<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 8-K/A
Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) March 8, 1996
BITWISE DESIGNS, INC.
(Exact name of Registrant as specified in charter)
Delaware 0-20190 14-1673067
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
Building 50, Rotterdam Industrial Park, Schenectady, N.Y. 12306
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (518) 356-9741
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE> 2
ITEM 2. Acquisition of Disposition of Assets
Bitwise Designs, Inc. (the "Company") previously announced that it had
acquired on March 8, 1996, all of the capital stock of DJS Marketing Group, Inc.
("DJS"), an Illinois corporation with its principal place of business in Albany,
New York.
Pursuant to the terms of the Agreement and Plan of Merger, dated March
8, 1996, the Company acquired all of the capital stock of DJS in exchange for
200,000 shares ("Merger Shares") of restricted common stock of the Company, and
$80,000 in cash for an aggregate purchase price of $1,130,000. As a result of
the merger, DJS became a wholly owned subsidiary of the Company.
This Amendment No. 1 has been filed to amend its Form 8-K filed March
22, 1996 to include the Financial Statements and Pro Forma Financial Statements
required under Item 7 of Form 8-K that were not available at the time the
Current Report on Form 8-K was originally filed relating to this transaction.
ITEM 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Businesses Acquired
Financial Statements required by Item 7 of Form 8-K and Rule 3-05(b) of
Regulation S-X, audited by KPMG Peat Marwick LLP appear as Exhibit A to this
Form 8-K/A.
(b) Pro Forma Financial Information
ProForma Financial Statements required by Item 7 of Form 8-K and Rule
3-05(b) of Regulation S-X, appear as Exhibit B to this Form 8-K/A.
The unaudited ProForma Condensed Consolidated Financial Statements have
been prepared by the Registrant based upon assumptions deemed proper by it. The
ProForma Financial Statements presented herein are shown for illustrative
purposes only and are not necessarily indicative of the future financial
position or future results of operations of Registrant, or of the financial
position or results of operations of Registrant that would have actually
occurred had the transaction been in effect as of the date for the periods
presented. The ProForma Financial Statements should be read in conjunction with
the historical financial statements and related notes of Registrant and DJS
Marketing Group Inc.
(c) Exhibits
None
2
<PAGE> 3
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
BITWISE DESIGNS, INC.
(Registrant)
By: /s/ John Botti
-----------------------------
John Botti
Chairman, President
By: /s/ Dennis Bunt
-----------------------------
Dennis H. Bunt
Chief Financial Officer
Principal Accounting
Officer
Dated: May 21, 1996
3
<PAGE> 4
Exhibit A
DJS MARKETING GROUP, INC.
Financial Statements
For the six-months ended June 30, 1995,
the year ended December 31, 1994 and the
period from August 3, 1993 (date of inception)
to December 31, 1993
(With Independent Auditors' Report Thereon)
<PAGE> 5
DJS MARKETING GROUP, INC.
Table of Contents
Independent Auditors' Report
Financial Statements:
Balance Sheets as of June 30, 1995, December 31, 1994 and
December 31, 1993
Statements of Operations for the six-months ended June 30, 1995, year ended
December 31, 1994 and period from August 3, 1993 (date of inception) to
December 31, 1993
Statements of Shareholders' Equity (Deficiency) for the six-months ended
June 30, 1995, year ended December 31, 1994 and period from August 3,
1993 (date of inception) to December 31, 1993
Statements of Cash Flows for the six-months ended June 30, 1995, year ended
December 31, 1994 and period from August 3, 1993 (date of inception) to
December 31, 1993
Notes to Financial Statements
<PAGE> 6
Independent Auditors' Report
The Shareholders and Board of Directors
DJS Marketing Group, Inc.:
We have audited the accompanying balance sheets of DJS Marketing Group, Inc. as
of June 30, 1995, December 31, 1994 and December 31, 1993, and the related
statements of operations, shareholders' equity (deficiency), and cash flows for
the six-months ended June 30, 1995, the year ended December 31, 1994 and the
period from August 3, 1993 (date of inception) to December 31, 1993. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our reports dated September 22, 1995, we expressed opinions on the Company's
financial statements for the six-months ended June 30, 1995 and for the period
August 3, 1993 (date of inception) through December 31, 1994, that included an
explanatory paragraph reporting the uncertainty with respect to the Company's
ability to continue as a going concern and that the financial statements did not
include any adjustments that might result from the outcome of that uncertainty.
As discussed in note 7 to the financial statements, the Company merged with
Bitwise DJS, Inc. on March 8, 1996, received an additional capital contribution
and obtained a new credit facility with a financial institution. Accordingly,
our present opinion on the 1995 and 1994 financial statements, as presented
herein, is different from our previous reports.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of DJS Marketing Group, Inc. as of
June 30, 1995, December 31, 1994 and December 31, 1993, and the results of its
operations and its cash flows for the six-months ended June 30, 1995, the year
ended December 31, 1994 and the period from August 3, 1993 (date of inception)
to December 31, 1993 in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
Albany, New York
May 10, 1996
<PAGE> 7
DJS MARKETING GROUP, INC.
Balance Sheets
June 30, 1995, December 31, 1994 and December 31, 1993
<TABLE>
<CAPTION>
Assets 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Current assets:
Cash (note 3) $ 39,560 -- 33,530
Receivables (note 3):
Trade, net of allowance of $19,133 in 1995,
$42,600 in 1994 and $787 in 1993 1,625,755 1,911,708 440,667
Due from CPI Computer Professionals, Inc., net
of allowance of $89,200 in 1995 and 1994 -- 322,711 35,261
Due from shareholders (note 1(c)) 98,315 91,423 75,000
Other 28,086 10,483 12,774
---------- --------- ---------
Total receivables 1,752,156 2,336,325 563,702
Inventories (note 3) 224,132 321,299 1,036,667
Prepaid expenses 3,186 1,646 --
---------- --------- ---------
Total current assets 2,019,034 2,659,270 1,633,899
Property and equipment, net (notes 2 and 3) 186,566 102,744 43,279
Other assets 25,736 4,887 --
---------- --------- ---------
$2,231,336 2,766,901 1,677,178
========== ========= =========
Liabilities and Shareholders' Equity (Deficiency)
Current liabilities:
Borrowings under line of credit (note 3) 103,203 104,815 101,325
Book credit balances in bank accounts -- 25,769 --
Current portion of obligations under capital leases
(note 4) 10,802 8,000 1,221
Accounts payable 1,839,729 2,452,504 1,424,506
Accrued interest payable -- -- 8,205
Deferred revenue 27,667 20,882 --
Accrued warranty expense 23,564 77,730 --
Sales taxes payable 129,186 127,559 36,321
---------- --------- ---------
Total current liabilities 2,134,151 2,817,259 1,571,578
Obligations under capital leases, net of current portion
(note 4) 11,108 11,050 2,668
---------- --------- ---------
Total liabilities 2,145,259 2,828,309 1,574,246
---------- --------- ---------
Shareholders' equity (deficiency):
Common stock, no par value, $1 stated value;
10,000 shares authorized, 4,000 shares issued and
outstanding 4,000 4,000 4,000
Additional paid-in capital 113,240 113,240 113,240
Accumulated deficit (31,163) (178,648) (14,308)
---------- --------- ---------
Total shareholders' equity (deficiency) 86,077 (61,408) 102,932
---------- --------- ---------
Commitments and contingencies (note 4)
$2,231,336 2,766,901 1,677,178
========== ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 8
DJS MARKETING GROUP, INC.
Statements of Operations
<TABLE>
<CAPTION>
For the For the period
six-months For the from August 3, 1993
ended year ended (date of inception) to
June 30, 1995 December 31, 1994 December 31, 1993
------------- ----------------- -----------------
<S> <C> <C> <C>
Net sales and service revenues $10,929,911 18,880,935 5,053,880
Cost of goods sold 9,961,022 17,578,829 4,763,703
----------- ---------- ---------
Gross profit 968,889 1,302,106 290,177
Selling, general and administrative expenses 756,138 1,331,393 280,122
----------- ---------- ---------
Income (loss) from operations 212,751 (29,287) 10,055
Interest expense 65,266 135,053 24,363
----------- ---------- ---------
Net income (loss) $ 147,485 (164,340) (14,308)
=========== ========== =========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 9
DJS MARKETING GROUP, INC.
Statements of Shareholders' Equity (Deficiency)
For the six-months ended June 30, 1995,
the year ended December 31, 1994 and the
period from August 3, 1993 (date of inception)
to December 31, 1993
<TABLE>
<CAPTION>
Common Stock
--------------------
Additional Total
Number of paid-in Accumulated shareholders'
shares Amount capital deficit equity (deficiency)
------ ------ ------- ------- -------------------
<S> <C> <C> <C> <C> <C>
Initial capital contributions 4,000 $4,000 113,240 - 117,240
Net loss for the period ended
December 31, 1993 - - - (14,308) (14,308)
------ ------ ------- ------- --------
Balances at December 31, 1993 4,000 4,000 113,240 (14,308) 102,932
Net loss for the period ended
December 31, 1994 - - - 164,340) (164,340)
------ ------ ------- ------- --------
Balances at December 31, 1994 4,000 4,000 113,240 178,648) (61,408)
Net income for the period ended
June 30, 1995 - - - 147,485 147,485
------ ------ ------- ------- --------
Balances at June 30, 1995 4,000 $4,000 113,240 (31,163) 86,077
====== ====== ======= ======= ========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 10
DJS MARKETING GROUP, INC.
Statements of Cash Flows
<TABLE>
<CAPTION>
For the For the period
six-months For the from August 3, 1993
ended year ended (date of inception) to
June 30, 1995 December 31, 1994 December 31, 1993
------------- ----------------- -----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) $ 147,485 (164,340) (14,308)
to net cash provided by (used in)
operating activities:
Depreciation and amortization of
property and equipment 16,325 15,166 2,998
Changes in operating assets and
liabilities:
Trade and other receivables 513,715 (1,756,200) (488,702)
Due from shareholders (6,892) (16,423) --
Inventories 97,167 715,368 (1,036,667)
Prepaid expenses (1,540) (1,646) --
Other assets (20,849) (4,887) --
Accounts payable and accrued
expenses (660,156) 1,118,405 1,432,711
Sales taxes payable 1,627 91,238 36,321
--------- ---------- ----------
Net cash provided by (used
in) operating activities 86,882 (3,319) (67,647)
--------- ---------- ----------
Cash flows from investing activities:
Purchases of property and equipment (15,629) (53,513) (7,544)
--------- ---------- ----------
Net cash used in investing
activities (15,629) (53,513) (7,544)
--------- ---------- ----------
Cash flows from financing activities:
Proceeds from the issuance of common
stock -- -- 8,000
Increase (decrease) in book overdrafts (25,769) 25,769 --
Increase (decrease) in borrowings under line
of credit, net (1,612) 3,490 101,325
Principal payments on capital lease
obligations (4,312) (5,957) (604)
--------- ---------- ----------
Net cash provided by (used
in) financing activities (31,693) 23,302 108,721
--------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents 39,560 (33,530) 33,530
Cash at beginning of period -- 33,530 --
--------- ---------- ----------
Cash at end of period $ 39,560 -- 33,530
========= ========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 11
DJS MARKETING GROUP, INC.
Notes to Financial Statements
June 30, 1995, December 31, 1994 and December 31, 1993
(1) Summary of Significant Accounting Policies
(a) Nature of Organization and Description of Business
DJS Marketing Group, Inc. ("DJS") was incorporated in the state of
Illinois on August 3, 1993. DJS distributes high quality,
specialized, portable personal computer systems and
workstations. In addition, the Company offers training programs
for the use of computer software, as well as systems
integration, internet and hardware repair services.
(b) Reporting Periods
The period ended December 31, 1993 reflects the results of the
Company's operations and cash flows from August 3, 1993 (date of
inception) to December 31, 1993. The period ended December 31,
1994 represents a full year of operations and cash flows. As a
result of a change in the Company's fiscal year, the period
ended June 30, 1995 represents a six-month reporting period.
(c) Due from Shareholders
Due from shareholders represents cash advances made to the Company's
shareholders and also includes $75,000 of certificates of
deposit held by the shareholders which were pledged to the
Company in connection with obtaining the line of credit
described in note 3.
(d) Inventories
Inventories consist principally of finished goods and are stated at
the lower of average cost or market.
(e) Property and Equipment
Property and equipment are stated at cost. Depreciation is
determined using the straight-line method. Leasehold
improvements are amortized over the term of the related lease.
Equipment held under capital leases is stated at the present
value of the lease payments and is amortized using the
straight-line method over the shorter of the lease term or its
estimated useful life.
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.
(f) Revenue Recognition
Revenue from the sale of products is recognized when the products
are delivered to customers. The Company also offers extended
service agreements to its customers, which are generally paid
for at the time the related product is sold. Amounts collected
for extended service agreements are initially deferred, and
subsequently recognized as revenue on a pro-rata basis over the
term of the agreement. Parts and labor expenses related to
services rendered under extended service agreements are
recognized as incurred.
(Continued)
<PAGE> 12
2
DJS MARKETING GROUP, INC.
Notes to Financial Statements, Continued
(g) Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles 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 financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(h) Reclassifications
It is the Company's policy to reclassify prior financial statements
to conform to the current presentation.
(2) Property and Equipment
Property and equipment at June 30, 1995, December 31, 1994 and December
31, 1993 consists of the following:
<TABLE>
<CAPTION>
Estimated
Useful Life
In Years 1995 1994 1993
-------- ---- ---- ----
<S> <C> <C> <C> <C>
Leasehold improvements 1-3 $ 1,683 1,683 -
Computers 5 127,336 76,560 40,284
Other office equipment 3-10 6,103 4,978 4,493
Furniture and fixtures 5-10 88,076 36,013 1,500
Purchased software 5 10,179 1,674 -
-------- ------- -----
233,377 120,908 46,277
Less accumulated depreciation and
amortization 46,811 18,164 2,998
-------- ------- ------
$186,566 102,744 43,279
======== ======= ======
</TABLE>
Depreciation and amortization expense on property and equipment for the
periods ended June 30, 1995, December 31, 1994 and December 31, 1993
was $16,325, $15,166 and $2,998, respectively.
Equipment held under capital leases included above at June 30, 1995,
December 31, 1994 and December 31, 1993 was $32,783, $25,611 and
$4,493, respectively. Accumulated amortization on equipment held under
capital leases at June 30, 1995, December 31, 1994 and December 31,
1993 was $3,228, $2,007 and $150, respectively.
(Continued)
<PAGE> 13
3
DJS MARKETING GROUP, INC.
Notes to Financial Statements, Continued
(3) Line of Credit
The Company had a line of credit agreement with a bank permitting
borrowings up to $225,000. Permitted borrowings are based on issuance
of standby letters of credit. Borrowings accrue interest at the prime
rate plus 1% per annum (effective rate of 10.0% at June 30, 1995, 9.5%
at December 31, 1994 and 7.0% at December 31, 1993) and are
collateralized by a first security interest in accounts receivable,
inventory, equipment, and all balances of deposit accounts with the
Company's bank. Borrowings under the line of credit are guaranteed by
the officers. The line of credit agreement included covenants which
required the Company to obtain adequate insurance coverage for
property and equipment, and required the periodic delivery of
financial information and the maintenance of a minimum tangible net
worth. At June 30, 1995, December 31, 1994 and December 31, 1993, the
Company was not in compliance with the tangible net worth covenant
which could have resulted in all outstanding amounts becoming payable
on demand. The outstanding balance under this agreement was paid in
full on April 4, 1996 (see note 7).
(4) Lease Commitments
The Company is obligated under operating and capital leases for certain
equipment expiring at various dates through 1998.
In March 1994, the Company entered into a three-year operating lease
commencing April 1, 1994 for its main office, and a one-year lease
commencing on April 1, 1994 for its Chicago office.
The Company has also entered into operating leases for automobiles for
its four officers. One lease is in the name of DJS, while the
remaining three are in the name of the officers' previous businesses,
but payment has been assumed by DJS. Total payments by DJS related to
these automobile leases for the periods ended June 30, 1995, December
31, 1994 and December 31, 1993 totaled $11,794, $18,181 and $5,223,
respectively.
As of June 30, 1995, future minimum payments by year, and in the
aggregate, under capital and operating leases with initial terms of
one year or more, including the automobile leases described above, are
as follows:
<TABLE>
<CAPTION>
Capital Operating
leases leases
------ ------
<S> <C> <C>
Year ending June 30,
1996 $14,122 75,172
1997 9,986 31,891
1998 2,556 --
------- ------
26,664 $107,063
========
Less amounts representing interest 4,754
-------
Present value of net minimum lease payments 21,910
Less current portion 10,802
-------
Long-term portion $11,108
=======
</TABLE>
Rental expense for the periods ended June 30, 1995, December 31, 1994 and
December 31, 1993 was $41,472, $66,657 and $13,708, respectively.
(Continued)
<PAGE> 14
4
DJS MARKETING GROUP, INC.
Notes to Financial Statements, Continued
(5) Related Parties
(a) Asset Purchase Agreement
On May 2, 1994, three shareholders of DJS ("shareholders") entered
into an Asset Purchase Agreement to acquire certain assets and
assume certain liabilities of AJ Resources, Inc. ("AJ"), and
activated a previously dormant New York State corporation named
CPI Computer Professionals, Inc. ("CPI"). As part of this
transaction, the shareholders of AJ were granted a 15% interest
in CPI, with the remaining 85% held by the shareholders of DJS.
Under the terms of the Asset Purchase Agreement, the shareholders
agreed to assume and pay certain specific liabilities of AJ
Resources, Inc., the amounts of which as set forth in the
Agreement were the best approximations of the respective
liabilities to be assumed as of the closing date. The Agreement
also states that the maximum amount assumed cannot exceed
$283,567.
(b) Corporate Organization Agreement
In connection with a Corporate Organization Agreement dated April
29, 1994 by and among CPI, DJS, the shareholders of AJ
Resources, Inc. and the shareholders of DJS, put and call
options exist that could require or allow the shareholders of
DJS to acquire the shares held by any one or all of the minority
shareholders of CPI.
On March 8, 1996, in connection with the merger between DJS
Marketing Group, Inc. and Bitwise DJS Inc., the minority
shareholders of CPI received $50,000 and 17,750 shares of
Bitwise Designs, Inc. common stock from the former shareholders
of DJS in full satisfaction of their obligations by DJS under
the Corporate Organization Agreement (see note 7).
(c) CPI Computer Professionals, Inc.
In February 1995, CPI closed its retail operations and began to
curtail operations. As a result of the related ownership
interests between CPI and DJS, DJS has committed to the payment
of $5,000 per month for a period of 14 months. The payments
began on August 1, 1995 and are in consideration for the
transfer and use of authorizations held by CPI to sell certain
well-recognized brands of computer equipment.
(6) Income Taxes
DJS Marketing Group, Inc., as noted above, has elected "S" Corporation
status for Federal and state income tax purposes. As a result of this
election, income is not subject to Federal or state income taxes at
the corporate level; such income is generally taxed at the shareholder
level.
(Continued)
<PAGE> 15
5
DJS MARKETING GROUP, INC.
Notes to Financial Statements, Continued
(7) Subsequent Events
(a) Merger with Bitwise DJS Inc.
On March 8, 1996, the Company completed a merger with Bitwise DJS,
Inc., a wholly-owned subsidiary of Bitwise Designs, Inc. The
shareholders of DJS Marketing Group, Inc. received $80,000 in
cash and 200,000 shares of Bitwise Designs, Inc. common stock in
exchange for the 4,000 outstanding shares of DJS Marketing
Group, Inc. common stock. In addition, Bitwise Designs, Inc.
made a capital contribution of $500,000 to the newly formed
entity. The surviving corporation is DJS Marketing Group, Inc.,
a wholly-owned subsidiary of Bitwise Designs, Inc.
In connection with this transaction, the former shareholders of DJS
entered into a $125,000 promissory note payable to Bitwise
Designs, Inc., bearing interest at 8% per annum. The note
principal and accrued interest thereon is due and payable on
March 8, 1998 and is secured by 30,000 shares of Bitwise
Designs, Inc. common stock pledged as collateral by the
borrowers. $50,000 of the proceeds of this note, along with
17,750 shares of Bitwise common stock, was remitted to the
minority shareholders of CPI by the former shareholders of DJS
in full satisfaction of their obligations under the Corporate
Organization Agreement described in note 5(b).
Under the indemnification provisions of the merger, 25,000 Bitwise
shares received by the former shareholders of DJS are held in
escrow for a period of 18 months from the date of the merger. In
addition, the sale of Bitwise shares transferred in connection
with the merger is restricted for a period of two years from the
date of the merger.
As a condition of the merger, the former shareholders of DJS have
entered into employment and non-competition agreements with the
Company expiring on March 31, 1998.
(b) Financing Agreement
On April 4, 1996, the Company obtained a $2.3 million credit
facility from Deutsche Financial Services. Under the revolving
accounts receivable credit line portion of this agreement, the
Company may receive advances of up to $1.0 million based on 85%
of eligible accounts receivable. In addition, the Company may
receive up to $1.3 million for vendor subsidized inventory
purchases. The revolving accounts receivable credit line bears
interest at prime plus 1.75%. No finance charges are assessed on
borrowings for vendor subsidized inventory purchases if
repayment complies with vendor specified criteria. The $2.3
million credit facility is secured by a first priority lien on
accounts receivable, inventory, fixed assets, other assets and
general intangibles of the Company.
(c) Office Lease
On May 6, 1996, the Company renegotiated its operating lease to
obtain additional facility space at its main office. The new
agreement is effective for the period June 1, 1996 through May
31, 2001 and requires monthly payments of $5,890 through May 1,
1997 and $5,327 from May 1, 1997 through May 1, 2001. In
addition, the Company is required to pay fees for common area
maintenance, real estate taxes and insurance.
(Continued)
<PAGE> 16
6
DJS MARKETING GROUP, INC.
Notes to Financial Statements, Continued
(8) Cash Flows - Supplemental Information
Cash paid for interest during the periods ended June 30, 1995, December
31, 1994 and December 31, 1993 was $65,266, $143,258 and $16,158,
respectively.
Noncash investing and financing activities:
During the period ended June 30, 1995, the Company received property
and equipment from CPI, whereby DJS reduced the amount
receivable from CPI based on CPI's net book value of the
property and equipment. The net book value at the date of
transfer consisted of:
<TABLE>
<S> <C>
Property and equipment $89,668
Less accumulated depreciation 12,322
-------
$77,346
=======
</TABLE>
During the periods ended June 30, 1995, December 31, 1994 and
December 31, 1993, the Company entered into capital lease
obligations for the purchase of equipment aggregating $7,172,
$21,118 and $4,493, respectively.
During the period ended December 31, 1993, the Company received
noncash capital contributions from its shareholders totaling
$109,240. These contributions consisted of equipment of $34,240
and $75,000 of accounts receivable secured by certificates of
deposit in financial institutions.
(9) Business Concentrations
The Company's single line of business is the sale, installation and
service of computer hardware and related products. A decline in
consumer demand for these products could have a significant impact on
the Company's operating results.
The Company obtains a substantial portion of its inventory through
purchase authorizations maintained with several large vendors. The
Company's inability to obtain merchandise from one or more of these
significant suppliers could have an adverse effect on future
operations.
(10) Financial Instruments
The carrying amounts of financial instruments, including cash and cash
equivalents, accounts receivable, other receivables, accounts payable,
capital lease obligations and line of credit borrowings, approximated
fair value as of June 30, 1995, December 31, 1994 and December 31 1994
because of the relatively short maturity of these instruments.
<PAGE> 17
Exhibit B
PROFORMA FINANCIAL INFORMATION
BITWISE DESIGNS, INC.
PROFORMA CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
DJS
ASSETS BITWISE MARKETING, ADJUSTMENTS CONSOLIDATED
DESIGNS, INC. INC. (PROFORMA) (PROFORMA)
------------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 5,191,258 $ 26,290 $ (80,000)(c) $ 5,137,548
ACCOUNTS RECEIVABLE, NET 3,547,882 883,766 4,431,648
INVENTORIES 3,387,516 110,605 3,498,121
INCOME TAXES RECEIVABLE 16,034 16,034
PREPAID EXPENSES & OTHER 425,693 26,513 452,206
----------- ---------- ----------- -----------
TOTAL CURRENT ASSETS 12,568,383 1,047,174 (80,000)(c) 13,535,557
PROPERTY & EQUIPMENT, NET 492,317 164,102 656,419
OTHER ASSETS:
SOFTWARE DEVELOPMENT COSTS, NET 36,520 36,520
OTHER 68,484 52,147 120,631
EXCESS OF COST OVER NET
ASSETS OF ACQUIRED
COMPANIES 4,140,589 1,358,072 (a) 5,498,661
INVESTMENT IN DJS 1,219,086 (c) 0
(1,219,086)(b)
----------- ---------- ----------- -----------
TOTAL ASSETS $17,306,293 $1,263,423 $ 1,278,072 $19,847,788
=========== ========== =========== ===========
</TABLE>
(a) To record the Excess of Cost Over Net Assets of Acquired Company
(b) To eliminate the Investment in DJS Marketing Group, Inc.
(c) To record the acquisition of DJS Marketing Group, Inc.
<PAGE> 18
BITWISE DESIGNS, INC.
PROFORMA CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
LIABILITIES & SHAREHOLDERS' BITWISE DJS
EQUITY DESIGNS, MARKETING, ADJUSTMENTS CONSOLIDATED
INC. INC. (PROFORMA) (PROFORMA)
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
CURRENT LIABILITIES:
LINE-OF-CREDIT $ 1,157,569 $ 103,203 $ 1,260,772
CURRENT PORTION-LONG-TERM DEBT 42,099 10,125 52,224
CURRENT PORTION OF OBLIGATIONS
UNDER CAPITAL LEASES 16,302 16,302
ACCOUNTS PAYABLE 3,243,398 1,158,868 89,086 (c) 4,491,352
ACCRUED EXPENSES & OTHER 306,513 123,013 429,526
----------- ---------- ---------- -----------
TOTAL CURRENT LIABILITIES 4,765,881 1,395,209 89,086 6,250,176
LONG-TERM DEBT, NET OF CURRENT 5,966 5,966
OBLIGATIONS UNDER CAPITAL
LEASES NET OF CURRENT PORTION 5,407 7,200 12,607
OTHER LIABILITIES 22,810 22,810
----------- ---------- ---------- -----------
TOTAL LIABILITIES 4,800,064 1,402,409 89,086 6,291,559
SHAREHOLDERS' EQUITY:
PREFERRED STOCK-$.10 PAR VALUE,
5,000,000 SHARES AUTHORIZED:
SERIES A - 200 SHARES ISSUED
AND OUTSTANDING
($1 LIQUIDATION VALUE) 20 20
SERIES B CONVERTIBLE PREFERRED
112,003 SHARES ISSUED AND
OUTSTANDING 11,200 11,200
COMMON STOCK, $.001 PAR VALUE;
AUTHORIZED 20,000,000 SHARES; 200 (c)
ISSUED 6,108,226 SHARES 5,908 4,000 (4,000)(a) 6,108
ADDITIONAL PAID-IN CAPITAL 15,853,022 113,239 (113,239)(a) 16,902,822
1,049,800 (c)
ACCUMULATED DEFICIT (3,363,498) (256,225) 256,225 (a) (3,363,498)
----------- ---------- ---------- -----------
12,506,652 (138,986) 1,188,986 13,556,652
LESS COST OF COMMON SHARES IN
TREASURY (338 SHARES) (423) (423)
----------- ---------- ---------- -----------
TOTAL SHAREHOLDERS' EQUITY 12,506,229 (138,986) 1,188,986 13,556,229
----------- ---------- ---------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $17,306,293 $1,263,423 $1,278,072 $19,847,788
=========== ========== ========== ===========
</TABLE>
(a) To record the Excess of Cost Over Net Assets of Acquired Company
(c) To record the acquisition of DJS Marketing Group, Inc.
<PAGE> 19
BITWISE DESIGNS, INC.
PROFORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
DJS
BITWISE MARKETING, ADJUSTMENTS CONSOLIDATED
DESIGNS, INC. INC. (PROFORMA) (PROFORMA)
----------- ---------- -------- -----------
<S> <C> <C> <C> <C>
NET SALES $13,544,144 $6,475,145 $20,019,289
COST OF GOODS SOLD 11,557,582 5,674,416 17,231,998
----------- ---------- -------- -----------
GROSS PROFIT 1,986,562 800,729 0 2,787,291
----------- ---------- -------- -----------
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 2,542,000 985,757 28,326(d) 3,556,083
PRODUCT DEVELOPMENT EXPENSES 35,446 35,446
----------- ---------- -------- -----------
OPERATING INC./(LOSS) (590,884) (185,028) (28,326) (804,238)
----------- ---------- -------- -----------
OTHER INCOME (EXPENSE):
INTEREST AND OTHER INCOME 42,267 42,267
INTEREST EXPENSE (89,467) (39,668) (129,135)
----------- ---------- -------- -----------
INCOME/(LOSS) BEFORE INCOME
TAXES (638,084) (224,696) (28,326) (891,106)
INCOME TAXES EXPENSE (BENEFIT) 19,026 366 19,392
----------- ---------- -------- -----------
NET INCOME/(LOSS) $ (657,110) $ (225,062) $(28,326) $ (910,498)
=========== ========== ======== ===========
NET INCOME/(LOSS) PER COMMON
SHARE (0.14) (0.19)
=========== ===========
</TABLE>
(d) To amortize the Excess of Cost over Net Assets of Acquired Company over
20 years using the straight-line method.
<PAGE> 20
BITWISE DESIGNS, INC.
PROFORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTH ENDED JUNE 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
DJS
BITWISE MARKETING, ADJUSTMENTS CONSOLIDATED
DESIGNS, INC. INC. (PROFORMA) (PROFORMA)
----------- ----------- -------- -----------
<S> <C> <C> <C> <C>
NET SALES $23,949,368 $20,220,558 $44,169,926
COST OF GOODS SOLD 19,992,522 18,516,386 38,508,908
----------- ----------- -------- -----------
GROSS PROFIT 3,956,846 1,704,172 0 5,661,018
----------- ----------- -------- -----------
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 3,993,861 1,602,417 55,440 5,651,718
PRODUCT DEVELOPMENT EXPENSES 29,384 29,384
----------- ----------- -------- -----------
OPERATING INC./(LOSS) (66,399) 101,755 (55,440)(d) (20,084)
----------- ----------- -------- -----------
OTHER INCOME (EXPENSE):
INTEREST AND OTHER INCOME 159,594 159,594
INTEREST EXPENSE (108,239) (125,957) (234,196)
----------- ----------- -------- -----------
INCOME/(LOSS) BEFORE INCOME
TAXES (15,044) (24,202) (55,440) (94,686)
INCOME TAXES EXPENSE (BENEFIT) (18,725) (18,725)
----------- ----------- -------- -----------
NET INCOME/(LOSS) $ 3,681 $ (24,202) $(55,440) $ (75,961)
=========== =========== ======== ===========
NET INCOME/(LOSS) PER COMMON
SHARE 0.00 (0.01)
=========== ===========
</TABLE>
(d) To amortize the Excess of Cost Over Net Assets of Acquired Company over 20
years using the straight-line method.
<PAGE> 21
BITWISE DESIGNS, INC.
NOTES TO PROFORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The proforma condensed consolidated financial statements include the
accounts of BitWise Designs, Inc. and its wholly owned subsidiaries,
Electrograph Systems, Inc. and System Solutions Technology, Inc. (together, the
"Company") and listed separately is recently acquired DJS Marketing, Inc.
(DJS). All significant intercompany accounts and transactions have been
eliminated in consolidation. The management of the Company believes the
accompanying unaudited proforma condensed consolidated financial statements
contain all adjustments necessary to fairly present the financial position as
of December 31, 1995 and results of operations for the six months ended
December 31, 1995 and the fiscal year ended June 30, 1995.
The source of the information used in the preparation of the Proforma
condensed consolidated financial statements are the historical financial
statements from the Company's Form 10-KSB for the year ended June 30, 1995 and
the Company's Form 10-QSB for the six months ended December 31, 1995. For DJS,
the source was the accompanying audited financial statements found elsewhere in
this Form 8-K/A. The proforma condensed consolidated financial statements were
adjusted to reflect the twelve month activity of DJS Marketing Group, Inc. for
the fiscal year ended June 30, 1995.
2. On March 8, 1996 the Company acquired all of the capital stock of DJS
Marketing Group, Inc. in exchange for 200,000 shares of the restricted common
stock of the Company and $80,000 in cash for the aggregate purchase price of
$1,130,000. The excess of cost over net assets of acquired company will be
amortized over 20 years using the straight-line method. For more information on
the acquisition of DJS it's suggested that these statements be read in
conjunction with Form 8-K filed on March 22, 1996 with the Securities and
Exchange Commission.
