<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 1999
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to ______________
Commission File No. 0-20190
BITWISE DESIGNS, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 14-1673067
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
Technology Center, Rotterdam Industrial Pk, Schenectady, NY, 12306
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (518) 356-9740
________________________________________________________________________________
Former name, former address and former fiscal year,
if changed since last report.
Indicate by check mark whether the issuer (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
7,382,663 shares of Common Stock, par value $.001 per share, were
outstanding at May 10, 1999.
Page 1 of 15
<PAGE> 2
BITWISE DESIGNS INCORPORATED
FORM 10-Q
INDEX
Page No.
PART I FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheets -
March 31, 1999 and June 30, 1998 3-4
Consolidated Statements of Operations -
Three and nine months ended March 31, 1999
and March 31, 1998 5
Consolidated Statements of Cash Flows -
Nine months ended March 31, 1999
and March 31, 1998 6-7
Notes to Consolidated Financial Statements 8-9
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-13
PART II OTHER INFORMATION
Item 6 Reports on Form 8-K 13
Safe Harbor Statement 13-14
Year 2000 Update 14-15
Signatures 15
Page 2 of 15
<PAGE> 3
PART I FINANCIAL INFORMATION
BITWISE DESIGNS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS MARCH 31, JUNE 30,
1999 1998
(UNAUDITED)
----------- -----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,027,202 $ 4,000,370
Accounts receivable, net of allowance
for doubtful accounts of $392,968 at Mar
31, 1999 and $480,229 at June 30, 1998 6,761,496 4,609,807
Due from related parties 78,841 48,422
Inventories:
Finished goods 546,607 350,277
Purchased components & raw material 1,651,564 2,860,591
Income taxes receivable 11,410 3,291
Prepaid expenses and other current assets 469,640 266,237
----------- -----------
Total current assets 10,546,760 12,138,995
Property and equipment, net 1,647,352 776,925
----------- -----------
Other assets:
Software development costs, net 130,962 88,391
Other assets 56,318 37,508
Deferred financing costs 185,519 244,109
Excess of cost over net assets of
acquired companies, net 1,361,560 1,422,526
----------- -----------
Total assets $13,928,471 $14,708,454
=========== ===========
</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 March 31, June 30,
1999 1998
(unaudited)
------------ ------------
<S> <C> <C>
Current liabilities:
Borrowings under lines of credit $ 1,108,670 $ 1,673,275
Accounts payable 2,536,452 2,294,192
Accrued expenses and other liabilities 690,316 822,429
Current portion - mortgage payable 16,480
------------ ------------
Total current liabilities 4,351,918 4,789,896
------------ ------------
Long-term debt, net of discount 3,537,892 3,440,332
Mortgage payable 493,253
------------ ------------
Total liabilities 8,383,063 8,230,228
------------ ------------
Shareholders' equity:
Preferred stock -$.10 par value, 5,000,000
shares authorized:
Series A -200 shares issued and outstanding 20 20
Common stock-$.001 par value; 20,000,000
shares authorized; shares issued:
7,410,745 7,411 7,411
Additional paid-in capital 19,846,126 19,822,159
Accumulated deficit (14,231,430) (13,274,645)
------------ ------------
5,622,127 6,554,945
Less cost of common shares in treasury,
28,082 shares (76,719) (76,719)
------------ ------------
Total shareholders' equity 5,545,408 6,478,226
------------ ------------
Total liabilities and shareholders' equity $ 13,928,471 $ 14,708,454
============ ============
</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 9 months ended
March 31, March 31, March 31, March 31,
1999 1998 1999 1998
(unaudited) (unaudited) (unaudited) (unaudited)
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 4,681,783 $ 9,650,976 $ 15,147,286 $ 28,047,632
Cost of goods sold 3,109,429 7,206,278 9,667,155 20,473,035
----------- ----------- ------------ ------------
Gross profit 1,572,354 2,444,698 5,480,131 7,574,597
Selling, general and
administrative expenses 1,960,875 3,063,767 5,868,025 8,808,042
Product development costs 54,225 69,453 174,323 157,881
----------- ----------- ------------ ------------
Operating loss (442,746) (688,522) (562,217) (1,391,326)
Other income (expense):
Interest expense (173,200) (236,037) (474,196) (651,590)
Interest and other income 5,677 44,382 74,794 160,701
----------- ----------- ------------ ------------
Loss before taxes (610,269) (880,177) (961,619) (1,882,215)
Income tax expense (benefit) 1 5,999 (4,834) 42,099
----------- ----------- ------------ ------------
Net loss ($ 610,270) ($ 886,176) ($ 956,785) ($ 1,924,314)
=========== =========== ============ ============
Per share amounts:
Net loss per common
share ($ 0.08) ($ 0.12) ($ 0.13) ($ 0.26)
=========== =========== ============ ============
</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 9 months ended
March 31, March 31,
1999 1998
(unaudited) (unaudited)
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($ 956,785) ($1,924,314)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 470,390 576,751
Provision for doubtful accounts (101,694) 186,505
Changes in operating assets and liabilities:
Accts. receivable & from related parties (2,080,414) (3,511,057)
Inventories 1,012,697 (944,954)
Prepaid expenses & other assets (179,436) (238,505)
Accounts payable and accrued expenses 110,147 1,207,254
Income taxes (8,119) 19,067
Other (707) (1)
----------- -----------
Net cash used in
operating activities (1,733,921) (4,629,254)
----------- -----------
Cash flows from investing activities:
Property and equipment expenditures (1,053,087) (152,878)
Software development costs (111,871) (57,979)
Trademarks and Patents (19,417)
Other (1,501)
----------- -----------
Net cash used in investing
activities (1,184,375) (212,358)
----------- -----------
Cash flows from financing activities:
Incr/(Decr) borrowings on lines of credit, net (564,605) 316,250
Borrowings of long-term debt, net of
deferred issuance costs 3,609,420
Borrowings on mortgage debt 509,733
Principal payments - capital lease obligations (9,191)
Principal payments - long-term debt (1,601)
Exercise of common stock options 82,291
----------- -----------
Net cash provided by/(used in)
financing activities (54,872) 3,997,169
----------- -----------
Net decrease in cash & cash equivalents (2,973,168) (844,443)
Cash and cash equivalents, beginning of year 4,000,370 2,863,847
----------- -----------
Cash and cash equivalents, end of period $ 1,027,202 $ 2,019,404
=========== ===========
</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 9 months ended
March 31, March 31,
1999 1998
(unaudited) (unaudited)
-------- --------
<S> <C> <C>
Interest Paid $403,422 $462,485
Income Taxes Paid $ 3,284 $ 26,347
Additional Paid in Capital Resulting from
Issuance of Detachable Warrants
for Debt $650,411
Issuance of Warrants for Services $ 23,967 $ 67,910
Conversion of Debt to Common Stock 25,000
</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 subsidiary DJS Marketing Group, Inc. (the
Company). All significant intercompany accounts and transactions have been
eliminated in consolidation. The management of the Company believes the
accompanying unaudited consolidated financial statements contain all adjustments
necessary to fairly present the financial position as of March 31, 1999 and June
30, 1998 and results of operations and cash flows for each of the periods
presented.
2. The results of operations for the three and nine months ended March 31, 1999
and 1998 are not necessarily indicative of the results to be expected for the
full year.
3. Certain information and footnote disclosures normally included in the
consolidated financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested that these
consolidated financial statements be read in conjunction with the annual
consolidated financial statements and notes thereto included in the Company's
Form 10-K for the fiscal year ended June 30, 1998.
4. In June 1998, Bitwise completed the sale of one of its subsidiaries, System
Solutions Technology, Inc. (SST) for $4,000,000. The transaction was in the form
of a sale of all of the stock of SST. The Company received approximately
$3,600,000 in cash and approximately $400,000 worth of inventory and accounts
receivable.
5. The Company adopted Statement of Financial Accounting Standards Board SFAS
130, "Reporting Comprehensive Income" in fiscal year 1999. There was no
comprehensive income to report, other than net income, for the three and nine
months ended March 31, 1999 and 1998.
6. During the three and nine months ended March 31, 1999, no common stock
warrants were exercised.
7. The following represents the reconciliation of the basic and diluted earnings
per share amounts for the three and nine months ended March 31, 1999 and 1998.
<TABLE>
<CAPTION>
Months Ended March 31,
--------------------------------------------------------
1999 1998
---- ----
Three Nine Three Nine
----- ---- ----- ----
<S> <C> <C> <C> <C>
Net loss $ (610,270) $ (956,785) $ (886,176) $(1,924,314)
Weighted average
shares 7,410,745 7,410,745 7,374,005 7,380,484
Basic and diluted EPS $ (.08) $ (.13) $ (.12) $ (.26)
</TABLE>
The impact of options, warrants and convertible notes was antidilutive
to the calculation of basic and dilutive loss per share and were accordingly
excluded from the calculation.
Page 8 of 15
<PAGE> 9
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures About Segments of an Enterprise and Related Information." SFAS
No. 131 requires expanded reporting of information about operating segments in
interim and annual financial statements, including certain descriptive
information about products and services, geographic areas, and major customers.
This statement will be effective for annual financial statements beginning the
fiscal year ending June 30 1999, and for comparative interim periods beginning
the fiscal year ending June 30, 2000. The adoption of this standard is not
expected to have a significant impact on the Company's consolidated financial
statements.
In June 1998, the Financial Accounting Standards Board also issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," (SFAS
133). SFAS 133 establishes a new model for accounting for derivatives and
hedging activities. This statement is effective for fiscal years beginning July
1, 2000. The adoption of this standard is not expected to have a significant
impact on the Company's consolidated financial statements.
Page 9 of 15
<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-Q.
RESULTS OF OPERATIONS
THE THREE AND NINE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE THREE AND NINE
MONTHS ENDED MARCH 31, 1998.
The Company realized a consolidated net loss of $610,270 ($.08 per
share) for the three months ended March 31, 1999 compared to a consolidated net
loss of $886,176 ($.12 per share) for the three months ended March 31, 1998. For
the nine months ended March 31, 1999 the Company realized a consolidated net
loss of $956,785 compared to a consolidated net loss of $1,924,314 for the nine
months ended March 31, 1998. The Company had consolidated net sales of
$4,681,783 and $9,650,976 for the three months ended March 31, 1999 and 1998,
respectively, and $15,147,286 and $28,047,632 for the nine months ended March
31, 1999 and 1998, respectively.
The consolidated sales decrease for the quarter and the nine months
ended March 31, 1999 is due to the sale of one of the Company's subsidiaries,
System Solutions Technology, Inc. (SST) in June 1998. SST had sales of
$4,109,922 and $11,594,435 for the three and nine months ended March 31, 1998,
respectively. Bitwise sales of the DocStar product line were $2,367,314 and
$8,338,978 for the three and nine months ended March 31, 1999, respectively,
compared to $2,655,458 and $8,105,827 for the three and nine months ended March
31, 1998, respectively. For the Company's subsidiary DJS Marketing Group, Inc.
(DJS) sales were $2,314,469 and $6,808,308 for the three and nine months ended
March 31, 1999, respectively, compared to $2,885,596 and $8,347,370 for the
three and nine months ended March 31, 1998, respectively.
The Company's net loss improvement for the three and nine months ended
March 31, 1999 is due to a combination of reductions in operating costs,
increase in profits from DJS and growth in sales of the DocStar product line.
Bitwise incurred a pre tax loss of $741,623 and $1,286,394 for the three and
nine months ended March 31, 1999, respectively, compared to a pre tax loss of
$904,631 and $2,001,586 for the same periods last year. DJS realized a reduction
in sales, however DJS reports an increase in profit due to an increase in gross
profit margins as DJS shifted its business from hardware sales to a business
model that produced more service revenue such as network and internet services
in addition to hardware sales. DJS was also able to reduce operating costs. DJS
had pre tax profits of $131,354 and $324,775 for the three and nine months ended
March 31, 1999, respectively, compared to pre tax profits/(losses) of $(4,991)
and $23,008 for the same periods last year.
Page 10 of 15
<PAGE> 11
Bitwise recognized approximately $1,232,000 of net sales to selected
customers in December, 1998 with deferred payment terms of up to 180 days. These
customers have a right to cancel and return 50% to 100% of the purchased
products during the deferred payment period. These sales were recorded net of
expected potential sales returns of approximately $308,000 and represents a
longer than normal term supply of product to these customers. In connection with
these agreements, the Company also will incur and has accrued for certain
obligations to these customers, including the subsidy of the cost of a dedicated
DocStar sales specialist. As of March 31, 1999, $103,000 of these sales has been
returned.
Consolidated gross profit for the three months and nine months ended
March 31, 1999 was $1,572,354 and $5,480,131, respectively, compared to
$2,444,698 and $7,574,597 for the same periods last year. This reduction is due
to the sale of SST in June 1998. The consolidated profit margin was 33.6% and
36.2% for the three and nine months ended March 31, 1999, respectively, compared
to 25.3% and 27.0% for the same periods last year. Gross profit margin is
defined as gross profit as a percentage of sales. The increase in gross profit
margin is due to the sale of SST and the continued growth of Bitwise and it's
DocStar product which has significantly higher gross profit margins than
products and services provided by both SST and DJS.
Selling, general and administrative expenses (S,G&A) consist of all
other Company expenses except product development costs and interest. S,G&A
expenses amounted to $1,960,875 and $5,868,025 for the three and nine months
ended March 31, 1999, respectively, compared to $3,063,767 and $8,808,042 for
the same periods last year. S,G&A expenses decreased as a result of the sale of
SST, which reported S,G&A expenses of $758,413 and $2,192,901 for the three and
nine months ended March 31, 1998. The remainder of the decrease is due to cost
cutting by Bitwise and DJS.
As a percentage of sales, S,G&A costs increased from 31.7% and 31.4%
for the three and nine months ended March 31, 1998 to 41.9% and 38.7% for the
three and nine months ended March 31, 1999. This increase is due to the sale of
SST. Bitwise historically has had higher S,G&A expenses than any of the
subsidiary companies because of it's organization structure which includes
sales, training and service personnel stationed around the country to serve the
national dealer network. This has resulted in high payroll and travel and living
expenses. In addition, Bitwise incurs significant advertising and marketing
costs to market DocStar nationally. The subsidiaries typically sold in a
localized area and only employ personnel in their local region and incur minimal
advertising and marketing costs.
Interest expense totaled $173,200 and $474,196 for the three and nine months
ended March 31, 1999, respectively, compared to $236,037 and $651,590 for the
same periods last year. The decrease is due to the sale of SST which recorded
$44,556 and $153,237 of interest expense during the three and nine months ended
March 31, 1998. The decrease was also due to lower
Page 11 of 15
<PAGE> 12
borrowing levels for DJS offset by higher borrowing levels for Bitwise. Interest
rates decreased during the nine months ended March 31, 1999 compared to the same
period last year.
Product development expenses, excluding capitalized costs and including
amortization of capitalized costs relate to software development for the DocStar
product line incurred by Bitwise. These costs (decreased)/increased from $69,453
and $157,881 for the three and nine months ended March 31, 1998, respectively,
to $54,225 and $174,323 for the three and nine months ended March 31, 1999,
respectively. Bitwise has a policy of capitalizing qualified software
development costs and amortizing those costs over three years as product
development expense.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds to date have been the issuance
of equity and the incurrence of third party debt. The principal balance of
long-term debt at March 31, 1999 totaled $4,047,625, net of discounts;
$3,975,000 of this amount, undiscounted, relates to convertible notes payable
which mature on August 11, 2002. $509,733 relates to a mortgage loan.
The Company has a working capital line of credit facility totaling
$1,500,000, of which approximately $400,000 was available at March 31, 1999. The
line is collateralized by accounts receivable, inventory and all other assets of
Bitwise. The interest rate is prime plus 2% per annum. The line of credit
agreement includes covenants which require the Company to maintain a minimum
tangible net worth, a maximum debt-to-tangible net worth and a minimum amount of
working capital on a consolidated basis. The Company is not in compliance with
it's minimum tangible net worth covenant or it's minimum working capital
covenant at March 31, 1999. The Company is negotiating with it's lender to waive
these two covenant violations.
DJS has a wholesale line of credit facility for $625,000 which is
supported by a guaranty furnished by one of DJS's vendors and expressly limited
to purchases from this vendor. At March 31, 1999, $483,063 was outstanding. The
line is non-interest bearing and payment terms are net 40. The line is
collateralized by all assets of DJS.
In June 1998, the Company sold SST for $4,000,000. The Company received
approximately $3,600,000 in cash and approximately $400,000 in accounts
receivable and inventory. The proceeds were used for the working capital needs
of the Company and to reduce bank borrowings at DJS. The Company has received
certain claims from the buyer of SST for indemnification under the agreements
governing its sale. The parties are currently negotiating the amount of such
claim. There can be no assurance that the result of such negotiations will be
resolved in the Company's favor.
Property, plant and equipment expenditures totaled $1,053,087 and
capitalized software development expenditures totaled $111,871 for the nine
months ended March 31, 1999, respectively. There were no purchase commitments
outstanding or contemplated. The Company is constructing a new
Page 12 of 15
<PAGE> 13
office/production facility with an estimated cost of approximately $2,500,000 in
Schenectady, NY.
The Company has been awarded a grant from the Empire State Development
Corporation (an agency of New York state) for $1,000,000 to be used for
construction of this facility. Funding will be received in stages as the
facility is built. The Company has a construction/permanent mortgage with a
local bank for $1,400,000, the balance outstanding at March 31, 1999 was
$509,733. The Grant stipulates that the Company is obligated to achieve certain
annual employment levels at the Schenectady site between January 1, 2001 and
January 1, 2005 or some or all of the grant will have to be repaid.
The Company anticipates that cash expected to be provided by operations
together with borrowings under its lines of credit will be sufficient to satisfy
normal operating obligations. The Company has significantly reduced fixed
overhead costs. A combination of this reduction in costs and anticipated sales
growth from both DocStar and future products is expected to satisfy it's cash
needs along with borrowings on its lines of credit.
The Company experienced a net loss of $956,785 during the nine months
ended March 31, 1999. To date, the Company has been largely dependent on its
ability to sell additional shares of its common stock or other securities or
other financing to fund its operating deficits. Under its current operating plan
to obtain a national acceptance of the DocStar product line, the Company's
ability to improve operating cash flow is highly dependent on the market
acceptance of DocStar and the Company's ability to reduce overhead expenses. If
the Company is unable to attain projected sales levels for its DocStar systems,
is unable to implement cost reduction strategies, or comply with debt covenant
requirements it may be necessary to raise additional capital to fund operations
and meet its obligations. There is no assurance that such funding will be
available.
In February 1999, the Company announced that it had reached agreement
for a $15 million secured line of credit for targeted acquisitions, with a
lender. Subsequently, the parties mutually agreed to terminate those
negotiations.
PART II OTHER INFORMATION
Item 6 Reports on Form 8-K
(a) The following Reports on Form 8-K were filed by the Company during the
last quarter:
None
(b) Exhibits
None
SAFE HARBOR STATEMENT
Certain statements in this Form 10-Q, including information set forth
under Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations constitute "forward-looking statements" within the meaning
of the Private
Page 13 of 15
<PAGE> 14
Securities Litigation Reform Act of 1995 (the Act). The Company desires to avail
itself of certain "safe harbor" provisions of the Act and is therefore including
this special note to enable the Company to do so. Forward-looking statements in
this Form 10-Q or hereafter included in other publicly available documents filed
with the Securities and Exchange Commission, reports to the Company's
stockholders and other publicly available statements issued or released by the
Company involve known and unknown risks, uncertainties and other factors which
could cause the Company's actual results, performance (financial or operating)
or achievements to differ from the future results, performance (financial or
operating) or achievements expressed or implied by such forward-looking
statements. Such future results are based upon management's best estimates based
upon current conditions and the most recent results of operations. These risks
include, but are not limited to risks associated with the market acceptance of
the DocStar product line, competition, pricing and technological changes and
other risks as discussed in the Company's filings with the Securities and
Exchange Commission, in particular its Annual Report on Form 10-K for the year
ended June 30, 1998, and Registration Statement on Form S-3 declared effective
on July 30, 1996 all of which risk factors could adversely affect the Company's
business and the accuracy of the forward-looking statements contained herein.
YEAR 2000 UPDATE
The Company has completed its company-wide Year 2000 Project (Project).
The Project addressed the issue by performing a survey on all desktop computers
and servers to ensure Year 2000 compliance. The survey concluded that all of the
Company's computer systems use hardware that is Year 2000 compliant. Most of the
Company's third party software and operating systems are Microsoft(TM) based and
believed to be Year 2000 compliant. The Project also included the evaluation of
it's third-party accounting systems. These systems have already been upgraded to
Year 2000 Versions purchased from the applicable vendors. The Company's document
imaging product, DocStar is Year 2000 compliant.
The Project also included the evaluation of the Company's third party
suppliers as Company operations could be affected by the interruption of
significant suppliers. This evaluation included discussions with each critical
vendor to ascertain their compliance with Year 2000 issues. The Company does not
believe any of it's critical vendors has a Year 2000 compliance problem and the
Company believes that alternate sources are available for substantially all
components the Company purchases.
The cost of the Project including software upgrades and hardware
surveys was immaterial (estimated to be less than $25,000).
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third party suppliers and customers,
the Company is unable to determine
Page 14 of 15
<PAGE> 15
at this time whether the consequences of Year 2000 failure will have a material
impact on the Company's results of operations, liquidity or financial condition.
However, the Company believes that with the implementation its Year 2000 Project
that the possibility of significant interruptions of normal operations should be
reduced.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BITWISE DESIGNS INCORPORATED
May 14, 1999 /s/ John T. Botti
- ------------ ------------------------------------
DATE JOHN T. BOTTI
PRESIDENT & CHIEF EXECUTIVE OFFICER
/s/ Dennis H. Bunt
------------------------------------
DENNIS H. BUNT
CHIEF FINANCIAL OFFICER
Page 15 of 15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 1,027,202
<SECURITIES> 0
<RECEIVABLES> 7,233,305
<ALLOWANCES> (392,968)
<INVENTORY> 2,198,171
<CURRENT-ASSETS> 10,546,760
<PP&E> 2,842,260
<DEPRECIATION> (1,194,908)
<TOTAL-ASSETS> 13,928,471
<CURRENT-LIABILITIES> 4,351,918
<BONDS> 0
0
20
<COMMON> 7,411
<OTHER-SE> 5,537,977
<TOTAL-LIABILITY-AND-EQUITY> 13,928,471
<SALES> 15,147,286
<TOTAL-REVENUES> 15,147,286
<CGS> 9,667,155
<TOTAL-COSTS> 15,709,503
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (474,196)
<INCOME-PRETAX> (961,619)
<INCOME-TAX> 4,834
<INCOME-CONTINUING> (956,785)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (956,785)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
</TABLE>
