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Filed Pursuant to Rule 424(b)(3)
Registration File No.: 333-49160
5,943,248 Shares
BITWISE DESIGNS, INC.
Common Stock
We are registering (1) 2,588,500 shares of Bitwise's common stock, par
value $.001, which will be issued upon the exercise of (a) 1,500,000 Series B
Warrants; and (b) 1,088,500 privately issued common stock purchase warrants; (2)
666,667 shares of our common stock which will be issued upon the conversion of
50,000 shares of our Series B Preferred Stock; and (3) the resale of 2,053,081
shares held by certain selling shareholders. We are also registering an
additional 25,000 shares of common stock and 610,000 shares of our common stock
which will be issued upon the exercise of privately issued common stock purchase
warrants.
We will not receive any of the proceeds from the sale of the Shares by the
Selling Security Holders.
Bitwise's common stock is traded in the over-the counter market and is
quoted on the Nasdaq National Market under the symbol "BTWS" and on the Pacific
Stock Exchange under the symbol "BTWS". On December 28, 2000, the closing price
for the common stock as reported on Nasdaq was $3.3125.
PLEASE SEE "RISK FACTORS" BEGINNING ON PAGE 7 TO READ ABOUT
CERTAIN FACTORS YOU SHOULD CONSIDER BEFORE BUYING SHARES OF
COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Shares of common stock, including the Shares underlying the Series B
Warrants and Private Warrants and the Shares issuable upon the conversion of the
Series B Preferred Stock will be issued by Bitwise upon exercise or conversion
by the holders of the warrants or preferred stock, or the transferees of the
holders. The shares of common stock will be offered and sold from time to time
by the Selling Security Holders and their transferees in the over-the-counter
market, or otherwise, at prices and terms then prevailing or at prices related
to the then-current market price, or in privately negotiated transactions.
Prospectus dated January 5, 2000
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TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
AVAILABLE INFORMATION ................................................... 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE ......................... 1
PROSPECTUS SUMMARY ...................................................... 2
THE COMPANY ............................................................. 2
THE OFFERING ............................................................ 6
RISK FACTORS ............................................................ 7
USE OF PROCEEDS ......................................................... 13
SELLING SECURITY HOLDERS ................................................ 14
PLAN OF DISTRIBUTION .................................................... 18
REPORTS TO SHAREHOLDERS ................................................. 19
LEGAL MATTERS ........................................................... 19
EXPERTS ................................................................. 19
ADDITIONAL INFORMATION .................................................. 19
FORWARD LOOKING STATEMENTS .............................................. 20
</TABLE>
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AVAILABLE INFORMATION
We are subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended, and, in accordance therewith, file
reports and other information with the Securities and Exchange Commission.
Reports, proxy and information statements and other information that we file
with the Commission pursuant to the informational requirements of the Exchange
Act may be inspected and copied at the public reference facilities maintained by
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
following Regional Offices of the Commission: New York Regional Office, 7 World
Trade Center, 13th Floor, New York, New York 10048; and Chicago Regional Office,
500 West Madison Street, Room 1400, Chicago, Illinois 60661. Copies of such
material may be obtained from the public reference section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. You may
obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. The SEC maintains an Internet site, http://www.sec.gov,
that contains reports, proxy and information statements and other information
that we file electronically with the SEC.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, heretofore filed by Bitwise Designs with the
Commission pursuant to the Exchange Act, are hereby incorporated by reference,
except as superseded or modified herein:
1. Our Annual Report on Form 10-KSB, as amended, for the fiscal year
ended June 30, 2000.
2. Our Quarterly Report on Form 10-Q for the quarter ended September
30, 2000.
3. A description of our common stock contained in our registration
statement on Form 8-A filed April 17, 2000.
Each document filed subsequent to the date of this prospectus pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination
of this offering shall be deemed to be incorporated by reference in this
prospectus and shall be part hereof from the date of filing of such document.
All documents filed by the registrant after the date of filing the initial
registration statement on Form S-3 of which this prospectus forms a part and
prior to the effectiveness of such registration statement pursuant to Section
13(a), 13(c), 14 and 15(d) of the Securities Exchange Act of 1934 shall be
deemed to be incorporated by reference into this prospectus and to be part
hereof from the date of filing of such documents.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of any such
person, a copy of any document described above (other than exhibits). Requests
for such copies should be directed to Bitwise Designs, Inc., 2165 Technology
Drive, Schenectady, New York 12308, telephone (518) 346-7799, Attention: Chief
Financial Officer.
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PROSPECTUS SUMMARY
The following summary is intended to set forth certain pertinent facts and
highlights from material contained in our Annual Report on Form 10-KSB, as
amended, for the fiscal year ended June 30, 2000, and in our Quarterly Report on
Form 10-Q for the quarter ended September 30, 2000, incorporated by reference
into this prospectus.
BITWISE DESIGNS, INC.
OUR BUSINESS
Bitwise Designs, Inc., and its subsidiaries DJS Marketing Group, Inc.,
Authentidate, Inc. and Authentigraph.com, Inc., are engaged in the manufacture
and distribution of document imaging systems, computer systems and related
peripheral equipment, components, and accessories, network and internet services
and Internet-based authentication services.
In March 1996, we acquired DJS (d.b.a Computer Professionals), a system
integrator, and computer reseller in Albany, New York. DJS is an authorized
sales and support provider for Novell, Microsoft Solutions and Lotus Notes.
We established our Authentidate subsidiary during the fiscal year ended
June 30, 2000 to engage in the business of providing end users with a service
providing for the storage, confirmation and authentication of electronic data
and images. Subsequent to the formation of Authentidate, we established with an
German entity, Authentidate International, A.G., a German corporation, to market
the Authentidate service in certain foreign countries. Authentigraph, also
established during the fiscal year ended June 30, 2000, applies the Authentidate
technology to the field of signature authentication as it relates to sports
memorabilia and entertainment collectibles.
PRODUCTS AND SERVICES
Document Management Systems
In January 1996, Bitwise, on a national level, introduced its document
imaging management system under the tradename DocStar which enables users to
scan paper documents onto an optical disk, hard drive or other storage medium
from which they can be retrieved in seconds. This system allows users to
eliminate or significantly reduce paper filing systems. We believe that a broad
spectrum of businesses and governmental agencies experience the problem of
storage, management and security of paper documents. The DocStar product line is
intended to provide a cost effective method of reducing the space necessary to
store documents while granting a user the ability to instantly retrieve
documents.
The operation of a document management system is similar to the operation
of a facsimile machine. Documents are fed into an optical scanner that reads the
documents and stores the information on one of several alternative mass storage
devices. Documents can also be transmitted from or to the system via facsimile
machine or modem. Documents can be retrieved almost instantaneously for viewing,
printing or faxing thereby offering a significant time-saving tool to the modern
office.
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We market the document management system under the tradename DocStar
through a national dealer network. We own one dealership in the Albany, New York
region, which also serves as a test market for new applications and software.
Internet Authentication Services
During the fiscal year ended June 30, 2000, we established the following
subsidiaries to provide authentication services:
- Authentidate, Inc. - to provide a service to accept and store
electronic files via the Internet and date and time stamps those
files with a secure clock to proved content, date and time
authenticity;
- Authentigraph.com, Inc. - to develop an authentication service for
use in the sports memorabilia and collectibles industries; and
- Authentidate International, A.G. - a joint venture with a German
entity to market the Authentidate service in certain foreign
countries.
Computer Products and Services
Along with our subsidiary, DJS, we primarily market the following
different products and services:
- Computer Products and Integration Services;
- Network Services; and
- Internet/Intranet Development Services.
AUTHENTIDATE, INC. AND AUTHENTIGRAPH.COM, INC.
We recently established a majority owned subsidiary named Authentidate,
Inc., to engage in a new business line of providing end users with a service
which will:
- accept and store electronic images from networks and personal
computers throughout the world and from different operating systems
via the Internet;
- indelibly date and time stamp all electronic images received using a
secure clock;
- allow users to transmit only the "secure codes" to Authentidate
fileservers while maintaining the original within the customers
"firewall"; and
- allow users to prove authenticity of time, date and content of
stored electronic documents.
Authentigraph was also recently created to market Authentidate services to
the sports memorabilia and collectibles industries.
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We formed a joint venture in March, 2000, known as Authentidate
International, AG, with a German company to develop the Authentidate software in
foreign languages and to market that product outside the Americas, Japan,
Australia, New Zealand and India. We own 39% of the joint venture.
SERVICES
Authentidate is in the process of developing a Business to Business
product. There currently exists a Retail version on the Internet which was
developed in large part to generate interest and to publicize the B to B
version. Only minor income is expected from the retail version. We retained a
third party consulting firm, Cap Gemini America, Inc., to program and develop
the B to B version. This version is currently being tested and we anticipate a
general release in early 2001.
DJS MARKETING GROUP, INC.
DJS (d/b/a "Computer Professionals") is a network and systems integrator
of computer and peripheral products for a variety of customers, including
corporations, schools, government agencies, manufacturers and distributors. DJS
is one of the largest systems integrators in the Albany, New York region.
DJS provides network integration, Internet/Intranet development,
accounting solutions, service, consultation, document management and video
conferences. DJS also services the products it sells by employing factory
trained computer technicians and network engineers.
PRODUCTS AND SERVICES
Computer Products and Integration Services
DJS purchases personal computers and peripheral computer products from
many different suppliers. Peripheral computer products are products that operate
in conjunction with computers, including but not limited to, printers, monitors,
scanners, modems and software. DJS configures various computer hardware and
peripheral products such as software together, to satisfy a customer's
individual needs.
Network Integration Services
DJS network integration group designs, implements, installs, manages and
supports enterprise networks with products from Novell, Microsoft, UNIX,
Tricord, Synoptics, Compaq, Cisco and others. Applications that the network
system provides include E-mail, accounting systems, word processing,
communication and any other applications that require the sharing of
information. DJS designs customized solutions for its clients with precise
objectives and its engineers analyze hardware, software, and cabling to ensure
effective and affordable solutions.
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Internet/Intranet Development
DJS offers services related to the Internet, including Internet
connectivity, web page development, and hardware installation. Additionally, DJS
assists its clients through the buying and implementation process with
Internet/Intranet training and ongoing support.
Accounting Solutions
DJS also markets accounting systems from State-of-the-Art to various
end-users such as distributors, manufacturers and wholesalers. DJS analyzes each
particular client's needs and custom designs an accounting system to satisfy
these needs.
Service and Consultation
DJS's service department is authorized to repair and maintain all major
brand products sold by DJS, including warranty and post-warranty equipment. DJS
generally guarantees a four hour response time for all service calls, with an
average resolution time of next day. DJS's engineers also provide complete
system configuration services, which includes installation of all hardware,
including memory, disk drives, network or communication adapters, as well as any
associated software or driver. All units are thoroughly tested after
configuration and all malfunctioning units are eliminated.
Document Management
DJS also offers document imaging services which it believes is an
efficient and financially attainable alternative to conventional, costly paper
trails. Management believes digital documents can be stored, searched, retrieved
and edited in a fraction of the time with complete access to the network and
quality control features. Among other product lines, DJS offers customers our
DocStar line.
Sales and Marketing
DJS markets its products and services throughout New York State, parts of
Vermont and Massachusetts. DJS intends to expand its national and international
sales and marketing departments. Clients include corporations, small office/home
office owners, schools, government agencies, manufacturers and distributors.
OUR OFFICES
We were initially organized in August 1985 and reincorporated under the
laws of the state of Delaware in May 1992. Our executive offices are located at
2165 Technology Drive, Schenectady, New York 12308, our telephone number is
(518) 346-7799, and our Internet address is www.docstar.com.
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THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the
Selling Security Holders............ 5,943,248
Common Stock Outstanding
Prior to Offering (1) ............ 14,856,730
Common Stock Outstanding
After the Offering (2) ........... 18,721,897
Use of Proceeds (3)................. Bitwise will not receive any proceeds from
the sales of the Selling Shareholders. We
anticipate that proceeds received from the
exercise of any of privately issued Warrants
will be used for working capital and general
corporate purposes. Please see "Use of
Proceeds."
Nasdaq National Market Symbol
(Common Stock): "BTWS"
Pacific Stock Exchange Symbol
(Common Stock): "BTWS"
</TABLE>
---------------------
(1) Based on the number of shares actually outstanding as of December 4, 2000.
Unless otherwise specifically stated, information throughout this prospectus
excludes as of November 27, 2000:
- 3,000,000 shares of Common Stock reserved for issuance under our 1992 Employee
Stock Option Plan, of which 2,094,713 shares have been reserved for currently
outstanding options, and
- 160,000 shares of Common Stock reserved for currently outstanding options
under our Directors Plan.
(2) This assumes the exercise of all of the Series B Warrants and Private
Warrants for which underlying shares are being registered and the conversion of
all shares of Series B Preferred Stock for which the Conversion Shares are
hereby being registered.
(3) We will receive up to approximately $10,465,775 in proceeds upon the
exercise of all of the Series B Warrants, and Private Warrants. We plan to use
all such proceeds for working capital and general corporate purposes. Please see
"Use of Proceeds."
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RISK FACTORS
An investment in the securities offered hereby involves a high degree of
risk. The following factors, in addition to those discussed elsewhere, should be
considered carefully in evaluating us and our business. An investment in the
securities is suitable only for those investors who can bear the risk of loss of
their entire investment.
IF WE CONTINUE TO FACE UNCERTAINTIES IN MARKETING THE DOCSTAR SYSTEM, WE MAY
CONTINUE TO LOSE MONEY.
We incurred losses of $5,274,043, $3,166,488 and $5,464,059 for the fiscal
years ended June 30, 2000, 1999 and 1998, respectively. We also incurred a loss
of $1,575,896 for the three months ended September 30, 2000. Furthermore, for
the last three years we have been expanding our marketing and sales efforts of
the DocStar line of document imaging systems which has led to increased costs
associated with the product line. We have also been investing in new
technologies, namely Authentidate. We will continue to incur these costs in the
future as we attempt to increase market awareness and sales of DocStar and
Authentidate. Our prospects should be considered in light of the difficulties
frequently encountered in connection with the establishment of a new business
line and the competitive environment in which we operate. There can be no
assurance that we will be able to achieve profitable operations in future
operating periods.
WE HAVE LIMITED WORKING CAPITAL AND MAY NEED ADDITIONAL FUNDS TO FINANCE FUTURE
OPERATIONS.
Our capital requirements have been and will continue to be significant. We
have been substantially dependent upon public offerings and private placements
of our securities and on short-term and long-term loans from lending
institutions to fund such requirements. We are expending significant amounts of
capital to promote and market the Authentidate and DocStar products. Due to
these expenditures, we have incurred significant losses to date. In the future,
we may need additional funds from loans and/or the sale of equity securities to
fully implement our business plans. No assurance can be given that such funds
will be available or, if available, will be on commercially reasonable terms
satisfactory to us. In the event such funds are not available, we will be forced
to reduce its current and proposed operations.
OUR PRODUCTS MAY NOT BE ACCEPTED BY OUR CONSUMERS WHICH WOULD SERIOUSLY HARM OUR
BUSINESS.
Although we introduced our DocStar imaging system products on a national
level in January 1996, demand and market acceptance for the DocStar imaging
system remains subject to a high level of uncertainty. Achieving widespread
acceptance of this product line will continue to require substantial marketing
efforts and the expenditure of significant funds to create brand recognition and
customer demand for such products. There can be no assurance that adequate
marketing arrangements will be made for such products. The Authentidate product
line is a new product line and there can be no assurance that these products
will ever achieve widespread market acceptance or increased sales or that the
sale of such products will be profitable.
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IF WE CANNOT CONTINUOUSLY ENHANCE OUR PRODUCTS IN RESPONSE TO RAPID CHANGES IN
THE MARKET, OUR BUSINESS WILL BE HARMED.
The computer industry and Internet services industry are characterized by
extensive research and development efforts which result in the frequent
introduction of new products which render existing products obsolete. Our
ability to compete successfully in the future will depend in large part on our
ability to maintain a technically competent research and development staff and
our ability to adapt to technological changes in the industry and enhance and
improve existing products and successfully develop and market new products that
meet the changing needs of our customers. Although we are dedicated to continued
research and development of our products with a view towards offering products
with the most advanced capabilities, there can be no assurance that we will be
able to continue to develop new products on a regular basis which will be
competitive with products offered by other manufacturers. At the present time,
we do not have a targeted level of expenditures for research and development. We
will evaluate all opportunities but believe the majority of our research and
development will be devoted to enhancements of our existing products.
Technological improvements in new products that we and our competitors
offer, which, among other things, results in the rapid decline of the value of
inventories, as well as the general decline in the economy and other factors,
have resulted in recent declines in retail prices for computer products. As
competitive pressures have increased, many companies have ceased operation and
liquidated inventories, further increasing downward pricing pressure. Such
declines have, in the past, and may in the future, reduce our profit margins.
WE DO NOT HAVE PATENTS ON ALL THE TECHNOLOGY WE USE WHICH COULD HARM OUR
COMPETITIVE POSITION.
We do not currently hold any patents and the technology embodied in our
current products cannot be patented. We have three patents pending for the
innovative technology underlying the Authentidate business plan that can verify
the authenticity of digital images by employing a secure clock to stamp the date
and time on each image captured and have registered as trademarks the logo
"BitWise Designs," "DocStar" and "Authentidate". We rely on confidentiality
agreements with our key employees to the extent we deem it to be necessary. We
further intend to file a patent application for any new products we may develop,
to the extent any technology included in such products is patentable, if any.
There can be no assurance that any patents in fact, will be issued or that such
patents will be effective to protect our products from duplication by other
manufacturers. In addition, there can be no assurance that any patents that may
be issued will be effective to protect our products from duplication by other
developers.
Other companies operating within our business segment may independently
develop substantially equivalent proprietary information or otherwise obtain
access to the our know-how. In addition, there can be no assurance that we will
be able to afford the expense of any litigation which may be necessary to
enforce its rights under any patent. Although we believe that the products we
sell do not and will not infringe upon the patents or violate the proprietary
rights of others, it is possible that such infringement or violation has or may
occur.
In the event that products we sell are deemed to infringe upon the patents
or proprietary rights of others, we could be required to modify our products or
obtain a license for the
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manufacture and/or sale of such products. There can be no assurance that, in
such an event, we would be able to do so in a timely manner, upon acceptable
terms and conditions, or at all, and the failure to do any of the foregoing
could have a material adverse effect upon our business. Moreover, there can be
no assurance that we will have the financial or other resources necessary to
enforce or defend a patent infringement or proprietary rights violation action.
In addition, if our products or proposed products are deemed to infringe upon
the patents or proprietary rights of others, we could, under certain
circumstances, become liable for damages, which could also have a material
adverse effect on our business.
WE DEPEND ON OTHERS FOR COMPONENTS OF OUR PRODUCTS, WHICH MAY RESULT IN DELAYS
AND QUALITY-CONTROL ISSUES.
We do not own or lease any manufacturing facilities and do not manufacture
any of the component parts for our products. Rather, we purchase all of these
components from unaffiliated suppliers. All of our products are assembled at our
facilities. We believe that at the present time we have sufficient sources of
supply of component parts, and that in the event any existing supplier ceases to
furnish component parts to us, alternative sources are available. However, there
can be no assurance that the future production capacity of our current suppliers
and manufacturers will be sufficient to satisfy our requirements or that
alternate suppliers and manufacturers will be available on commercially
reasonable terms, or at all. Further, there can be no assurance that the
availability of such supplies will continue in the future.
IF OUR PRODUCTS ARE NOT COMPETITIVE, OUR BUSINESS WILL SUFFER.
Bitwise and its subsidiaries are engaged in the highly competitive
businesses of assembling and distributing document imaging systems, Internet
products, computer hardware and software as well as technical support services
for such businesses. The document imaging business is competitive and we compete
with major manufacturers. Many of these companies have substantially more
experience, greater sales, as well as greater financial and distribution
resources than do we. The most significant aspects of competition are the
quality of products, including advanced capabilities, and price. There can be no
assurance the Company can effectively continue to compete in the future.
The Authentidate business is a new business line and the level of
competition in unknown at this point in time. There can be no assurances,
however, that Authentidate products will achieve market acceptance.
Our DJS subsidiary is engaged in the highly competitive business of
systems integration, computer services and computer reselling. DJS competes with
many small and local companies which provide similar technical services to those
offered by DJS. Additionally, DJS must compete with other computer resellers,
many of whom have greater financial and technical resources. There can be no
assurance that DJS will be able to compete successfully with these competitors.
IF WE LOSE OUR PRESIDENT, OUR BUSINESS WILL BE HARMED.
Our success is largely dependent upon the services of our Chairman of the
Board and President, John T. Botti. The loss of his services would have a
material adverse affect on our business and prospects. We have entered into a
three-year employment agreement with Mr. Botti
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expiring in January, 2003. We have obtained, for our benefit, "key man" life
insurance in the amount of $1,000,000 on Mr. Botti's life.
SINCE WE HAVE NOT PAID DIVIDENDS ON OUR COMMON STOCK, YOU MAY NOT RECEIVE INCOME
FROM THIS INVESTMENT.
We have not paid any dividends on our Common Stock since our inception and
do not contemplate or anticipate paying any dividends on our Common Stock in the
foreseeable future. Earnings, if any, will be used to finance the development
and expansion of our business.
IF OUR COMMON STOCK IS DELISTED FROM NASDAQ, LIQUIDITY IN OUR COMMON STOCK MAY
BE AFFECTED.
Our Common Stock is listed for trading on the Nasdaq National Market. In
order to continue to be listed on Nasdaq, however, we must meet certain
criteria, including one of the following:
- maintaining $4,000,000 in net tangible assets, a minimum bid price
of $1.00 per share and a market value of its public float of
$5,000,000; or
- having a market capitalization of at least $50,000,000, a minimum
bid price of $5.00 per share and a market value of its public float
of $15,000,000.
On June 30, 2000, our bid price was $5.875. The dilution to our
shareholders which could be caused by the widespread conversion of the Series B
Preferred Stock could cause the per share value of our common stock to drop
below the minimum bid of $1.00 required for continued listing. As of June 30,
2000, we had net tangible assets of approximately $15,700,000 and the market
value of our public float was $60,215,435.
If in the future should we fail to meet Nasdaq maintenance criteria, our
Common Stock may be delisted from Nasdaq, and trading, if any, in our securities
would thereafter be conducted in the non-Nasdaq over-the-counter market. As a
result of such delisting, an investor could find it more difficult to dispose
of, or to obtain accurate quotations as to the market value of, our securities.
Although we anticipate that our Common Stock will continue to be listed
for trading on Nasdaq, if the Common Stock were to become delisted from trading
on Nasdaq and the trading price of the Common Stock were to fall below $5.00 per
share on the date the Common Stock was delisted, trading in such securities
would also be subject to the requirements of certain rules promulgated under the
Exchange Act, which require additional disclosure by broker-dealers in
connection with any trades involving a stock defined as a penny stock
(generally, any non-Nasdaq equity security that has a market price of less than
$5.00 per share, subject to certain exceptions). Such rules require the
delivery, prior to any penny stock transaction, of a disclosure schedule
explaining the penny stock market and the risks associated therewith, and impose
various sales practice requirements on broker-dealers who sell penny stocks to
persons other than established customers and accredited investors (generally
institutions). For these types of transactions, the broker-dealer must make a
special suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to sale. The additional
burdens imposed
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upon broker-dealers by such requirements may discourage broker-dealers from
effecting transactions in our securities, which could severely limit the market
price and liquidity of such securities and the ability of purchasers to sell
their securities in the secondary market.
OUR PREFERRED STOCK FINANCING MAY RESULT IN DILUTION TO OUR COMMON SHAREHOLDERS.
Dilution of the per share value of our common shares could result from the
conversion of most or all of the Series B Preferred Stock we sold in a private
placement in October 1999. Holders of our Series B Preferred Stock may convert
these shares into shares of our common stock at a conversion price of $1.875
beginning one year after the issuance of the Series B Preferred Stock. However,
after three years from the closing, the conversion price is subject to a
floating rate equal to the lower of $1.875 or the average of the closing bid and
asked prices of our common stock for the immediately preceding ten consecutive
trading days ending one day prior to the notice of conversion.
The following chart presents the maximum number of common shares issuable
on conversion of the Series B Preferred Stock based on different conversion
rates. While we expect to issue a maximum of 666,667 shares of common stock upon
conversion of the Series B Preferred Stock during the first three years
following the private placement, we could issue a significantly greater number
of common shares upon conversion of the Series B Preferred Stock after October
5, 2002, when the floating conversion rate is triggered.
<TABLE>
<CAPTION>
Percentage of Total Shares
Conversion Conversion Maximum Number of Shares of Common Stock
Period Rate of Common Stock Issuable Outstanding
=================================================================================================
<S> <C> <C> <C>
10/5/1999 - N/A 0 0
10/5/2000
10/6/2000 - $1.875 666,667 4.9%
10/5/2002
10/6/2002 - $1.875 666,667 4.9%
10/6/2002 - $1.50 833,333 6.1%
10/6/2002 - $1.00 1,250,000 8.9%
10/6/2002 - $0.75 1,666,667 11.5%
</TABLE>
Regardless of the date of exercise, dilution could occur from the
widespread conversion of the Series B Preferred Stock. The following scenarios
could result in dilution to our common shareholders:
- In either period, the conversion price could be lower than the
actual trading price on the day of conversion. This could result in
the holder immediately selling all of its converted common shares,
which would have a dilutive effect on the value of the outstanding
common shares.
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- After three years, if the average trading price falls below $1.875,
the lower the average trading price, the greater the number of
common shares that a holder of our Series B Preferred Stock will
receive upon conversion. This might further encourage the holders of
the Series B Preferred Stock to covert their shares into common
shares. The increased number of common shares would further depress
the average trading price of our common stock.
- The significant downward pressure on the trading price of our common
stock as Series B Preferred Stock holders converted these securities
and sell the common shares received on conversion could encourage
short sales by the holders of Series B Preferred Stock or other
shareholders. This would place further downward pressure on the
trading price of our common stock. Even the mere perception of
eventual sales of common shares issued on the conversion of the
Series B Preferred Stock could lead to a decline in the trading
price of our common stock.
WE HAVE SOLD RESTRICTED SHARES WHICH MAY DEPRESS OUR STOCK PRICE WHEN IT IS
SELLABLE UNDER RULE 144.
Approximately 2,290,862 shares of Common Stock currently outstanding,
including the Shares being registered for resale pursuant to this Prospectus,
may be deemed "restricted securities" as that term is defined under the
Securities Act of 1933 (the "Act"), and in the future, may be sold pursuant to a
registration under the Act, in compliance with Rule 144 under the Act, or
pursuant to another exemption therefrom. Rule 144 provides, that, in general, a
person holding restricted securities for a period of one year may, every three
months thereafter, sell in brokerage transactions an amount of shares which does
not exceed the greater of one percent of our then outstanding Common Stock or
the average weekly trading volume of the Common Stock during the four calendar
weeks prior to such sale. Rule 144 also permits, under certain circumstances,
the sale of shares without any quantity limitations by a person who is not an
affiliate of ours and was not an affiliate at any time during the 90 day period
prior to sale and who has satisfied a two year holding period. Sales of our
Common Stock by certain present stockholders under Rule 144 may, in the future,
have a depressive effect on the market price of our securities. In addition, the
sale of shares by officers and directors and other affiliated shareholders, may
also have a depressive effect on the market for our securities.
OUR OUTSTANDING OPTIONS AND WARRANTS MAY DEPRESS OUR STOCK PRICE.
As of November 30, 2000, there were outstanding immediately exercisable
stock options to purchase an aggregate of 2,094,713 shares of Common Stock at
exercise prices ranging from $0.84 to $11.25 per share, and outstanding
immediately exercisable warrants to purchase an aggregate of 3,115,477 shares of
Common Stock at exercise prices ranging from $.88 to $11.25 per share, including
the Shares underlying the Series B Warrants and the Private Warrants being
registered for resale pursuant to this Prospectus. In addition, there are
outstanding 50,000 shares of our Series B Preferred Stock, which is convertible
into an aggregate of 666,667 Shares of Common Stock. These Conversion Shares are
also being registered for resale pursuant to this Prospectus. To the extent that
outstanding stock options and warrants are exercised or the Series B Preferred
Stock is converted, dilution to our shareholders will occur. Moreover, the terms
upon which we will be able to obtain additional equity capital may be adversely
affected, since the holders of the outstanding options and warrants can be
expected to exercise or convert them at a
12
<PAGE> 15
time when we would, in all likelihood, be able to obtain any needed capital on
terms more favorable to us than the exercise and conversion terms provided by
the outstanding options, warrants and preferred stock.
IF WE CANNOT OFFSET FUTURE TAXABLE INCOME OUR TAX LIABILITIES WILL INCREASE.
At June 30, 2000, the date of our most recent fiscal year end, we had net
operating loss carryforwards ("NOLS") for federal income tax purposes of
approximately $17,600,000 available to offset future taxable income. Under
Section 382 of the Internal Revenue Code of 1986, as amended, utilization of
prior NOLS is limited after an ownership change, as defined in Section 382, to
an annual amount equal to the value of the corporation's outstanding stock
immediately before the date of the ownership change multiplied by the federal
long-term exempt tax rate. Use of our NOLS could also be limited as a result of
grants of stock options under stock option plans and other events. In the event
we achieve profitable operations, any significant limitation on the utilization
of NOLS would have the effect of increasing our current tax liability.
SINCE THE HOLDERS OF OUR OUTSTANDING SERIES A PREFERRED STOCK CONTROL OUR BOARD
OF DIRECTORS, OTHER SHAREHOLDERS MAY NOT BE ABLE TO INFLUENCE OUR DIRECTION.
Our Certificate of Incorporation authorizes our Board of Directors to
issue up to 5,000,000 shares of Preferred Stock, from time to time, in one or
more series. The Board of Directors is authorized, without further approval of
the stockholders, to fix the dividend rights and terms, conversion rights,
voting rights, redemption rights and terms, liquidation preferences, and any
other rights, preferences, privileges and restrictions applicable to each new
series of Preferred Stock. We previously established 200 shares of Series A
Preferred Stock which are owned by John Botti and Ira Whitman, our founders and
officers. Currently there are only 100 shares of Series A Preferred Stock
outstanding, all of which are owned by Mr. Botti. The Series A Preferred Stock
entitles the holders to elect a majority of the Board of Directors. The
existence of such stock could adversely affect the voting power of the holders
of Common Stock and, under certain circumstances, make it more difficult for a
third party to gain control of us, discourage bids for the Common Stock at a
premium, or otherwise adversely affect the market price of the Common Stock. In
addition, we issued 50,000 shares of our Series B Preferred Stock in our
October, 1999 private offering.
USE OF PROCEEDS
Some of the Shares being registered will be acquired from us upon the
exercise of currently outstanding Series B and Private Warrants. We would
receive $10,465,775 in proceeds if all of the Series B and Private Warrants are
exercised. We plan to use all proceeds generated from the exercise of warrants
for working capital and general corporate purposes. We will receive none of the
proceeds from the sale of the Shares.
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<PAGE> 16
SELLING SECURITY HOLDERS
We have agreed to register the resale of outstanding Shares of Common
Stock and the Shares underlying the Series B Warrants and Private Warrants and
the Shares into which the Series B Preferred Stock is convertible under the
Securities Act and to pay all expenses in connection therewith. An aggregate of
5,943,248 Shares and may be offered and sold pursuant to this prospectus by the
Selling Shareholders. Except as set forth below, none of the Selling
Shareholders has ever held any position or office with us or had any other
material relationship with us.
<TABLE>
<CAPTION>
SHARES/
WARRANT
SHARES/ SHARES/ SHARES/ PERCENTAGE OF
WARRANT SHARES/ WARRANT SHARES/ CONVERSION SHARES
CONVERSION SHARES CONVERSION SHARES SHARES OWNED AFTER
NAME AND ADDRESS OF BENEFICIALLY OWNED OFFERED OWNED AFTER OFFERING
SELLING SECURITY HOLDER PRIOR TO OFFERING OFFERING (1)
<S> <C> <C> <C> <C>
Windhorst New Technologies, AGi.G (29) 0/125,000/0 0/125,000/0 0 ++
PFK Acquisition Company I, LLC (30) 0/125,000/0 0/125,000/0 0 ++
Paul F. Klapper (31)(32) 0/67,500/0 0/67,500/0 0 ++
Harvey Birdman (31) 0/27,000/0 0/27,000/0 0 ++
Boston Holdings, LLC (31) 0/54,000/0 0/54,000/0 0 ++
Norman Berman and Karen Kaskey
as Joint Tenants (31)(36) 0/146,500/0 0/146,500/0 0 ++
AmTrust Financial Services, Inc.(33) 25,000/0/0 25,000/0/0 0 ++
Gregory McCauley(34) 0/35,000/0 0/35,000/0 0 ++
Michael R. Hayes(35) 0/10,000/0 0/10,000/0 0 ++
David McCammon(35) 0/10,000/0 0/10,000/0 0 ++
Nicholas Themelis (2)(35) 7,500/10,000/0 0/10,000/0 7,500/0/0 ++
Corporate Funding Group, LLC (3) 131,180/0/26,667 0/0/26,667 131,180/0/0 ++
Shore Venture Group, LLC (4) 0/300,000/0 0/300,000/0 0 ++
Tami Skelly (5) 0/150,000/66,667 0/150,000/66,667 0 ++
1800 Patrick Corp.(11) 189,800/0/0 150,000/0/0 39,800/0/0 ++
Interpacific Capital Corp. (6) 400,000/0/0 400,000/0/0 0 ++
Bantry Bay Associates, LLC (7) 284,000/150,000/ 150,000/150,000/ 134,000/0/0 ++
66,667 66,667
</TABLE>
14
<PAGE> 17
<TABLE>
<CAPTION>
SHARES/
WARRANT
SHARES/ SHARES/ SHARES/ PERCENTAGE OF
WARRANT SHARES/ WARRANT SHARES/ CONVERSION SHARES
CONVERSION SHARES CONVERSION SHARES SHARES OWNED AFTER
NAME AND ADDRESS OF BENEFICIALLY OWNED OFFERED OWNED AFTER OFFERING
SELLING SECURITY HOLDER PRIOR TO OFFERING OFFERING (1)
<S> <C> <C> <C> <C>
Gateway Network, LLC (8) 181,800/300,000/ 181,800/300,000/ 0 ++
133,333 133,333
Azure Capital, LLC (9) 311,750/240,000/0 311,750/240,000/0 0 ++
RW Capital, LLC (10) 311,748/240,000/0 311,748/240,000/0 0 ++
Charles Schwab & Co. F/B/O Craig
Gross, IRA 133,398/0/0 133,398/0/0 0 ++
Charles Schwab & Co. F/B/O Frank
Skelly, IRA 129,398/0/0 120,398/0/0 0 ++
Continental Capital & Equity Corp. (12) 72,750/200,000/0 72,750/200,000/0 0 ++
Stonewall Capital, Inc. (13) 0/120,000/0 0/120,000/0 0 ++
Canterbury Companies, Inc. (14) 0/20,000/0 0/20,000/0 0 ++
Candle Business Systems, Inc. (15) 0/10,000/0 0/10,000/0 0 ++
B.E. Associates, Inc. (16) 0/7,000/0 0/7,000/0 0 ++
Jack Erlanger (17) 0/174,286/0 0/160,000/0 0/14,286/0 ++
Jack Ferraro (18) 0/160,000/0 0/160,000/0 0 ++
Kevin Kelly (19) 0/20,000/0 0/20,000/0 0 ++
Greener Fairways, Inc. (20) 100,001/0/373,333 100,001/0/373,333 0 ++
New Perspectives, Inc. (21) 100,000/400,000/0 100,000/400,000/0 0 ++
Michael Wu (22) 0/2,500/0 0/2,500/0 0 ++
JERB Associates, Inc. (23) 0/40,000/0 0/40,000/0 0 ++
Victor DiGioia (24) 1,000/47,500/0 0/47,500/0 1,000/0/0/0 ++
Brian Daughney (25) 0/20,000/0 0/20,000/0 0 ++
Barry Lax (26) 0/1,500/0 0/1,500/0 0 ++
Michael Goldstein (27) 10,824/0/0 10,824/0/0 0 ++
Barbara Cereghino (28) 706/0/0 706/0/0 0 ++
Dorothy Philipps (28) 706/0/0 706/0/0 0 ++
</TABLE>
-----------------------------------
++ Percentage is less than 1%.
-----------------------------------
15
<PAGE> 18
(1) Computed for purposes herein to give effect to the exercise of all Warrants
held by such Selling Security Holder and not any other Selling Security Holder.
Figures are computed based upon 18,721,897 shares of Common Stock outstanding on
the effective date of this Registration Statement.
(2) Mr. Themelis is a director and the Chief Technology Officer of Bitwise and
entered into an agreement, September 23, 1999, to provide business advisory
services to Bitwise. Includes warrants to purchase 10,000 shares at an exercise
price of $4.00, which are being registered pursuant to this Registration
Statement. Excludes options to purchase 250,000 shares, which are not being
registered in this prospectus.
(3) Corporate Funding Group, LLC entered into an agreement, dated September 21,
1999, to provide financial consulting services to Bitwise. Includes 26,667
Shares issuable upon Conversion of Series B Preferred Stock. Mr. Craig Gross
possesses investment control of these shares.
(4) Shore Venture Group, LLC has entered into a contract with Bitwise to perform
services related to the formation of the web-site for Authentidate.com, Inc.
(5) Includes 150,000 Shares issuable upon exercise of Series B Warrants which
are being registered pursuant to this Registration Statement. Also includes
66,667 Shares issuable upon Conversion of Series B Preferred Stock.
(6) Mr. Douglas Luce possesses investment control of these shares.
(7) Includes 150,000 Shares issuable upon exercise of Series B Warrants which
are being registered pursuant to this Registration Statement. Also includes
66,667 Shares issuable upon Conversion of Series B Preferred Stock. Ms. Tami
Skelly possesses investment control of these shares.
(8) Includes 300,000 Shares issuable upon exercise of Series B Warrants which
are being registered pursuant to this Registration Statement. Also includes
133,333 Shares issuable upon Conversion of Series B Preferred Stock. Mr. Craig
Gross possesses investment control of these shares.
(9) Includes 240,000 Shares issuable upon exercise of Series B Warrants which
are being registered pursuant to this Registration Statement.
(10) Includes 240,000 Shares issuable upon exercise of Series B Warrants which
are being registered pursuant to this Registration Statement.
(11) Investment control of these shares held by Mr. Frank Skelly.
(12) Continental Capital will provide certain financial consulting services to
Bitwise. Includes 25,000 warrants to purchase common stock at an exercise price
of $3.00 per share; 25,000 warrants to purchase common stock at an exercise
price of $5.50 per share; 50,000 warrants to purchase common stock at an
exercise price of $6.88 per share; 50,000 warrants to purchase common stock at
an exercise price of $8.25 per share; and 50,000 warrants to purchase common
stock at an exercise price of $11.25 per share.
(13) Includes three warrants each to purchase 40,000 shares of common stock at
exercise prices of $1.56, $2.07, and $3.58. All three warrants are exercisable
until September 1, 2000.
(14) Includes warrants to purchase 20,000 shares of common stock at an exercise
price of $3.4375 and is exercisable until August 15, 2002.
(15) Includes warrants to purchase 10,000 shares of common stock at an exercise
price of $6.4375 and is exercisable until February 26, 2001.
(16) Includes warrants to purchase 7,000 shares of common stock at an exercise
price of $5.3125 and is exercisable until November 21, 2000.
(17) Includes warrants to purchase 160,000 shares of common stock at an exercise
price of $3.25 and which expire on August 8, 2002.
16
<PAGE> 19
(18) Includes warrants to purchase 160,000 shares of common stock at an exercise
price of $3.25 and which expire on August 8, 2002.
(19) Includes 20,000 shares issuable upon exercise of Series B Warrants.
(20) Includes 100,001 shares underlying Series C Common Stock Purchase Warrants
and 373,333 shares issuable upon conversion of Series B Preferred Stock. Mr.
Paul Savage possesses investment control of these securities.
(21) Includes 400,000 shares underlying Series B Common Stock Purchase Warrants
and 100,000 shares underlying Series C Common Stock Purchase Warrants. Ms. Jane
Lucci possesses investment control of these securities.
(22) Includes warrants to purchase 2,500 shares at an exercise price of $0.875
and expire on September 9, 2004.
(23) JERB Associates is owned by Stanley R. Goldstein, Esq., a principal of
Goldstein & DiGioia, LLP, counsel to Bitwise. The 40,000 Shares are underlying
warrants exercisable at $0.875 and expire on September 9, 2004 and are
beneficially owned by JERB Associates. Mr. Goldstein disclaims beneficial
ownership of these securities.
(24) Mr. DiGioia is a principal of Goldstein & DiGioia, LLP, counsel to Bitwise.
The 47,500 Shares are underlying warrants exercisable at $0.875 and expire on
September 9, 2004.
(25) Mr. Daughney is a principal of Goldstein & DiGioia, LLP, counsel to
Bitwise. The 20,000 Shares are underlying warrants exercisable at $0.875 and
expire on September 9, 2004.
(26) Mr. Lax is an associate with of Goldstein & DiGioia, LLP, counsel to
Bitwise. The listed Shares are underlying warrants exercisable at $0.875 and
expire on September 9, 2004.
(27) Mr. Goldstein is an associate with Goldstein & DiGioia, LLP, counsel to
Bitwise.
(28) Is an employee of Goldstein & DiGioia, LLP, counsel to Bitwise.
(29) Includes warrants to purchase 125,000 shares at an exercise price of
$8.03125 per share. Listed holder entered into joint venture agreement and
license agreement with Bitwise and Authentidate to establish a German company to
develop and market the Authentidate service in certain foreign countries. Mr.
Lars Windhorst possesses investment control of these securities.
(30) Includes warrants to purchase 125,000 shares at an exercise price of
$8.03125 per share. Mr. Paul Klapper possesses investment control of these
securities.
(31) Includes shares underlying warrants exercisable at $8.00 per share
beneficially owned by the listed holders.
(32) Mr. Klapper serves as a director of Authentidate International Holdings,
A.G., a subsidiary of the registrant.
(33) Listed holder is the direct landlord of Authentidate, Inc., pursuant to an
Underlease dated October 19, 2000. Shares beneficially owned by listed holder
are held in escrow to secure obligations of Authentidate as subtenant.
(34) Includes warrants to purchase 25,000 shares of the common stock of Bitwise
exercisable at $1.00 per share and warrant to purchase 10,000 shares of the
common stock of Bitwise exercisable at $4.00 per share.
(35) Warrants issued to listed holder in connection with holder's service on
Bitwise's Internet Advisory Board and are exercisable at $4.00 per share.
(36) Includes warrants to purchase 25,000 shares of the common stock of Bitwise
exercisable at $1.00 per share beneficially owned by Norman Berman.
17
<PAGE> 20
PLAN OF DISTRIBUTION
The common stock covered by this prospectus, including the shares
underlying the warrants which we will issue upon the exercise by the holders of
the warrants, may be offered and sold from time to time by the selling
stockholders, including in one or more of the following transactions:
- on the over the counter market;
- in transactions other than on the over the counter market;
- in connection with short sales;
- by pledge to secure debts and other obligations;
- in connection with the writing of options, in hedge transactions,
and in settlement of other transactions in standardized or
over-the-counter options;
- in a combination of any of the above transactions; or
- pursuant to Rule 144 under the Securities Act, assuming the
availability of an examination from registration.
The selling security holders may sell their shares at market prices
prevailing at the time of sale, at prices related to prevailing market prices,
at negotiated prices, or at fixed prices.
Broker-dealers that are used to sell shares will either receive discounts
or commissions from the selling share holders, or will receive commissions from
the purchasers for whom they acted as agents.
The selling security holders and intermediaries through whom shares are
sold may be deemed underwriters within the meaning of the Securities Act with
respect to the shares offered.
There can be no assurance that the selling security holders will sell all
or any of the common stock.
We have agreed to keep this prospectus effective for a period expiring on
the earlier of the date on which all of the selling security holders' shares
have been sold, the date on which all such shares are eligible for sale pursuant
to Rule 144 under the Securities Act or the third anniversary of the effective
date of the registration statement.
The selling shareholders and us have agreed to customary indemnification
obligations with respect to the sale of common stock by use of this prospectus.
None of the Selling Security Holders listed in this prospectus are
broker-dealers. However, Azure Capital, LLC and RW Capital, LLC are affiliates
of a broker-dealer registered with the Commission. Both entities, however,
purchased the securities which they beneficially own in the ordinary course of
business. At the time of the purchase, these entities had no
18
<PAGE> 21
agreements or other understandings, directly or indirectly, with any person to
distribute the common shares to be received upon conversion or exercise of the
Series B Preferred Stock or warrants.
REPORTS TO SHAREHOLDERS
Our company distributes annual reports to its stockholders, including
financial statements examined and reported on by independent public accountants,
and will provide such other reports as management may deem necessary or
appropriate to keep stockholders informed of our company's operations.
LEGAL MATTERS
The legality of the offering of the shares will be passed upon for us by
Goldstein & DiGioia, LLP, 369 Lexington Avenue, New York, New York l00l7.
Goldstein & DiGioia, LLP (or members thereof) hold warrants to purchase 122,500
shares of Common Stock, which underlying shares are included in this Prospectus
and Goldstein & DiGioia (or members thereof) is included as a selling security
holder.
EXPERTS
The financial statements incorporated in this Prospectus by reference to
the Annual Report on Form 10-KSB for the years ended June 30, 2000 and 1999 have
been so incorporated in reliance on the report of PriceWaterhouseCoopers, LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
ADDITIONAL INFORMATION
We have filed a Registration Statement under the Act with the Securities
and Exchange Commission, with respect to the securities offered by this
prospectus. This prospectus does not contain all of the information set forth in
the registration statement. For further information with respect to our company
and such securities, reference is made to the registration statement and to the
exhibits and schedules filed therewith. Each statement made in this prospectus
referring to a document filed as an exhibit to the registration statement is
qualified by reference to the exhibit for a complete statement of its terms and
conditions. The registration statement, including exhibits thereto, may be
inspected without charge to anyone at the office of the Commission, and copies
of all or any part thereof may be obtained from the Commission's principal
office in Washington, D.C. upon payment of the Commission's charge for copying.
19
<PAGE> 22
FORWARD LOOKING STATEMENTS
Certain statements in this Prospectus constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. We desire to avail ourselves of certain "safe harbor" provisions of the
1995 Reform Act and are therefore including this special note to enable us to do
so. Forward-looking statements included in this Prospectus or hereafter included
in other publicly available documents filed with the Securities and Exchange
Commission, reports to our stockholders and other publicly available statements
issued or released by us involve known and unknown risks, uncertainties, and
other factors which could cause our actual results, performance (financial or
operating) or achievements to differ from the future results, performance
(financial or operating) achievements expressed or implied by those forward
looking statements. These future results are based upon management's best
estimates of current conditions and the most recent results of our operations.
The statements appear in a number of places in this Prospectus and include
statements regarding our intent, belief or current expectations, and those of
our directors or officers with respect to: (i) future revenues,(ii) product
development, (iii) success in implementing the Authentidate business plan, (iv)
the document imaging system industry, and (v) other matters. Our actual results
could differ materially from those anticipated in the forward looking statements
as a result of certain factors, including those discussed throughout this
Prospectus. These risks include, but are not limited to, risks associated with
recent and accumulated losses, competition, conflicts of interest, limited
operating history, dependence upon one product line, and other risks detailed in
this Prospectus and our Securities and Exchange Commission filings, including
our Annual Report on Form 10-KSB, Form 10-Q as well as recently filed Reports on
Form 8-K, if any, each of which could adversely affect our business and the
accuracy of the forward looking statements contained herein.
20
