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