<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 1996
--------------
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to ______________
---------------
Commission File No. 0-20190
-------
BITWISE DESIGNS, INC.
- - -------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 14-1673067
- - -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
Technology Center, Rotterdam Industrial Pk, Schenectady, NY, 12306
- - -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(518) 356-9741
--------------
- - -------------------------------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report.
Indicate by check mark whether the issuer (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
---- ----
6,443,013 Common Stock, par value $.001 per share, were outstanding at
May 13, 1996.
Page 1 of 14
<PAGE> 2
BITWISE DESIGNS INCORPORATED
FORM 10-QSB
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheets -
March 31, 1996 and June 30, 1995 3-4
Consolidated Statements of Operations -
Three and nine months ended March 31, 1996
and March 31, 1995 5
Consolidated Statements of Cash Flows -
Nine months ended March 31, 1996 and
March 31, 1995 6-7
Notes to Consolidated Financial Statements 8-9
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-12
PART II OTHER INFORMATION
Item 4 - Submission of Matters to a Vote
of Security Holders 12-13
Item 6 - Exhibits and Reports on Form 8-K 13
Signatures 14
</TABLE>
Page 2 of 14
<PAGE> 3
PART I FINANCIAL INFORMATION
BITWISE DESIGNS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS March 31, June 30,
1996 1995
----------- -----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 4,071,080 $ 2,058,498
Accounts receivable, net of allowance
for doubtful accounts of $249,058 at March
31, 1996 and $111,482 at June 30, 1995 4,595,497 3,117,731
Inventories 4,341,504 2,783,124
Income taxes receivable 12,023 16,050
Prepaid expenses and other current assets 357,280 241,102
----------- -----------
Total current assets 13,377,384 8,216,505
Property & equipment, net 863,343 523,371
----------- -----------
Software Development costs, net 36,713 35,128
Notes Receivable 125,658 0
Other 120,238 70,923
Excess of cost over net assets of
acquired companies, net 5,621,442 4,249,552
----------- -----------
Total assets $20,144,778 $13,095,479
=========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
Page 3 of 14
<PAGE> 4
BITWISE DESIGNS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY March 31, June 30,
1996 1995
------------ ------------
<S> <C> <C>
Current liabilities:
Borrowings under lines-of-credit $ 2,087,606 $ 1,062,472
Current portion of long-term debt 37,433 149,236
Current portion of obligations under
capital leases 11,705 27,021
Accounts payable 4,221,389 2,638,838
Accrued expenses and other liabilities 493,702 311,516
------------ ------------
Total current liabilities 6,851,835 4,189,083
------------ ------------
Long-term debt, net of current portion 2,356 21,990
Obligations under capital leases, net of
current portion 10,373 13,443
Other long-term liabilities 22,019 24,391
------------ ------------
Total liabilities 6,886,583 4,248,907
Shareholders' equity
Preferred stock -$.10 par value, 5,000,000 shares authorized:
Series A -200 shares issued and outstanding 20 20
Series B convertible preferred-112,003
shares issued and outstanding 11,200 11,200
Common stock-$.001 par value; 20,000,000
shares authorized; shares issued and
outstanding: 4,473,661 at June 30, 1995;
and 6,443,013 at March 31, 1996 6,443 4,473
Additional paid-in capital 17,483,811 11,537,690
Accumulated deficit (4,242,856) (2,706,388)
------------ ------------
13,258,618 8,846,995
Less cost of common shares in treasury,
338 shares (423) (423)
------------ ------------
Total shareholders' equity 13,258,195 8,846,572
------------ ------------
Total liabilities and shareholders' equity $ 20,144,778 $ 13,095,479
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
Page 4 of 14
<PAGE> 5
BITWISE DESIGNS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the 3 months ended For the 9 months ended
March 31, 1996 March 31, 1995 March 31, 1996 March 31, 1995
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales $ 7,190,970 $ 6,749,789 $ 20,735,114 $ 17,450,363
Cost of goods sold 5,968,519 5,625,863 17,526,101 14,522,675
----------- ----------- ------------ ------------
Gross profit 1,222,451 1,123,926 3,209,013 2,927,688
Selling, general and
administrative expenses 2,072,275 1,093,266 4,614,275 2,772,374
Product development costs 29,896 6,954 65,342 20,612
----------- ----------- ------------ ------------
Operating income (loss) (879,720) 23,706 (1,470,604) 134,702
Other income (expense):
Interest expense (62,968) (30,144) (152,435) (74,911)
Interest and other income 67,340 31,987 109,607 95,443
----------- ----------- ------------ ------------
Income (loss) before taxes (875,348) 25,549 (1,513,432) 155,234
Income tax (expense) /benefit (4,010) 0 (23,036) 2,903
----------- ----------- ------------ ------------
Net income (loss) ($ 879,358) $ 25,549 ($ 1,536,468) $ 158,137
=========== =========== ============ ============
Per share amounts
Net income (loss) per
Common share ($0.15) $0.01 ($0.30) $0.04
=========== =========== ============ ============
</TABLE>
See accompanying notes to the consolidated financial statements
Page 5 of 14
<PAGE> 6
BITWISE DESIGNS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
For the 9 months ended
March 31, March 31,
1996 1995
----------- -----------
<S> <C> <C>
Cash flows operating activities:
Net income (loss) ($1,536,468) $ 158,137
Adjustments to reconcile net income (loss) to
net cash from operating activities:
Depreciation and amortization 363,210 215,976
Provision for doubtful accounts 11,750 2,502
Changes in operating assets and liabilities:
Accounts receivable (1,095,666) 94,515
Inventories (1,320,460) (509,681)
Prepaid expenses & other current assets (76,847) (119,730)
Accounts payable and accrued expenses 518,676 (203,700)
Income taxes receivable 4,027 (4,236)
Other 8,558
----------- -----------
Net cash used in
operating activities (3,131,778) (857,658)
----------- -----------
Cash flows from investing activities:
Property and equipment expenditures (324,277) (72,428)
Deferred licensing costs (4,978) (1,375)
Software development costs (21,830) (45,680)
Notes receivable (125,658)
Acquisitions of businesses net of cash
acquired (34,179)
----------- -----------
Net cash used in investing
activities (510,922) (119,483)
----------- -----------
Cash flows from financing activities:
Increase (Decrease) in borrowings under
line-of-credit, net 921,930 (156,082)
Principal payments on long-term debt (141,062) (101,977)
Principal payments on capital lease obligations (23,675) (26,724)
Dividends (22,831)
Proceeds from issuance of common stock, net 4,263,147 3,568,509
Proceeds from exercise of common stock warrants 657,773
----------- -----------
Net cash provided by
financing activities 5,655,282 3,283,726
----------- -----------
Net increase in cash and cash equivalents 2,012,582 2,306,584
Cash and cash equivalents, beginning of year 2,058,498 55,611
----------- -----------
Cash and cash equivalents, end of period $ 4,071,080 $ 2,362,195
=========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
Page 6 of 14
<PAGE> 7
BITWISE DESIGNS, INC.
SUPPLEMENTAL CASH FLOW DISCLOSURES
----------------------------------------------------------
<TABLE>
<CAPTION>
DETAILS OF BUSINESS ACQUISITIONS DURING THE QUARTER ENDED
<S> <C>
MARCH 31, 1996 (ITEM 1, NOTE 4):
Fair Value of Assets Acquired $943,897
Liabilities Assumed 1,269,801
Cash and Cash Equivalents Acquired 45,821
DETAILS OF BUSINESS ACQUISITIONS DURING THE QUARTER ENDED
SEPTEMBER 30, 1994 (ITEM 1, NOTE 6):
Fair Value of Assets Acquired $4,131,265
Liabilities Assumed 3,907,593
Cash and Cash Equivalents Acquired 411,620
</TABLE>
<TABLE>
<CAPTION>
OTHER SUPPLEMENTAL INFORMATION: For the 9 months ended
March 31, 1996 March 31, 1995
-------------- --------------
<S> <C> <C>
Interest Paid $141,887 $74,911
Income Taxes Paid 19,009 7,375
</TABLE>
See accompanying notes to the consolidated financial statements.
Page 7 of 14
<PAGE> 8
BITWISE DESIGNS, INC.
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated financial statements include the accounts of BitWise
Designs, Inc. and its wholly owned subsidiaries, Electrograph Systems, Inc.,
System Solutions Technology, Inc. and DJS Marketing, Inc. (the Company). All
significant intercompany accounts and transactions have been eliminated in
consolidation. The management of the Company believes the accompanying unaudited
consolidated financial statements contain all adjustments necessary to fairly
present the financial position as of March 31, 1996 and 1995 and results of
operations and cash flows for each of the periods presented.
2. The results of operations for the three and nine months ended
March 31, 1996 and 1995 are not necessarily indicative of the results to be
expected for the full year.
3. Certain information and footnote disclosures normally included in the
consolidated financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested that these
consolidated financial statements be read in conjunction with the annual
consolidated financial statements and notes thereto included in the Company's
Form 10-KSB for the fiscal year ended June 30, 1995.
4. On March 8, 1996 the Company acquired all of the capital stock of DJS
Marketing, 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 Companies personal computer division has been transferred to DJS. 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.
5. The Company completed a private equity offering including common stock and
warrants of $5,000,000 in December 1995 exempt from registration under the
Securities Act of 1933, with net proceeds of approximately $4,300,000.
6. In August 1994 the Company successfully completed a second public offering of
common stock through Berkeley Securities Corporation. The offering produced
$5,000,000 in gross proceeds through the sale of 1,000,000 shares of common
stock at the initial offering price of $5.00 per share. Net proceeds from the
offering aggregated $4,375,100. The Company also incurred additional expenses
associated with the offering in the amount of $801,691. On the same date the
Company also completed the acquisitions of Electrograph Systems, Inc. and System
Solutions Technology, Inc. For more information on the public offering and the
acquisitions it is suggested that these statements be read in conjunction with
Form 8-K filed on August 26, 1994 with the Securities and Exchange Commission.
Page 8 of 14
<PAGE> 9
7. Net income/(loss) per share on common stock is computed using the weighted
average number of shares of common stock outstanding during each year. The
weighted average number of shares of common stock used in calculating earnings
per share was 6,054,899 and 5,124,635 for the three and nine months ended March
31, 1996, respectively and 4,473,099 and 4,156,705 for the three and nine months
ended March 31, 1995, respectively.
Page 9 of 14
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
ITEM 2. FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following analysis of the financial condition and results of
operations of the Company should be read in conjunction with the Company's
consolidated financial statements and notes contained elsewhere in this Form
10-QSB.
RESULTS OF OPERATIONS
THE THREE AND NINE MONTHS ENDED MARCH 31, 1996 COMPARED TO THE THREE AND NINE
MONTHS ENDED MARCH 31, 1995.
The Company realized a consolidated net loss of $1,536,468, $.30 per
share and $879,358, $.15 per share for the nine and three months ended March 31,
1996, respectively. This compares to a net profit of $158,137, $.04 per share
and $25,549, $.01 per share for the nine and three months ended March 31, 1995,
respectively. The Company had consolidated net sales of $20,735,114 and
$7,190,970 for the nine and three months ended March 31, 1996, respectively.
This compares to consolidated net sales of $17,450,363 and $6,749,789 for the
nine and three months ended March 31, 1995, respectively.
The sales increase for the nine months ended March 31, 1996 compared to
the prior year can be attributed to the acquisitions of Electrograph Systems,
Inc. ("ESI"), System Solutions Technology, Inc. ("SST") on August 18, 1994 and
also the acquisition of DJS Marketing ("DJS") on March 8, 1996; as well as sales
growth from the Company's new DocStar product line. The decrease in profits is
attributed to the introduction of the DocStar product line, which is a document
imaging and retrieval system. During the current fiscal year the Company has
incurred and expects to continue to incur significant costs to build a
management and sales team, establish a distribution network and to advertise and
promote DocStar; as well as continued R&D expenditures. As a result of these
introduction costs the Company has incurred losses to date and anticipates it
will continue to incur significant losses during the remainder of the current
fiscal year.
Gross profit for the nine and three months ended March 31, 1996 was
$3,209,013 and $1,222,451, respectively. This compares to gross profit of
$2,927,688 and $1,123,926 for the nine and three months ended March 31, 1995,
respectively. The gross profit margin was 15.5% and 17.0% for the nine and three
months ended March 31, 1996, respectively. This compares to the gross profit
margin of 16.8% and 16.7% for the nine and three months ended March 31, 1995,
respectively. The gross profit margin (which is defined as gross profit as a
percentage of sales) decreased on a year-to-date basis due to aggressive pricing
of the Company's products especially the computer peripheral products. During
the current quarter the gross margin increased
Page 10 of 14
<PAGE> 11
due to the growth of the Company's DocStar product line which has significantly
higher margins than other product lines of the Company.
Selling, general and administrative expenses consist of all other
Company expenses except product development costs and interest. These costs
increased from $2,772,374 and $1,093,266 for the nine and three months ended
March 31, 1995, respectively to $4,614,275 and $2,072,275 for the nine and three
months ended March 31, 1996, respectively. These costs increased for the nine
month period ended March 31, 1996 due to the addition of SST and ESI which were
acquired midway through the quarter ended September 30, 1994, as well as the
acquisition of DJS in March 1996. In addition, the Company incurred significant
expenses related to the DocStar product line. As a percentage of sales, these
costs increased from 15.9% and 16.2% for the nine and three months ended March
31, 1995, respectively to 22.3% and 28.8% for the nine and three months ended
March 31, 1996. This increase in percentage of expenses to sales is due to the
introduction of the DocStar product line to the national market place. The
Company incurred significant expenses for sales and administrative staffing,
including payroll costs, travel and living costs and office costs. The Company
also incurred significant national advertising and promotional expenses.
Previously DocStar was only marketed in the Albany, New York region.
Interest costs totaled $152,435 and $62,968 for the nine and three
months ended March 31, 1996, respectively and $74,911 and $30,144 for the
nine and three months ended March 31, 1995. The increase in interest cost is
related to the increase in sales over the prior year. As sales increased the
Company increased its borrowings to fund inventory and receivables. The increase
is also due to an increase in interest rates compared to the prior year.
Product development expenses relate primarily to software development
of the Company's DocStar product line, increased from $20,612 and $6,954 for the
nine and three months ended March 31, 1995, respectively to $65,342 and $29,896
for the nine and three months ended March 31, 1996, respectively. The Company
has a policy of capitalizing software development costs and amortizing those
costs over three years.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds to date have been the issuance
of equity and the incurrence of third party debt. The Company's long-term debt
consists primarily of two loans from affiliates of the Schenectady Economic
Development Corporation. The principal balance of long-term debt at March 31,
1996 totaled $39,789.
The Company also has two working capital lines-of-credit totaling
$4,800,000 which is collateralized by all accounts
Page 11 of 14
<PAGE> 12
receivable, inventory and all other assets of the Company or subsidiary. The
debt accrues interest at rates ranging from the prime rate plus 1.75% and 2% per
annum. The line-of-credit agreements include various covenants which require the
Company or subsidiary to maintain a minimum tangible net worth, maximum debt to
tangible net worth and for DJS a minimum tangible current ratio. They also
require delivery of periodic financial information and quarterly audits
conducted by the lender. Under the terms of the credit lines, BitWise may borrow
up to $500,000, ESI may borrow up to $900,000, SST may borrow up to $1,100,000
and DJS may borrow up to $2,300,000.
The Company completed a private equity offering including common stock
and warrants of $5,000,000 in December 1995 under the Securities Act of 1933,
with net proceeds of approximately $4,300,000. The Company anticipates using
most of the proceeds to fund sales, marketing and distribution of its DocStar
product line on a national basis. These expenditures will include staffing,
advertising and promotion, travel, consulting, office expansion, furniture,
equipment and other related costs.
The Company completed its second public offering of common stock on
August 18, 1994. The offering produced $5,000,000 in gross proceeds through the
sale of 1,000,000 shares at an initial offering price of $5.00 per share. Net
proceeds totaled approximately $3,600,000, after expenses.
Property, plant and equipment expenditures totaled $324,277 for the
nine months ended March 31, 1996. There were no purchase commitments outstanding
or contemplated.
The Company anticipates that cash expected to be provided by operations
together with the line-of-credit will be sufficient to satisfy normal operating
obligations through the end of the fiscal year. The proceeds from the private
equity placement referred to above should be sufficient to launch the DocStar
product line.
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ANNUAL MEETING OF SHAREHOLDERS
On January 25, 1996 the Company held its Annual Meeting of Stockholders
in Albany, New York. Holders of the Company's Common Stock of record on December
12, 1995 (the "Record Date") were entitled to receive notice of, and attend, the
Annual
Page 12 of 14
<PAGE> 13
Meeting. At the Record Date, there were 5,908,226 shares of Common Stock
issued and outstanding and entitled to vote at the Annual Meeting. Of the
total outstanding shares, 4,096,404 shares (69%) were represented at the Annual
Meeting either in person or by proxy.
At the Annual Meeting, stockholders were asked to (i) elect eight (8)
directors to the Board of Directors for a term of one year.
The names of the eight (8) persons elected to the Board of Directors
for a term of one (1) year, and the votes cast for and against each nominee are
set forth below:
<TABLE>
<CAPTION>
Nominee Votes For Votes Against
- - ------- --------- -------------
<S> <C> <C>
John T. Botti 4,086,170 10,234
Richard F. Clowes 4,044,680 51,724
John W. Loofbourrow 4,086,170 10,234
Donald J. Payne 4,044,630 51,774
J. Edward Sheridan 4,086,120 10,284
Ira C. Whitman 4,086,120 10,284
Barry Steinberg 4,044,680 51,724
William Bierlin, Jr. 4,085,987 10,417
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FROM 8-K
(B) REPORTS ON FORM 8-K
The following reports on Form 8-K were filed by the registrant during
the quarter ended March 31, 1996:
<TABLE>
<CAPTION>
Date of Report Item Reported
<S> <C>
1. Form 8-K dated March Item 2. Acquisition of Assets.
22, 1996 Form 8-K filed to re-
port the acquisition
of DJS Marketing Group,
Inc.
2. Form 8-K dated April Item 5. Other Information.
24, 1996 Form 8-K filed to re-
port the listing of the
Registrant's common
stock on the Pacific
Exchange.
</TABLE>
Page 13 of 14
<PAGE> 14
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 thereunto duly authorized.
BITWISE DESIGNS INCORPORATED
May 15, 1996 /s/ John T. Botti
- - ------------ -----------------
DATE JOHN T. BOTTI
PRESIDENT & CHIEF EXECUTIVE OFFICER
/s/ Dennis H. Bunt
------------------
DENNIS H. BUNT
CHIEF FINANCIAL OFFICER
Page 14 of 14
<PAGE> 15
EXHIBIT INDEX
-------------
Exhibit
No. Description
- - ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-1-1996
<PERIOD-END> MAR-31-1996
<CASH> 4,071,080
<SECURITIES> 0
<RECEIVABLES> 4,844,555
<ALLOWANCES> (249,058)
<INVENTORY> 4,341,504
<CURRENT-ASSETS> 13,377,384
<PP&E> 1,533,728
<DEPRECIATION> (670,385)
<TOTAL-ASSETS> 20,144,778
<CURRENT-LIABILITIES> 6,851,835
<BONDS> 0
11,200
20
<COMMON> 6,443
<OTHER-SE> 13,240,532
<TOTAL-LIABILITY-AND-EQUITY> 20,144,778
<SALES> 20,735,114
<TOTAL-REVENUES> 20,735,114
<CGS> 17,526,101
<TOTAL-COSTS> 17,526,101
<OTHER-EXPENSES> 4,667,867
<LOSS-PROVISION> 11,750
<INTEREST-EXPENSE> (152,435)
<INCOME-PRETAX> (1,513,432)
<INCOME-TAX> 23,036
<INCOME-CONTINUING> (1,536,468)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,536,468)
<EPS-PRIMARY> (.30)
<EPS-DILUTED> 0
</TABLE>
