful accounts of $420,916 and $460,740 at June 30, 2004 and 2003, respectively			3,039,044			3,642,221
Due from related parties			—			2,279
Inventories			125,206			193,101
Prepaid expenses and other current assets			474,309			69,248
Total current assets			77,993,498			7,367,295
Property and equipment, net			3,396,454			3,764,846
Other assets
Software development costs, net of accumulated amortization of $3,950,487 and $3,659,589 on June 30, 2004 and 2003			497,977			355,082
Goodwill			11,616,736			12,795,501
Other intangible assets, net			727,763			466,885
Deferred financing fees			—			268,935
Other assets			4,448			27,296
Total assets		$	94,236,876		$	25,045,840
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable		$	859,360		$	1,436,943
Accrued expenses and other current liabilities			1,838,860			2,034,544
Deferred revenue			1,881,277			738,166
Current portion of obligations under capital leases			69,968			112,520
Current portion of long-term debt			208,239			218,811
Line of credit			571,622			877,863
Income taxes payable			6,130			24,843
Total current liabilities			5,435,456			5,443,690
Convertible debentures			—			3,316,815
Long-term debt, net of current portion			48,000			1,331,129
Deferred grant			—			1,000,000
Obligations under capital leases, net of current portion			35,421			85,556
Total liabilities			5,518,877			11,177,190
Commitments and contingencies
Shareholders’ equity
Preferred stock $.10 par value, 5,000,000 shares authorized Series B – 28,000 shares issued and outstanding at June 30, 2004 and June 30, 2003			2,800			2,800
Series C – 0 shares issued and outstanding at June 30, 2004, and 3,600 shares issued and outstanding at June 30, 2003			—			360
Common stock, $.001 par value; 75,000,000 shares authorized, 32,951,656 issued and outstanding at June 30, 2004 and 40,000,000 shares authorized, 20,388,174 shares issued and outstanding at June 30, 2003			32,952			20,388
Additional paid-in capital			157,602,589			66,916,663
Accumulated deficit			(68,846,528	)		(53,062,512	)
Accumulated comprehensive income (loss)			(73,814	)		(9,049	)
Total shareholders’ equity			88,717,999			13,868,650
Total liabilities and shareholders’ equity		$	94,236,876		$	25,045,840

The accompanying notes are an integral part of the consolidated financial statements.

F-2

Authentidate Holding Corp. and Subsidiaries
Consolidated Statements of Operations
Years Ended June 30, 2004, 2003 and 2002

	2004			2003			2002
Net sales
Product sales	$	17,886,219		$	24,143,959		$	15,135,663
Service sales		1,355,852			1,142,512			1,507,241
Total net sales		19,242,071			25,286,471			16,642,904
Cost of sales
Products		11,900,718			18,575,474			11,398,458
Services		511,865			594,362			692,077
Total cost of sales		12,412,583			19,169,836			12,090,535
Gross profit		6,829,488			6,116,635			4,552,369
Selling, general and administrative expenses		14,032,170			12,600,901			11,470,073
Product development expenses		2,377,613			2,534,777			2,170,173
Goodwill impairment – DJS		1,178,765			—			—
Total operating expenses		17,588,548			15,135,678			13,640,246
Loss from operations		(10,759,060	)		(9,019,043	)		(9,087,877	)
Other income (expense)
Interest and other income		1,304,354			572,481			180,360
Interest expense		(6,231,981	)		(871,856	)		(124,824	)
Equity in net loss of affiliated companies		—			(514,427	)		(958,788	)
		(4,927,627	)		(813,802	)		(903,252	)
Loss before income taxes		(15,686,687	)		(9,832,845	)		(9,991,129	)
Income tax benefit (expense)		17,494			(6,464	)		(14,119	)
Loss before minority interest		(15,669,193	)		(9,839,309	)		(10,005,248	)
Minority interest		—			—			53,846
Net loss	$	(15,669,193	)	$	(9,839,309	)	$	(9,951,402	)
Per share amounts
Basic and diluted loss per common share	$	(.59	)	$	(.50	)	$	(.69	)

The accompanying notes are an integral part of the consolidated financial statements.

F-3

Authentidate Holding Corp. and Subsidiaries
Consolidated Statements of Shareholders’ Equity
Years Ended June 30, 2004, 2003 and 2002

	Series B and C
	Preferred Stock					Common Stock
																					Total			Comprehensive
	Number of		$.10 Par			Number of	$.001 Par		Paid-in			Accumulated			Other			Translation			Shareholders’			Income
	Shares		Value			Shares	Value		Capital			Deficit			Equity			Adjustment			Equity			(Loss)
Balance June 30, 2001	53,600		$	5,360		16,114,093	$	16,114	$	51,634,783		$	(31,283,665	)	$	(834,760	)	$	—		$	19,537,832		$	9,340,103
Exercise of stock warrants						1,109,517		1,110		1,574,520												1,575,630
Exercise of stock options						31,999		32		80,296												80,328
Convert preferred stock to common stock	(21,500	)		(2,150	)	576,263		576		1,574												—
Purchase of Authentidate AG						1,425,875		1,426		6,393,881												6,395,307
Warrants for services										74,572												74,572
Cost to register common shares										(66,943	)											(66,943	)
Stock option compensation																517,760						517,760
Cash and stock dividends to Series B and Series C preferred shareholders						50,847		51		219,947			(300,428	)								(80,430	)
Loan to executive																(190,431	)					(190,431	)
Currency translation adjustment																			53,111			53,111			53,111
Beneficial conversion										1,464,002			(1,464,002	)								—
Net loss													(9,951,402	)								(9,951,402	)		(9,951,402	)
Balance June 30, 2002	32,100			3,210		19,308,594		19,309		61,376,632			(42,999,497	)		(507,431	)		53,111			17,945,334		$	(9,898,291	)
Exercise of stock warrants						3,000		3		3,297												3,300
Exercise of stock options						94,257		94		209,440												209,534
Convert Series C preferred stock to common stock	(400	)		(40	)	82,560		82		(42	)											—
Warrants for services										256,283												256,283
Cost to register common shares										(64,672	)											(64,672	)
Cash and stock dividends to Series B and Series C preferred shareholders						61,996		62		155,921			(223,706	)								(67,723	)
Repayment of note receivable shareholder																507,431						507,431
Currency translation adjustment																			(62,160	)		(62,160	)		(62,160	)
Buy back Series A preferred shares	(100	)		(10	)					(849,990	)											(850,000	)
Offering expenses										(85,000	)											(85,000	)
Private equity offering						660,077		660		1,999,375												2,000,035
Convertible debenture interest paid in common shares						47,690		48		143,618												143,666
Debt discount related to issuance of convertible debentures, net of issuance costs ($163,968)										3,433,931												3,433,931

The accompanying notes are an integral part of the consolidated financial statements.

F-4

Authentidate Holding Corp. and Subsidiaries
Consolidated Statements of Shareholders’ Equity
Years Ended June 30, 2004, 2003 and 2002

	Series B and C
	Preferred Stock					Common Stock
																				Total			Comprehensive
	Number of		$.10 Par			Number of	$.001 Par		Paid-in			Accumulated			Other		Translation			Shareholders’			Income
	Shares		Value			Shares	Value		Capital			Deficit			Equity		Adjustment			Equity			(Loss)
Purchase minority interest, Trac Medical						130,000		130		337,870											338,000
Net loss													(9,839,309	)							(9,839,309	)		(9,839,309	)
Balance June 30, 2003	31,600			3,160		20,388,174		20,388		66,916,663			(53,062,512	)		—		(9,049	)		13,868,650		$	(9,901,469	)
Exercise of stock warrants						2,003,455		2,003		5,459,078											5,461,081
Exercise of stock options						896,496		897		3,673,493											3,674,390
Convert Series C preferred stock to common stock	(3,600	)		(360	)	743,034		743		(383	)										—
Options and warrants for services										756,058											756,058
Cost to register common shares										(92,717	)										(92,717	)
Convert debt to common stock						3,351,527		3,352		8,891,948											8,895,300
Currency translation adjustment																		(64,765	)		(64,765	)		(64,765	)
Cost of private equity offerings										(561,483	)										(561,483	)
Private equity offerings						5,527,037		5,527		69,865,061											69,870,588
Convertible debenture interest paid in common shares						39,543		40		117,205											117,245
Debt discount and beneficial conversion feature related to issuance of convertible debentures, net of issuance costs										2,288,329											2,288,329
Deferred financing costs										276,839											276,839
Preferred stock dividends													(114,823	)							(114,823	)
Restricted shares compensation						2,390		2		12,498											12,500
Net loss													(15,669,193	)							(15,669,193	)		(15,669,193	)
Balance June 30, 2004	28,000		$	2,800		32,951,656	$	32,952	$	157,602,589		$	(68,846,528	)	$	—	$	(73,814	)	$	88,717,999		$	(15,733,958	)

The accompanying notes are an integral part of the consolidated financial statements.

F-5

Authentidate Holding Corp. and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended June 30, 2004, 2003 and 2002

		2004			2003			2002
	(As Reclassified—See Note 1)
Cash flows from operating activities
Net loss		$	(15,669,193	)	$	(9,839,309	)	$	(9,951,402	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			1,159,713			1,886,085			1,690,382
Provision for doubtful accounts receivable			74,908			58,688			53,965
Equity in net loss of affiliated companies			—			514,427			958,788
Amortization of deferred financing costs and debt discount			5,942,586			537,172			—
Interest paid in stock			117,245			143,666			—
Non-cash compensation and other			756,058			160,154			709,950
Goodwill impairment			1,178,765			—			—
NYS Grant income			(732,000	)		—			—
Restricted shares non-cash compensation			12,500			—			—
Changes in operating assets and liabilities, net of business acquired
Accounts receivable and due from related parties			530,547			596,728			(642,299	)
Inventories			67,895			286,601			320,702
Prepaid expenses and other current assets			(405,060	)		54,518			87,618
Accounts payable, accrued expenses and other current liabilities			(818,090	)		(333,056	)		698,700
Deferred revenue			1,143,111			738,166			—
Income taxes payable			(18,713	)		7,043			17,169
Net cash used in operating activities			(6,659,728	)		(5,189,117	)		(6,056,427	)
Cash flows from investing activities
Purchase of marketable securities			(48,925,000	)		—			—
Restricted cash			(365,116	)		—			—
Purchases of property and equipment			(241,897	)		(283,903	)		(556,598	)
Other intangible assets acquired			(491,903	)		(93,780	)		(216,913	)
Software development costs			(433,794	)		(296,197	)		(346,331	)
Note receivable			—			350,000			(500,000	)
Investment in affiliated companies			—			(220,000	)		(385,568	)
Acquisition of business, net of cash acquired			—			—			58,078
Other, net			22,847			(97,999	)		(33,678	)
Net cash used in investing activities			(50,434,863	)		(641,879	)		(1,981,010	)
Cash flows from financing activities
Proceeds from private equity offerings			69,553,236			1,955,035			—
Stock warrants exercised			5,461,081			3,300			1,575,630
Stock options exercised			3,674,390			209,535			80,328
Dividends paid			(70,000	)		(35,000	)		(104,525	)
Sale of convertible debentures, net of issuance costs ($100,378 in 2004, $163,968 in 2003)			2,369,622			6,261,332			—
Principal payments on obligations under capital leases			(120,187	)		(121,935	)		(47,920	)
Loan to shareholder			—			—			(190,431	)
Payment of registration costs			(92,717	)		(64,672	)		(66,943	)
Net payments under line of credit			(306,241	)		(875,531	)		—
Deferred financing costs			(137,300	)		(142,000	)		—
Principal payments on long-term debt			(280,000	)		(35,815	)		(32,926	)
Payment of mortgage			(1,281,700	)		—			—
Purchase Series A preferred shares			—			(70,000	)		—
Other			(6,451	)		—			—
Net cash provided by financing activities			78,763,733			7,084,249			1,213,213
Effect of exchange rate changes on cash flows			(64,765	)		(62,160	)		53,111
Net increase (decrease) in cash and cash equivalents			21,604,377			1,191,093			(6,771,113	)
Cash and cash equivalents, beginning of year			3,460,446			2,269,353			9,040,466
Cash and cash equivalents, end of year		$	25,064,823		$	3,460,446		$	2,269,353

The accompanying notes are an integral part of the consolidated financial statements.

F-6

Authentidate Holding Corp. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002

1. Summary of Significant Accounting Policies

Description of Business and Business Continuity

Authentidate Holding Corp. (AHC) and its subsidiaries Authentidate, Inc. (Authentidate), Authentidate International, AG (AG), DJS Marketing Group, Inc. (DJS), and Trac Medical Solutions, Inc. (Trac Med), collectively referred to as the “Company”, are engaged in the following businesses. Through its DocStar Division the Company markets and sells document imaging software and related products. Through DJS the Company markets network integration services, Internet services and related computer hardware. Authentidate, Inc., AG and Trac Med are all engaged in the business of providing authentication and security software services.

In June 1999, AHC established a majority owned subsidiary Authentidate, Inc. (Authentidate), to engage in a new software business providing users with a service which can verify the authenticity of digital images by employing a secure clock that will date stamp the images when received providing proof of time, date and also proof of content via the Internet. In July 2002, the Company entered into a strategic alliance agreement with the United States Postal Service (USPS or Postal Service) to serve as the preferred provider of the USPS Electronic Postmark. The EPM uses our patent pending technology offering highly sophisticated encryption methodology ensuring document authenticity. Under the strategic alliance agreement, the Company is required to meet certain performance metrics (including a revenue metric). USPS has notified the Company of its failure to comply with the current revenue metric. Although the Company has not attained the current revenue metric provided in the agreement with the Postal Service, the Company has been negotiating new metrics and believes it has reached an agreement in principle. If the Company is unsuccessful in completing these negotiations or is unable to achieve the original metric, the Postal Service may terminate the Company’s agreement. AHC has a 98% common stock ownership in Authentidate.

In March 2000, Authentidate, Inc. formed and held a 39% interest in a joint venture known as Authentidate International, AG, with a German company, Windhorst New Technologies, Agi.G., to market Authentidate in countries outside of the Americas, Japan, Australia, New Zealand and India. In March 2002, the Company purchased the remaining 61% of Authentidate AG to secure worldwide rights for marketing of the Authentidate technology. In connection with the acquisition, the Company issued 1,425,875 common shares and issued 100,000 common stock warrants to the sellers. The sellers also returned 250,000 outstanding warrants to the Company as part of the transaction. The aggregate fair value of equity consideration to consummate the acquisition approximated $6,400,000. The acquisition was recorded under the purchase method of accounting and the operations of AG have been included in the statement of operations since the acquisition date of March 15, 2002. Prior to consolidation (March 2002), the Company’s share of net losses of AG under the equity method of accounting for fiscal year ended June 30, 2002 was approximately $625,000.

F-7

Authentidate Holding Corp. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002

In March 2001, the Company formed and held a majority interest in a subsidiary named Trac Medical Solutions, Inc., to develop and provide authentication software services in the medical supply industry, for the processing of Certificates of Medical Necessity and other related forms. During the quarter ended March 31, 2003, AHC purchased the remaining shares of its Trac Med subsidiary, which were previously held by four other shareholders. Pursuant to the Stock Purchase Agreement dated as of March 13, 2003, AHC issued an aggregate of 130,000 shares of its common stock with a fair value of $338,000 to the sellers, and also issued to the sellers who will continue as employees of Trac Med 20,000 options to purchase shares of common stock at an exercise price equal to the closing price of AHC’s common stock as of the closing date of the transaction. In addition, the sellers could have received, up to an aggregate amount of 75,000 additional shares of common stock of AHC in the event that Trac Med achieved certain sales and income performance targets during the twelve month period from October 1, 2002 to September 30, 2003; Trac Med did not achieve these targets. Additional bonus options of up to 390,000 in fiscal year 2004 and 525,000 in fiscal year 2005 may be granted if certain sales and income performance targets are met. Such options will be issued to certain employees at an exercise price equal to the fair value of the Company’s common stock on the grant issuance date. The performance targets were not achieved in fiscal 2004. In addition, the sellers agreed to place an aggregate of 52,000 shares of the AHC common stock issued to them into a six month escrow to provide for the potential breaches of representations and warranties contained in the Stock Purchase Agreement regarding the financial condition and operations of Trac Med. The shares have been released from escrow to the sellers.

In May 2001, the Company became a 50% owner in a joint venture known as Authentidate Sports (Sports) with outside partners to provide the same Authentidate services in the sports memorabilia industry. During fiscal 2003, the Company and its partner closed Sports and discontinued operations. The Company’s share of net losses in this joint venture in 2003 and 2002 approximated $514,000 and $334,000, respectively.

Principles of Consolidation

The consolidated financial statements include the accounts of AHC and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Cash Equivalents

The Company considers all highly liquid debt instruments with original maturities not exceeding three months to be cash equivalents. At June 30, 2004 and 2003, cash equivalents were composed primarily of investments in high quality short term investments such as commercial paper and overnight interest bearing deposits.

Revisions in the Classification of Certain Securities

The Company has reclassified certain investments known as auction rate securities from cash and cash equivalents to marketable securities on its Balance Sheet in the amount of $48,925,000 as of June 30, 2004. This reclassification has no effect on the Statement of Operations or Statement of Shareholders’ Equity. The Statement of Cash Flows for the year ended June 30, 2004 has also been amended to show the purchase of marketable securities in the amount of $48,925,000 under investing activities. There is no change to cash flow from operating activities. While in the past it was common practice for other companies to classify auction rate securities as cash and cash equivalents the Company has determined that the correct classification is to classify these investments as marketable securities. This change in classification does not affect previously reported cash flows from operations or from financing activities in our previously reported Consolidated Statements of Cash Flows, or our previously reported Consolidated Statements of Income for any period.

	As Previously Reported		Reclassification			As Reclassified
Consolidated Balance Sheet at June 30, 2004:
Cash and cash equivalents	$	73,989,823	$	(48,925,000	)	$	25,064,823
Marketable securities	$	—	$	48,925,000		$	48,925,000
Consolidated Statement of Cash flows for the year ended June 30, 2004:
Purchase of marketable securities	$	—	$	(48,925,000	)	$	(48,925,000	)
Net cash used in investing activities	$	(1,509,863)	$	(48,925,000	)	$	(50,434,863	)

Marketable Securities

The Company’s marketable securites are comprised of auction rate securities. These investments are generally rated AAA or AA by one or more national rating agencies. The auction rate securities have contractual maturities of up to 30 years. The auction rate securities the Company invests in generally have interest re-set dates that occur every 7 to 28 days and despite the long-term nature of their stated contractual maturity, we have the ability to quickly liquidate these securities at ongoing auctions every 28 days or less. The Company classifies its investments in auction rate securities as “available for sale.” These investments are recorded at cost which approximates fair market value due to their variable interest rates, which typically reset every 7-28 days. As a result, the Company had no cumulative gross unrealized holding gains (losses) or gross realized gains (losses) from its current investments. All income generated from these current investments was recorded as interest income. Because the Company does not hold any one auction rate security longer than one year they have been classified as a current asset.

Inventories

Inventories are stated at the lower of cost or market and are valued at average cost.

Long-Lived Assets

Long-lived assets including property and equipment, software development costs, patent costs, trademarks and licenses are reviewed for impairment whenever events such as significant changes in the business climate, changes in product offerings, or other circumstances indicate that the carrying amount may not be recoverable.

F-8

Authentidate Holding Corp. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002

Property and Equipment

Property and equipment are stated at cost. Depreciation and amortization are determined using the straight-line method. Estimated useful lives of the assets range from three to forty years.

Repairs and maintenance are charged to expense as incurred. Renewals and betterments are capitalized. When assets are sold, retired or otherwise disposed of, the applicable costs and accumulated depreciation or amortization are removed from the accounts and the resulting gain or loss, if any, is recognized.

Software Development Costs

Software development and modification costs incurred subsequent to establishing technological feasibility are capitalized and amortized based on anticipated revenue for the related product with an annual minimum equal to the straight-line amortization over the remaining economic life of the related products (generally three years). Software development costs capitalized during 2004, 2003 and 2002 amounted to approximately $434,000, $296,000 and $346,000, respectively. Amortization expense related to software development costs for the years ended June 30, 2004, 2003 and 2002 was $290,899, $1,102,765 and $1,087,293, respectively. These expenses are included in cost of sales.

Goodwill

Effective July 1, 2001, the Company adopted FAS No. 142, Goodwill and Other Intangible Assets. FAS 142 changed the accounting for goodwill from an amortization method to an impairment-only approach. Prior to July 1, 2001, goodwill was amortized on a straight-line basis over periods ranging from 5 to 20 years. The adoption of FAS 142 on July 1, 2001 did not result in an impairment of goodwill.

Goodwill is reviewed for impairment whenever events such as significant changes in the business climate, changes in product offerings, or other circumstances indicate that the carrying amount may not be recoverable. The Company performs its annual goodwill impairment test in the fourth quarter of each fiscal year. The Company completed its annual impairment test in the fourth quarter of 2004, using a discounted cash flow model for all reporting units, and determined that a writeoff of goodwill of $1,178,765 was required in the DJS reporting unit. The DJS goodwill writeoff was required due to the growth slow-down in the technology sector causing DJS’s 2004 operating results to fall short of management’s expectations. As a result, the Company reduced DJS’s cash flow and operating results forecast for future periods. The goodwill balances for each reporting unit below are not tax deductible. The changes in the carrying amount of goodwill for the years ended June 30, 2004 and 2003 are as follows:

	DJS			Authentidate		AG		TracMed		Total
Balance, June 30, 2002	$	1,173,665		$	3,982,471	$	7,283,009	$	—	$	12,439,145
Acquisition of minority interest		—			—		—		338,000		338,000
Other		5,100			5,100		8,156		—		18,356
Balance, June 30, 2003		1,178,765			3,987,571		7,291,165		338,000		12,795,501
Writeoff of goodwill		(1,178,765	)		—		—		—		(1,178,765	)
Balance, June 30, 2004	$	—		$	3,987,571	$	7,291,165	$	338,000	$	11,616,736

F-9

Authentidate Holding Corp. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002

The Authentidate, AG and Trac Med reporting units are start-up entities that have generated insignificant revenue and significant operating losses, since inception. The recoverability of the goodwill of the Authentidate, AG and Trac Med reporting units is predicated on the reporting units ability to execute their business plans and achieve forecasted operating results prepared by management. If a reporting unit is unsuccessful in executing its business plan and achieving its forecasted results over the next twelve months, the reporting unit may be required to record impairment charges for goodwill and other long-lived assets.

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Revenue Recognition and Warranty Provisions

Revenue from the sale of products is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the selling price is fixed and collectibility is reasonably assured. Service revenue is recognized as services are provided. The Company enters into transactions that represent multiple-element arrangements. These arrangements include combinations of licensing, maintenance transactions, set-up fees and support fees. Multiple-element arrangements are assessed to determine whether they can be separated into more than one unit of accounting. A multiple-element arrangement is separated into more than one unit of accounting if all of the following criteria are met: the delivered item has value to the customer on a standalone basis; there is objective and reliable evidence of the fair value of the undelivered items in the arrangement; and if the arrangement includes a general right of return relative to the delivered items, delivery or performance of the undelivered item is considered probable and substantially in the control of the Company. If these criteria are not met, then revenue is deferred until such criteria are met or until the period over which the last undelivered element is delivered, which is typically the life of the contract agreement. The Company provides a one-year warranty on hardware products it assembles. On products distributed for other manufacturers, the original manufacturer warranties the product. Warranty expense was not significant to any of the years presented.

Advertising Expenses

The Company recognizes advertising expenses as incurred. Advertising expense for 2004, 2003 and 2002 was approximately $778,000, $461,000 and $454,000, respectively.

Product Development Expenses

These costs represent research and development expense and include salary and benefits, professional and consultant fees, amortization of software and licenses and supplies.

Currency Translation Adjustment

Assets and liabilities of non-U.S. operations are translated at year-end rates of exchange, and the income statements are translated at the average rates of exchange for the year. Gains or losses resulting from translating non-U.S. currency financial statements are recorded in “Comprehensive Income (Loss)” and accumulated in shareholders’ equity in the caption “Accumulated Comprehensive Income (Loss)”. The “currency translation adjustment” balance at June 30, 2004 and 2003 was $73,814 and $9,049, respectively.

F-10

Authentidate Holding Corp. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002

Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Stock-Based Compensation

The Company applies Accounting Principles Board Opinion No. 25 (APB No. 25) in accounting for its stock option plans and, accordingly, no compensation cost has been recognized in the Company’s financial statements for stock options under any of the stock plans which on the date of grant the exercise price per share was equal to or exceeded the fair value per share. The Company has also adopted the disclosure requirements of Financial Accounting Standard No. 123, Accounting for Stock-Based Compensation (FAS No. 123) and FAS No. 148 with respect to pro forma disclosure of compensation expense for options issued. For purposes of the pro forma disclosures, the fair value of each option grant is estimated on the grant date using the Black-Scholes option-pricing model. Had the Company recorded compensation expense for the fair value of stock options, net loss and loss per share would have been affected as indicated by the pro forma amounts below.

	2004			2003			2002
Net loss
As reported	$	(15,669,193	)	$	(9,839,309	)	$	(9,951,402	)
Add: Total stock based employee compensation expense determined under fair value method		(4,201,473	)		(1,981,504	)		(4,480,325	)
Deduct: Stock-based employee compensation charged to operations		190,000			—			—
Pro forma	$	(19,680,666	)	$	(11,820,813	)	$	(14,431,727	)
Basic and diluted loss per share
As reported	$	(.59	)	$	(.50	)	$	(.69	)
Pro forma	$	(.73	)	$	(.59	)	$	(.95	)

F-11

Authentidate Holding Corp. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002

The weighted average fair value of each option granted under the Company’s employee option plans during fiscal 2004, 2003 and 2002 was $2.11, $.60 and $1.11, respectively. These amounts were determined using the Black Scholes option-pricing model, which values options based on the stock price at the grant date, the exercise price of the option, the expected life of the option, the estimated volatility of the stock, expected dividend payments and the risk-free interest rate over the expected life of the option. The dividend yield was zero in 2004, 2003 and 2002. The expected volatility was based on the historic stock prices. The expected volatility was 96.4%, 95.3% and 89.6% for 2004, 2003 and 2002, respectively. The risk-free interest rate was the rate available on zero coupon U.S. government issues with a term equal to the remaining term for each grant. The risk-free rate ranged from 3.0% to 4.4% in 2004, 3.0% to 5.1% in 2003 and 4.4% to 5.1% in 2002, respectively. The expected life of the options was estimated based on the exercise history from previous grants and is estimated to be one to five years.

The FAS 123 pro-forma disclosures are not necessarily likely to be representative of the effects on reported net income for future years.

Concentrations of Credit Risk

Financial instruments which subject the Company to concentrations of credit risk consist of cash and cash equivalents, marketable securities and trade accounts receivable. To reduce credit risk, the Company places its temporary cash investments with high credit quality financial institutions. Investments in marketable securities are generally AAA or AA rated securities. The Company’s credit customers are not concentrated in any specific industry or business. The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information.

At June 30, 2004, there were two customers whose accounts receivable balance exceeded 10% of total accounts receivable. At June 30, 2003, there was one customer whose accounts receivable balance exceeded 30% of total accounts receivable.

During the fiscal year ended June 30, 2004, one DJS customer accounted for approximately 22% of consolidated net sales and represented approximately $296,000 of the $6.8 million gross profit. During the fiscal year ended June 30, 2003, another DJS customer accounted for approximately 50% of consolidated net sales and represented approximately $625,000 of the $6.1 million in gross profit. During the fiscal year ended June 30, 2002, sales to one customer accounted for approximately 13% of consolidated net sales and represented approximately $150,000 of the $4.6 million gross profit. Sales to these customers were primarily low margin computer hardware sales.

At June 30, 2004, the Company has substantially all cash and cash equivalents invested in commercial paper and overnight interest bearing deposits at certain financial institutions which are not collateralized or fully insured under FDIC regulations. The Company has substantially all of its marketable securities invested in auction rate securities.

F-12

Authentidate Holding Corp. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002

2. Loss Per Share

The following is basic and diluted loss per common share information:

	2004			2003			2002
Net loss	$	(15,669,193	)	$	(9,839,309	)	$	(9,951,402	)
Preferred stock dividends		(114,823	)		(223,706	)		(1,764,430	)
Net loss applicable to common shareholders stockholders	$	(15,784,016	)	$	(10,063,015	)	$	(11,715,832	)
Weighted average shares		26,980,843			20,028,736			17,035,030
Basic and diluted loss per common share	$	(.59	)	$	(.50	)	$	(.69	)

All common stock equivalents were excluded from the loss per share calculation for all periods presented because the impact is antidilutive. At June 30, 2004, options (4,565,569), warrants (2,190,088) and convertible preferred stock (500,000) were outstanding. At June 30, 2003, options (5,003,117), warrants (3,968,539), convertible preferred stock (1,243,034) and convertible debentures (2,528,192) were outstanding. At June 30, 2002, options (5,280,000), warrants (2,685,000) and convertible preferred stock (1,190,000) were outstanding.

3. Inventories

Inventories relate to DocStar and DJS only and at June 30 consist of:

	2004		2003
Purchased components and raw materials	$	75,493	$	63,115
Finished goods		49,713		129,986
	$	125,206	$	193,101

F-13

Authentidate Holding Corp. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002

4. Property and Equipment

Property and equipment at June 30 consist of the following:

							Estimated
							Useful Life
	2004			2003			In Years
Building	$	1,618,640		$	1,618,640		40
Land		698,281			698,281		N/A
Machinery and equipment		3,257,432			3,494,683		3-6
Demonstration and rental computers		125,732			125,732		5-6
Furniture and fixtures		725,626			651,522		5-7
Leasehold improvements		50,069			50,069		5
		6,475,780			6,638,927
Less: Accumulated depreciation and amortization		(3,079,326	)		(2,874,081	)
	$	3,396,454		$	3,764,846

In June 1999, the Company completed construction of a new office/production facility in Schenectady, New York for approximately $2,300,000. The Company was awarded a grant totaling $1,000,000 from the Empire State Development Corporation (ESDC) (an agency of New York State) to be used towards the construction of the facility. The grant stipulated that the Company was obligated to achieve certain annual employment levels at the new site between January 1, 2002 and January 1, 2004 or some or all of the grant will have to be repaid. Although the Company did not achieve the agreed upon employment levels, the Company reached a settlement agreement with the ESDC regarding repayment of the grant award. Beginning September 2003, the Company agreed to repay $268,000 of the grant amount at the rate of $10,000 per month, interest free. Accordingly, $732,000 of the deferred grant was recognized as other income during fiscal year end June 30, 2004. The remaining $268,000 of deferred grant was reclassified to long-term debt (Note 7). During fiscal 2004, the Company repaid $100,000 of this amount. The remainder of the financing for the new facility, totaling approximately $1,400,000, was provided by a local financial institution in the form of a mortgage loan (Note 7).

Depreciation and amortization expense on property and equipment for the years ended June 30, 2004, 2003 and 2002 was $637,790, $661,870 and $553,615, respectively.

5. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following at June 30:

	2004		2003
Accrued severance	$	9,722	$	405,065
Litigation accrual		500,000		500,000
Other		1,329,138		1,129,479
	$	1,838,860	$	2,034,544

F-14

Authentidate Holding Corp. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002

6. Line of Credit

The Company’s subsidiary, DJS has a revolving line of credit in the amount of $2.5 million with a financial institution of which approximately $572,000 was outstanding at June 30, 2004. The interest rate is prime (minimum prime rate of 7%) plus 1.75%. At June 30, 2004, the interest rate was 8.75%. DJS may borrow on this line based on a formula of qualified accounts receivable and inventory. Based upon this formula, $813,000 was available for use at June 30, 2004, of which $241,000 was unused. The line was collateralized by all assets of DJS and is guaranteed by Authentidate Holding Corp. Under the line of credit agreement, DJS is required to comply with certain restrictive covenants including tangible net worth and debt to tangible net worth. As of June 30, 2004, the Company was in compliance with its debt covenants.

7.

Long-term Debt

Long-term debt at June 30 consists of the following:

	2004			2003
Mortgage payable with Central National Bank in the original amount of $1,400,000 with interest, adjusted every five years, equal to the five-year Treasury Bill rate plus 2.5%, not to be less than 8.25% (8.25% at June 30, 2003). Payments were being made on a 20 year amortization schedule with a balloon payment due in October 2009, when it matures. The mortgage which was collateralized by a first mortgage lien on the Company’s headquarters was repaid in fiscal 2004.	$	—		$	1,281,700
Note payable to the Company’s Chief Executive Officer in connection with the purchase of 100 shares of Series A preferred stock.		88,239			268,240
Grant with Empire State Development Corporation of $268,000 payable in monthly payments of $10,000, without interest (Note 4).		168,000			—
		256,239			1,549,940
Less: Current portion		(208,239	)		(218,811	)
Long-term debt, net of current portion	$	48,000		$	1,331,129
The aggregate principle maturities of long-term debt is as follows:
2005				$	208,239
2006					48,000
				$	256,239

F-15

Authentidate Holding Corp. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002

8. Income Taxes

Income tax (benefit) expense for the years ended June 30, 2004, 2003 and 2002 consists of currently payable state and local income taxes.

At June 30, 2004, the Company has federal net operating loss carryforwards for tax purposes approximating $50,000,000. The years in which the net operating loss carryforwards expire are as follows: 2004-$6,000; 2008-$1,568,000; 2009-$867,000; 2011-$2,762,000; 2012-$686,000; 2013-$3,197,000; 2019-$1,350,000; 2020-$11,350,000; 2021-$4,500,000, 2022-$8,000,000, 2023-$8,200,000 and 2024-$7,550,000.

Because of significant changes in ownership during the prior years, the use of net operating loss carryforwards may be subject to limitation.

Pre-tax book (loss) from foreign sources totaled $(1,581,676), $(1,544,741) and $(1,216,209) for the years ended June 30, 2004, 2003 and 2002, respectively.

The following table reconciles the income tax (benefit) expense at the federal statutory rate of 34% to the effective tax rate.

	2004			2003			2002
Computed expected tax benefit	$	(5,333,474	)	$	(3,343,167	)	$	(3,396,984	)
Increase in valuation allowance		1,915,588			3,465,936			3,922,113
Effect on valuation allowance of adjustment to net operating loss carryforward		1,245,362			—			—
Nondeductible goodwill impairment		400,780			—			—
Nondeductible interest expense		2,020,479			—			—
State income taxes, net of federal benefit		(824,604	)		(659,832	)		(727,225	)
Nondeductible foreign losses		537,770			525,212			200,915
Other nondeductible expenses		20,605			18,315			15,300
Income tax (benefit) expense	$	(17,494	)	$	6,464		$	14,119

F-16

Authentidate Holding Corp. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002

The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities as of June 30 are presented below:

	2004			2003
Deferred income tax asset:
Allowance for doubtful accounts	$	163,307		$	122,069
Inventories		76,135			73,984
Software development costs		849,679			884,118
Investment in affiliated companies		302,804			292,521
Other intangible assets		1,414,378			1,292,697
Deferred compensation		576,872			482,558
Accrued expenses and other liabilities		251,798			444,971
Net operating loss and tax credit carryforwards		20,238,178			18,318,194
Other		5,872			2,808
Total gross deferred tax assets		23,879,023			21,913,920
Less: Valuation allowance		(23,677,249	)		(21,761,661	)
Net deferred tax asset		201,774			152,259
Deferred income tax liability:
Equipment, principally due to differences in depreciation methods		(201,774	)		(152,259	)
Net deferred income taxes	$	—		$	—

The Company has recorded a full valuation allowance against its deferred tax asset since it believes it is more likely than not that such deferred tax asset will not be realized. The valuation allowance for deferred tax assets as of June 30, 2004 and 2003 was $23,677,249 and $21,761,661, respectively. The net change in the total valuation allowance for the years ended June 30, 2004, 2003 and 2002 was an increase of $1,915,588, $3,465,936 and $3,922,113, respectively.

9. Lease Commitments

The Company is obligated under operating leases and capital leases for certain equipment and facilities expiring at various dates through the year 2007.

F-17

Authentidate Holding Corp. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002

As of June 30, 2004, future minimum payments by year, and in the aggregate for noncancelable operating leases with initial terms of one year or more and capital leases consist of the following:

	Capital			Operating
	Leases			Leases
Fiscal year ending June 30:
2005	$	81,625		$	535,237
2006		31,942			244,399
2007		4,105			153,839
		117,672		$	933,475
Amounts representing interest		(12,283	)
Present value of net minimum lease payments		105,389
Less: Current portion		(69,968	)
Long-term portion	$	35,421

Rental expense was approximately $644,000, $516,000 and $345,000 for the years ended June 30, 2004, 2003 and 2002, respectively. The amount of accumulated amortization for capital leases at June 30, 2004 and 2003 was $171,292 and $92,560, respectively. Certain of the equipment financed by these capital leases may be purchased at the end of the lease term for a bargain purchase amount.

10. Preferred Stock

The Board of Directors are authorized to issue shares of preferred stock, $.10 par value per share, from time to time in one or more series. The Board may issue a series of preferred stock having the right to vote on any matter submitted to shareholders including, without limitation, the right to vote by itself as a series, or as a class together with any other or all series of preferred stock. The Board of Directors may determine that the holders of preferred stock voting as a class will have the right to elect one or more additional members of the Board of Directors, or the majority of the members of the Board of Directors. The Board of Directors has designated a series of preferred stock which has the right to elect a majority of the Board of Directors. The holders of Series A preferred stock which have the right to elect a majority of the Board of Directors are therefore able to control the Company’s policies and affairs.

In June 2003, the Company purchased all of the Series A preferred stock (100 shares) from its Chief Executive Officer for $850,000. Payment terms are as follows: $70,000 in cash was paid, $485,000 was offset against loans owed to the Company by its Chief Executive Officer, and the remainder will be paid in monthly installments of $15,000 commencing July 2003, interest free (Notes 13 and 20).

F-18

Authentidate Holding Corp. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002

11. Stock Option Plans and Stock Warrants

2000 and 1992 Employees Stock Option Plans

In March 2001, the shareholders approved the 2000 Employees Stock Option Plan (the “2000 Plan”) which provided for the grant of options to purchase up to 5,000,000 shares of the Company’s Common Stock. In February 2004, the shareholders approved an amendment to the 2000 Plan which serves to authorize the issuance of an additional 5,000,000 shares of common stock under the 2000 Plan through the grant of incentive stock options and nonqualified options. The 2000 Plan expires in 2010.

The 1992 Employees Stock Option Plan (the “1992 Plan”) provided for the grant of options to purchase 3,000,000 shares of the Company’s common stock. The 1992 Plan expired in May 2002.

Under the terms of the two Plans, options granted thereunder may be designated as options which qualify for incentive stock option treatment (“ISO”) under Section 422 of the Internal Revenue Code, or options which do not so qualify (“non-ISOs”).

The Plans are administered by a Compensation Committee (“Committee”) designated by the Board of Directors (“Board”). The Compensation Committee is comprised entirely of outside directors. The Board or the Committee, as the case may be, has the discretion to determine eligible employees and the times and the prices at which options will be granted, whether such options shall be ISOs or non-ISOs, the period during which each option will be exercisable and the number of shares subject to each option. Options generally begin to vest one year after the date of grant. Vesting generally occurs one-third per year over three years. Options generally have a life of five years. The Board or the Committee has full authority to interpret the Plans and to establish and amend rules and regulations relating thereto. Under the two Plans, the exercise price of an option designated as an ISO may not be less than the fair market value of the Company’s common stock on the date the option is granted. However, in the event an option designated as an ISO is granted to a ten percent shareholder, the exercise price shall be at least 110% of such fair market value. The aggregate fair market value on the grant date of shares subject to options which are designated as ISOs which become exercisable in any calendar year, shall not exceed $100,000 per optionee.

The Board or the Committee may in its sole discretion grant bonuses or authorize loans to or guarantee loans obtained by an optionee to enable such optionee to pay any taxes that may arise in connection with the exercise or cancellation of an option. As of June 30, 2004, no loans had been granted or guaranteed. Loans may not be granted or guaranteed to executive officers.

In fiscal 2004, the Company granted to advisory board members options to acquire 140,000 shares of Company common stock for services to be provided over a three year period. The options which vest over three year period have been valued using the Black Scholes Model which resulted in a charge to operations of approximately $489,000.

F-19

Authentidate Holding Corp. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002

			Weighted
			Average
			Option
	Number of		Price per
	Shares		Share
Outstanding at June 30, 2001	4,184,705		$	4.93
Options granted equal to market price	1,313,875			4.22
Options granted lower than market price	151,500			.01
Options exercised	(21,999	)		2.27
Options canceled or surrendered	(507,732	)		7.50
Outstanding at June 30, 2002	5,120,349			4.48
Options granted equal to market price	459,075			3.15
Options granted greater than market price	373,667			3.21
Options cancelled or surrendered	(1,046,526	)		4.06
Options exercised	(63,448	)		2.04
Outstanding at June 30, 2003	4,843,117			4.38
Options granted equal to market price	1,274,950			8.18
Options exercised	(811,496	)		4.24
Options cancelled or surrendered	(893,502	)		4.89
Outstanding at June 30, 2004	4,413,069			5.40

The following is a summary of the status of employee stock options at June 30, 2004:

	Outstanding Options					Exercisable Options
Exercise Price Range	Number	Average Remaining Contractual Life		Weighted Average Exercise Price		Number		Weighted Average Exercise Price
$.01 – $4.60	2,080,024		2.92	$	2.99		1,230,698	$	1.37
$4.61 – $18.20	2,333,045		2.40	$	7.55		1,762,656	$	4.93

As of June 30, 2004 and 2003, 2,993,354 shares and 2,879,102 shares, respectively, were exercisable under the 2000 and 1992 Employees Stock Option Plans.

F-20

Authentidate Holding Corp. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002

Non-Executive Director Stock Option Plan

In January 2002, our shareholders approved the 2001 Non-Executive Director Stock Option Plan (the “2001 Director Plan”). Options may be granted under the 2001 Director Plan until December 2011 to (i) non-executive directors as defined and (ii) members of any advisory board established by the Company who are not full-time employees of the Company or any of its subsidiaries. The 2001 Director Plan provides that each non-executive director will automatically be granted an option to purchase 20,000 shares upon joining the Board of Directors and 10,000 on each September 1^st thereafter, prorated based upon the amount of time such person served as a director during the period beginning twelve months prior to September 1. The shareholders approved an amendment to the 2001 Director Plan in February 2004 to grant all new non-executive directors an option to purchase 40,000 shares of common stock on the date such person is appointed or elected. Additionally, the shareholders also approved a provision that non-executive directors, upon joining the Board and for a period of one year thereafter, will be entitled to purchase restricted stock from the Company at a price equal to 80% of the closing price on the date of purchase up to an aggregate purchase price of $100,000. Each eligible director of an advisory board will receive, upon joining the advisory board, and on each September 1^st thereafter, an option to purchase 5,000 shares of the Company’s common stock, providing such person has served as a director of the advisory board for the previous 12-month period.

The Company’s shareholders were asked to adopt the 2001 Director Plan since the 1992 Non-Executive Director Stock Plan (the “1992 Director Plan”) expired in April 2002. Under the 1992 Director Plan, which was adopted by our shareholders in April 1992, directors were automatically granted a fully vested option to purchase 20,000 shares upon joining the Board of Directors and a fully vested option to purchase 10,000 shares on each September 1 thereafter.

The exercise price for options granted under the 2001 and 1992 Director Plans is 100% of the fair market value of the common stock on the date of grant. The “fair market value” is the closing NASDAQ bid price, or if the Company’s common stock is not quoted by NASDAQ, as reported by the National Quotation Bureau, Inc., or a market maker of the Company’s common stock. If the common stock is not quoted by any of the above the Board of Directors acting in good faith will determine fair market value. The exercise price of options granted under both the 2001 and 1992 Director Plans must be paid at the time of exercise in cash. The term of each option commences on the date it is granted and unless terminated sooner, as provided in the 2001 and 1992 Director Plans, expires five years from the date of grant. The 2001 and 1992 Director Plans are administered by a committee of the board of directors composed of not fewer than three persons who are officers of the Company (the “Committee”). The Committee has no discretion to determine which non-executive director or advisory board member will receive options or the number of shares subject to the option, the term of the option or the exercisability of the option. However, the Committee will make all determinations of the interpretation of both the 2001 and 1992 Director Plans. Options granted under the 2001 and 1992 Director Plans are not qualified for incentive stock option treatment.

In fiscal 2004, the Company granted to two new directors options to acquired an aggregate of 40,000 shares of Company common stock at an exercise price of $10.58 per share contingent on shareholder approval. The fair market value on the date of shareholder approval was $15.33 per share. As a result, the Company recorded a charge to operations of $190,000.

F-21

Authentidate Holding Corp. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002

A schedule of director stock option activity is as follows:

			Weighted
			Average
	Number		Option
	of		Price
	Shares		Per Share
Outstanding June 30, 2001	140,000		$	2.68
Options granted equal to market price	30,000			3.76
Options exercised	(10,000	)		3.38
Outstanding June 30, 2002	160,000			2.84
Options granted equal to market price	50,000			2.63
Options cancelled or surrendered	(10,000	)		3.88
Options exercised	(40,000	)		2.78
Outstanding June 30, 2003	160,000			2.72
Options granted equal to market value	77,500			6.93
Options granted lower than market price	40,000			10.58
Options exercised	(85,000	)		2.71
Options expired	(40,000	)		10.58
Outstanding June 30, 2004	152,500			4.87

The options range in exercise price from $.84 to $10.58 per share and have a weighted average remaining contractual life of 3.0 years.

As of June 30, 2004 and 2003, 152,500 shares ($4.87 weighted average exercise price) and 160,000 shares ($2.72 weighted average exercise price), respectively, were exercisable under the 2001 and 1992 Director Plans.

Common Stock Warrants

With regard to the warrants issued in connection with the fiscal 2003 and fiscal 2004 convertible debentures referred to below, there will be no future charges to operations relative to these warrants. All convertible debentures were converted during fiscal 2004 (Note 18).

Fiscal 2004

During fiscal year ending June 30, 2004, the Company issued 60,000 warrants to various consultants as compensation for services provided. The warrant fair value of $77,000, as determined under the Black Scholes Model was charged to operations.

In September 2003, the Company issued 247,000 warrants to a group of investors in connection with a sale of convertible debentures in the amount of $2.41 million. The Company valued these warrants using the Black Scholes Model and was to amortize the warrant value as debt discount over the three year term of the debentures (Note 18). In addition, 49,400 warrants were issued to a consultant as finders fees.

In September 2003, the Company sold 166,667 shares of common stock with 50,000 warrants for gross proceeds of $500,000 (Note 19). In addition, 10,000 warrants were issued to a consultant as finders fees.

F-22

Authentidate Holding Corp. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002

Fiscal 2003

In May 2003, the Company issued 419,279 warrants to a group of investors in connection with a sale of convertible debentures in the amount of $2.7 million. The Company valued these warrants using the Black Scholes Model and was to amortize the warrant value as debt discount over the three year term of the debentures (Note 18). In addition, 36,923 warrants were issued to a consultant as finders fees.

In October 2002, the Company issued 444,000 warrants to a group of investors in connection with a sale of $3.7 million of convertible debentures. The Company valued these warrants using the Black Scholes Model and was to amortize the warrant value debt discount over the three year term of the debentures (Note 18). In addition, 86,863 warrants were issued to a consultant as finders fees.

In August 2002, the Company issued 132,015 warrants in connection with a private common stock sale of approximately $2.0 million.

Fiscal 2002

In March 2002, the Company issued 100,000 warrants in connection with the acquisition of Authentidate International AG. In February 2002, the Company issued 1,080,000 warrants to certain series B warrant holders with an exercise price of $2.00 per warrant in exchange for their exercise of 1,080,000 outstanding Series B warrants for which the Company received $1,485,000 in cash (Note 19).

A schedule of common stock warrant activity is as follows:

			Weighted
			Average
	Number		Warrant
	of		Price Per
	Shares		Share
Outstanding June 30, 2001	2,908,450		$	4.14
Warrants granted equal to market price	109,868			5.00
Warrants granted greater than market price	1,217,500			2.28
Warrants cancelled or surrendered	(425,000	)		8.15
Warrants exercised	(1,125,000	)		1.48
Outstanding June 30, 2002	2,685,818			3.81
Warrants granted greater than market price	235,000			3.28
Warrants granted below market price	1,119,080			2.68
Warrants exercised	(3,000	)		3.25
Warrants cancelled or surrendered	(68,359	)		8.99
Outstanding June 30, 2003	3,968,539			3.37
Warrants granted equal to market price	40,000			3.09
Warrants granted greater than market price	20,000			4.48
Warrants granted below market price	356,400			3.00
Warrants exercised	(2,177,625	)		3.44
Warrants expired	(17,226	)		4.81
Outstanding June 30, 2004	2,190,088			3.23

F-23

Authentidate Holding Corp. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002

The following is a summary of the status of common stock warrants at June 30, 2004:

		Outstanding Warrants				Exercisable Warrants
Exercise Price Range	Number	Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Number		Weighted Average Exercise Price
$1.00 – $2.85	1,117,687		1.46	$	1.93		1,117,687	$	1.93
$2.86 – $11.00	1,072,401		2.13	$	4.59		1,072,401	$	4.59

12. Commitments and Contingencies

We are the defendant in a third party complaint filed by Shore Venture Group, LLC (Shore Venture) in Federal District Court in Pennsylvania. The third party complaint was filed against us on May 7, 2001. Shore Venture is the defendant to an action commenced by Berwyn Capital. The third party complaint alleges a claim for breach of contract and seeks indemnification. A trial was held in October, 2002 and we are currently awaiting the verdict of the judge. Management believes that the claim will not have a material adverse impact on our financial condition, results of operations or cash flows.

We have also been advised of a claim by Shore Venture concerning additional shares of the common stock of our subsidiary, Authentidate, Inc. and one of our patent applications. The Company is continuing to conduct settlement negotiations with Shore Venture in an effort to resolve all claims between the parties. If the settlement results in the purchase of Shore Venture’s interest in Authentidate in excess of the then fair value of the Authentidate shares, such excess may be recorded as a charge to operations. Based on the settlement negotiations held between the parties to date, management believes that the resolution of all of Shore Venture’s claims will not have a material adverse effect on the Company’s financial condition.

We are engaged in no other litigation which would be anticipated to have a material adverse effect on our financial condition, results of operations or cash flows.

At June 30, 2004, the Company had $365,116 in outstanding letters of credit with a financial institution. The Company is required to maintain a cash account balance (restricted cash) equal to the outstanding letter of credit.

At June 30, 2003, the Company had a severance accrual of $405,000 for employees that were terminated during fiscal year 2003. These payouts occurred throughout fiscal year 2004. The remaining accrual at June 30, 2004 was $9,700, which will be paid in fiscal year 2005.

F-24

Authentidate Holding Corp. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002

13. Cash Flows – Supplemental Information

Cash Flows

The Company paid interest in the amounts of $113,111, $195,276 and $115,378 for the years ended June 30, 2004, 2003 and 2002, respectively. Income taxes paid aggregated $731, $494 and $1,912 for the years ended June 30, 2004, 2003 and 2002, respectively.

Noncash Investing and Financing Activities

During the fiscal year ending June 30, 2004, the Company entered into capital lease obligations of $27,500, including interest.

During the fiscal year ending June 30, 2003, the Company issued 130,000 shares of its common stock to acquire all of the shares of Trac Medical. In addition, the Company entered into capital lease obligations for property and equipment totaling $176,178, including interest (Note 9).

During the fiscal year ending June 30, 2002, the Company issued 1,425,875 shares of its common stock to acquire all the shares of Authentidate International AG that it did not already own. This transaction is more fully described in Note 1. During the fiscal year, the Company entered into capital lease obligations for property and equipment totaling $278,554, including interest.

14. Employee Benefit Plan

The Company has a qualified defined contribution 401(k) profit sharing plan for all eligible employees. The Company can make contributions in percentages of compensation, or amounts as determined by the Company. The Company contributed $116,594, $143,080 and $134,640 to the plan during the years ended June 30, 2004, 2003 and 2002, respectively.

15. Other Intangible Assets

A summary of other intangible assets is as follows:

	June 30, 2004				June 30, 2003
		Gross				Gross
		Carrying		Accumulated		Carrying		Accumulated	Useful Life
		Amount		Amortization		Amount		Amortization	In Years
Patents	$	366,080	$	64,663	$	321,085	$	43,679	17
Trademarks		133,086		28,932		138,578		22,583	20
Completed technologies		59,400		59,400		59,400		37,125	2
Accreditation		121,800		121,800		121,800		76,125	2
Licenses		476,484		154,292		15,101		9,567	3
Total	$	1,156,850	$	429,087	$	655,964	$	189,079

F-25

Authentidate Holding Corp. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002

The Company amortizes other intangible assets under the straight line method. Amortization expense was $231,026, $121,450 and $49,970 for the years ended June 30, 2004, 2003 and 2002, respectively. Intangible amortization expense is expected to be as follows for the next five fiscal years:

2005	$	156,826
2006		153,820
2007		109,325
2008		39,288
2009		28,188

16. Financial Instruments

Fair Value

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value.

Cash and Cash Equivalents, Marketable Securities, Accounts Receivable, Accounts Payable and Accrued Expenses and Other Current Liabilities

The carrying amount of cash and cash equivalents, marketable securities, accounts receivable, other current assets, accounts payable, accrued expenses and other current liabilities approximates fair value because of the short maturity of these instruments.

Long Term Debt and Other Non-Current Liabilities

Long-term debt, convertible debt and capital leases carrying values approximates fair value as the Company’s current borrowing rate approximates the interest rates on such debt.

17. Segment Information

FAS 131 establishes standards for reporting financial and descriptive information about an enterprise’s operating segments in its annual financial statements and selected segment information in interim financial reports.

The Company has three reportable segments: DocStar, a document imaging software company, DJS Marketing Group, Inc. (DJS), a computer systems integrator, and all Authentidate related companies including Authentidate Inc., Authentidate AG and Trac Medical Solutions Inc. DocStar sells document storage and retrieval software and related products through a national dealer network of approximately 100 dealers and DJS markets computer services including network services, internet services and software installation and integration. In addition, DJS sells a complete line of personal computers and peripheral equipment in the Albany, New York area primarily, although DJS has several national accounts. The Authentidate related businesses all provide authentication software services nationally and through AG internationally.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies.

The Company’s reportable segments are separate divisions which are managed separately. The corporate expenses which are not managed at the segment level include all public company type expenses and therefore are excluded from the Company’s operating segments results. Goodwill is included in corporate assets (Note 1).

F-26

Authentidate Holding Corp. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002

Segment Information:		DocStar		DJS		Authentidate Related			Totals
2004
Net sales from external customers	$	6,274,218	$	11,583,397	$	1,384,456		$	19,242,071
Intersegment revenues		—		69,321		—			69,321
Interest and other revenue		4,005		905		42,797			47,707
Interest expense		87,866		8,756		24,519			121,141
Depreciation and amortization		350,941		40,429		691,108			1,082,478
Segment profit (loss)		847,727		264,692		(5,632,923	)		(4,520,504	)
Segment assets		4,251,086		2,709,429		2,434,706			9,395,221
2003
Net sales from external customers	$	6,781,230	$	17,124,802	$	1,380,439		$	25,286,471
Intersegment revenues		13,770		62,268		—			76,038
Interest and other revenue		566		—		181,017			181,583
Interest expense		107,735		18,057		100,975			226,767
Depreciation and amortization		414,848		50,757		1,322,019			1,787,624
Segment profit (loss)		796,866		146,917		(5,974,728	)		(5,030,945	)
Segment assets		4,327,634		3,198,953		2,268,673			9,795,260
2002
Net sales from external customers	$	6,719,803	$	9,871,923	$	51,178		$	16,642,904
Intersegment revenues		—		88,577		—			88,577
Interest and other revenue		15,411		23		25,725			41,159
Interest expense		110,185		1,675		12,964			124,824
Depreciation and amortization		431,910		60,819		1,172,387			1,665,116
Segment profit (loss)		287,859		96,801		(5,723,055	)		(5,338,395	)
Segment assets		4,878,141		4,112,197		3,316,513			12,306,851

Reconciliations		2004			2003			2002
Net sales
Total net sales for reportable segments	$	19,311,392		$	25,362,509		$	16,731,481
Elimination of intersegment revenues		(69,321	)		(76,038	)		(88,577	)
Total consolidated net sales	$	19,242,071		$	25,286,471		$	16,642,904
Total profit or loss for reportable segments	$	(4,520,504	)	$	(5,030,945	)	$	(5,338,395	)
Product development expenses		(2,377,613	)		(2,534,777	)		(2,170,173	)
Corporate expenses and other		(8,795,243	)		(2,258,830	)		(2,494,793	)
Elimination of intersegment profits		6,673			(8,293	)		12,232
Loss before income taxes	$	(15,686,687	)	$	(9,832,845	)	$	(9,991,129	)
Assets
Total assets for reportable segments	$	9,395,221		$	9,795,260		$	12,306,851
Corporate assets		84,858,670			15,274,268			13,760,530
Elimination of intersegment assets		(17,015	)		(23,688	)		(15,395	)
Consolidated total assets	$	94,236,876		$	25,045,840		$	26,051,986

F-27

Authentidate Holding Corp. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002

In Germany, the Company had revenues from external customers of $1,235,733 for 2004, $857,540 for 2003 and $25,267 for the period March 2002 through June 2002 (Note 1) and segment assets of $1,198,240 and $918,930 at June 30, 2004 and 2003, respectively. All other revenue and assets are located in the United States.

18. Private Debt Offerings

In October 2002, the Company sold convertible debentures with a face value of $3,700,000 to institutional investors and warrants to purchase 444,000 shares of common stock (warrant fair value $813,000). The debentures are convertible into shares of the Company’s common stock at an initial conversion price of $2.50 per share. The debenture sale contained a beneficial conversion feature with a value of $1,190,000. The debentures are due three years from the date of issuance and accrue interest at the rate of 7% per annum, payable in quarterly in arrears. At the option of the Company, the interest may be paid in either cash or additional shares of common stock. The warrants are exercisable for a period of four years from the date of issuance and are initially exercisable at $2.50 per share. The conversion price of the debentures and the exercise price of the warrants are subject to adjustment in the event the Company issues common stock or securities convertible into common stock at a price per share of common stock less than the conversion price or exercise price on the basis of a weighted average formula. In addition, the conversion price of the debentures and the exercise price of the warrants are subject to adjustment at any time as the result of any subdivision, stock split, combination of shares or recapitalization. The Company has an option, but not a requirement, to sell another $2,470,000 of convertible debentures to the same investors provided the Company’s common stock maintains a trading price at or above $3.00 per share for the 15 trading days preceding an election to sell additional debentures. In September 2003, the Company exercised its option and sold $2,470,000 of convertible debentures to the same group of investors.

In May and June 2003, the Company sold convertible debentures with a face value of $2,725,300 to institutional investors (including a member and an affiliate of a member of the Company’s Board of Directors) and warrants to purchase 419,279 shares of common stock (warrant fair value $774,000) (Note 19). The debentures are convertible into shares of the Company’s common stock at an initial conversion price of $2.60 per share. The debenture sale contained a beneficial conversion feature with a value of $821,000. The debentures are due three years from the date of issuance and accrue interest at the rate of 7% per annum, payable quarterly in arrears. At the option of the Company, the interest may be paid in either cash or additional shares of common stock. The warrants are exercisable for a period of five years from the date of issuance and 50% of the warrants are initially exercisable at $2.60 per share and the remaining 50% of the warrants are initially exercisable at $2.86 per share. The conversion price of the debentures and the exercise price of the warrants are subject to adjustment in the event the Company issues common stock or securities convertible into common stock at a price per share of common stock less than the conversion price or exercise price on the basis of a weighted average formula. In addition, the conversion price of the debentures and the exercise price of the warrants are subject to adjustment at any time as the result of any subdivision, stock split, combination of shares or recapitalization.

F-28

Authentidate Holding Corp. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002

As a result of the convertible debenture issuances, the Company recorded a beneficial conversion feature and a debt discount for the fair value of the warrants aggregating $3,598,000, which will be amortized and charged to interest expense over the three year term of the respective debt.

On September 12, 2003, we completed the sale of $2,470,000 of convertible debentures which mature in September 2006 and bear interest at 7% payable quarterly in cash or stock at the Company’s option. Included in the sale were warrants to purchase an aggregate of 247,000 shares, having an exercise price of $3.00 per share and expire in four years. The portion of the sale price allocated to the fair value of the warrants (approximately $800,000 debt discount) and the beneficial conversion feature value (approximately $1,500,000) will be amortized as interest expense over the three year term of the debt. The Company also issued five year warrants to purchase an aggregate of 49,400 shares of Company common stock to certain consultants for services rendered in connection with these transactions which are exercisable at $3.00 per share. The consultants also received a cash fee equal to 6% of the gross proceeds that the Company received.

Under the aforementioned convertible debt agreements, the Company had the right to have the debt holders convert their debt into common stock if the market price of the Company’s common stock exceeds 150% of the conversion price for 15 consecutive days.

In October 2003, the Company exercised its right to require the convertible debenture holders to convert the October 2002 debentures in the amount of $3,700,000 and the May/June 2003 debentures in the amount of $2,725,300 and issued 2,528,193 common shares to complete the conversion. In December 2003, the Company exercised its right to require the convertible debenture holders to convert the September 2003 convertible debentures in the amount of $2,470,000 and issued 823,334 common shares to complete the conversion. The Company expensed the entire balance of unamortized beneficial conversion feature and debt discount and charged operations an aggregate, $5.1 million of non-cash interest expense.

In addition, during fiscal year 2004, the Company expensed (as interest expense) all unamortized deferred financing fees related to the debenture conversions, in the approximate amount of $500,000.

During fiscal years 2004 and 2003, approximately $300,000 and $489,000 has been recorded as non-cash interest expense on the Company’s income statement relative to the amortization of the beneficial conversion feature and debt discount on these convertible debentures.

19. Private Equity Offerings

In February 2004, the Company completed a private sale of its common stock to certain accredited investors pursuant to Section 4(2) of the Securities Act of 1933 (the “Securities Act”), as amended and Regulation D, promulgated thereunder. The Company sold a total of 5,360,370 common shares at a price of $13.75 per share and realized gross proceeds of $73.7 million. After payment of offering expenses and broker commissions the Company realized $69.1 million in net proceeds. The shares of common stock issued are restricted securities and have not been registered under the Securities Act, or any state securities law, and unless so registered, may not be offered or sold in the United States absent a registration or applicable exemption from the registration requirements of the Securities Act and applicable state securities laws. The Company will use the funds to strengthen its balance sheet, develop a back-up data center for Authentidate Inc. as well as for sales and marketing activities and general corporate purposes.

F-29

Authentidate Holding Corp. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002

In addition to this financing, on September 22, 2003, the Company sold 166,667 shares of common stock and warrants to purchase 50,000 shares of Company common stock to an investor who participated in the May 2003 financing. The shares were sold for $3.00 per share and the investor agreed to a one- year lock-up during which he will be unable to sell or otherwise transfer the securities purchased in this sale. The 50,000 warrants issued to this investor have an exercise price of $3.00 and expire in four years. The underlying shares of these warrants are also subject to a one-year lock-up. The Company received $470,000 of net proceeds after expenses.

In February 2002, the Company offered the holders of its Series B common stock warrants the opportunity to receive new warrants upon the exercise of the Series B warrants for cash. The exercise price of these warrants was $1.375 per common stock warrant. The warrant holders would receive a new warrant exercisable at $2.00 per common stock warrant, which was slightly above the market price of the Company’s common stock on February 19, 2002, the date the Board approved the transaction. 1,080,000 warrants were exercised and the Company received $1,485,000 in cash, in addition 1,080,000 new warrants were issued. The new warrants expire October 1, 2004 and have no registration rights.

In July 2002, the Company sold 660,077 shares of its common stock at $3.03 per share in a private transaction. The Company received gross proceeds of approximately $2.0 million before expenses. The Company also issued 132,015 common stock purchase warrants to the buyers which have an exercise price of $3.26 per share and have a five-year life.

In 2001, the Company, in two separate transactions closed on the sale of $5,500,000 of its securities to two foreign institutions pursuant to Regulation S, promulgated under the Securities Act of 1933, as amended. In the transactions, the Company sold 5,500 of its Series C Convertible Preferred Stock, with a dividend rate of 4%, payable in either cash or Company Common Stock to the foreign institutions convertible at $4.845 per share and five year warrants to purchase 114,000 shares of Common Stock exercisable at $4.845 per share. The conversion price is not subject to resets or adjustments for changes in the market price of the Company’s common stock. The right of conversion incorporated into the Series C Preferred Stock constitutes a beneficial conversion feature which was determined to have a value of approximately $1,464,002. The beneficial conversion feature was amortized as a preferred stock dividend over a one-year period commencing July 1, 2001 using the effective interest method. The Company received net proceeds of approximately $5,200,000 from the transaction after paying commissions and expenses. The securities sold in this offering are restricted securities under the terms of Regulation S and may not be transferred or resold in the United States for a period of one year, except pursuant to registration under the Securities Act or an exemption thereunder. During the fiscal year ended June 30, 2004 and 2003, 3,600 Series C preferred shares and 400 Series C preferred shares were converted into 743,034 common stock shares and 82,560 common stock shares, respectively.

F-30

Authentidate Holding Corp. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002

During fiscal 2000, the Company closed three concurrent private offerings. In the first offering, the Company sold 740,000 units at an aggregate offering price of $740,000, each unit consisting of two shares of common stock and two Series B common stock purchase warrants (the “Series B Warrants”). The Series B Warrants entitle the holder to purchase one share of common stock at an exercise price of $1.375 per share during the offering period commencing on the date of issuance and terminating five years thereafter. The Series B warrants are redeemable at any time commencing one year after issuance at the option of the Company with not less than 30 nor more than 60 days written notice to the registered holders at a redemption price of $.05 per warrant provided; (i) The public sale of the shares of common stock issuable upon exercise of the Series B warrants are covered by a tentative registration statement; and (ii) During each of the immediately preceding 20 consecutive trading days ending within 10 days of the date of the notice of redemption, the closing bid price of the Company’s common stock is at least $3.25 per share. As of June 30, 2004, 375,000 Series B warrants are outstanding.

In the second offering, the Company sold 50,000 shares of a newly created class of Series B convertible cumulative preferred stock (the “Series B Preferred Stock”). The Series B preferred stock was sold at $25.00 per share for an aggregate offering price of $1,250,000. Dividends on the Series B Preferred Stock are payable at the rate of 10% per annum, semi-annually in cash. Each share of Series B Preferred Stock is convertible into shares of the Company’s common stock or is converted into such number of shares of the common stock as shall equal $25.00 divided by the conversion price of $1.875 per share subject to adjustment under certain circumstances. Commencing three years after the closing, the conversion price shall be the lower of $1.875 per share or the average of the closing bid and asked price of the Company’s common stock for the 10 consecutive trading days immediately ending one trading day prior to the notice of the date of conversion; provided, however, that the holders are not entitled to convert more than 20% of the Series B preferred shares held by such holder on the third anniversary of the date of issuance per month. The Series B Preferred Stock is redeemable at the option of the Company at any time commencing one year after issuance or not less than 30 nor more than 60 days written notice at a redemption price of $25 per share plus accrued and unpaid dividends provided; (i) the public sale of the shares of common stock issuable upon conversion of the Series B preferred Stock (the “Conversion Shares”) are covered by an effective registration statement or are otherwise exempt from registration; and (ii) during the immediately preceding 20 consecutive trading days ending within 10 days of the date of the notice of redemption, the closing bid price of the Company’s Common Stock is not less than $3.75 per share.

On October 30, 2002, the Company filed a Certificate of Amendment of the Certificate of Designations, Preferences and Rights and Number of Shares of Series B preferred stock with the Secretary of State of the State of Delaware. The amendment provides that the conversion rate applicable to the outstanding shares of Series B preferred stock will be fixed at $1.40. Previously, the conversion rate was equal to the lower of $1.875 and the average of the closing bid and asked prices of our common stock for the immediately preceding ten consecutive trading days ending one day prior to the notice of conversion; provided, however, that the conversion rate would not be below $0.875. Accordingly, the outstanding 28,000 shares of Series B preferred stock are presently convertible into an aggregate of 500,000 shares of the Company’s common stock. Prior to the amendment, the outstanding shares of Series B preferred stock were convertible into a maximum of 800,000 shares of the Company’s common stock. In consideration of obtaining the consent of the holder of the outstanding Series B preferred stock, the Company agreed to defer its ability to redeem those shares for a period of two years.

F-31

Authentidate Holding Corp. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002

As of June 30, 2004 and 2003, 22,000 Series B preferred shares have been converted leaving 28,000 shares outstanding which are convertible in 500,000 common shares.

Commencing October 2004, the Series B preferred stock is redeemable at the option of the Company without regard to the closing price of the Company’s common stock.

As part of this equity offering in fiscal 2000 the Company also created a new subsidiary, Authentidate Inc. In connection with the above offerings, the purchasers were granted the right to purchase 20% of Authentidate for $100,000. The purchasers subsequently exercised this right, however, the Company repurchased this portion in fiscal year 2001 and now owns approximately 98% of Authentidate (Note 1). In addition, the Purchasers were issued an aggregate of 999,999 Series C common stock purchase warrants (the “Series C Warrants”). The Series C Warrants were redeemable at any time commencing six months after issuance, on not less than 30 nor more than 60 days written notice to registered holders at a redemption price equal to $.05 per Warrant, provided (i) the public sale of the shares of common stock issuable upon exercise of the Series C Warrants (the “Warrant Shares”) are covered by an effective registration statement or are otherwise exempt from registration; and (ii) during each of the immediately preceding 20 consecutive trading days ending within 10 days of the date of the notice of redemption, the closing bid price of the Company’s common stock is not less than 120% of the current exercise price of the Series C Warrants.

The Series C Warrants were also divided into three classes (333,333 warrants per class) to provide for varying exercise prices. The exercise price of the Series C Warrants is as follows:

Class I – $1.50 per share of Common Stock, increasing (i) $.75 per share thirty days after the effective date of the registration statement covering the underlying shares (the “Registration Statement”); (ii) an additional $.75 per share seven months after the effective date of the Registration Statement; and (iii) an additional $.75 per share 13 months after the effective date of the Registration Statement, subject to adjustment for stock splits and corporate reorganizations.

Class II – $1.50 per share of Common Stock, increasing (i) $.75 per share sixty days after the effective date of the Registration Statement; (ii) an additional $.75 per share seven months after the effective date of the Registration Statement; and (iii) an additional $.75 per share 13 months after the effective date of the Registration Statement, subject to adjustment for stock splits and corporate reorganizations.

Class III – $1.50 per share of Common Stock, increasing (i) $.75 per share ninety days after the effective date of the Registration Statement; (ii) an additional $.75 per share seven months after the effective date of the Registration Statement; and (iii) an additional $.75 per share 13 months after the effective date of the Registration Statement, subject to adjustment for stock splits and corporate reorganizations.

All of the Series C warrants had been exercised as of June 30, 2002.

The Company received gross proceeds of approximately $2,100,000, approximately $1,900,000 after expenses. The Company utilized the proceeds of the three offerings as follows: approximately $600,000 was utilized to repay a portion of the Company’s line of credit; approximately $160,000 was utilized to make a past due interest payment on the Company’s outstanding 8% convertible notes, and the remainder was reserved for working capital.

F-32

Authentidate Holding Corp. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002

During fiscal year 2004, the 3,600 Series C preferred shares outstanding were converted into 743,034 shares of common stock.

20. Related Party Transactions

The Company entered into certain loan and security arrangements involving Mr. John T. Botti, our Chairman and Chief Executive Officer, principally relating to certain obligations to financial institutions collateralized by Mr. Botti’s stock in AHC. The Company initially established these arrangements in 2001, and agreed to certain modifications in February 2002, as described below.

In January 2001, the Company made a loan of $317,000 to Mr. Botti so as to enable him to avoid a margin call on the shares of AHC common stock owned by him that were held in a brokerage account as the Board of Directors believed that failing to do so would have a material adverse impact on the market price of its stock (the “2001 Loan”). The 2001 Loan was collateralized by a lien on all of the shares of AHC owned by Mr. Botti, as well as shares issuable to Mr. Botti upon the exercise of stock options granted to him. On February 14, 2002, the Company agreed to loan an additional amount of $203,159 to Mr. Botti, which loan was also collateralized by a lien on all of shares of AHC owned by Mr. Botti or issuable to him (the “2002 Loan”). The 2001 Loan bore interest at the rate of 9% per annum. The 2002 Loan bore interest at the rate of 6% per annum. These loans were paid in full in June 2003 as the result of Mr. Botti selling his 100 shares of Series A preferred stock to the Company for $850,000. The Series A preferred stock had been appraised at $1,100,000 by an independent nationally recognized appraisal and valuation firm. Additionally, the Company paid Mr. Botti $70,000 in cash in June 2003 and monthly installments of $15,000 to satisfy the outstanding liability related to the sale. At June 30, 2004, the remaining balance outstanding is $88,239. In July 2004, the Compensation Committee approved payment in full to the Chief Executive Officer during the quarter ended September 30, 2004.

In May and June 2003, the Company sold convertible debentures to certain institutional investors. In the transaction, the Company sold $2,725,300 of convertible debentures and warrants to purchase an aggregate of 419,279 shares of common stock. A non-executive member of our Board of Directors participated in this financing and purchased $250,000 aggregate principal amount of convertible debentures and received 38,462 common stock purchase warrants. Further, an entity affiliated with a non-executive member of our Board of Directors, purchased $250,000 aggregate principal amount of convertible debentures and received 38,462 common stock purchase warrants in this financing. In addition, an entity that is currently a beneficial owner of in excess of 5% of our common stock participated in this financing, purchasing $250,000 aggregate principal amount of convertible debentures and receiving 38,462 common stock purchase warrants. The convertible debentures, which are payable in full in May 2006, bear interest at 7% annum, payable quarterly in arrears (Note 18).

F-33

Authentidate Holding Corp. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002

21.      Interest/Other Income and Interest Expense

Interest and other income for the years ended June 30, 2004, 2003 and 2002 consist of:

		2004		2003		2002
Interest income, from financial institutions	$	527,030	$	76,606	$	140,393
Proceeds from “9/11 Fund”		—		163,465		—
Proceeds from insurance company related to 9/11 attack in New York		—		275,489		—
Grant income		732,000		—		—
Miscellaneous income		45,324		56,921		39,967
Total interest and other income	$	1,304,354	$	572,481	$	180,360

Interest expense for the years ended June 30, 2004, 2003 and 2002 consists of:

			2004		2003		2002
	Interest to financial institutions	$	119,021	$	211,573	$	124,824
	Interest paid in stock on convertible debt		117,245		143,666		—
	Writeoff of beneficial conversion feature, debt discount and deferred financing fees		5,942,586		489,414		—
	Interest on convertible debt in cash		53,129		27,203		—
	Total interest expense	$	6,231,981	$	871,856	$	124,824
22.	Quarterly Data Financial (Unaudited)

		First			Second			Third			Fourth
		Quarter			Quarter			Quarter			Quarter
Fiscal year ended June 30, 2004
Net sales	$	3,271,223		$	4,029,068		$	6,790,398		$	5,151,382
Gross profit		1,226,283			1,626,252			1,695,035			2,281,918
Net loss		(1,700,019	)		(7,823,689	)		(2,565,345	)		(3,580,140	)
Loss per share		(.09	)		(.32	)		(.09	)		(.11	)
Fiscal year ended June 30, 2003
Net sales	$	5,464,576		$	5,920,575		$	8,105,870		$	5,795,450
Gross profit		1,299,933			1,773,383			1,453,173			1,590,146
Net loss		(1,994,866	)		(1,953,555	)		(3,009,758	)		(2,881,130	)
Loss per share		(.10	)		(.10	)		(.15	)		(.14	)

23. Subsequent Events (Unaudited)

In June 2005, several separate complaints purporting to be class actions were filed in federal court alleging that the Company and some of its current and former officers and directors violated provisions of the Securities Exchange Act of 1934. Subsequently two separate derivative action lawsuits were filed against the Company based on allegations substantially similar to those set forth in the purported class actions suits. The Company has not yet responded to the above complaints. As relief, the complaints seek, among other things, declaration that the action be certified as a proper class action, unspecified compensatory damages (including interest) and payment of costs and expenses (including fees for legal counsel and experts). The Company intends to vigorously contest each of these actions. Management is unable to determine at this time whether these complaints will have a material adverse impact on its financial condition, results of operations or cash flow.

In May 2005, the Company announced that it received a second notice from the U.S. Postal Service stating that the Company had failed to attain certain performance metrics required by the Strategic Alliance Agreement during the period February 2005 through April 2005. In its notice, the Postal Service advised the Company that although it intends to exercise its right to terminate the Strategic Alliance Agreement if the Company is unable to cure this default, it is willing to discuss further plans that the Company may have to attain the performance metrics. The Company is currently engaged in discussions with the Postal Service to potentially modify the terms of the agreement. No assurances, however, can be given that the Company will be successful in curing the default or successfully completing any negotiations. See Note 1, above.

In addition, in August 2005, the Company was notified of the filing of a complaint in which the plaintiff alleges that the Company’s products and systems incorporating secure time stamping technology, including but not limited to its Electronic Postmark system, infringes certain of the plaintiff’s patent rights. As relief, the complaint seeks, among other things, injunctive relief and damages. The complaint has not yet been served, and the notification included a request to initiate settlement discussions prior to service of the complaint. The Company is assessing the situation and the patents being asserted, and has not yet responded to this notification. Management is unable to determine at this time whether this claim will have a material adverse impact on the Company’s financial condition, results of operations or cash flow.

F-34