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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 September 30, 2000
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
0-20190
(Commission File No.)
BITWISE DESIGNS, INC
(Exact name of small business issuer as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization) |
14-1673067 (I.R.S.Employer Identification No.) |
2165 Technology Dr. Schenectady, NY (Address of principal executive offices) |
12308 (Zip Code) |
(518) 346-7799
(Registrants telephone number, including area code)
(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 [ ]
14,799,659 shares of Common Stock, par value $.001 per share, were outstanding at November 6, 2000.
BITWISE DESIGNS INCORPORATED
FORM 10-Q
INDEX
Page | |||
PART I | FINANCIAL INFORMATION | ||
Item 1. | Financial Statements | ||
Consolidated Balance Sheets September 30, 2000 and June 30, 2000 |
3 | ||
Consolidated Statements of Operations Three months ended September 30, 2000 and September 30, 1999 |
5 | ||
Consolidated Statements of Cash Flows Three months ended September 30, 2000 and September 30, 1999 |
6 | ||
Notes to Consolidated Financial Statements | 8 | ||
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
10 | |
PART II | OTHER INFORMATION | ||
Item 6. | Reports on Form 8-K and exhibits | 11 |
Safe Harbor Statement | 11 |
SIGNATURES | 12 |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BITWISE DESIGNS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 2000 |
June 30, 2000 |
||||||
(unaudited) | |||||||
ASSETS | |||||||
Current Assets: | |||||||
Cash and cash equivalents | $ | 8,156,924 | $ | 7,965,496 | |||
Accounts receivable, net of allowance for doubtful accounts of $435,738 at Sept 30, 2000 and $410,761 at June 30, 2000 |
3,956,822 | 4,274,148 | |||||
Due from related parties | 10,083 | 7,866 | |||||
Inventories: | |||||||
Finished goods | 847,843 | 744,353 | |||||
Purchased components & raw material | 1,138,291 | 1,608,034 | |||||
Income taxes receivable | 15,071 | 15,471 | |||||
Prepaid expenses and other current assets | 295,440 | 617,526 | |||||
Total current assets | 14,420,474 | 15,232,894 | |||||
Property and equipment, net | 3,114,945 | 3,033,864 | |||||
Other assets: | |||||||
Software development costs, net | 491,929 | 167,059 | |||||
Excess of cost over net assets of acquired companies, net | 1,234,630 | 1,254,952 | |||||
Investment in Authentidate International AG | 1,314,430 | 1,350,775 | |||||
Other intangible assets, net | 106,299 | 88,491 | |||||
Other assets | 300 | 300 | |||||
Total assets | $ | 20,683,007 | $ | 21,128,335 | |||
See accompanying notes to the consolidated financial statements.
BITWISE DESIGNS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
September 30, 2000 |
June 30, 2000 |
|||||||||
(unaudited) | ||||||||||
LIABILITIES AND SHAREHOLDERS EQUITY | ||||||||||
Current liabilities: | ||||||||||
Accounts payable | $ | 2,161,654 | $ | 1,228,618 | ||||||
Accrued expenses and other liabilities | 285,649 | 448,091 | ||||||||
Current portion of long-term debt | 29,515 | 29,515 | ||||||||
Due to related parties | 68,040 | 103,040 | ||||||||
Total current liabilities | 2,544,858 | 1,809,264 | ||||||||
Long-term debt, net of current portion | 1,343,903 | 1,351,253 | ||||||||
Deferred grant | 1,000,000 | 1,000,000 | ||||||||
Total liabilities | 4,888,761 | 4,160,517 | ||||||||
Shareholders equity: | ||||||||||
Preferred stock -$.10 par value, 5,000,000 shares authorized: | ||||||||||
Series A-200 shares issued and outstanding | 20 | 20 | ||||||||
Series B-50,000 shares issued and outstanding | 5,000 | 5,000 | ||||||||
Common stock-$.001 par value; 20,000,000 shares authorized; shares issued: 14,794,179 at Sept. 30, 2000 and 14,421,758 at June 30, 2000 |
14,794 | 14,422 | ||||||||
Additional paid-in capital | 39,173,473 | 38,740,271 | ||||||||
Accumulated deficit | (23,399,041 | ) | (21,715,176 | ) | ||||||
15,794,246 | 17,044,537 | |||||||||
Less cost of 28,082 treasury shares | (76,719 | ) | ||||||||
Total shareholders equity | 15,794,246 | 16,967,818 | ||||||||
Total liabilities and shareholders equity | $ | 20,683,007 | $ | 21,128,335 | ||||||
See accompanying notes to the consolidated financial statements.
BITWISE DESIGNS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the 3 months ended | |||||||
September 30, 2000 |
September 30, 1999 |
||||||
(unaudited) | (unaudited) | ||||||
Net sales | $ | 4,483,479 | $ | 3,071,766 | |||
Cost of goods sold | 3,176,302 | 2,482,323 | |||||
Gross profit | 1,307,177 | 589,443 | |||||
Selling, general and administrative expenses |
2,346,415 | 1,437,510 | |||||
Product development costs | 629,790 | 64,547 | |||||
Operating loss | (1,669,028 | ) | (912,614 | ) | |||
Other income (expense): |
|||||||
Interest expense | (28,428 | ) | (192,979 | ) | |||
Interest and other income | 122,060 | (1,897 | ) | ||||
Loss before taxes | (1,575,396 | ) | (1,107,490 | ) | |||
Income tax expense (benefit) | 500 | ||||||
Net income/(loss) | $ | (1,575,896 | ) | $ | (1,107,490 | ) | |
Per share amounts: |
|||||||
Net loss per common share | $ | (0.11 | ) | $ | (0.15 | ) | |
See accompanying notes to the consolidated financial statements.
BITWISE DESIGNS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
For the 3 months ended | |||||||
September 30, 2000 |
September 30, 1999 |
||||||
(unaudited) | (unaudited) | ||||||
Cash flows from operating activities: | |||||||
Net loss | $ | (1,575,896 | ) | $ | (1,107,490 | ) | |
Adjustments to reconcile net loss to net cash provided by/(used in) operating activities: |
|||||||
Depreciation and amortization | 198,536 | 168,051 | |||||
Provision for doubtful accounts | 34,843 | 18,000 | |||||
Non cash S,G&A expenses | 36,042 | ||||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable and other receivables | 280,266 | 1,034,336 | |||||
Inventories | 366,253 | 234,918 | |||||
Prepaid expenses and other current assets | 314,564 | 33,730 | |||||
Accounts payable and other current liabilities | 735,594 | (1,603,117 | ) | ||||
Income taxes | 400 | (1,116 | ) | ||||
Other | 399 | ||||||
Net cash provided by/(used in) operating activities | 354,560 | (1,186,247 | ) | ||||
Cash flows from investing activities: | |||||||
Property, plant and equipment expenditures | (157,779 | ) | (78,730 | ) | |||
Software development costs | (378,048 | ) | (78,945 | ) | |||
Other intangible assets | (22,280 | ) | |||||
Net cash used in investing activities | (558,107 | ) | (157,675 | ) | |||
Cash flows from financing activities: | |||||||
Increase/(Decrease) in borrowings on lines of credit, net | (62,327 | ) | |||||
Proceeds from borrowings on long-term debt | 525,973 | ||||||
Principle payments on long-term debt | (7,350 | ) | (48,128 | ) | |||
Receipt of deferred revenue from economic development grant | 757,811 | ||||||
Payment of offering and financing costs | (1,500 | ) | |||||
Exercise of warrants and options | 433,575 | ||||||
Preferred stock dividends | (31,250 | ) | |||||
Net cash provided by/(used in) financing activities | 394,975 | 1,171,829 | |||||
Net increase/(decrease) in cash and cash equivalents |
191,428 | (172,093 | ) | ||||
Cash and cash equivalents, beginning of year | 7,965,496 | 549,097 | |||||
Cash and cash equivalents, end of period | $ | 8,156,924 | $ | 377,004 | |||
See accompanying notes to the consolidated financial statements.
BITWISE DESIGNS, INC. AND SUBSIDIARIES
SUPPLEMENTAL CASH FLOW DISCLOSURES
For the 3 months ended | |||||||
September 30, 2000 |
September 30, 1999 |
||||||
(unaudited) | (unaudited) | ||||||
Other supplemental information: | |||||||
Interest paid | $ | 18,935 | $ | 37,448 | |||
Income taxes paid | 100 | 0 | |||||
Additional paid-in capital resulting from | |||||||
Issuance of warrants for services | 45,130 | ||||||
Issuance of common for services | 36,042 |
See accompanying notes to the consolidated financial statements.
BITWISE DESIGNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of management the accompanying unaudited consolidated financial statements contain all adjustments, consisting of only normal, recurring adjustments, necessary for the fair presentation of results for such periods. The consolidated financial statements include the accounts of Bitwise Designs, Inc. and its wholly-owned subsidiaries DJS Marketing Group, Inc. (DJS), Authentigraph.com, Inc. and majority owned (approx. 72%) Authentidate, Inc. (the Company).
2. During the year ended June 30, 2000 the Company formed two new subsidiaries, Authentidate, Inc. and Authentigraph.com, Inc. These two Companies provide Internet related services. The Authentidate service allows users to verify the authenticity of digital documents and images by imbedding an unalterable date and time stamp into digital images. Using this software technology a customer can prove content as well as date and time authenticity of a digital document. The Company expects the Authentidate software to be used for various business applications such as proving authenticity of digital legal documents, contracts, human resource records, medical records and numerous other potential uses. It may also be used to send notarized e-mail. The Authentigraph service uses Authentidate software however it focuses on the collectibles market and offers a service to prove authenticity of collectibles such as sports memorabilia and artwork. Neither entity has commenced bus iness sales operations to date but Authentidate is expected to commence business sales in early calendar 2001. The Company has signed a Letter of Intent to sell 81% of Authentigraph to an investor group specializing in the collectibles industry. Authentigraph will become a customer for Authentidate. The closing is expected to happen during the fourth quarter of calendar 2000. The Company also formed a joint venture known as Authentidate International Holdings, AG, with a German partner in Europe to develop and market a similar product in Europe and parts of Asia.
3. The results of operations for the three months ended September 30, 2000 and 1999 are not necessarily indicative of the results to be expected for the full year.
4. 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 Companys Form 10-K for the fiscal year ended June 30, 2000.
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 months ended September 30, 2000 and 1999.
6. During the three months ended September 30, 2000, 168,600 common stock warrants and options were exercised.
7. The following represents the reconciliation of the basic and diluted earnings per share amounts for the three months ended September 30, 2000 and 1999.
September 30, 2000 Three Months Ended |
|||||||
2000 | 1999 | ||||||
Net income/(loss) | $ | (1,575,896 | ) | $ | (1,107,490 | ) | |
Preferred stock dividends | (31,250 | ) | 0 | ||||
Loss applicable to common shareholders | $ | (1,607,146 | ) | $ | (1,107,490 | ) | |
Weighted average shares | 14,614,182 | 7,460,745 | |||||
Basic and diluted EPS | $ | (.11 | ) | $ | (.15 | ) |
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.
8. The Companys reportable segments are separate divisions which are managed separately. Included in the All Other column are Authentidate and Authentigraph which do not expect material sales until late in the third quarter of the Companys fiscal year. During the current quarter management of the Company created two additional segments, the DocStar Division and the Corporate Division. Through June 30, 2000 the activities of both divisions were combined under the Bitwise segment. The Corporate Division is a non-operating division which includes all
public company type activities and applies to all Bitwise operating divisions and therefore should be segregated. Segment data for the prior year has been adjusted to conform to the current year presentation.
Segment Information
DocStar | DJS | All Other | Totals | ||||||||||
September 30, 2000: | |||||||||||||
Revenues from external customers | $ | 1,695,509 | $ | 2,787,486 | $ | 484 | $ | 4,483,479 | |||||
Intersegment revenues | 79,193 | 79,193 | |||||||||||
Segment profit (loss) | 67,658 | 76,369 | (879,677 | ) | (735,650 | ) | |||||||
September 30, 1999: | |||||||||||||
Revenues from external customers | 725,137 | 2,346,629 | 3,071,766 | ||||||||||
Intersegment revenues | 0 | ||||||||||||
Segment profit/(loss) | (793,882 | ) | 86,348 | (140,474 | ) | (848,008 | ) |
September 30, 2000 | September 30, 1999 | ||||||
Reconciliation: | |||||||
Total revenues from segments | $ | 4,562,672 | $ | 3,071,766 | |||
Elimination of intersegment revenues | (79,193 | ) | |||||
Total consolidated revenues | $ | 4,483,479 | $ | 3,071,766 | |||
Total pre-tax profit or loss of segments | $ | (735,650 | ) | $ | (848,008 | ) | |
Product development expenses | (629,790 | ) | (64,547 | ) | |||
Corporate division expenses | (212,860 | ) | (199,475 | ) | |||
Elimination of intersegment profits | 2,904 | 4,540 | |||||
Loss before income taxes | $ | (1,575,396 | ) | $ | (1,107,490 | ) | |
New Accounting Standards
In June 1998, the Financial Accounting Standards Board 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 all fiscal quarters of all fiscal years after June 15, 2000. The Company has adopted the provisions of this standard which did not have an impact on the Companys financial statements.
In December 1999, the SEC issued Staff Bulletin No. 101 (SAB 101), Revenue Recognition in Financial Statements. SAB 101 summarizes certain of the SECs views in applying generally accepted accounting principles to revenue recognition in the financial statements. The Company is required to adopt SAB 101 in the quarter ended May 27, 2001. Management does not expect the adoption of SAB 101 to have a material effect on the Companys financial condition or results of operations.
In March 2000, the Financial Accounting Standards Board issued FASB Interpretation No. 44 (FIN 44), Accounting for Certain Transactions Involving Stock Compensation - an interpretation of APB Opinion No. 25. FIN 44 clarifies the application of APB Opinion No. 25 and, among other issues clarifies the definition of an employee for purposes of applying APB Opinion No. 25, the criteria for determining whether a plan qualifies as a non-compensatory plan; the accounting consequences of various modifications to the terms of previously fixed stock options or awards, and the accounting for an exchange of stock compensation awards in a business combination. FIN 44 was effective July 1, 2000, but certain conclusions in FIN 44 cover specific events that occurred after either December 15, 1998 or January 12, 2000. The Company has applied the applicable provisions of FIN 44 which did not have a material effect on the Companys Consolidated Financial Statements.
Item 2. Managements Discussion and Analysis of 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 Companys consolidated financial statements and notes contained elsewhere in this Form 10-Q.
Results of Operations
The Three Months Ended September 30, 2000 Compared to the Three Months Ended September 30, 1999.
The Company realized a consolidated net loss of $1,575,896 ($.11 per share) and $1,107,490 ($.15 per share) for the three months ended September 30, 2000 and 1999, respectively. The major reason for the loss was due to losses incurred by the Companys subsidiary Authentidate, Inc. which incurred a pre-tax loss of $1,410,360 for the quarter. Authentigraph.com, Inc. also incurred a pre-tax loss of $40,483 while the Companys other two operating divisions DocStar and DJS Marketing Group, Inc. realized pre-tax profits of $9,034 and $76,369, respectively. See Footnote 8 for further information on segment profits and losses.
The Company had consolidated net sales of $4,483,479 and $3,071,766 for the three months ended September 30, 2000 and 1999, respectively. Both DJS and DocStar realized a significant increase in sales for the quarter ended September 30, 2000 compared to the same quarter last year. Authentidate and Authentigraph did not have significant sales. Authentidate is in the process of testing its authentication software and service for a March or April 2001 release. Authentidate will continue to generate losses until sales of its Business to Business product become significant. Currently, Authentidate is spending heavily on product development and also to develop the management team it needs to execute the Business Plan.
DocStar sales increased from $725,137 at September 30, 1999 to $1,695,509 at September 30, 2000 as the Companys dealers increased orders significantly this year compared to last year. DJS sales increased from $2,346,629 at September 30, 1999 to $2,787,486 at September 30, 2000 as demand for DJS products and services continued to increase in the Albany NY market place.
Consolidated gross profit for the three months ended September 30, 2000 and 1999 was $1,307,177 and $589,443, respectively. This increase is due to the sales increase of DocStar and DJS discussed above. The consolidated profit margin was 29.2% and 19.2% for the three months ended September 30, 2000 and 1999, respectively. Gross profit margin is defined as gross profit as a percentage of sales. The increase in gross profit margin is due to DocStar which realized a gross profit margin of 44.7% for the quarter ended September 30, 2000 compared to 15% for the same quarter last year. The increase is due to an increase in gross profit on DocStar system sales through a combination of direct material cost reductions and an increase in average selling prices.
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 $2,346,415 and $1,437,510 for the three months ended September 30, 2000 and 1999, respectively. The increase is mainly due to Authentidate which has been building a staff for several months and incurred significant payroll, consulting and advertising expenses. As a percentage of sales, S,G&A costs were 52.3% and 46.8% for the three months ended September 30, 2000 and 1999, respectively.
Interest expense was $28,428 and $192,979 for the three months ended September 30, 2000 and 1999, respectively. Interest rates incurred by the Company decreased during the three months ended September 30, 2000 compared to the same period last year.
Product development expenses, excluding capitalized costs and including amortization of capitalized costs, relate to software development for DocStar and for Authentidate. These costs increased to $629,790 from $64,547 for the three months ended September 30, 2000 compared to the same quarter last year, the increase is due to development of the Authentidate product line. The Company has a policy of capitalizing qualified software development costs after technical feasibility has been established and amortizing those costs over three years as product development expense.
Liquidity and Capital Resources
The Companys primary sources of funds to date have been the issuance of equity and the incurrence of third party debt. The principal balance of all long-term debt at September 30, 2000 totaled $1,373,903 all of which relates to a mortgage loan on the Companys principle office located in Schenectady, NY.
The Companys subsidiary DJS has a wholesale line of credit facility for $625,000. At September 30, 2000, $455,952 was outstanding. The line is non-interest bearing and payment terms are net 40. The line is collateralized by all assets of DJS.
Property, plant and equipment expenditures totaled $157,779 and capitalized software development expenditures totaled $378,048 for the three months ended September 30, 2000, respectively. There was one purchase commitment outstanding for approximately $200,000 for computer equipment.
The Companys cash balance at September 30, 2000 was $8,156,924 and total assets were $20,683,007. Management believes existing cash and short-term investments should be sufficient to meet the Companys operating requirements for the next twelve months.
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
SAFE HARBOR STATEMENT
Certain statements in this Form 10-Q, including information set forth under Item 2 Managements 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 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 Companys 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 Companys 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 managements 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, Authentidate and Authentigraph product lines, competition, pricing, technologi cal changes, technological implementation of the Authentidate and Authentigraph business plans and other risks as discussed in the Companys filings with the Securities and Exchange Commission, in particular its Annual Report on Form 10-K for the year ended June 30, 2000, Registration Statement on Form S-3 declared effective on July 30, 1996 and Registration Statement on Form SB-2 declared effective February 14, 2000 all of which risk factors could adversely affect the Companys 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 | |||
Date: November 13, 2000 | By: | /s/ John T. Botti | |
John T. Botti President & Chief Executive Officer |
By: | /s/ Dennis H. Bunt | ||
Dennis H. Bunt Chief Financial Officer |
|