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Authentidate Holding Corp – ‘424B1’ on 2/15/00

On: Tuesday, 2/15/00 · Accession #: 950123-0-1261 · File #: 333-91475

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 2/15/00  Authentidate Holding Corp         424B1                  1:220K                                   RR Donnelley/FA

Prospectus — Rule 424(b)(1)
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 424B1       Prospectus                                            69    346K

Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Certain Relationships and Related Transactions Description of Business Description of Securities Directors, Executive Officers, Promoters and Control Persons Employment Agreements Executive Compensation Experts Forward Looking Statements Legal Proceedings Management Management's Discussion and Analysis of Financial Condition and Results of Operations Market for Common Equity and Related Stockholder Matters Notes to consolidated financial statements Offering, The Plan of Distribution Prospectus Summary Recently Completed Private Offering Redemption Report of Independent Accountants Risk Factors Security Ownership of Certain Beneficial Owners and Management Selected Financial Data Selling Security Holders Selling Security Holders and Transactions With Selling Security Holders Series B Preferred Stock The Offering Use of Proceeds Voting Rights
1	1st Page - Filing Submission
3	Prospectus Summary
5	The Offering
6	Selected Financial Data
7	Risk Factors
13	Use of Proceeds
14	Management's Discussion and Analysis of Financial Condition and Results of Operations
18	Recently Completed Private Offering
22	Description of Business
27	Legal Proceedings
"	Directors, Executive Officers, Promoters and Control Persons
"	Management
30	Executive Compensation
31	Employment Agreements
33	Security Ownership of Certain Beneficial Owners and Management
35	Certain Relationships and Related Transactions
36	Selling Security Holders
"	Selling Security Holders and Transactions With Selling Security Holders
40	Description of Securities
"	Series B Preferred Stock
41	Voting Rights
43	Redemption
44	Experts
45	Market for Common Equity and Related Stockholder Matters
46	Plan of Distribution
47	Forward Looking Statements
49	Report of Independent Accountants
54	Notes to consolidated financial statements

424B1 1st Page of 69 TOC ↑Top Previous Next ↓Bottom Just 1st

PROSPECTUS
424(B)(1)
FILE NO. 333-91475

[5,886,416] SHARES

BITWISE DESIGNS, INC.

COMMON STOCK

We are registering (1) [3,646,999] shares of Bitwise's common stock, par
value $.001, which will be issued upon the exercise of (a) 1,520,000 Series B
Warrants; (b) 999,999 Series C Warrants; and (c) [1,127,000] 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 1,572,750 shares held by certain selling
shareholders.

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 SmallCap Market under the symbol "BTWS" and on the Pacific
Stock Exchange under the symbol "BTWS". On [JANUARY 28, 2000], the closing price
for the common stock as reported on Nasdaq was [$14.00].

PLEASE SEE "RISK FACTORS" BEGINNING ON PAGE [5] 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,
Series C 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 February 14, [2000]

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TABLE OF CONTENTS

[Download Table]

PAGE
----

PROSPECTUS SUMMARY.......................................... 1
THE OFFERING................................................ 3
SELECTED FINANCIAL DATA..................................... 4
RISK FACTORS................................................ 5
USE OF PROCEEDS............................................. [11]
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. [12]
DESCRIPTION OF BUSINESS..................................... [20]
LEGAL PROCEEDINGS........................................... [25]
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS................................................... [25]
EXECUTIVE COMPENSATION...................................... [28]
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ [31]
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. [33]
SELLING SECURITY HOLDERS.................................... [34]
SELLING SECURITY HOLDERS AND TRANSACTIONS WITH SELLING
SECURITY HOLDERS.......................................... [34]
DESCRIPTION OF SECURITIES................................... [38]
EXPERTS..................................................... [42]
DISCLOSURE OF COMMISSION ON INDEMNIFICATION FOR SECURITIES
ACT LIABILITIES........................................... [42]
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.... [43]
PLAN OF DISTRIBUTION........................................ [44]
ADDITIONAL INFORMATION...................................... [44]
FORWARD LOOKING STATEMENTS.................................. [45]

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PROSPECTUS SUMMARY

You should read the following summary together with the more detailed
information and Bitwise's consolidated financial statements and the notes to
those statements appearing elsewhere in this prospectus.

BITWISE DESIGNS, INC.

OUR BUSINESS

Bitwise Designs, Inc., with our wholly-owned subsidiary, DJS Marketing
Group, Inc., designs, assembles and distributes document imaging systems,
computer systems and related peripheral equipment, components and accessories,
and network and Internet services. We also recently established a majority-owned
subsidiary named Authentidate.com, Inc. Authentidate will 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 via the
Internet;

- allow for confirmation of acceptance of all e-mails sent through the
system (notarized e-mail);

- produce confirmations of receipt of e-mail by third parties;

- certify transmission and receipt of electronic documents to facsimile
machines around the world;

- verify the authenticity of all captured digital images; and

- allow for a secure payment system, including use of credit cards.

Our Products and Services

In developing and marketing our products and services, along with DJS, we
primarily market the following different products and services:

- THE DOCSTAR DOCUMENT IMAGING SYSTEM -- enables a user to scan paper
documents onto an optical disk, hard disk drive or other storage medium.
The DocStar product line consists of a personal computer, proprietary
software and a scanner and can be utilized as a "stand-alone" system or
as part of a network installation;

- COMPUTER PRODUCTS AND INTEGRATION SERVICES -- we market personal
computers and peripheral computer products which we purchase from many
different suppliers. In addition, DJS, as a systems integrator,
configures various computer hardware and peripheral products such as
software together, to satisfy a customer's individual needs.

- NETWORK SERVICES -- DJS also designs and installs network systems which
involves network software being installed on a fileserver computer with
less powerful computers sharing information from the fileserver.
Applications that the network system provides include E-mail, accounting
systems, word processing, communication and any other applications that
require the sharing of information.

- INTERNET/INTRANET DEVELOPMENT SERVICES -- Through DJS, we provide our
customers with the ability to advertise products, provide news and stock
market products, provide educational data bases, as well as one on one
and Group Communications through the Internet or intranet. Our services
include web page installation.

- AUTHENTIDATE.COM -- Through Authentidate, we will provide a service
allowing customers to time and date stamp all electronic images to verify
authenticity. The service will be sold over the Internet.

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Our Approach to the Market

In January 1996, we introduced, on a national level, the DocStar system. 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.

DJS markets its products and services to a variety of customers, including
corporations, schools, government agencies, manufacturers and distributors. In
addition to the products and services noted above, DJS also provides accounting
solutions, consultation, document management and video conferencing services.
DJS also services the products it sells by employing factory trained computer
technicians and network engineers.

We anticipate that Authentidate will commence offering services through its
Authentidate.Com Internet site within the next 30 to 60 days. We intend to
market the Authentidate services through traditional print and media advertising
and banner advertising and links on other Internet provider home pages. To date,
Authentidate's operations have been limited to developing the technology for its
services and home page [AND NEGOTIATING THE TERMS AND CONDITIONS OF MARKETING
AND OPERATING THE AUTHENTIDATE.COM SITE WITH POTENTIAL JOINT VENTURERS].

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

[Enlarge/Download Table]

Common Stock Offered by the Selling Security
Holders............................................ [5,886,416]
Common Stock Outstanding Prior to Offering(1)........ [12,149,154]
Common Stock Outstanding After the Offering(2)....... [18,035,570]
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 general corporate
purposes. Please see "Use of Proceeds."
Nasdaq Smallcap Market Symbol (Common Stock):........ "BTWS"
Pacific Stock Exchange Symbol (Common Stock):........ "BTWS"

---------------
(1) Based on the number of shares actually outstanding as of [JANUARY 28, 2000].

Unless otherwise specifically stated, information throughout this prospectus
excludes as of [JANUARY 31, 2000]:

- 3,000,000 shares of Common Stock reserved for issuance under our 1992
Employee Stock Option Plan, of which [1,802,225] shares have been
reserved for currently outstanding options and [1,197,775] shares are
available for future issuances, and

- [150,000] 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, Series C 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 [$7,587,961] in proceeds upon the
exercise of all of the Series B Warrants, Series C Warrants (within 30 days
of the effective date of this registration statement) 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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SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with
the Consolidated Financial Statements, including the related notes, and
"Managements's Discussion and Analysis of Financial Condition and Results of
Operations."

[Enlarge/Download Table]

YEAR ENDED JUNE 30,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------

STATEMENT OF OPERATIONS DATA:
Net Sales........................................... $17,094,765 $33,755,625 $53,109,469
Gross Profit........................................ 5,615,468 8,092,566 10,006,736
Net (Loss)/Net Income............................... (3,166,488) (5,464,059) (2,143,159)
Basic and Diluted Net(Loss)/Net Income Per Common
Share............................................. (0.43) (0.74) (0.30)
BALANCE SHEET DATA:
Current Assets...................................... 9,857,681 12,138,995 13,622,171
Current Liabilities................................. 6,225,966 4,789,896 7,730,498
Working Capital..................................... 3,631,715 7,349,099 5,891,673
Total Assets........................................ 14,484,984 14,708,454 18,924,765
Total Long Term Liabilities......................... 5,327,901(1) 3,975,000(2) 1,297
Stockholders' Equity................................ 3,335,705 6,478,226 11,192,970

---------------
(1) Long-term liabilities excluding discount of $404,588.

(2) Long-term liabilities excluding discount of $534,668.

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RISK FACTORS

The securities offered hereby are speculative in nature and involve a high
degree of risk, including, but not limited to, the risk factors described below.
Each prospective investor should carefully consider the following risk factors
before making an investment decision.

IF WE CONTINUE TO FACE UNCERTAINTIES IN MARKETING THE DOCSTAR SYSTEM WE MAY
CONTINUE TO LOSE MONEY.

We face uncertainties in marketing the DocStar system and are losing money.
We incurred losses of $3,166,488; $5,464,059 and $2,143,159 for the fiscal years
ended June 30, 1999, 1998 and 1997[, RESPECTIVELY]. 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.com. We will continue to incur these costs in
the future as we attempt to increase market awareness and sales of DocStar and
Authentidate.com. 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
OPERATION.

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 DocStar and due to these expenditures, have
incurred significant losses to date. [AS OF DECEMBER 31, 1999 WE HAD $6,536,138
OF AVAILABLE CASH AND CASH EQUIVALENTS.] In the future, we will need additional
funds from loans and/or the sale of equity securities. 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 may be forced to curtail operations, or, in an extreme situation, cease
operations.

SINCE WE HAVE PREVIOUSLY GRANTED SECURITY INTERESTS ON MOST OF OUR ASSETS, OUR
CREDITORS MAY BE ABLE TO FORECLOSE ON OUR ASSETS.

We have granted security interests with respect to substantially all of our
assets to secure certain of our indebtedness, which will continue following this
offering. In the event of a default by us on our secured obligations, a secured
creditor could declare our indebtedness to be immediately due and payable and
foreclose on the assets securing the defaulted indebtedness. Moreover, to the
extent that all of our assets continue to be pledged to secure outstanding
indebtedness, such assets will not be available to secure additional
indebtedness. Our line of credit for $1,500,000 was recently terminated by our
lender as a result of our not being in compliance with all of its loan
covenants. On June 30, 1999 the balance of the line of credit was approximately
$1,300,000. On October 1, 1999, we entered into an agreement with the lender to
extend repayment of the outstanding balance until September 30, 2000. We were
required to make a partial payment to the lender of $600,000 on October 4, 1999
for the repayment of the remaining balance from the proceeds of our recently
completed private offering. The remaining balance is being paid in weekly
installments over one year with interest at prime plus 4%. Our President, John
Botti, also agreed to guarantee repayment of the loan balance. The line of
credit is secured by our account receivables and inventory, and does not include
our new office building which is secured by a mortgage. We are attempting to
locate a new lender for our inventory financing. There can be no assurance that
we will be successful in its efforts to obtain alternative inventory financing,
and the failure to obtain inventory financing may have an adverse material
effect upon our operations.

OUR PRODUCTS MAY NOT BE ACCEPTED BY OUR CONSUMERS WHICH WOULD SERIOUSLY HARM OUR
OPERATIONS.

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

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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.com product line
is a brand new product line with no sales to date. We expect to commence sales
in this product line in the next 30-60 days over the Internet. Moreover, 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.

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 (1) have a patent 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 (2) 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 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

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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.

Along with our subsidiaries, we are engaged in the highly competitive
businesses of manufacturing and distributing document imaging systems, computer
hardware and software as well as technical support services for such products.
The document imaging business is competitive and we compete with major
manufacturers such as Sharp, Panasonic and Mita. All of these companies have
substantially more experience, greater sales, as well as greater financial and
distribution resources than do we. We also compete with many independent imaging
software companies, smaller than those mentioned, many of which also have
substantially greater sales, financial resources and experience than us. The
most significant aspects of competition are the quality of products, including
advanced capabilities, and price. There can be no assurance that we can
effectively continue to compete in the future.

Our subsidiary, DJS, 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 MAY 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
five-year employment agreement with Mr. Botti expiring in June 2000. We haves
obtained, for our benefit, "key man" life insurance in the amount of $1,000,000
on Mr. Botti's life.

IF WE CANNOT INTEGRATE THE OPERATIONS FROM OUR PREVIOUS AND FUTURE ACQUISITIONS,
OUR BUSINESS AND OPERATION WILL BE HARMED.

As part of our business strategy, we have completed and expect to enter
into additional business combinations and acquisitions. Acquisition transactions
are accompanied by a number of risks, including, among others:

- The difficulty of assimilating the operations and personnel of the
acquired companies;

- The potential disruption of our ongoing business;

- The inability of management to maximize our financial and strategic
position through the successful incorporation of acquired technology with
our products;

- Expenses associated with the transactions;

- Additional expenses associated with amortization of intangible assets;

- The difficulty of maintaining uniform standards, controls, procedures and
policies;

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- The impairment of relationships with employees and customers as a result
of any integration of new management personnel; and

- The potential unknown liabilities associated with acquired businesses.

Our failure to adequately address these issues could have a material
adverse effect on our business, results of operations and financial condition.

We may at times become involved in discussions with potential acquisition
candidates. Accordingly, we may use a portion of the proceeds of this offering
which may be realized upon the exercise of the Warrants in connection with the
acquisitions of compatible product lines and businesses. However, there can be
no assurance that we will identify and/or consummate an acquisition, or that
such acquisitions, if completed, will be profitable. Further, there can be no
assurance that our cash flow, will be sufficient to finance any acquisitions.

In addition, should we consummate an acquisition, such acquisition could
have an adverse affect on our liquidity and earnings. We are currently not
considering any acquisition and we cannot give any assurances that any business
acquisition opportunities may be obtained in the future or if obtained, may be
negotiated on terms favorable to us.

SINCE WE HAVE NOT PAID DIVIDENDS ON OUR COMMON STOCK, YOU MAY NOT RECEIVE INCOME
FROM AN INVESTMENT IN US.

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 SmallCap Market. In
order to continue to be listed on Nasdaq, however, we must meet certain
criteria[,] including one of the following:

- maintaining $2,000,000 in net tangible assets or

- having a market capitalization of at least $35,000,000 or

- having net income of $500,000.

In addition, the minimum bid price of our Common Stock must be at least $1.00
per share and the market value of the public float must be at least $1,000,000.
[ON JANUARY 31, 2000, OUR BID PRICE WAS $13.50. 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, 1999, we had net tangible assets of $1,994,000 and did not
satisfy the requirements for market capitalization or net income. As of
[DECEMBER 31], 1999, we had net tangible assets of approximately [$17,809,148].
The failure to meet Nasdaq maintenance criteria may result in the delisting of
the our Common Stock 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
8

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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
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.

WE MAY BE HELD IN VIOLATION OF CERTAIN OF NASDAQ'S CORPORATE GOVERNANCE RULES
AND MAY BE DELISTED, WHICH WOULD AFFECT THE LIQUIDITY OF OUR COMMON STOCK.

We are subject to Nasdaq's corporate governance rules, including Stock
Market Rule 4310(c)(25)(i)(b), which requires the prior approval of stockholders
of a private placement of more than 20% of the outstanding shares. Because our
Series B Preferred Stock was issued without prior shareholder approval and may
be convertible into more than 20% of our outstanding shares of common stock
after October 5, 2002, we may be in violation of this rule, and may be delisted
from the Nasdaq Small Cap Market. Such delisting could adversely affect the
market price and liquidity of our common stock.

[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.

[Download Table]

MAXIMUM NUMBER
OF PERCENTAGE OF TOTAL
SHARES OF COMMON SHARES OF COMMON
[CONVERSION PERIOD CONVERSION RATE STOCK ISSUABLE STOCK OUTSTANDING
------------------ --------------- ---------------- -------------------

10/5/1999 - 10/5/2000 N/A 0 0
10/6/2000 - 10/5/2002 $1.875 666,667 4.9%
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%]

[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.

- 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

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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 5,923,472 shares of Common Stock currently outstanding,
including the 4,891,666 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 [JANUARY 31, 2000], there were outstanding immediately exercisable
stock options to purchase an aggregate of [1,802,225] shares of Common Stock at
exercise prices ranging from $0.34 to [$7.50] per share, and outstanding
immediately exercisable warrants to purchase an aggregate of [4,328,850] shares
of Common Stock at exercise prices ranging from $.69 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 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, 1999, [THE DATE OF OUR MOST RECENT FISCAL YEAR END,] we had net
operating loss carryforwards ("NOLS") for federal income tax purposes of
approximately $13,000,000 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.

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SINCE THE HOLDERS OF OUR OUTSTANDING SERIES A PREFERRED STOCK CONTROL OUR BOARD
OF DIRECTORS, OTHER SHAREHOLDERS MAY NOT BE ABLE TO INFLUENCE OUR DIRECTORS.

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.
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.

USE OF PROCEEDS

Some of the Shares being registered will be acquired from us upon the
exercise of currently outstanding Series B, Series C and Private Warrants. We
would receive approximately [$7,587,961] in proceeds if all of the Series B,
Series C (if exercised within 30 days from the effective date of this
registration statement) 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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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The following analysis of our results of operations and financial condition
should be read in conjunction with our Financial Statements, including the notes
thereto, contained elsewhere in this Prospectus.

RESULTS OF OPERATIONS

Fiscal Year 1999 Compared to Fiscal Year 1998

We realized a consolidated net loss of $3,166,488 ($.43 per share) compared
to a consolidated net loss of $5,464,059 ($.74 per share) for the fiscal years
ended June 30, 1999 and 1998, respectively. Consolidated net sales totaled
$17,094,765 and $33,755,625 for the fiscal years ended June 30, 1999 and 1998,
respectively. During the fourth quarter of 1999, we recorded an adjustment
increasing the net loss for sales made with the right of return by approximately
$1,350,000 for which income will not be recognized until sale of the product by
the customer. Additionally, a reserve of approximately $186,000 was recorded for
claims arising from the sale of SST.

The consolidated sales decrease is due to the sale of one of our
subsidiaries, System Solutions Technology, Inc. in June 1998 and reductions in
DocStar sales. SST had sales of $13,915,029 for the fiscal year ended June 30,
1998. Bitwise sales of the DocStar product line were $7,674,451 and $9,002,203
for fiscal years ended June 30, 1999 and 1998, respectively. In addition, we had
returnable sales of $3,829,052 which were not recognized as sales. These
returnable sales will be recognized when the customers accept the sales as
final. Sales by our subsidiary DJS Marketing Group, Inc., were $9,536,994 and
$11,219,497 for the fiscal years ended June 30, 1999 and 1998, respectively.

Our net loss improvement is due to a combination of a reduction in Bitwise
operating costs and increase in profits from DJS. DJS realized a reduction in
sales, however profits increased 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.

Consolidated gross profit for the fiscal years ended June 30, 1999 and 1998
was $5,615,468 and $8,092,566, respectively. This reduction is mainly due to the
sale of SST in June 1998. The consolidated profit margin was 32.8% and 24.0% for
the fiscal years ended June 30, 1999 and 1998, respectively. 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. Bitwise and its DocStar product 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 our
other expenses except product development costs and interest. S,G&A expenses
amounted to $7,765,234 and $12,251,515 for the fiscal years ended June 30, 1999
and 1998, respectively. S,G&A expenses decreased as a result of the sale of SST,
which incurred S,G&A expenses of $2,891,409 for the fiscal year ended June 30,
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 36.3% in 1998 to 45.4%
in 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 its
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 sell in a localized area and only employ personnel in
their local region and incur minimal advertising and marketing costs.

Interest expense totaled $630,396 and $939,595 for fiscal years ended June
30, 1999 and 1998, respectively. The decrease is due to the sale of SST which
incurred $202,198 of interest expense during the

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fiscal year ended June 30, 1998. The decrease was also due to lower borrowing
levels for DJS offset by higher borrowing levels for Bitwise. Interest rates
decreased during the fiscal year ended June 30, 1999 compared to the prior 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 increased from $230,652 to
$248,801 for the fiscal years ended June 30, 1998 and 1999, respectively.
Bitwise has a policy of capitalizing qualified software development costs and
amortizing those costs over three years as product development expense.

Fiscal Year 1998 Compared to Fiscal Year 1997

We realized a consolidated net loss of $5,464,059, $.74 per share compared
to $2,143,159, $.30 per share for the years ended June 30, 1998 and 1997,
respectively. Consolidated net sales totaled $33,755,625 and $53,109,469 for the
years ended June 30, 1998 and 1997, respectively. During the fourth quarter, we
recognized some unusual expenses, including the loss on the sale of SST
($256,000), an increase in the reserves for obsolete inventory ($588,000), and
an increase in the allowance for bad debts ($170,000). In addition, net sales
for the fourth quarter 1998 aggregated $5,708,000, approximately $6,600,000
below net sales for the fourth quarter 1997.

The sales decrease is due to the sale of ESI in April 1997. During the
fiscal year ended June 30, 1997 ESI had sales of $17,156,187. The sales decrease
is offset somewhat by the growth in our DocStar product line. DocStar sales
totaled $9,002,203 for the year ended June 30, 1998 compared to $7,792,125 for
the prior year.

Gross profit for the fiscal year ended June 30,1998 was $8,092,566 compared
to $10,006,736 for the prior year. The gross profit margin was 24.0% and 18.8%
for years ended June 30, 1998 and 1997, respectively. The gross profit margin
increased in fiscal 1998 compared to the prior year due to the growth of our
DocStar product line which has significantly higher margins than our other
product lines. Additionally, the sale of ESI resulted in a lower gross profit.

Selling, general and administrative expenses ("S,G&A") consist of all our
other expenses except product development costs and interest. S,G&A expenses
amounted to $12,251,515 and $11,834,173 for the years ended June 30, 1998 and
1997, respectively. S,G&A expenses increased mainly due to increased selling and
marketing expenses for the DocStar product line. The increase was offset
somewhat by the sale of ESI. There were also increases in S,G&A expenses in our
other divisions as well.

As a percentage of sales, S,G&A costs increased from 22.3% to 36.3% from
fiscal 1997 to fiscal 1998. Our DocStar product line has not yet achieved
sufficient sales volume to cover all S,G&A expenses and thereby generate a
profit.

Interest expenses totaled $939,595 and $444,918 for the years ended June
30, 1998 and 1997, respectively. The increase in interest costs is due to the
issuance of $4 million of convertible notes in August 1997. The increase is also
due to increased borrowing on our lines of credit during the year. Interest
rates increased slightly compared to the prior year.

Product development expenses relate primarily to software development of
our DocStar product line and increased from $176,539 to $230,652 for the year
ended June 30, 1998 compared to the prior year. We have a policy of capitalizing
software development costs and amortizing those costs over three years as
product development expense.

[THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1998

WE REALIZED A CONSOLIDATED NET LOSS OF $1,107,490 ($.15 PER SHARE) FOR THE
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO A CONSOLIDATED NET LOSS OF
$348,211 ($.05 PER SHARE) FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998. WE HAD
CONSOLIDATED NET SALES OF $3,071,766 AND $5,415,527 FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998, RESPECTIVELY.

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THE CONSOLIDATED SALES DECREASE FOR THE QUARTER ENDED SEPTEMBER 30, 1999 IS
PRIMARILY DUE TO A DECLINE IN SALES OF DOCSTAR DOCUMENT IMAGING SYSTEMS DUE TO
WEAK DEALER DEMAND DURING THE QUARTER.

CONSOLIDATED GROSS PROFIT FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND
1998 WAS $589,443 AND $1,898,224, RESPECTIVELY. THIS REDUCTION IS DUE TO THE
DECREASE IN SALES OF DOCUMENT IMAGING SYSTEMS. THE CONSOLIDATED PROFIT MARGIN
WAS 19.2% AND 35.1% FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998,
RESPECTIVELY. GROSS PROFIT MARGIN IS DEFINED AS GROSS PROFIT AS A PERCENTAGE OF
SALES. THE DECREASE IN GROSS PROFIT MARGIN IS DUE THE REDUCTION IN DOCSTAR SALES
BECAUSE FIXED OVERHEAD COSTS REPRESENT A LARGER PERCENTAGE OF SALES WHEN SALES
DECLINE.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES CONSIST OF ALL OF OUR OTHER
EXPENSES EXCEPT PRODUCT DEVELOPMENT COSTS AND INTEREST. THESE EXPENSES AMOUNTED
TO $1,437,510 AND $2,086,754 FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND
1998, RESPECTIVELY. THESE EXPENSES DECLINED AS A RESULT OF COST CUTTING ON
DOCSTAR, WHICH WAS OFFSET SOMEWHAT BY SPENDING ON AUTHENTIDATE.COM, INC., OUR
NEW INTERNET COMPANY.

AS A PERCENTAGE OF SALES, SELLING, GENERAL AND ADMINISTRATIVE COSTS
INCREASED FROM 38.5% FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 TO 46.8% FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 1999. THIS INCREASE IS DUE TO THE FACT THAT
SALES DECLINED AND DURING THE QUARTER THESE EXPENSES REPRESENTED A LARGER
PERCENTAGE OF A SMALLER SALES AMOUNT.

INTEREST EXPENSE INCREASED FROM $150,910 FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1998 TO $192,979 FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999.
THE INCREASE WAS DUE TO HIGHER BORROWING LEVELS. INTEREST RATES DECREASED
SLIGHTLY DURING THE THREE MONTHS ENDED SEPTEMBER 30, 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 AND AUTHENTIDATE PRODUCT LINES INCURRED BY BITWISE. THESE COSTS REMAINED
ABOUT THE SAME AT $64,547 FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND
$68,278 FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998. WE HAVE A POLICY OF
CAPITALIZING QUALIFIED SOFTWARE DEVELOPMENT COSTS AND AMORTIZING THOSE COSTS
OVER THREE YEARS AS PRODUCT DEVELOPMENT EXPENSE.

THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1997

WE REALIZED A CONSOLIDATED NET LOSS OF $348,211 ($.05 PER SHARE) AND
$512,556 ($.07 PER SHARE) FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND
1997, RESPECTIVELY. THE COMPANY HAD CONSOLIDATED NET SALES OF $5,415,527 AND
$9,368,855 FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997, RESPECTIVELY.

THE CONSOLIDATED SALES DECREASE IS DUE TO THE SALE OF ONE OF OUR
SUBSIDIARIES, SYSTEM SOLUTIONS TECHNOLOGY, INC. IN JUNE 1998. SYSTEM SOLUTIONS
HAD SALES OF $4,363,597 FOR THE QUARTER ENDED SEPTEMBER 30, 1997. OUR REMAINING
BUSINESSES EXPERIENCED A COMBINED INCREASE IN SALES OF $410,269 FOR THE QUARTER
ENDED SEPTEMBER 30, 1998 COMPARED TO THE PRIOR YEAR. OUR SALES OF THE DOCSTAR
PRODUCT LINE EXPERIENCED A 34% INCREASE IN SALES FROM $2,220,156 FOR THE QUARTER
ENDED SEPTEMBER 30, 1997 TO $2,965,970 FOR THE QUARTER ENDED SEPTEMBER 30, 1998.
FOR OUR SUBSIDIARY DJS MARKETING GROUP, INC., SALES DECREASED FROM $2,785,102
FOR THE QUARTER ENDED SEPTEMBER 30, 1997 TO $2,449,557 FOR THE QUARTER ENDED
SEPTEMBER 30, 1998.

THE CURRENT QUARTER LOSS IS DUE TO LOSSES INCURRED BY BITWISE AND THE
DOCSTAR PRODUCT LINE. DJS HOWEVER, REALIZED A PRE-TAX PROFIT OF $75,520 FOR THE
QUARTER ENDED SEPTEMBER 30, 1998 COMPARED TO $23,735 FOR THE SAME PERIOD LAST
YEAR. WE INCURRED A PRE-TAX LOSS OF $423,231 FOR THE QUARTER ENDED SEPTEMBER 30,
1998 COMPARED TO A PRE-TAX LOSS OF $760,131 FOR THE SAME PERIOD LAST YEAR. THE
DOCSTAR PRODUCT LINE HAS NOT YET ACHIEVED SUFFICIENT SALES VOLUME TO GENERATE A
PROFIT. WE EXPECT TO INCUR ADDITIONAL LOSSES IN THE SHORT-TERM UNTIL WE ACHIEVE
A HIGHER MARKET ACCEPTANCE RESULTING IN HIGHER SALES LEVELS.

CONSOLIDATED GROSS PROFIT FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND
1997, WAS $1,898,224 AND $2,550,825, RESPECTIVELY. THE CONSOLIDATED PROFIT
MARGIN WAS 35.1% FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO 27.2%
FOR THE SAME PERIOD 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
SYSTEMS SOLUTIONS AND THE

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CONTINUED GROWTH OF BITWISE AND OUR DOCSTAR PRODUCT WHICH HAS SIGNIFICANTLY
HIGHER GROSS PROFIT MARGINS THAN PRODUCTS AND SERVICES PROVIDED BY BOTH SYSTEMS
SOLUTIONS AND DJS.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES CONSIST OF ALL OF OUR OTHER
EXPENSES EXCEPT PRODUCT DEVELOPMENT COSTS AND INTEREST. THESE EXPENSES AMOUNTED
TO $2,086,754 AND $2,911,956 FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND
1997, RESPECTIVELY, A DECREASE OF $825,202. THESE EXPENSES DECREASED BY $792,059
AS A RESULT OF THE SALE OF SYSTEMS SOLUTIONS.

AS A PERCENTAGE OF SALES, SELLING, GENERAL AND ADMINISTRATIVE COSTS
INCREASED FROM 31.1% FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 TO 38.5% FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 1998. THIS INCREASE IS DUE TO THE SALE OF
SYSTEMS SOLUTIONS. WE HISTORICALLY HAVE HAD HIGHER SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES THAN ANY OF OUR SUBSIDIARY COMPANIES BECAUSE OF OUR
ORGANIZATIONAL 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, WE INCUR
SIGNIFICANT ADVERTISING AND MARKETING COSTS TO MARKET DOCSTAR NATIONALLY. OUR
SUBSIDIARIES TYPICALLY SELL IN A LOCALIZED AREA AND ONLY EMPLOY PERSONNEL IN
THEIR LOCAL REGION AND INCUR MINIMAL ADVERTISING AND MARKETING COSTS.

INTEREST EXPENSE TOTALED $150,910 AND $131,414 FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1998 AND 1997, RESPECTIVELY. THE INCREASE IS DUE TO AN OFFERING
CONCLUDED IN AUGUST 1997 WITH AN OFFSHORE BANK FOR $4,000,000 WORTH OF TERM
CONVERTIBLE DEBT WHICH ACCRUES INTEREST AT 8% PER ANNUM. THIS NEW INTEREST COST
WAS OFFSET BY REDUCED BORROWINGS ON OUR LINE OF CREDIT DURING THE QUARTER ENDED
SEPTEMBER 30, 1998 AS COMPARED TO THE SAME PERIOD LAST YEAR. INTEREST RATES WERE
UNCHANGED DURING THE THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THE SAME
PERIOD LAST YEAR.

PRODUCT DEVELOPMENT EXPENSES RELATE TO SOFTWARE DEVELOPMENT FOR OUR DOCSTAR
PRODUCT LINE WHICH WE INCUR. THESE COSTS INCREASED FROM $43,103 FOR THE QUARTER
ENDED SEPTEMBER 30, 1997 TO $68,278 FOR THE QUARTER ENDED SEPTEMBER 30, 1998. WE
HAVE A POLICY OF CAPITALIZING QUALIFIED SOFTWARE DEVELOPMENT COSTS AND
AMORTIZING THOSE COSTS OVER THREE YEARS AS PRODUCT DEVELOPMENT EXPENSE.]

LIQUIDITY AND CAPITAL RESOURCES

Our 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
June 30, 1999 totaled approximately $4,947,000, net of discounts; $3,975,000 of
this amount, undiscounted, relates to convertible notes payable which mature on
August 11, 2002 and $1,210,712 relates to a mortgage loan.

Our subsidiary, DJS may utilize a line of credit facility totaling
$625,000, of which approximately $256,000 was available at June 30, 1999. This
facility is a wholesale inventory credit facility which is supported by a
guaranty furnished by one of DJS's vendors and expressly limited for purchase
from this vendor. This line is non-interest bearing and payment terms are net
40. The line is collateralized by all assets of DJS.

Our other line of credit for $1,500,000 was terminated by our lender as a
result of our not being in compliance with all of our loan covenants. At June
30, 1999 the balance was approximately $1,300,000. Subsequent to year end, we
entered into an agreement with the lender to extend repayment of the outstanding
balance until September 30, 2000. We were required to make a partial payment to
the lender of $600,000 on October 4, 1999 for the repayment of the remaining
balance from the proceeds of its recently completed private offering. See
"Recently Completed Private Offering." The remaining balance is being paid in
weekly installments over one year with interest at prime plus 4%. Our President,
John Botti, also agreed to guarantee repayment of the loan balance. The line of
credit is secured by our account receivables and inventory, and does not include
its new office building which is secured by a mortgage. We are attempting to
locate a new lender for our inventory financing. There can be no assurance that
we will be successful in its efforts to obtain alternative inventory financing,
and the failure to obtain inventory financing may have an adverse material
effect upon our operations.

In August 1997, we concluded an offering with an offshore bank for
$4,000,000 in gross proceeds ($3,600,000 net proceeds after expenses) in the
form of unsecured, convertible, bearer notes, payable in its entirety on August
11, 2002, with 400,000 detachable Common Stock Purchase Warrants. The $650,411
value
15

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of the warrants has been recorded as discount on the debt and is being amortized
over the term of the debt. The Notes accrue interest at 8%, payable semiannually
in arrears. The holder of $25,000 principal amount or more may convert the notes
into common stock commencing November 1, 1997 until August 11, 2002 at the rate
of $3.25 per share. As of [JANUARY 28, 2000 THIS NOTE WAS CONVERTED IN FULL AND
1,230,769 SHARES OF COMMON STOCK HAVE BEEN ISSUED TO THE HOLDER. THERE IS NO
BALANCE PAYABLE ON THIS NOTE].

In June 1998, we sold SST for $4,000,000 in a stock sale. We received
approximately $3,600,000 in cash and approximately $400,000 worth of inventory
and receivables. In 1999, we received a claim for indemnity from the purchaser
of SST under the terms of the agreement. We have agreed to pay $341,000 over the
next fifteen months to settle this claim.

Property, plant and equipment expenditures totaled $2,402,661 for the year
ended June 30, 1999. There were no purchase commitments outstanding. We
completed the construction of a new office/production facility for approximately
$2,300,000 in Schenectady, N.Y. We were awarded a grant totaling $1,000,000 from
an agency of New York State to be used towards the construction of the facility.
The funding is being received in stages as costs are incurred and submitted for
reimbursement. The grant stipulates that we are obligated to achieve certain
annual employment levels at the new site between January 1, 2001 and January 1,
2005 or some or all other grant will have to be repaid. As of June 30, 1999,
$142,189 had been received and is recorded as deferred revenue. The remainder of
the financing, $1,400,000, was provided by a local financial institution in the
form of a mortgage loan. [THIS LOAN IS DUE IN OCTOBER, 2018 AND WE MUST PAY
INTEREST AT HE RATE OF THE 5-YEAR TREASURE BILL PLUS 2.5%, CURRENTLY 8.25%. THIS
FINANCING IS SECURED BY OUR NEW BUILDING.]

During the fiscal year ended June 30, 1999, we incurred a net loss of
$3,166,488, and cash used by operating activities totaled $1,864,509. Our
available cash balance at June 30, 1999 totaled approximately $549,000. At
September 30, 1999 our available cash balance was approximately $415,000. [ON
JANUARY 28, 2000 OUR CASH BALANCE WAS $6,358,000, DUE PRIMARILY TO THE EXERCISE
OF OUTSTANDING OPTIONS AND WARRANTS.] One of our lines of credit has been
terminated by its lender and we are currently paying off the outstanding
balance. To date, we have been largely dependent on our ability to sell
additional shares of our common stock or other financing to fund our operating
deficits. Under our current operating plan to obtain a national acceptance of
the DocStar product line and to launch the Authentidate product line, our
ability to improve operating cash flow is highly dependent on the market
acceptance of its products and our ability to reduce overhead costs. If we are
unable to attain projected sales levels for DocStar and other products, or is
unable to implement cost reduction strategies, 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, if needed.

RECENTLY COMPLETED PRIVATE OFFERING

On October 4, 1999, we closed two concurrent private offerings. In the
first offering, we sold 740,000 units at an aggregate offering price of
$740,000. Each unit consisted of two shares of common stock and two Series B
Common Stock Purchase Warrants. The Series B Warrants entitle the holder to
purchase one share of common stock at an exercise price of $1.375 per share
during the offering period commencing on the date of issuance and terminating
five years thereafter.

The Series B Warrants are redeemable at any time commencing one year after
issuance at our option with not less than 30 nor more than 60 days written
notice to the registered holders at a redemption price of $.05 per warrant
provided; (1) The public sale of the shares of common stock issuable upon
exercise of the Series B warrants are covered by a tentative registration
statement; and (2) During each of the immediately preceding 20 consecutive
trading days ending within 10 days of the date of the notice of redemption, the
closing bid price of our common stock is at least $3.25 per share.

In the second offering, we sold 50,000 shares of a newly created class of
Series B convertible cumulative Preferred Stock. The Series B Preferred Stock
was sold at $25.00 per share for an aggregate offering price of $1,250,000. The
following terms apply to the Series B Preferred Stock:

- DIVIDENDS Dividends on the Series B Preferred Stock are
payable at the rate of 10% per annum,
semi-annually in cash.

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- CONVERSION Each share of Series B Preferred Stock is
convertible into the number of shares of our
common stock as shall equal $25.00 divided by
the conversion price of $1.875 per share,
subject to adjustment under certain
circumstances.

- ADJUSTMENT TO CONVERSION
PRICE Commencing three years after the closing, the
conversion price shall be the lower of $1.875
per share or the average of the closing bid and
asked price of our common stock for the 10
consecutive trading days immediately ending one
trading day prior to the notice of the date of
conversion; provided, however, that the holders
are not entitled to convert more than 20% of
the Series B preferred shares held by such
holder on the third anniversary of the date of
issuance per month.

- REDEMPTION The Series B Preferred Stock is redeemable at
any time commencing one year after issuance or
not less than 30 nor more than 60 days written
notice at a redemption price of $25 plus
accrued and unpaid dividends provided;

- the public sale of the shares of common
stock issuable upon conversion of the
Series B Preferred Stock are covered by
an effective registration statement or
are otherwise exempt from registration;
and

- during the immediately preceding 20
consecutive trading days ending within
10 days of the date of the notice of
redemption, the closing bid price of our
Common Stock is not less than $3.75 per
share. Commencing 34 months after the
Closing, the Series B Preferred Stock is
redeemable at our option without regard
to the closing price of our Common
Stock.

We also created a new subsidiary, Authentidate.com, Inc. through which we
will market our new Internet service which allows for the verification of the
authenticity of digital images. In connection with the above offerings, [ON
NOVEMBER 19, 1999,] the purchasers [CLOSED ON] the [PRIVATE] purchase [OF] 20%
of Authentidate.com, Inc. [AND] an aggregate of 999,999 [BITWISE DESIGNS] Series
C Common Stock Purchase Warrants [FOR A TOTAL PRICE OF $100,000].

The Series C Warrants are redeemable at any time commencing six months
after issuance, on not less than 30 nor more than 60 days written notice to
registered holders at a redemption price equal to $.05 per Warrant, provided (1)
the public sale of the shares of common stock issuable upon exercise of the
Series C Warrants are covered by an effective registration statement or are
otherwise exempt from registration; and (2) during each of the immediately
preceding 20 consecutive trading days ending within 10 days of the date of the
notice of redemption, the closing bid price of our common stock is not less than
120% of the current exercise price of the Series C Warrants.

The Series C Warrants were also divided into three equal classes of
333,3333 each to provide for varying exercise prices. The exercise price of the
Series C Warrants is as follows:

[Download Table]

Class I $1.50 per share of Common Stock, increasing (i) $.75 per
share 30 days after the effective date of the registration
statement covering the underlying shares; (ii) an additional
$.75 per share 7 months after the effective date; and (iii)
an additional $.75 per share 13 months after the effective
date, subject to adjustment for stock splits and corporate
reorganizations.

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[Download Table]

Class II $1.50 per share of Common Stock, increasing (i) $.75 per
share 60 days after the effective date of the registration
statement; (ii) an additional $.75 per share 7 months after
the effective date; and (iii) an additional $.75 per share
13 months after the effective date, subject to adjustment
for stock splits and corporate reorganizations.
Class III $1.50 per share of Common Stock, increasing (i) $.75 per
share 90 days after the effective date of the registration
statement; (ii) an additional $.75 per share 7 months after
the effective date; and (iii) an additional $.75 per share
13 months after the effective date, subject to adjustment
for stock splits and corporate reorganizations.

We received gross proceeds of approximately [$2,090,000 FROM THE UPON
CLOSING OF ALL OF THE ABOVE PRIVATE OFFERINGS].

We have utilized the proceeds of the three offerings as follows:

- approximately $600,000 has been utilized to repay a portion of our line
of credit;

- approximately $400,000 will be utilized to develop the Authentidate.com
business;

- approximately $160,000 was utilized to make a past due interest payment
on our outstanding 8% convertible notes; and

- the remainder has been reserved for working capital.

We incurred offering expenses of approximately $60,000.

EFFECTS OF INFLATION AND CHANGING PRICES

The impact of general inflation on our operations has not been significant
to date and we believe inflation will continue to have an insignificant impact
on our operations. However, price deflation in the major categories of
components we purchase has been substantial and is anticipated to continue
through fiscal 2000. Typically, new components such as new generations of
microprocessors and new optical disk drive technologies etc. are introduced at
premium prices, by its vendors. During this period, we earn lower margins on our
products. As the life cycle progresses competitive pressures could force vendor
prices down and thus improve our profit margins. We do not believe that
competitive pressures will require us to lower our DocStar selling price.
Because much of DJS's business is service-related, price deflation has less of
an impact on DJS's profits.

NEW ACCOUNTING STANDARDS

In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 requires reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general purpose financial statements. This statement became
effective for annual and interim financial statements beginning the fiscal year
ending June 30, 1999, and will require reclassifications of prior periods. We
had no other comprehensive income to report for the years ended June 30, 1999
and 1998.

In June 1997, The Financial Accounting Standards Board also 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 became effective for annual financial statements beginning the
fiscal year ending June 30, 1999, and for interim periods beginning the fiscal
year ending 2000.

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS 133
establishes a new model for accounting for derivatives and hedging activities.
This Statement is effective for fiscal years beginning June 30, 2000. The
adoption of this standard is not expected to have a significant impact on our
consolidated financial statements.

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YEAR 2000 COMPLIANCE

[PRIOR TO JANUARY 1, 2000 WE SURVEYED] all of our desktops and servers to
ensure Year 2000 compliance. The survey concluded that all of our in-house work
systems use hardware that is that 100% Year 2000 compliant. Most of our software
and operating systems are Microsoft(TM) based and are believed to be Year 2000
compliant. Our product hardware is fully Year 2000 compliant and the software is
Year 2000 compliant in the latest version 2.30. Because the DocStar System is a
relatively new system, it was designed to handle a four (4) digit year. In
addition, we are in the process of surveying our critical vendors for Year 2000
compliance. However, we do not believe there would be significant difficulties
finding alternate supply services should the need arise. [AS OF JANUARY 31, 2000
ALL OF OUR OPERATIONS WERE UNAFFECTED BY THE CHANGE TO THE YEAR 2000].

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DESCRIPTION OF BUSINESS

INTRODUCTION

Bitwise, and its wholly-owned subsidiary DJS Marketing Group, Inc. are
engaged in the manufacture and distribution of document imaging systems,
computer systems and related peripheral equipment, components, and accessories
and network and internet services.

We have also recently established a majority owned subsidiary named
Authentidate.Com LLC to engage in a new business line of providing end users
with a service which will:

- accept and store e-mail from networks and personal computers throughout
the world and from different operating systems via the Internet;

- allow for confirmation of acceptance of all e-mails sent to the system;

- allow for a secure payment system, including use of credit cards; and

- produce confirmations of receipt of e-mail.

In June 1998, we sold a subsidiary, System Solutions Technology, Inc.,
which had been acquired by the Company in August 1994. SST is a value added
distributor of advanced technology industrial computers and computer peripheral.
In April 1997, we sold a subsidiary, Electrograph Systems, Inc. ESI had been
acquired in August 1994 and is a value-added distributor of monitors and other
microcomputer peripherals, components and accessories. Our financial statements
and discussion under the heading "Management Discussion and Analysis" includes
the results of operations for both ESI and SST to the date of their divestiture.

In March 1996, we acquired DJS, a system integrator, computer reseller and
personal computer manufacturer in Albany, New York. DJS is an authorized sales
and support provider for Novell, Microsoft Solutions and Lotus Notes, as well as
a member of Microage Infosystems. The financial statements include operations
from the date of the acquisition of DJS.

We were 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, and our telephone number is (518)
346-7799.

GENERAL BUSINESS DEVELOPMENTS DURING THE LAST FISCAL YEAR

In June 1998, we sold SST to United Strategies, Inc. for $4,000,000. We
received approximately $3,600,000 in cash and approximately $400,000 worth of
SST inventory and receivables. The transaction was in the form of a stock
purchase. During the year ended June 30, 1999, we received certain claims from
USI for indemnification under the agreements governing the sale. We agreed to
pay USI $341,000 to settle these claims to be paid over 15 months accruing
interest of 6%. We realized a loss of approximately $597,000 on the sale.

BITWISE'S PRODUCTS

Document Imaging and Management

In January 1996, Bitwise, on a national level, introduced its document
imaging management system under the tradename DocStar. Our DocStar system
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

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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.

The main components of a document management system are:

- a personal computer;

- a high speed electronic document scanner;

- a laser printer capable of reproducing documents quickly; and

- a software package which controls scanning, indexing, storage and
reproduction.

We purchase scanners, laser printers and other essential hardware from
unaffiliated third parties and manufacture the PC's for the system.

The software utilized in DocStar consists of various versions of existing
software from other developers, as well as software which we developed. We offer
the DocStar System in four models: System 15, System 25X2, System 50, and the
DocStar DCL. The DocStar System 15 is the base model. The Systems 25X2 and 50
offer faster advanced processors or scanners, and increased storage capacity.
Options and accessories include a jukebox, an optical disk tower, additional
software, scanner upgrades, monitor upgrades and hardware upgrades. The DCL
connects DocStar electronic imaging capabilities with the network scanning and
printing functions of Xerox Corporation's Document Centre digital copiers.

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.

BACKLOG

We normally ship products within 5 days after receipt of an order and
typically have no more than two weeks of sales in backlog at any time. The
amount of backlog fluctuates but usually is not material.

RESEARCH AND DEVELOPMENT

The market for our products is characterized by rapid technological change
involving the application of a number of advanced technologies, including those
relating to computer hardware and software, mass storage devices, and other
peripheral components. Our ability to be competitive depends upon our ability to
anticipate and effectively react to technological change, as well as the
application requirements of our customers.

Since inception, we have devoted efforts to research and development
activities in an effort to improve our current products and introduce new
products. Current development efforts are directed toward improving ease of use,
adding system enhancements and increasing performance. Product development
expense was $248,801 and $230,652 for fiscal years 1999 and 1998, respectively.
We will continue to improve our document imaging products in an effort to
satisfy the needs of an ever changing marketplace.

QUALITY CONTROL AND SERVICE

We administer quality control at each of the three levels of the production
process. First, components considered for use in standard systems are tested for
compatibility by the research staff. Second, incoming components receive a
physical damage inspection on receipt and again at the start of the production
process. Each memory module is electronically tested prior to assembly. Each
complete unit is then functionally tested at the end of the assembly process to
demonstrate that all components are engaged and fully operational.

Third, each complete unit is "burned-in" from eight to twelve hours. This
process involves running a component test program which sequentially tests each
memory bit, processor circuit, and drive memory track to verify correct
operation in a temperature-controlled chamber. This test is repeated
continuously over the burn-in period. Since electronic components have their
greatest failure risk during the first few hours of active

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operation, management believes that the burn-in process reveals nearly all
faulty components before they reach the end user.

Our dealers provide service to the end users. All dealers receive service
training from the national service staff. We provide the dealer with replacement
parts free of charge for 13 months after date of shipment. Our vendors provide a
similar warranty for failed components. We offer liberal telephone support
service to our dealers.

MANUFACTURING AND SUPPLIERS

Our products have been designed to enable a variety of system
configurations to be assembled from a few basic modules. Our manufacturing
operations consist primarily of the assembly, test and quality control of all
parts, components, subassemblies and systems.

We use standard parts and components in its existing product lines which we
purchase from unaffiliated third party suppliers. We, however, do not have any
contractual arrangements with our current suppliers. Although we have never
experienced material delays in deliveries from our suppliers, shortages of
component parts could occur and delay or interrupt our manufacture and delivery
of products and adversely affect our operating results. We believe adequate
alternative suppliers are available to mitigate the potentially adverse effect
of supply interruptions, but there can be no assurance that such components will
be available as and when needed.

All peripheral computer products available through us, such as monitors and
scanner/printer units, are manufactured by third parties. We only assemble the
computer which is part of the DocStar system and the optical disk tower option.

PATENTS AND TRADEMARKS

We have one patent pending and have registered the logo "BitWise Designs"
and Bitwise's associated trademarks, "DocStar" and "Authentidate." The patent
pending is for innovative technology that can verify the authenticity of digital
images by employing a secure clock to stamp the date and time on each image
captured. The product name is Authentidate(TM) Image Marking. No assurance can
be given that registration will be effective to protect our trademarks. We
believe the tradenames are material to our business.

SALES AND MARKETING

Our products are primarily being distributed through a national dealer
network and through a dealership which we own in our local market area. We
believe that we has achieved a national sales presence through national
advertising, favorable reviews in industry publications, newspapers, magazines,
press releases and other periodicals utilized by the document imaging industry.
Moreover, we offer direct mail and tele-marketing services to selected qualified
dealers in their market area. Management intends to increase the number of
dealer locations for the current fiscal year, although there can be no assurance
that we will be successful in such efforts.

Our products are usually sold on credit terms or through a floor planning
finance company (to qualified accounts), and are warranted against defects in
materials and workmanship for a period of 13 months from purchase. We currently
employ five regional sales directors, one district sales manager and three
direct sales managers, to cover the significant markets of the country.

COMPETITION

The market for our products is rapidly changing and highly competitive. The
competition is direct (i.e., companies that make similar products) and indirect
(i.e., companies that participate in the market, but do not directly compete
with us). We compete with major document imaging manufacturers such as
Panasonic, Sharp and Mita. Many of our current and prospective competitors have
significantly greater financial, technical, manufacturing and marketing
resources, as well as a larger installed base, than do we.

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EMPLOYEES

We employ 40 full-time employees including our executive officers. No
employees are covered by a collective bargaining agreement, and we believe our
employee relations are satisfactory.

FORMATION OF NEW AUTHENTIDATE BUSINESS LINE

We have recently established a majority owned subsidiary named
Authentidate.Com LLC to engage in a new business line of providing end users
with a service which will:

- accept and store e-mail from networks and personal computers throughout
the world and from different operating systems via the Internet;

- allow for confirmation of acceptance of all e-mails sent to the system;

- allow for a secure payment system, including use of credit cards; and

- produce confirmations of receipt of e-mail.

We anticipate that Authentidate will commence offering services through its
Authentidate.Com Internet site within the next 45 to 90 days. We intend to
market the Authentidate services through traditional print and media advertising
and banner advertising and links on other Internet provider home pages. To date,
Authentidate's operations have been limited to developing the technology for its
services and home page.

DJS PRODUCTS AND SERVICES

DJS (d/b/a "Computer Professionals") is a network and systems integrator of
computer and peripheral products to a variety of customers, including
corporations, schools, government agencies, manufacturers and distributors. DJS
is the largest systems integrator 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

Network Integration

DJS' network integration group designs, implements, installs, manages and
supports enterprise networks with products from Novell, Microsoft, UNIX,
Tricord, Synoptics, Compaq, Cisco and others.

DJS designs customized solutions for its clients with precise objectives
and its engineers analyze hardware, software, and cabling to ensure effective
and affordable solutions.

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.

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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 (4) 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 Biwise's
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.

COMPETITION

DJS is one of the oldest and largest network and systems integrators in the
Capital District of Albany, New York, and works on many diverse platforms. While
management believes that no other computer company in the Albany, New York
region offers the extensive services that DJS offers, competitors in computer
sales, service and support in general, include Computerland, Computers Etc.,
CompUSA, Entex and Ameridata.

EMPLOYEES

DJS has 34 full-time staff members, including two (2) executive officers.
None of the employees of DJS are represented by a collective bargaining
agreement. DJS believes that its employee relations are good.

DESCRIPTION OF PROPERTIES

Our executive offices and production facilities are located at 2165
Technology Drive, Schenectady, New York 12308. We own the 26,000 square foot
building.

A New York State agency awarded us a $1,000,000 grant to build a this
facility, which was recently completed. The grant is subject to a requirement
regarding our employment practices [, WHICH STIPULATES THAT MUST HAVE A TOTAL OF
71 EMPLOYEES BY JANUARY 2001, A TOTAL OF 121 EMPLOYEES BY JANUARY 2002, 200
EMPLOYEES BY JANUARY 2003 AND 300 EMPLOYEES BY JANUARY 2004. FAILURE TO SATISFY
THIS REQUIREMENT COULD RESULT IN OUR HAVING TO REPAY THE GRANT]. We expect to be
in compliance with this requirement.

GOVERNMENT REGULATION

Compliance with laws and regulations governing our business can be
complicated, expensive, and time-consuming and may require significant
managerial and legal supervision. [SUCH REGULATION INCLUDES THE RADIO FREQUENCY
EMISSION REGULATORY ACTIVITIES OF THE U.S. FEDERAL COMMUNICATIONS COMMISSION,
THE IMPORT/ EXPORT REGULATORY ACTIVITIES OF THE U.S. DEPARTMENT OF COMMERCE AND
THE PRODUCT SAFETY REGULATORY ACTIVITIES OF THE U.S. CONSUMER PRODUCTS SAFETY
COMMISSION.] Failure to comply with such laws and regulations could have a
materially adverse effect on our business. Further, any changes in any of these
laws and regulations

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could materially and adversely affect our business. There is no assurance that
we will be able to secure on a timely basis, or at all, necessary regulatory
approvals in the future.

Our suppliers must comply with federal, state and local environmental laws
and regulations relating to air quality, waste management, water quality and
related land use matters. They may need to maintain various permits concerning
waste handling and discharges of waste water. We believe that our suppliers are
in compliance with all required permits relating to environmental regulations.

LEGAL PROCEEDINGS

We are not a party to any legal proceedings which could have a material
adverse effect on our operations.

DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

MANAGEMENT

Our executive officers and directors are as follows:

[Enlarge/Download Table]

NAME AGE OFFICE
---- --- ------

John T. Botti................................ [36] President, Chief Executive Officer and Chairman
of the Board
Ira C. Whitman............................... 36 Senior Vice-President -- Research and
Development, Secretary and Director
Steven A. Kriegsman.......................... 56 Director
J. Edward Sheridan........................... 62 Director
Charles C. Johnston.......................... 63 Director
Nicholas Themelis............................ 36 Director
[DENNIS H. BUNT.............................. 46 CHIEF FINANCIAL OFFICERS]

All directors hold office until the next annual meeting of shareholders or
until their successors are elected and qualify. Officers are elected annually
by, and serve at the discretion of, the Board of Directors. There are no
familial relationships between or among any of our officers or directors.

In connection with [OUR] private placement through Whale Securities Co.,
L.P. ("Whale"), completed in December 1995, the Company granted Whale the right
to nominate one person to the Company's Board of Directors, or in the
alternative, a person to attend meetings of the Board of Directors for a period
of three years from the date of the closing of the private placement. In
December, 1997, Whale selected Steven Kriegsman as its representative on the
Board and Mr. Kriegsman continues to serve on the Board. [WE ARE NOT OBLIGATED
TO CONTINUE HIS APPOINTMENT.]

In connection with [OUR] recent private placement which closed on October
4, 1999, the Board of Directors appointed Nicholas Themelis to serve as a
director to fill a vacancy on the Board.

JOHN T. BOTTI, a co-founder, has served as President, Chief Executive
Officer and Director since our incorporation in August 1985. Mr. Botti graduated
from Rensselaer Polytechnic Institute ("RPI") with a B.S. degree in electrical
engineering in 1994 with a concentration in computer systems design and in 1996
earned a Master of Business Administration degree from RPI.

IRA C. WHITMAN, a co-founder, is our Senior Vice-President of Research and
Development and one of our Directors since our incorporation in August 1985. Mr.
Whitman graduated from RPI in 1984 with a B.S. in Computer and Systems
Engineering and in 1990 he earned a Masters in Engineering from RPI.

J. EDWARD SHERIDAN joined the Board of Directors in June, 1992. From 1985
to the present, Mr. Sheridan served as the President of Sheridan Management
Corp. From 1975 to 1985, Mr. Sheridan served as the Vice President of Finance
and Chief Financial Officer of AMF. From 1973 to 1975, he was Vice President and
Chief Financial Officer of Fairchild Industries. From 1970 to 1973 he was the
Vice President, Corporate Finance of F.S. Smithers. From 1967 to 1970 Mr.
Sheridan was the Director of Acquisitions of Westinghouse

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Electric. From 1964 to 1967 he was employed by Corporate Equities, Inc., a
venture capital firm, Mr. Sheridan holds an M.B.A. from Harvard University and a
B.A. from Dartmouth College.

STEVEN A. KRIEGSMAN joined the Board of Directors in December, 1997. In
1989, Mr. Kriegsman founded The Kriegsman Group, a private financial consulting
services firm and has served as its President since such time. In 1981 Mr.
Kriegsman co-founded ANA Financial Services, Inc., a holding company engaged,
through its subsidiaries, in securities brokerage, financial planning and
investment advisory services and franchising of certified public accountants.
Mr. Kriegsman served as Chairman and Chief Executive Officer of ANA Financial
until 1989. Mr. Kriegsman is a former Certified Public Accountant. Mr. Kriegsman
holds a B.S. from New York University.

CHARLES C. JOHNSTON joined the Board of Directors in December, 1997. Mr.
Johnston has been the Chairman of Ventex Technology, Inc., a privately-held neon
light transformer company since July 1993. Mr. Johnston has also served as
Chairman of AFD Technologies, a private corporation since 1994 and J&C Resources
a private corporation, a position that he has held since 1987. Mr. Johnston
serves as a Trustee of Worcester Polytechnic Institute ("WPI") and earned his
B.S. degree from WPI in 1957.

NICHOLAS THEMELIS joined the Board of Directors in October, 1999. Mr.
Themelis has been a Senior Vice President of Lehman Brothers since 1991 and has
worked out of its New York, Hong Kong and Tokyo offices. He is currently
developing the firm's E-commerce technology group and is responsible for
developing technical strategy and system architecture. While working in Asia at
Lehman Brothers, he founded the firm's Internet committee in Asia. Mr. Themelis
also co-founded Nutrisserie, Inc in 1991, a retail health food store. Prior to
that, in 1986, Mr. Themelis was a co-founder of Bentley, Themelis and
Associates, a software consulting company.

[** 1] DENNIS H. BUNT has been our Chief Financial Officer since September
1992. From January to September 1992 Mr. Bunt was an independent financial
consultant. From 1986 to January 1992, Mr. Bunt was Chief Financial Officer for
The Michaels Group Inc., a homebuilding/development company. Prior to that, Mr.
Bunt was a Division Controller for Mechanical Technology Inc. a high tech
manufacturing company where he was employed from 1980 to 1986. Mr. Bunt is a
certified public accountant and was employed by KPMG Peat Marwick from
1976-1979. He graduated with an M.B.A. from Babson College in 1979 and a B.S. in
Accounting from Bentley College in 1976.

COMMITTEES OF THE BOARD OF DIRECTORS

The Board of Directors has three (3) Committees: Audit, Compensation and
Executive Committee.

Audit Committee. The members of the Audit Committee are J. Edward Sheridan
and Charles Johnston. The Audit Committee acts to: (i) acquire a complete
understanding of our audit functions; (ii) review with management our finances,
financial condition and interim financial statements; (iii) review with our
independent auditors the year-end financial statements; and (iv) review
implementation with the independent auditors and management any action
recommended by the independent auditors. During the fiscal year ended June 30,
1999, the Audit Committee met on one occasion.

Executive Committee. The members of the Executive Committee are John Botti
and Ira C. Whitman. The Executive Committee has all of the powers of the Board
of Directors except it may not; (i) amend the Certificate of Incorporation or
Bylaws; (ii) enter into agreements to borrow money in excess of $250,000; (iii)
to grant security interests to secure obligations of more than $250,000; (iv)
authorize private placements or public offerings of our securities; (v)
authorize the acquisition of any major assets or business or change our
business; or (vi) authorize any employment agreements in excess of $75,000. The
Executive Committee meets when actions must be approved in an expedient manner
and a meeting of the Board of Directors cannot be convened. During Fiscal 1999,
the Executive Committee did not deem it necessary to meet.

Compensation Committee. The members of the Compensation Committee are
Steven Kriegsman and J. Edward Sheridan. The Compensation Committee functions
include administration of our 1992 Employee Stock Option Plan and Non-Executive
Director Stock Option Plan and negotiation and review of all

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employment agreements with our executive officers. During the fiscal year ended
June 30, 1999, the Compensation Committee held one meeting.

MEETINGS OF THE BOARD OF DIRECTORS

During the fiscal year ended June 30, 1999, our Board of Directors met on
three occasions and voted by unanimous written consent on two occasions. No
member of the Board of Directors attended less than 50% of the aggregate number
of (i) the total number of meetings of the Board of Directors or (ii) the total
number of meetings held by all Committees of the Board of Directors.

CERTAIN REPORTS

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
our Directors and officers, and persons who own, directly or indirectly, more
than 10% of a registered class of our equity securities, to file with the
Securities and Exchange Commission reports of ownership and reports of changes
in ownership of our common stock and other equity securities. Officers,
directors and greater than 10% shareholders are required by SEC regulations to
furnish us with copies of all Section 16(a) forms that they file. Based solely
on review of the copies of such reports that we have received, we believe that
all Section 16(a) filing requirements applicable to officers, directors and 10%
shareholders were complied with during the 1999 fiscal year.

[* 1 moved from here; text not shown]

[* 2 moved from here; text not shown]

SIGNIFICANT EMPLOYEE

[** 2] JOHN MATYKA has been Vice President of Marketing of the Imaging
Division since November 1995. Mr. Matkya brings over 25 years of management
experience in marketing, sales and communication for the office equipment
industry with Ricoh Corp., IBM and Savin Corp. Mr. Matyka has an M.B.A. from
Fairleigh Dickinson University and a B.B.A degree from Pace University.

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EXECUTIVE COMPENSATION

The following table provides certain information concerning all Plan and
Non-Plan (as defined in Item 402(a)(ii) of Regulation S-B) compensation awarded
to, earned by, and which we paid during the years ended June 30, 1999, 1998 and
1997 to the named executive officers.

SUMMARY COMPENSATION TABLE

ANNUAL COMPENSATION

[Enlarge/Download Table]

LONG TERM
COMPENSATION AWARDS
--------------------------
NO. OF
OTHER RESTRICTED SECURITIES
FISCAL ANNUAL STOCK UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARD(S) OPTIONS/SARS
--------------------------- ------ -------- ----- ------------ ---------- ------------

John Botti................. 1999 $132,794(1) 0(1) $1,702(2) 0(3) 0
Chairman, President and 1998 $121,000 0 $1,702 0 0
Chief Executive Officer 1997 $110,000 0 $1,415 0 0

---------------
(1) Pursuant to the terms of his employment agreement dated July 1, 1995, Mr.
Botti is to receive a cash bonus each year during the term of agreement
equal to 3% of our pre-tax profits, which criteria was not met in 1999, 1998
or 1997, therefore, no bonuses were issued. Additionally, Mr. Botti is
entitled to receive approximately $132,000 in salary per year. See
"Employment Agreements."

(2) Includes: (i) for 1999, an automobile and expenses of $1,500 and the payment
of premiums on term life insurance policy of $202; (ii) for 1998, an
automobile and expenses of $1,500 and the payment of premiums on a term life
insurance policy of $202; and (iii) for 1997, an automobile and expenses of
$1,213 and the payment of premiums on a term life insurance policy of $202.

(3) No restricted stock awards were granted to Mr. Botti in fiscal 1999. Mr.
Botti, however, owned 233,853 restricted shares of our Common Stock on June
30, 1999, the market value of which was approximately $226,604 on such date,
without giving effect to the diminution in value attributed to the
restriction on such shares.

OPTION/SAR GRANTS IN LAST FISCAL YEAR

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POTENTIAL
REALIZABLE ALTERNATIVE TO
VALUE AT (F) AND (G)
ASSUMED ANNUAL GRANT DATE
PERCENT OF INDIVIDUAL GRANTS RATES OF VALUE
TOTAL ------------------------ STOCK PRICE --------------
NUMBER OF OPTIONS/SARS APPRECIATION
SECURITIES GRANTED TO FOR
UNDERLYING EMPLOYEES EXERCISE OF OPTION TERM GRANT DATE
OPTION/SARS IN FISCAL BASE PRICE EXPIRATION -------------- PRESENT
NAME GRANTED(#) YEAR (S/SH) DATE 5%($) 10%($) VALUE $
(A) (B) (C) (D) (C) (F) (G) (H)
---- ----------- ------------ ----------- ---------- ----- ------ --------------

John Botti............... 0 N/A N/A N/A 0 0

No Stock Appreciation Rights were granted to any of the named executive
officers during the last fiscal year.

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AGGREGATED OPTION/SAR EXERCISES IN LAST
FISCAL YEAR AND FY-END OPTION/SAR VALUES

The following table contains information with respect to the named
executive officers concerning options held as of the year ended June 30, 1999.

AGGREGATED OPTION/SAR EXERCISES IN LAST
FISCAL YEAR AND FY-END OPTION/SAR VALUES

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NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AS OF IN-THE-MONEY OPTIONS
ACQUIRED VALUE JUNE 30, 1999 AT JUNE 30, 1999(1)
NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- -------- ------------------------- -------------------------

John T. Botti.............. 0 -- 835,185/0 6,406/0

---------------
(1) Based upon the closing bid price ($.969 per share) of our Common Stock on
June 30, 1999 less the exercise price for the aggregate number of shares
subject to the options.

EMPLOYMENT AGREEMENTS

Effective July 1, 1995, we entered into a new employment agreement with Mr.
Botti for a five year term ending June 30, 2000. The employment agreement
provides for:

- annual compensation of $100,000 for the first year of the agreement,
increasing by 10% in each year thereafter;

- a bonus of 3% of our pre-tax net income, with such additional bonuses as
may be awarded in the discretion of the Board of Directors;

- the award of non-qualified stock options to purchase 600,000 shares of
our common stock at an exercise price of $1.5625 per share of which
100,000 vested in on June 30, 1995, 125,000 vested on June 30, 1996 and
125,000 vested on each of June 30, 1997, 1998 and 1999;

- certain insurance and severance benefits; and

- automobile and expenses.

COMPENSATION OF DIRECTORS

Directors are compensated for their services during the last fiscal year in
the amount of $5,000 annually. The Directors receive options to purchase 10,000
shares for each year of service under the Non-Executive Director Stock Option
Plan ("Stock Options") and are reimbursed for expenses incurred in order to
attend meetings of the Board of Directors. Directors also receive 20,000 Stock
Options upon being elected to the Board.

STOCK OPTION PLANS

1992 Employees Stock Option Plan

In April 1992, we adopted the 1992 Employees Stock Option Plan (the "1992
Plan") which provided for the grant of options to purchase up to 600,000 shares
of our Common Stock. On January 26, 1995, our stockholders approved an amendment
to the 1992 Plan to increase the number of shares of Common Stock available
under the 1992 Plan to 3,000,000 shares. Under the terms of the 1992 Plan,
options granted thereunder may be designated as options which qualify for
incentive stock option treatment ("ISOs") under Section 422A of the Code, or
options which do not so qualify ("Non-ISOs"). As of [JANUARY 31, 2000], there
were outstanding [1,802,225] options under the 1992 Plan with exercise prices
ranging from $.34 to $7.125.

The 1992 Plan is administered by a Compensation Committee designated by the
Board of Directors. The Compensation Committee has the discretion to determine
the eligible employees to whom, and the times and

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the price at which, options will be granted. Whether such options shall be ISOs
or Non-ISOs; the periods during which each option will be exercisable; and the
number of shares subject to each option, shall be determined by the Committee.
The Board or Committee shall have full authority to interpret the 1992 Plan and
to establish and amend rules and regulations relating thereto.

Under the 1992 Plan, the exercise price of an option designated as an ISO
shall not be less than the fair market value of the Common Stock on the date the
option is granted. However, in the event an option designated as an ISO is
granted to a ten percent stockholder (as defined in the 1992 Plan) such exercise
price shall be at least 110% of such fair market value. Exercise prices of
Non-ISOs options may be less than such fair market value. The aggregate fair
market value of shares subject to options granted to a participant which are
designated as ISOs which become exercisable in any calendar year shall not
exceed $100,000. The "fair market value" will be the closing Nasdaq bid price,
or if our Common Stock is not quoted by Nasdaq, as reported by the National
Quotation Bureau, Inc., or a market maker of our Common Stock, or if the Common
Stock is not quoted by any of the above, by the Board of Directors acting in
good faith.

The Compensation Committee may, in its sole discretion, grant bonuses or
authorize loans to or guarantee loans obtained by an optionee to enable such
optionee to pay any taxes that may arise in connection with the exercise or
cancellation of an option.

Unless sooner terminated, the 1992 Plan will expire in April, 2002.

Non-Executive Director Stock Option Plan

In April, 1992, the Board of Directors adopted the Non-Executive Director
Stock Option Plan (the "Director Plan") which was approved by our stockholders
in May, 1992. With the approval of the shareholders, the Director Plan was
amended in December, 1997. Options are granted under the Director Plan until
April, 2002 to (1) non-executive directors as defined and (2) members of any
advisory board established by us who are not full-time employees of us or any of
our subsidiaries.

The Director Plan provides that each non-executive director will
automatically be granted an option to purchase 20,000 shares, upon joining the
Board of Directors, and 10,000 shares on each September 1st thereafter, provided
such person has served as a director for the 12 months immediately prior to such
September 1st. Each eligible director of an advisory board will receive, upon
joining the advisory board, and on each September 1st thereafter, an option to
purchase 5,000 shares of the our Common Stock, providing such person has served
as a director of the advisory board for the previous 12 month period.

As of [JANUARY 31, 2000], there are outstanding [150,000] options under the
Director Plan with exercise prices from $1.00 to $5.13.

The exercise price for options granted under the Director Plan is 100% of
the fair market value of the Common Stock on the date of grant. The "fair market
value" is the closing bid price, or if our Common Stock is not quoted by Nasdaq,
as reported by the National Quotation Bureau, Inc., or a market maker of our
Common Stock, or if the Common Stock is not quoted by any of the above by the
Board of Directors acting in good faith. Until otherwise provided in the Stock
Option Plan the exercise price of options granted under the Director Plan must
be paid at the time of exercise, either in cash, by delivery of shares of our
common Stock or by a combination of each. The term of each option commences on
the date it is granted and unless terminated sooner as provided in the Director
Plan, expires five years from the date of grant. The Director Plan is
administered by a committee of the board of directors composed of not fewer than
three persons who are our officers (the "Committee"). The Committee has no
discretion to determine which non-executive director or advisory board member
will receive options or the number of shares subject to the option, the term of
the option or the exercisability of the option. However, the Committee will make
all determinations of the interpretation of the Director Plan. Options granted
under the Director Plan are not qualified for incentive stock option treatment.

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SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information as of [JANUARY 28, 2000]
with respect to (1) each director and each executive officer, (2) all directors
and officers as a group, and (3) the persons (including any "group" as that term
is used in Section l3(d)(3) of the Securities Exchange Act of l934), known by
the Corporation to be the beneficial owner of more than five (5%) percent of our
Common Stock and Series A Preferred Stock.

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AMOUNT AND NATURE
NAME AND ADDRESS OF OF BENEFICIAL PERCENTAGE
TYPE OF CLASS BENEFICIAL HOLDER OWNERSHIP(1) OF CLASS[(*)]
------------- ---------------------------- ----------------- -------------

Common.............................. John T. Botti 1,049,683(2) [8.6%]
c/o Bitwise Designs
2165 Technology Drive
Schenectady, NY 12308
Common.............................. Ira C. Whitman 660,829(3) [5.4%]
c/o Bitwise Designs
2165 Technology Drive
Schenectady, NY 12308
Common.............................. Steven Kriegsman 40,000(4) [0.32%]
c/o Bitwise Designs
2165 Technology Drive
Schenectady, NY 12308
Common.............................. Dennis Bunt 50,550(5) [0.42%]
c/o Bitwise Designs
2165 Technology Drive
Schenectady, NY 12308
Common.............................. J. Edward Sheridan 40,000(4) [0.32%]
c/o Bitwise Designs
2165 Technology Drive
Schenectady, NY 12308
Common.............................. Charles Johnston 50,000(4) [0.41%]
c/o Bitwise Designs
2165 Technology Drive
Schenectady, NY 12308
Common.............................. Nicholas Themelis 20,000(8) [0.16%
14 Serenite Lane
Muttontown, NY 11791
COMMON.............................. GATEWAY NETWORK, LLC 799,998(9) 6.6%
165 EAB PLAZA,
6TH FLOOR WEST UNIONDALE, NY
11556
COMMON.............................. TAMI SKELLY 800,001(10) 6.6%
12 SERENITE LANE
MUTTONTOWN, NY 11791
COMMON.............................. AZURE CAPITAL, LLC 680,001(11) 5.6%
416 TOFTREE
ROSLYN, NY 11576
COMMON.............................. RW CAPITAL, LLC 679,998(12) 5.6%]
53 SALISBURY RUN
MOUNT SINAI, NY 11766
Series A Preferred Stock............ John T. Botti 100(6) 50%
c/o Bitwise Designs
2165 Technology Drive
Schenectady, NY 12308

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AMOUNT AND NATURE
NAME AND ADDRESS OF OF BENEFICIAL PERCENTAGE
TYPE OF CLASS BENEFICIAL HOLDER OWNERSHIP(1) OF CLASS[(*)]
------------- ---------------------------- ----------------- -------------

Series A Preferred Stock............ Ira C. Whitman 100(7) 50%
c/o Bitwise Designs
2165 Technology Drive
Schenectady, NY 12308
Directors/Officers as a group
(2)(3)(4)(5)(6)(7)(8)(9)[(10)(11)(12)........................... 4,871,060 40.09%]

---------------
(1) Unless otherwise indicated below, each director, officer and 5%
shareholder has sole voting and sole investment power with respect to all
shares that he beneficially owns.

(2) Includes vested stock options to purchase 835,185 shares of Common Stock.

(3) Includes vested stock options to purchase 434,634 shares of Common Stock.

(4) All listed shares represent vested options to purchase Common Stock.

(5) Includes vested options to purchase 47,667 shares of Common Stock and
excludes nonvested options to purchase 6,667 shares of Common Stock.
Includes 1,000 shares of Common Stock owned by Mr. Bunt's wife.

(6) See footnote (2). Each share of Series A Preferred Stock is entitled to
ten (10) votes per share.

(7) See footnote (3). Each share of Series A Preferred Stock is entitled to
ten (10) votes per share.

(8) Includes vested options to purchase 20,000 shares of Common Stock and
excludes a Series B Common Stock Purchase Warrant to purchase 20,000
shares of Common Stock.

[(9) INCLUDES 499,998 SHARES OF COMMON STOCK UNDERLYING CERTAIN COMMON STOCK
PURCHASE WARRANTS AND 10,000 SHARES ISSUABLE UPON CONVERSION OF SERIES B
PREFERRED STOCK, ALL OF WHICH SHARES OF COMMON STOCK ARE BEING REGISTERED
BY THIS REGISTRATION STATEMENT.

(10) INCLUDES 300,000 SHARES OWNED BY BANTRY BAY, LLC AND 200,001 SHARES OWNED
BY BEARA GROUP, LLC, OF WHICH MS. SKELLY IS A MANAGING MEMBER AND MEMBER,
RESPECTIVELY. OF ALL LISTED SHARES, 500,001 SHARES ARE UNDERLYING CERTAIN
COMMON STOCK PURCHASE WARRANTS AND 5,000 SHARES ARE ISSUABLE UPON
CONVERSION OF SERIES B PREFERRED STOCK, ALL OF WHICH SHARES OF COMMON
STOCK ARE BEING REGISTERED BY THIS REGISTRATION STATEMENT.

(11) INCLUDES 440,001 SHARES UNDERLYING CERTAIN COMMON STOCK PURCHASE WARRANTS,
ALL OF WHICH SHARES ARE BEING REGISTERED BY THIS REGISTRATION STATEMENT.

(12) INCLUDES 439,998 SHARES UNDERLYING CERTAIN COMMON STOCK PURCHASE WARRANTS,
ALL OF WHICH SHARES ARE BEING REGISTERED BY THIS REGISTRATION STATEMENT.

* PERCENTAGES BASED ON 12,149,154 SHARES OF COMMON STOCK OUTSTANDING AS OF
JANUARY 28, 2000.]

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CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS

Except as disclosed herein, we have not entered into any material
transactions or series of similar transactions with any director, executive
officer or any security holder owning 5% or more of our Common Stock.

Pursuant to an agreement dated October 1, 1999 with Bank of America, Mr.
Botti personally guaranteed the Company's repayment of its line of credit with
Bank of America. [BITWISE AND BANK OF AMERICA AGREED THAT BITWISE WILL REPAY THE
OUTSTANDING PRINCIPAL AMOUNT OF $1,212,451.52 BY MAKING WEEKLY PAYMENTS OF
$11,778 WITH ALL REMAINING AMOUNTS DUE AND PAYABLE BY SEPTEMBER 30, 2000.
INTEREST WILL ACCRUE AT BANK OF AMERICA'S PRIME RATE PLUS 4%.] IN DECEMBER 1999
WE PAID THE BALANCE IN FULL AND MR. BOTTI WAS RELEASED FROM THE PERSONAL
GUARANTEE.

In connection with our October 1999 private offering, we entered into an
agreement with Corporate Funding Group, LLC, pursuant to which Corporate Funding
Group has been retained to provide us with financial consulting services related
to our corporate finance and other financial service matters. As part of this
agreement, we granted Corporate Funding Group an irrevocable preferential right
for a period of three years to purchase up to $5,000,000 of our securities that
we may seek to sell in a private offering. In consideration for these services,
we agreed to sell to Corporate Funding 20,000 Series B Warrants at a price of
$.001 per warrant. [SEE "SELLING SECURITY HOLDERS", PAGE 48.]

In connection with the founding of Authentidate, we retained Nicholas
Themelis to perform general advisory services concerning the development of
Authentidate and the implementation of the Authentidate business plan. In
consideration for rendering these services, we have issued to Mr. Themelis
20,000 Series B Warrants and have agreed to reimburse Mr. Themelis for his
expenses incurred in the performance of his duties.

Pursuant to an agreement dated September 15, 1999, we retained Shore
Venture Group, L.L.C., to design and develop a site on the World Wide Web for
our Authentidate business. The design and development services include the
design and development of any and all computer software in order to ensure that
the Authentidate site performs in the manner contemplated by the parties. In
consideration for these services:

- we agreed to issue 100,000 common stock warrants at an exercise price of
$.69 per share, with an exercise term of five (5) years from the date of
grant and which are exchangeable into the underlying, unrestricted common
stock of Bitwise on a one for one basis at any time beginning with the
date of issue and extending for a five (5) year period thereafter;

- we agreed that Shore Venture shall receive a guaranteed minimum of
$200,000 of service fees related to enhancements to, and service of, the
Authentidate site during a one (1) year period commencing on September
30, 1999;

- we paid to Shore Venture the sum of $15,000 representing payment in full
of cash sums owed by us to Shore Venture for past design and development
services;

- we also agreed to pay Shore Venture $40,000.00 for design and development
of the fax portion of the Authentidate site; and

- Authentidate agreed to issue to Shore Venture equity interests
representing 7.5% of the outstanding equity as of the date of agreement.

For information concerning employment agreements with, and compensation of,
our executive officers and directors, see "MANAGEMENT -- Executive
Compensation."

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SELLING SECURITY HOLDERS

We have agreed to register the resale of outstanding Shares of Common Stock
and the Shares underlying the Series B 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 [5,886,416] 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.

SELLING SECURITY HOLDERS AND
TRANSACTIONS WITH SELLING SECURITY HOLDERS

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SHARES/ SHARES/
WARRANT SHARES/ SHARES/ WARRANT SHARES/ PERCENTAGE OF
CONVERSION SHARES WARRANT SHARES/ CONVERSION SHARES SHARES
NAME AND ADDRESS OF BENEFICIALLY OWNED CONVERSION SHARES OWNED AFTER OWNED AFTER
SELLING SECURITY HOLDER PRIOR TO OFFERING OFFERED OFFERING OFFERING(1)
----------------------- ------------------ ------------------ ------------------ -------------

Nicholas Themelis(2)....... [0/20,000/0 0/20,000/0] 0 ++
Corporate Funding Group,
LLC(3)................... [0/0/26,667 0/0/26,667] 0 ++
Shore Venture Group,
LLC(4)................... [0/300,000/0 0/300,000/0] 0 ++
Tami Skelly(5)............. 150,000/150,000/ 150,000/150,000/ 0 ++
[66,667] [66,667]
Interpacific Capital
Corp.(6)................. [400,000/0/0 400,000/0/0] 0 ++
Bantry Bay Associates,
LLC(7)................... 150,000/150,000/ 150,000/150,000/ 0 ++
[66,667] [66,667]
Gateway Network, LLC(8).... 300,000/499,998/ 300,000/499,998/ 0 ++
[133,333] [133,333]
Azure Capital, LLC(9)...... [240,000/440,001/0] [240,000/440,001/0] 0 ++
RW Capital, LLC(10)........ [240,000/439,998/0 240,000/439,998/0] 0 ++
Beara Group, LLC(11)....... [0/200,001/0 0/201,001/0] 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)................. [20,000/20,000/0 20,000/20,000/0] 0 ++
Robert Raffa(15)........... [0/10,000/0 0/10,000/0] 0 ++
Candle Business Systems,
Inc.(16)................. [0/10,000/0 0/10,000/0] 0 ++
2B Systems, Inc.(17)....... [0/5,000/0 0/5,000/0] 0 ++
B.E. Associates,
Inc.(18)................. [0/7,000/0 0/7,000/0] 0 ++
Jack Erlanger(19).......... [0/174,286/0 0/160,000/0] 0/14,286/0 ++
[JACK FERRARO](20)......... [0/160,000/0 0/160,000/0] 0 ++
[KEVIN KELLY](21).......... [0/20,000/0 0/20,000/0] 0 ++
[ADVANCED IMAGING, INC.
(22)..................... 0/10,000/0 0/10,000/0 0 ++
GREENER FAIRWAYS,
INC.](23)................ [0/100,001/ 0/100,001/ 0 ++
373,333 373,333
NEW PERSPECTIVES,
INC.(24)................. 0/500,000/0 0/500,000/0] 0 ++
Michael [WU(25)............ 0/2,500/0 0/2,500/0 0 ++
JERB ASSOCIATES,
INC.(26)................. 0/40,000/0 0/40,000/0 0 ++
VICTOR DIGIOIA(27)......... 1,000/47,500/0 0/47,500/0 1,000/0/0/0 ++

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BRIAN DAUGHNEY(28)......... 0/20,000/0 0/20,000/0 0 ++
BARRY LAX(29).............. 0/2,000/0 0/2,000/0 0 ++
MICHAEL] Goldstein[(30).... 0/11,500/0 0/11,500/0] 0 ++
Barbara Cereghino[(31)..... 0/750/0 0/750/0] 0 ++
Dorothy Philipps[(31)...... 0/750/0 0/750/0] 0 ++
------------------ ------------------ ------ --

---------------
++ Percentage is less than 1%.

(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 [17,819,513] shares of
Common Stock outstanding on the effective date of this Registration
Statement.

(2) Mr. Themelis is a director of Bitwise and entered into an agreement,
dated September 23, 1999 to provide business advisory services to
Bitwise. Includes 20,000 Shares issuable upon exercise of Series B
Warrants which are being registered pursuant to this Registration
Statement. Does not include options to purchase 20,000 shares.

(3) Corporate Funding Group LLC entered into an agreement dated September 21,
1999 to provide financial consulting services to Bitwise. Includes 20,000
Shares issuable upon exercise of Series B Warrants which are being
registered pursuant to this Registration Statement. Also 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 [AND]
199,998 Shares issuable upon exercise of Series C Warrants, both of 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 [AND]
200,001 Shares issuable upon exercise of Series C Warrants [, BOTH] of
which are being registered pursuant to this Registration Statement.

(10) Includes 240,000 Shares issuable upon exercise of Series B Warrants [AND]
199,998 Shares issuable upon exercise of Series C Warrants [, BOTH] of
which are being registered pursuant to this Registration Statement.

(11) Includes 200,001 Shares issuable upon exercise of Series C Warrants which
are being registered pursuant to this registration statement.

(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

424B1 38th Page of 69 TOC 1st Previous Next ↓Bottom Just 38th

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 August15, 2002.

(15) Includes warrants to purchase 10,000 shares of common stock at an
exercise price of $4.4375 and is exercisable until September 12, 2001.

(16) Includes warrants to purchase 10,000 shares of common stock at an
exercise price of $6.4375 and is exercisable until February 26, 2001.

(17) Includes warrants to purchase 5,000 shares of common stock at an exercise
price of $7.00 and is exercisable until December 22, 2000.

(18) Includes warrants to purchase 7,000 shares of common stock at an exercise
price of $5.3125 and is exercisable until November 21, 2000.

(19) Includes warrants to purchase [160,000] shares of common stock at an
exercise price of $3.25 and which expire [ON AUGUST 8, 2002.]

[(20) INCLUDES WARRANTS TO PURCHASE 160,000 SHARES OF COMMON STOCK AT AN
EXERCISE PRICE OF $3.25 AND WHICH EXPIRE ON AUGUST 8, 2002.

(21) INCLUDES 20,000 SHARES ISSUABLE UPON EXERCISE OF SERIES B WARRANTS.

(22) INCLUDES WARRANTS TO PURCHASE 10,000 SHARES OF COMMON STOCK AT AN
EXERCISE PRICE OF $1.00.

(23) 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.

(24) 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 INVESTLMENT CONTROL OF THESE SHARES.

(25) INCLUDES WARRANTS TO PURCHASE 2,500 SHARES AT AN EXERCISE PRICE OF $0.875
AND EXPIRE ON SEPTEMBER 9, 2004.

(26) 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.

(27)] 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.

[(28)] 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.

[(29)] Mr. Lax is an associate with of Goldstein & DiGioia, LLP, counsel to
Bitwise. The 2,000 Shares are underlying warrants exercisable at $0.875
and expire on September 9, 2004.

[(30)] Mr. Goldstein is an associate with Goldstein & DiGioia, LLP, counsel to
Bitwise. The 11,500 Shares are underlying warrants exercisable at $0.875
and expire on September 9, 2004.

[(31) IS] an employee of Goldstein & DiGioia, LLP, counsel to Bitwise. The 750
Shares are underlying warrants exercisable at $0.875 and expire on
September 9, 2004.

ABOUT THIS PROSPECTUS

The Securities registered hereby 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,

424B1 39th Page of 69 TOC 1st Previous Next ↓Bottom Just 39th

or in [PRIVATELY] negotiated transactions. No underwriting arrangements have
been entered into by the Selling Security Holders.

The distribution of the Securities by the Selling Security Holders and/or
their transferees may be effected in one or more transactions that may take
place on the over-the-counter market, including

- ordinary brokers transactions;

- privately negotiated transactions; or

- through sales to one or more dealers for resale of the Securities as
principals, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices.

The Securities may be sold by the Selling Security Holders either

- to a broker or dealer as principal for resale as such broker or dealer
for its account pursuant to this prospectus (e.g. in a transaction with a
"market maker");

- in brokerage transactions, including transactions in which the broker
solicits purchasers or

- in privately negotiated transactions pursuant to any applicable exemption
under the Securities Act of 1933, as amended.

Usual and customary or specifically negotiated brokerage fees or
commissions may be paid by the Selling Security Holders in connection with such
sales. The Selling Security Holders and intermediaries through whom such
Securities are sold may be deemed "underwriters" within the meaning of the
Securities Act, with respect to the Securities offered.

[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 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.]

424B1 40th Page of 69 TOC 1st Previous Next ↓Bottom Just 40th

DESCRIPTION OF SECURITIES

COMMON SHARES

Subject to the rights of the holders of any classes of Preferred Stock,
holders of shares of our Common Stock are entitled to cast one vote for each
share held at all stockholders' meetings for all purposes, including the
election of directors. The holders of our outstanding Series A Preferred Stock
have the right to elect a majority of the Board of Directors. Directors are
elected each year at our annual meeting of stockholders to serve for a period of
one year and until their respective successors have been duly elected and
qualified.

Common stockholders have the right to share ratably in such dividends on
shares of Common Stock as may be declared by the Board of Directors out of funds
legally available therefor. Upon liquidation or dissolution, each outstanding
share of Common Stock will be entitled to share equally in our assets legally
available for distribution to stockholders after the payment of all debts and
other liabilities, subject to any superior rights of the holders of Preferred
Stock.

Common stockholders have no pre-emptive rights. There are no conversion or
redemption privileges or sinking fund provisions with respect to the Common
Stock. All of the outstanding shares of Common Stock, par value $.001, are, and
all of the shares of Common Stock offered hereby will be, validly issued, fully
paid and nonassessable. The Common Stock does not have cumulative voting rights
so holders of more than 50% of the outstanding Common Stock can elect all of our
Directors as to which Common Stock holders are entitled to elect.

SERIES A PREFERRED STOCK

The Board of Directors has designated 200 shares of Preferred Stock as
Series A Preferred Stock, of which 100 shares have been issued to each of John
T. Botti and Ira C. Whitman, the President and Senior Vice President,
respectively, of the Company. The holders of the Series A Preferred Shares have
the right to elect a majority of the Board of Directors as long as such holder
remains, subject to certain conditions, an officer, director and 5% stockholder
of the Company. During such time as the Series A Preferred Stock is outstanding,
the Board of Directors will consist of an odd number of directors, a majority of
whom will be designated as "Preferred Directors" and be elected solely by the
holders of Series A Preferred Stock voting separately as a group. The holders of
the Series A Preferred Stock have a preference on liquidation of $1.00 per share
and no dividend or conversion rights.

SERIES B PREFERRED STOCK

Pursuant to the terms of the recently completed private offering, we filed
a Certificate of Designation designating 50,000 shares of Preferred Stock as
"Series B Convertible Redeemable Preferred Stock." The following is a summary of
the rights, preferences and privileges of the Series B Preferred Stock and is
qualified in its entirety by the provisions of our Certificate of Incorporation
and the Certificate of Designation. [THE ISSUANCE OF THE SERIES B PREFERRED
STOCK COULD RESULT IN DILUTION TO THE HOLDERS OF OUR COMMON STOCK. SEE THE "RISK
FACTORS" SECTION OF THIS PROSPECTUS.]

DIVIDENDS. Subject to the limitations described below, holders of shares
of the Series B Preferred Stock will be entitled to receive, when, as and if
declared by the Board, out of our funds legally available for payment, dividends
in cash at an annual rate of 10% per share.

- Dividends are payable semi-annually, commencing on December 31, 1999 and
thereafter on June 30th and December 31st of each year. Dividends will be
cumulative from the date of original issuance of the Series B Preferred
Stock and will be payable to holders of record as they appear on our
stock books on the tenth business day prior to the dividend payment date.

- The Series B Preferred Stock will be junior to dividends to any series or
class of our stock hereafter issued which ranks senior as to dividends to
the Series B Preferred Stock. If at any time any dividend on Senior
Dividend Stock is in default, we may not pay any dividend on the Series B
Preferred Stock until all accrued and unpaid dividends on the Senior
Dividend Stock for all prior periods and the
38

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current period are paid or declared and set aside for payment. No such
Senior Dividend Stock shall be issued without the approval of holders of
a majority of the Series B Preferred Stock.

- The Series B Preferred Stock will have priority as to dividends over the
Common Stock and any other series or class of our stock hereafter issued
which ranks junior as to dividends to the Series B Preferred Stock. We
may not pay any dividend on (other than dividends payable solely in
Junior Dividend Stock), and we may not purchase, redeem or consummate any
other acquisition of, any Junior Dividend Stock unless all accrued and
unpaid dividends on the Series B Preferred Stock for all prior periods
and the current period have been paid or declared and set apart for
payment.

- We may not pay dividends on any class or series of our stock having
parity with the Series B Preferred Stock as to dividends, unless we have
paid or declared and set apart for payment or contemporaneously pay or
declare and set apart for payment all accrued and unpaid dividends for
all prior periods on the Series B Preferred Stock. We may not pay
dividends on the Series B Preferred Stock unless we have paid or declared
and set apart for payment or contemporaneously pay or declare and sets
apart for payment all accrued and unpaid dividends for all prior periods
on the parity dividend stock. Whenever all accrued dividends are not paid
in full on the Series B Preferred Stock or any parity dividend stock, all
dividends declared on the Series B Preferred Stock and such parity
dividend stock will be declared or made pro rata so that the amount of
dividends declared per share on the Series B Preferred Stock and such
parity dividends stock will bear the same ratio that accrued and unpaid
dividends per share on the Series B Preferred Stock and such parity
dividend stock bear to each other.

- The amount of dividends payable for the initial dividend period and for
any period shorter than a full year dividend period will be computed on
the basis of a 360-day year of twelve 30-day months. No interest will be
payable in respect of any dividend payment on the Series B Preferred
Stock which may be in arrears.

See "Redemption" below for information regarding restrictions on our
ability to redeem the Series B Preferred Stock when dividends on the Series B
Preferred Stock are in arrears.

VOTING RIGHTS. The holders of the Series B Preferred Stock will be
entitled to no voting rights except with respect to:

- the establishment of another class of preferred stock with rights equal
to or senior to the Series B Preferred Stock;

- any proposed changes in the rights of the Series B Preferred holders; or

- as required by Delaware law.

REDEMPTION AT OUR OPTION. The Series B Preferred Stock is redeemable at
any time commencing one year after the Closing at our option, on not less than
30 nor more than 60 days written notice to registered holders at a redemption
price equal to $25.00 per share plus accrued and unpaid dividends, provided:

- the public sale of the shares of Common Stock issuable upon conversion of
the Preferred Shares (the "Conversion Shares") are covered by an
effective registration statement or are otherwise exempt from
registration; and

- during the immediately preceding 20 consecutive trading days ending
within 10 days of the date of the notice of redemption, the closing bid
price of our Common Stock is not less than $3.75 per share, subject to
proportional adjustments for stock splits, stock dividends, combinations
of shares, corporate reorganizations or like events.

However, commencing 36 months after the Closing, the Series B Preferred
Stock is redeemable at our option, on not less than 30 nor more than 60 days
written notice to registered holders at a redemption price equal to $25.00 plus
accrued and unpaid dividends, provided the public sale of the Conversion Shares
are covered by an effective registration statement or are otherwise exempt from
registration.

424B1 42nd Page of 69 TOC 1st Previous Next ↓Bottom Just 42nd

- If less than all of the outstanding shares of Series B Preferred Stock
are to be redeemed, we will select those to be redeemed pro rata or by
lot or in such other manner as the Board of Directors may determine.

- There is no mandatory redemption or sinking fund obligation with respect
to the Series B Preferred Stock.

- In the event that we have failed to pay accrued and unpaid dividends on
the Series B Preferred Stock, we may not redeem any of the then
outstanding shares of the Series B Preferred Stock, unless all the then
outstanding shares are redeemed, until all such accrued and unpaid
dividends and (except with respect to shares to be redeemed) the then
current semi-annual dividend have been paid in full.

Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of shares of Series B
Preferred Stock to be redeemed at the address shown on our stock books. After
the redemption date, dividends will cease to accrue on the shares of Series B
Preferred Stock called for redemption, and all rights of the holders of such
shares will terminate except the right to receive the redemption price without
interest (unless we default in the payment of the redemption price). Shares of
Series B Preferred Stock which we have redeemed will be restored to the status
of authorized but unissued shares of preferred stock, without designation as to
series, and may thereafter be issued, but not as shares of Series B Preferred
Stock unless used to pay dividends on the then outstanding Series B Preferred
Stock.

CONVERSION RIGHTS. The holders of Series B Preferred Stock will be
entitled at any time to convert their shares of Series B Preferred Stock into
one share of Common Stock (the "Conversion Shares"), at any time commencing one
year after the closing of the Offering, at the option of the holder, into such
number of shares of our Common Stock as shall equal $25.00 divided by the
conversion price of $1.875 per share, subject to adjustment to for stock splits,
stock dividends, combinations of shares, corporate reorganizations or like
events.

However, commencing three years after the Closing, the Conversion Price
shall be the lower of:

- $1.875 per share, subject to adjustment for stock splits and corporate
reorganizations; and

- the average of the closing bid and asked prices of our Common Stock for
the immediately preceding 10 consecutive trading days ending one trading
day prior to the date of the notice of conversion;

- provided, however, that the holder shall not be entitled to convert more
than 20% of the Series B Preferred Shares held by such holder on the
third anniversary of the Closing during any period of thirty days. For
purposes of conversion, each share of Series B Preferred Stock shall be
valued at $25.00 per share. Conversion rights will expire after 5:00 p.m.
on the redemption date for any shares of Series B Preferred Stock which
we have called for redemption.

- No payment or adjustment will be made in respect of dividends for Series
B Preferred Stock that may be accrued or unpaid or in arrears upon
conversion of shares of Series B Preferred Stock.

- No fractional shares will be issued and, in lieu of any fractional share,
cash in an amount based on the then current market price, determined as
provided in the Certificate of Designation, of the Common Stock will be
paid.

[ACCORDINGLY, FROM OCTOBER 5, 2000 TO OCTOBER 5, 2002, A HOLDER MAY CONVERT
ITS PREFERRED SHARES INTO COMMON SHARES AT A RATE OF $1.875 PER SHARE.
THEREAFTER, IF NOT PREVIOUSLY CONVERTED AND STILL OUTSTANDING, A HOLDER MAY
CONVERT THE PREFERRED SHARES INTO COMMON SHARES AT THE LOWER OF $1.875 PER SHARE
OR THE AVERAGE TRADING PRICE AS STATED ABOVE.]

In case of any consolidation or merger of us with any other corporation
(other than a wholly owned subsidiary), or in case of sale or transfer of all or
substantially all of our assets, or in the case of any share exchange whereby
the Common Stock is converted into other securities or property, we will be
required to make appropriate provision so that the holder of each share of
Series B Preferred Stock then outstanding will have the right thereafter to
convert such share of Series B Preferred Stock into the kind and amount of
shares of stock and other securities and property receivable upon such
consolidation, merger, sale, transfer or share
40

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exchange by a holder of the number of shares of Common Stock into which such
share of Series B Preferred Stock might have been converted immediately prior to
such consolidation, merger, sale, transfer or share exchange.

LIQUIDATION RIGHTS. In case of our voluntary or involuntary liquidation,
dissolution or winding up, holders of shares of Series B Preferred Stock are
entitled to receive the liquidation price of $25.00 per share, plus an amount
equal to any accrued and unpaid dividends to the payment date, before any
payment or distribution is made to the holders of the Common Stock or any other
series or class of our stock hereafter issued which ranks junior as to
liquidation rights to the Series B Preferred Stock.

- The holders of the shares of the Series B Preferred will not be entitled
to receive the liquidation price of such shares until the liquidation
price of any other series or class of our stock hereafter issued which
ranks senior as to the liquidation rights to the Series B Preferred Stock
has been paid in full. No such senior liquidation stock shall be issued
without the approval of holders of a majority of the Series B Preferred
Stock. See "Voting Rights."

- The holders of Series B Preferred Stock and all series or classes of our
stock hereafter issued which rank on a parity as to liquidation rights
with the Series B Preferred Stock are entitled to share ratably, in
accordance with the respective preferential amounts payable on such
stock, in any distribution (after payment of the liquidation price of the
senior liquidation stock) which is not sufficient to pay in full the
aggregate of the amounts payable thereon. After payment in full of the
liquidation price of the shares of the Series B Preferred Stock, the
holders of such shares will not be entitled to any further participation
in any distribution of assets by us. Neither a consolidation or merger of
us with another corporation, nor a sale or transfer of all or part of our
assets for cash, securities or other property will be considered to be
our liquidation, dissolution or winding up.

NO SINKING FUND. We are not required to provide for the retirement or
redemption of the Series B Preferred Stock through the operation of a sinking
fund.

OTHER PROVISIONS. The shares of Series B Preferred Stock, when issued,
will be duly and validly issued, fully paid and nonassessable. The holders of
the shares of the Series B Preferred Stock have no preemptive rights with
respect to any shares of our capital stock or any of our other securities
convertible into or carrying rights or options to purchase any such shares.

SERIES B COMMON STOCK PURCHASE WARRANTS

THE FOLLOWING DISCUSSION IS SUBJECT TO THE TERMS AND CONDITIONS OF THE
SERIES B WARRANTS, AND SUBSCRIBERS ARE REFERRED TO THE FORM OF SERIES B WARRANT
FOR MORE DETAILED INFORMATION.

EXERCISE PRICE. Each Series B Warrant will entitle the holder to purchase
one share of Common Stock during the period commencing on the date of issuance
and terminating five years thereafter, unless redeemed, at an exercise price of
$1.375 per share of Common Stock, subject to adjustment to for stock splits and
corporate reorganizations.

REDEMPTION. The Series B Warrants are redeemable at any time commencing
one year after the Closing at our option, on not less than 30 nor more than 60
days written notice to registered holders at a redemption price equal to $.05
plus, provided:

- the public sale of the Warrant Shares are covered by an effective
registration statement or are otherwise exempt from registration; and

- during each of the immediately preceding 20 consecutive trading days
ending within 10 days of the date of the notice of redemption, the
closing bid price of our Common Stock is not less than $3.25 per share,
as proportionately adjusted to reflect any stock splits, stock dividends,
combination of shares, corporate reorganizations or like events.

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SERIES C COMMON STOCK PURCHASE WARRANTS

THE FOLLOWING DISCUSSION IS SUBJECT TO THE TERMS AND CONDITIONS OF THE
SERIES C WARRANT, AND SUBSCRIBERS ARE REFERRED TO THE SERIES C WARRANT FOR MORE
DETAILED INFORMATION.

TERMS. Each Warrant will entitle the holder to purchase one share of
Common Stock of Bitwise during the three year exercise period which commences on
the date of issue and expires three years from such date.

CLASSES/EXERCISE PRICE. The Warrants [HAVE BEEN] divided into three equal
classes, Class I, Class II and Class III. Each Class shall have an initial
exercise price of $1.50 (subject to adjustment to for stock splits and corporate
reorganizations) which shall increase in $0.75 increments according to the
following schedule:

[Download Table]

First increase -- 30 days after the effective date of a
registration statement covering the underlying Warrant
Shares (the "Effective Date");
Class
I --
Second increase -- 7 months after the Effective Date;
Third increase -- 13 months after the Effective Date;
First increase -- 60 days after the Effective Date;
Class
II --
Second increase -- 7 months after the Effective Date;
Third increase -- 13 months after the Effective Date;
First increase -- 90 days after the Effective Date;
Class
III --
Second increase -- 7 months after the Effective Date; and
Third increase -- 13 months after the Effective Date.

LEGAL MATTERS

Certain legal matters relating to our common stock will be passed upon for
us by the law firm of Goldstein & DiGioia, LLP, New York, New York. Members of
the firm of Goldstein & DiGioia, LLP own warrants to purchase 125,000 Shares of
our common stock registered in this prospectus.

EXPERTS

The consolidated financial statements and schedules included in this
prospectus have been audited by PricewaterhouseCoopers, LLP, independent
certified public accountants, to the extent and for the periods indicated in
their reports, appearing elsewhere herein and are included in reliance upon such
reports given upon the authority of said firm as experts in auditing and
accounting.

INDEMNIFICATION UNDER DELAWARE LAW AND OUR BY-LAWS

Our By-Laws provide for indemnification of our officers and directors to
the greatest extent permitted by Delaware law for any and all fees, costs and
expenses incurred in connection with any action or proceeding, civil or
criminal, commenced or threatened, arising out of services by or on behalf of
us, providing such officer's or director's acts were not committed in bad faith.
The By-Laws also provide for advancing funds to pay for anticipated costs and
authorizes the Board to enter into an indemnification agreement with each
officer or director.

In accordance with Delaware law, our Certificate of Incorporation contains
provisions eliminating the personal liability of directors, except for breach of
a director's fiduciary duty of loyalty to the us or to our stockholders, acts or
omission not in good faith or which involve intentional misconduct or a knowing
violation of the law, and in respect of any transaction in which a director
receives an improper personal benefit. These provisions only pertain to breaches
of duty by directors as such, and not in any other corporate capacity, e.g., as
an officer. As a result of the inclusion of such provisions, neither Bitwise nor
our stockholders may be able to recover monetary damages against directors for
actions taken by them which are ultimately found to have constituted negligence
or gross negligence, or which are ultimately found to have been in violation of
their fiduciary duties, although it may be possible to obtain injunctive or
equitable relief with respect to such

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actions. If equitable remedies are found not to be available to stockholders in
any particular case, stockholders may not have an effective remedy against the
challenged conduct.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling us pursuant to
the foregoing provisions, we have been informed that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and therefore is unenforceable.

Except for the payment by us of expenses incurred or paid by any of our
directors, officers or controlling persons in the successful defense of any
action, suit or proceeding, in the event that a claim for indemnification
against liabilities is asserted by a director, officer or controlling person in
connection with the securities being registered, we will, unless in the opinion
of our counsel the matter is settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether indemnification by us is
against public policy as expressed in the Securities Act and will be governed by
final adjudication of the issue.

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Upon the effectiveness of our public offering on May 13, 1992, our Common
Stock commenced trading in the over-the-counter market and was listed on the
SmallCap Market of the Nasdaq Stock Market under the symbol "BTWS." On August
11, 1994, the Common Stock commenced trading on the Boston Stock Exchange under
the symbol BTW. On June 25, 1996, we withdrew our listing on the Boston Stock
Exchange. On April 24, 1996, our Common Stock commenced trading on the Pacific
Stock Exchange [UNDER THE SYMBOL "BTWS."]

The following is the range of high and low closing prices for our Common
Stock on the Nasdaq SmallCap Market for the periods indicated below:

[Download Table]

HIGH LOW
---- ---

Common Stock
FISCAL YEAR 1999
1st Quarter................................................. 1 1/2 7/8
2nd Quarter................................................. 1 7/8 23/32
3rd Quarter................................................. 1 5/8 7/8
4th Quarter................................................. 1 1/2 15/16
FISCAL YEAR 1998
1st Quarter................................................. 4 2 3/4
2nd Quarter................................................. 4 5/16 2 3/32
3rd Quarter................................................. 3 3/4 2 7/16
4th Quarter................................................. 2 7/8 1 9/16
FISCAL YEAR 1997
1st Quarter................................................. 5 13/16 3 1/4
2nd Quarter................................................. 6 1/4 4 1/4
3rd Quarter................................................. 6 1/2 3 1/8
4th Quarter................................................. 3 9/16 2 3/4

The above quotations represent prices between dealers and do not include
retail mark-ups, mark-downs, or commissions, and do not necessarily represent
actual transactions.

As of September 23, 1999, there were approximately 372 holders of record of
our Common Stock. We believe there are more than 500 beneficial holders of our
Common Stock.

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DIVIDEND POLICY

We have not paid any dividends upon our Common Stock since our inception.
We do not expect to pay any dividends upon its Common Stock in the foreseeable
future and plans to retain earnings, if any, to finance the development and
expansion of its business. Further, our Certificate of Incorporation authorizes
our Board of Directors to issue Preferred Stock with a preferential right to
dividends. Holders of our Series B Preferred Stock are entitled to a preference
on dividends, which are cumulative and payable semi-annually. See "Description
of Securities -- Series B Preferred Stock."

PLAN OF DISTRIBUTION

The Shares of common stock, including the Shares underlying the Series B,
Series C and Private Warrants, the Shares issuable upon the conversion of the
Series B Preferred Stock, and the Series B Warrants 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 or 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 negotiated
transactions.

The Securities registered hereby may be sold by one or more of the
following methods, without limitation:

- a block trade in which a broker or dealer so engaged will attempt to sell
the securities as agent but may position and resell a portion of the
block as principal to facilitate the transaction;

- purchases by a broker or dealer as principal and resale by such broker or
dealer for its account pursuant to this Prospectus;

- ordinary brokerage transactions and transactions in which the broker
solicits purchasers; and

- face-to-face transactions between sellers and purchasers without a
broker-dealer.

In effecting sales, brokers or dealers engaged by the Selling Security
Holders may arrange for other brokers or dealers to participate. Brokers or
dealers may receive commissions or discounts from the Selling Security Holders
in amounts to be negotiated immediately prior to the sale. These brokers and
dealers and any other participating brokers or dealers may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, in connection
with such sales.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

We have filed with the Securities and Exchange Commission, Washington,
D.C., a registration statement on Form SB-2 under the Securities Act of 1933,
with respect to the common stock offered hereby. This prospectus does not
contain all of the information in the registration statement and the exhibits
and schedules. For further information about us and our common stock, please
refer to the registration statement and the exhibits and schedules filed.
Statements contained in this prospectus as to the contents of any contract or
document filed as an exhibit to the registration statement are qualified to such
exhibit as filed.

We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended, and file reports, proxy statements and other
information with the Securities and Exchange Commission. In addition to the
registration statement, and the exhibits and schedules thereto, our reports,
proxy statements and other information filed with the Securities and Exchange
Commission may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549

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and at the following Regional Offices of the Commission: New York Regional
Office, 7 World Trade Center, New York, New York 10048; and Chicago Regional
Office, Citicorp Center, 500 West Madison Street, Suite 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. The Commission maintains a Website that contains reports,
proxy statements and other information regarding issuers that file
electronically with the Commission. The address of that Website is:
http://www.sec.gov.

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 orhereafter 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) the future of the wide format document system industry, and
(iv) 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-QSB 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.

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CONTENTS

[Download Table]

PAGE
----------

REPORT OF INDEPENDENT ACCOUNTANTS........................... F-2
CONSOLIDATED FINANCIAL STATEMENTS
Balance sheets............................................ F-3
Statements of operations.................................. F-4
Statements of shareholders' equity........................ F-5
Statements of cash flows.................................. F-6
Notes to consolidated financial statements................ F-7 - F-21

F-1

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[LETTERHEAD TO COME]

REPORT OF INDEPENDENT ACCOUNTANTS

The Board of Directors and Shareholders
Bitwise Designs, Inc. and Subsidiaries

In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations and shareholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Bitwise Designs, Inc. and its subsidiaries at June 30, 1999 and 1998, and the
results of their operations and their cash flows for each of the two years in
the period ended June 30, 1999, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.

[PRICEWATERHOUSECOOPERS, L.L.P.
SIGNATURE]

August 23, 1999, except for Note 5 and Note 18,
for which the date is October 4, 1999

F-2

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BITWISE DESIGNS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND 1998 AND SEPTEMBER 30, 1999

[Enlarge/Download Table]

JUNE 30,
--------------------------- SEPTEMBER, 30
1999 1998 1999
------------ ------------ -------------
(UNAUDITED)

ASSETS
Current assets:
Cash and cash equivalents.......................... $ 549,097 $ 4,000,370 $ 377,004
Accounts receivable, net of allowance for doubtful
accounts of $421,018 on June 30, 1999, $480,229
on June 30, 1998 and $428,937 on September 30,
1999............................................ 5,141,178 4,609,807 4,081,680
Due from related parties........................... 48,094 48,422 55,256
Inventories........................................ 3,824,387 3,210,868 3,589,469
Income taxes receivable............................ 12,130 3,291 13,246
Prepaid expenses and other current assets.......... 282,795 266,237 290,434
------------ ------------ ------------
Total current assets....................... 9,857,681 12,138,995 8,407,089
Property and equipment, net.......................... 2,949,458 776,925 2,964,900
Other assets:
Software development costs, net of accumulated
amortization of $300,510 on June 30, 1999,
$185,818 on June 30, 1998 and $330,510 on
September 30, 1999.............................. 129,993 88,391 180,755
Excess of cost over net assets of companies
acquired, net................................... 1,341,239 1,422,526 1,320,916
Deferred financing costs........................... 165,989 244,109 146,459
Other assets....................................... 40,624 37,508 39,779
------------ ------------ ------------
Total assets............................... $ 14,484,984 $ 14,708,454 $ 13,059,898
============ ============ ============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Borrowings under lines of credit................... $ 1,274,779 1,673,275 $ 1,212,452
Current portion of long-term debt.................. 23,781 343,929
Accounts payable................................... 3,852,032 2,294,192 2,950,776
Accrued expenses and other current liabilities..... 1,075,374 822,429 373,513
------------ ------------ ------------
Total current liabilities.................. 6,225,966 4,789,896 4,880,670
Long-term debt, net.................................. 4,781,124 3,440,332 4,971,341
Deferred grant....................................... 142,189 900,000
------------ ------------ ------------
Total liabilities.......................... 11,149,279 8,230,228 10,752,011
------------ ------------ ------------
Commitments
Shareholders' equity
Preferred stock, Series A -- $.10 par value,
5,000,000 shares authorized; 200 shares issued
and outstanding ($1.00 liquidation value)....... 20 20 20
Common stock, $.001 par value; 20,000,000 shares
authorized; 7,410,745 shares issued at June 30,
1999 and 7,460,745 at September 30, 1999........ 7,411 7,411 7,461
Additional paid-in capital......................... 19,846,126 19,822,159 19,925,748
Accumulated deficit................................ (16,441,133) (13,274,645) (17,548,623)
------------ ------------ ------------
3,412,424 6,554,945 2,384,606
Less cost 28,082 shares of common stock in
treasury........................................ (76,719) (76,719) (76,719)
------------ ------------ ------------
Total shareholders' equity................. 3,335,705 6,478,226 2,307,887
------------ ------------ ------------
Total liabilities and shareholders'
equity................................... $ 14,484,984 $ 14,708,454 $ 13,059,898
============ ============ ============

The accompanying notes are an integral part of the consolidated financial
statements.
F-3

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BITWISE DESIGNS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1999 AND 1998 AND THE THREE MONTHS ENDED SEPTEMBER 30, 1999

[Enlarge/Download Table]

JUNE 30,
-------------------------- SEPTEMBER 30,
1999 1998 1999
----------- ----------- -------------
(UNAUDITED)

Net sales........................................... $17,094,765 $33,755,625 $ 3,071,766
Cost of goods sold.................................. 11,479,297 25,663,059 2,482,323
----------- ----------- -----------
Gross profit................................... 5,615,468 8,092,566 589,443
----------- ----------- -----------
Selling, general and administrative expenses........ 7,765,234 12,251,515 1,437,510
Product development expenses........................ 248,801 230,652 64,547
----------- ----------- -----------
Total operating expenses....................... 8,014,035 12,482,167 1,502,057
----------- ----------- -----------
Loss from operations........................... (2,398,567) (4,389,601) (912,614)
----------- ----------- -----------
Other income (expense):
Interest and other income......................... 107,208 163,126 (1,897)
Loss on sale of subsidiary........................ (249,568) (255,888)
Interest expense.................................. (630,396) (939,595) (192,979)
----------- ----------- -----------
(772,756) (1,032,357) (194,876)
----------- ----------- -----------
Loss before income taxes....................... (3,171,323) (5,421,958) (1,107,490)
Income tax (benefit) expense........................ (4,835) 42,101 --
----------- ----------- -----------
Net loss....................................... $(3,166,488) $(5,464,059) $(1,107,490)
=========== =========== ===========
Per share amounts:
Net loss per common share.................... $ (.43) $ (.74) (.15)
=========== =========== ===========

The accompanying notes are an integral part of the consolidated financial
statements.
F-4

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BITWISE DESIGNS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1999 AND 1998 AND THREE MONTHS ENDED SEPTEMBER 30, 1999

[Enlarge/Download Table]

PREFERRED STOCK COMMON STOCK
-------------------- ---------------------- TOTAL
NUMBER OF $.10 PAR NUMBER OF $.001 PAR PAID-IN ACCUMULATED TREASURY SHAREHOLDERS'
SHARES VALUE SHARES VALUE CAPITAL DEFICIT STOCK EQUITY
--------- -------- ---------- --------- ----------- ------------ -------- -------------

Balance, July 1, 1997..... 200 $20 7,367,720 $7,368 $18,996,591 $ (7,810,586) $ (423) $11,192,970
Stock options exercised... 35,333 35 82,255 82,290
Detachable warrants issued
in connection with
convertible note........ 650,411 650,411
Warrants issued for
non-employee services... 67,910 67,910
Acquisition of shares
through note default
(27,744 shares)......... (76,296) (76,296)
Conversion of debt to
common shares........... 7,692 8 24,992 25,000
Net loss.................. (5,464,059) (5,464,059)
--- --- ---------- ------ ----------- ------------ -------- -----------
Balance, June 30, 1998.... 200 $20 7,410,745 $7,411 $19,822,159 $(13,274,645) $(76,719) $ 6,478,226
Warrants issued for
non-employee services... 23,967 23,967
Net loss.................. (3,166,488) (3,166,488)
--- --- ---------- ------ ----------- ------------ -------- -----------
Balance, June 30, 1999.... 200 $20 7,410,745 $7,411 $19,846,126 $(16,441,133) $(76,719) $ 3,335,705
Stock issued for
non-employee services
(unaudited)............. 50,000 50 35,992 36,042
Warrants issued for
non-employee services
(unaudited)............. 45,130 45,130
Deferred offering costs
(unaudited)............. (1,500) (1,500)
Net loss (unaudited)...... (1,107,490) (1,107,490)
--- --- ---------- ------ ----------- ------------ -------- -----------
Balance, September 30,
1999 (unaudited)........ 200 $20 $7,460,745 $7,461 $19,925,748 $(17,548,623) $(76,719) $ 2,307,887
=== === ========== ====== =========== ============ ======== ===========

The accompanying notes are an integral part of the consolidated financial
statements.

F-5

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BITWISE DESIGNS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1999 AND 1998 AND THREE MONTHS ENDED SEPTEMBER 30, 1999

[Enlarge/Download Table]

JUNE 30,
-------------------------- SEPTEMBER 30,
1999 1998 1999
----------- ----------- -------------
(UNAUDITED)

Cash flows from operating activities:
Net loss.......................................... $(3,166,488) $(5,464,059) $(1,107,490)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization.................. 637,186 813,392 168,051
Provision for doubtful accounts receivable..... (60,694) 416,780 18,000
Loss on sale of subsidiary..................... 249,568 255,888
Non-cash compensation expense.................. 67,910
Non-cash selling, general and administrative
expenses..................................... 36,042
Changes in operating assets and liabilities:
Accounts receivable and due from related
parties................................... (470,349) (741,608) 1,034,336
Inventories.................................. (613,519) (1,482,031) 234,918
Prepaid expenses and other current assets.... 7,409 (113,863) 33,730
Accounts payable and accrued expenses........ 1,561,217 1,301,813 (1,603,117)
Income taxes receivable and other............ (8,839) 5,359 (717)
----------- ----------- -----------
Net cash used in operating activities..... (1,864,509) (4,940,419) (1,186,247)
----------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment............... (2,402,661) (250,162) (78,730)
Trademarks acquired............................... (2,500)
Patent costs...................................... (17,105)
Software development costs........................ (156,293) (77,392) (78,945)
Proceeds from sale of businesses.................. 3,600,000
Other............................................. 13,609 (1,500)
----------- ----------- -----------
Net cash provided by (used in) investing
activities.............................. (2,564,950) 3,270,946 (157,675)
----------- ----------- -----------
Cash flows from financing activities:
Increase (decrease) in borrowings under line of... (398,496) (873,836) (62,327)
Proceeds from borrowings on long-term debt........ 4,000,000 525,973
Proceeds from borrowings on mortgage obligation... 1,234,493
Principal payments on long-term debt.............. (1,601) (48,128)
Receipt of deferred revenue from economic
development grant.............................. 142,189 757,811
Principal payments on capital lease obligations... (10,277)
Stock options exercised........................... 82,290
Payment of deferred offering and financing
costs.......................................... (390,580) (1,500)
----------- ----------- -----------
Net cash provided by financing
activities.............................. 978,186 2,805,996 1,171,829
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents....................................... (3,451,273) 1,136,523 (172,093)
Cash and cash equivalents, beginning of period...... 4,000,370 2,863,847 549,097
----------- ----------- -----------
Cash and cash equivalents, end of period............ $ 549,097 $ 4,000,370 $ 377,004
=========== =========== ===========

The accompanying notes are an integral part of the consolidated financial
statements.
F-6

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BITWISE DESIGNS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of business and business continuity:

Bitwise Designs, Inc. (Bitwise) and its subsidiary DJS Marketing Group,
Inc. (DJS), collectively referred to as the "Company," are engaged in the
manufacture and distribution of document imaging systems, personal computers and
related peripheral equipment, components and accessories as well as network
integration and Internet services and products. Bitwise sells a line of document
imaging systems which it markets nationally under the tradename "DocStar."

In August 1994, Bitwise acquired Electrograph Systems, Inc. (Electrograph),
a value-added distributor of microcomputer peripherals, components and
accessories throughout the East Coast of the United States. In April 1997,
Bitwise sold Electrograph, which was structured as an asset sale with all
liabilities assumed by the purchaser. Simultaneously with its acquisition of
Electrograph in 1994, Bitwise acquired System Solutions Technology, Inc. (SST),
a value-added distributor of advanced technology industrial computers and
computer peripherals. In June 1998 Bitwise sold SST in a stock sale.

In March 1996, Bitwise acquired DJS Marketing Group, Inc. DJS distributes
personal computer systems, workstations and peripheral equipment. In addition,
DJS offers systems integration, network, internet and hardware repair services.
Subsequent to the acquisition of DJS, Bitwise transferred its personal computer
division to DJS.

In June 1999, Bitwise established a majority owned subsidiary,
Authentidate.com LLC (Authentidate), to engage in a new business line of
providing end users with a service which will (a) accept and store e-mail from
networks and personal computers throughout the world and from different
operating systems via the internet, (b) allow for confirmation of acceptance of
all e-mails sent to the system, (c) produce confirmation of receipt of e-mail,
and (d) provide a technology that can verify the authenticity of digital images
by employing a secure clock that will date stamp the images when received. To
date, Authentidate's operations have been limited to developing the technology
for its services and home page.

During the fiscal year ended June 30, 1999 the Company incurred a net loss
of $3,166,488, and cash used by operating activities totaled $1,864,509. The
Company's available cash balance at June 30, 1999 totaled approximately
$549,000. One of the Company's lines of credit has been terminated by its lender
and the Company is currently paying off the outstanding balance (see Note 5). To
date, the Company has been largely dependent on its ability to sell additional
shares of its common stock or other financing to fund its operating deficits.
Under its current operating plan to obtain a national acceptance of the DocStar
product line and to introduce the new Authentidate technology, the Company's
ability to improve operating cash flow is highly dependent on the market
acceptance of its products and the Company's ability to reduce overhead costs.
If the Company is unable to attain projected sales levels for DocStar and other
products, or is unable to implement cost reduction strategies, 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, if
needed.

Financial statements as of and for the three months ended September 30, 1999:

The consolidated financial statements as of and for the three months ended
September 30, 1999 (unaudited) are presented for purposes of additional analysis
and have not been subjected to any auditing procedures by our independent
accountants.

Principles of consolidation:

The consolidated financial statements include the accounts of Bitwise
Designs, Inc. and its subsidiaries, which are wholly-owned. The accounts of the
subsidiaries have been consolidated since the acquisition date. All material
intercompany balances and transactions have been eliminated in consolidation.

F-7

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BITWISE DESIGNS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Cash equivalents:

The Company considers all highly liquid debt instruments with original
maturities not exceeding three months to be cash equivalents. At June 30, 1999
and 1998, cash equivalents were composed primarily of investments in commercial
paper and overnight deposits.

Inventories:

Inventories are stated at the lower of average cost or market.

Property and equipment:

Property and equipment are stated at cost. Depreciation and amortization
are determined using the straight-line method. Estimated useful lives of the
assets range from three to seven years.

Repairs and maintenance are charged to expense as incurred. Renewals and
betterments are capitalized. When assets are sold, retired or otherwise disposed
of, the applicable costs and accumulated depreciation or amortization are
removed from the accounts and the resulting gain or loss, if any, is recognized.

Deferred licensing costs:

Costs incurred in connection with the licensing of the Company's products
by the Federal Communications Commission are reported net of accumulated
amortization and are amortized using the straight-line method over the products'
estimated life of three years.

Software development costs:

Software development and modification costs incurred subsequent to
establishing technological feasibility are capitalized and amortized based on
anticipated revenue for the related product with an annual minimum equal to the
straight-line amortization over the remaining economic life of the related
products (generally three years). Software development costs capitalized during
1999 and 1998 amounted to $156,293 and $77,392, respectively. Amortization
expense related to software development costs for the years ended June 30, 1999
and 1998 was $114,692 and $70,060, respectively.

Excess of cost over net assets of companies acquired:

Excess of cost over net assets of companies acquired (goodwill) is being
amortized on a straight-line basis over 20 years.

The Company periodically reviews goodwill to assess recoverability, and
impairments would be recognized in operating results if a permanent diminution
in value were to occur. The amortization charged against earnings in 1999 and
1998 was $81,287 and $234,380, respectively. Accumulated amortization at June
30, 1999 and 1998 was $282,002 and $200,715, respectively.

Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.

F-8

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BITWISE DESIGNS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Revenue recognition and warranty provisions:

Revenue from the sale of products is recognized when the products are
shipped to customers unless such shipments are with right of return, in which
case, revenue is recognized upon sale of the product. The Company provides a one
year warranty on products it manufactures. On products distributed for other
manufacturers, the original manufacturer warranties the product. Warranty
expense was not significant to any of the years presented.

New accounting pronouncements:

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 fiscal years beginning 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 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" (SFAS 130). SFAS 130 requires reporting and
display of comprehensive income and its components (revenues, expenses, gains,
and losses) in a full set of general purpose financial statements. This
statement is effective for annual and interim financial statement beginning the
fiscal year ending June 30, 1999, and requires reclassifications of prior
periods. The Company had no other comprehensive income to report for the years
ended June 30, 1999 and 1998.

Advertising expenses:

The Company recognizes advertising expenses as incurred. Advertising and
promotion expense for 1999 and 1998, was approximately $331,000 and $1,175,000,
respectively.

Fourth quarter adjustments:

The Company realized a consolidated net loss of $3,166,488, or $.43 per
share, compared to a consolidated net loss of $5,464,059, or $.74 per share, for
the years ended June 30, 1999 and 1998, respectively. Consolidated net sales
totaled $17,094,765 and $33,755,625 for the years ended June 30, 1999 and 1998,
respectively. During the fourth quarter of 1999, the Company recorded an
adjustment increasing its net loss for sales made with the right of return by
approximately $1,350,000 for which income will not be recognized until sale of
the product by the customer. Additionally, a reserve of approximately $186,000
was recorded for claims arising from the sale of SST. During the fourth quarter
1998, the Company's operating results included the loss on the sale of SST
($256,000), an increase in the reserves for obsolete inventory ($588,000), and
an increase in the allowance for bad debts ($170,000).

Use of estimates:

Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.

Reclassifications:

It is the Company's policy to reclassify, where appropriate, prior year
financial statements to conform to the current year presentation.

F-9

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BITWISE DESIGNS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. LOSS PER SHARE

The following is basic and diluted loss per share information:

[Download Table]

1999 1998
----------- -----------

Net loss applicable to common stockholders........ $(3,166,488) $(5,464,059)
Weighted average shares........................... 7,410,745 $ 7,380,484
Basic and diluted loss per share.................. (.43) (.74)

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.

3. INVENTORIES

Inventories at June 30, 1999 and 1998 consist of:

[Download Table]

1999 1998
---------- ----------

Purchased components and raw materials.............. $1,197,192 $2,860,591
Finished goods -- in stock.......................... 559,508 350,277
-- held by resellers................ 2,067,687
---------- ----------
$3,824,387 $3,210,868
========== ==========

4. PROPERTY AND EQUIPMENT

Property and equipment at June 30, 1999 and 1998 consists of the following:

[Enlarge/Download Table]

ESTIMATED
USEFUL LIFE
1999 1998 IN YEARS
----------- ----------- -----------

Land.......................................... $ 651,932 $ N/A
Building...................................... 1,580,191 40
Machinery and equipment....................... 1,433,904 1,253,958 3-6
Demonstration and rental computers............ 179,752 200,747 5-6
Furniture and fixtures........................ 247,273 237,515 5-7
Leasehold improvements........................ 83,692 84,021 6
Vehicles...................................... 15,090 15,089 5
----------- -----------
4,191,834 1,791,330
Less accumulated depreciation and
amortization................................ (1,242,376) (1,014,405)
----------- -----------
$ 2,949,458 $ 776,925
=========== ===========

In June 1999, the Company completed construction of a new office/production
facility in Schenectady, New York for approximately $2,300,000. The Company was
awarded a grant totaling $1,000,000 from the Empire State Development
Corporation (an agency of New York State) to be used towards the construction of
the facility. The funding is being received in stages as costs are incurred and
submitted for reimbursement. The grant stipulates that the Company is obligated
to achieve certain annual employment levels at the new site between January 1,
2001 and January 1, 2005 or some or all of the grant will have to be repaid. As
of June 30, 1999, $142,189 had been received and is recorded as deferred
revenue. The remainder of the financing for the new facility, totaling
approximately $1,400,000, is being provided by a local financial institution in
the form of a mortgage loan (See Note 6).

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Depreciation and amortization expense on property and equipment for the
years ended June 30, 1999 and 1998 was $230,127 and $321,041, respectively.

5. LINE OF CREDIT

The Company's subsidiary DJS may utilize a line of credit in the amount of
$625,000, of which approximately $256,000 was available at June 30, 1999. This
facility is a wholesale inventory credit facility which is supported by a
guaranty furnished by one of DJS's vendors and expressly limited for purchases
from this vendor. The line is non-interest bearing and payment terms are net 40.
The line is collateralized by all assets of DJS.

In May 1999, the Company's other line of credit for $1,500,000 was
terminated by its lender as a result of the Company not being in compliance with
all of its financial covenants. At June 30, 1999, the balance outstanding was
approximately $1,300,000. Subsequent to year-end, the Company entered into an
agreement with the lender to extend repayment of the outstanding balance until
September 30, 2000. The Company was required to make a partial payment to the
lender of $600,000 by October 4, 1999 with the remainder to be paid off in
weekly installments of $11,778 plus interest. Interest accrues at the prime rate
plus 4%. The agreement has been guaranteed by the President of the Company and
is collateralized by all of the Company's accounts receivable and inventory.

6. LONG-TERM DEBT

Long-term debt at June 30, 1999 and 1998 consists of the following:

[Enlarge/Download Table]

1999 1998
---------- ----------

Convertible notes payable with 400,000 detachable common
stock purchase warrants. Interest accrues at 8%, payable
semi-annually, in arrears. Each note is in the
denomination of $5,000 and holders may convert at the rate
of $3.25 per share until August 11, 2002 when the notes
mature. The warrants may also be exercised at $3.25 per
share of common stock until August 11, 2002. The warrants
were valued at $650,411 upon issuance and were recorded as
a discount to the face value of the debt and as a credit
to paid in capital. The discount is being amortized to
interest expense over the term of the note. During 1998,
7,692 shares were issued upon conversion of a portion of
the outstanding debt. As of August 11, 1999, the Company
was in default of its obligations as a result of an
overdue interest payment Subsequently, payment of the
interest was extended, the Company paid the interest, and
a waiver of the default has been obtained from the bank... $3,975,000 $3,975,000
Mortgage payable with Central National Bank in the original
amount of $1,400,000 (when fully advanced) with interest,
adjusted every five years, equal to the five-year Treasury
Bill rate plus 2.5%, not to be less than 8.25% (8.25% at
June 30, 1999), payable in monthly installments through
October 2018. The mortgage is collateralized by a first
mortgage lien on the Company's headquarters............... 1,234,493 --
---------- ----------
5,209,493 3,975,000
Less current portion........................................ (23,781)
Less unamortized discount................................... (404,588) (534,668)
---------- ----------
Long-term debt, net of current portion.................... $4,781,124 $3,440,332
========== ==========

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The aggregate principle maturities of long-term debt for each of the
subsequent five years and thereafter, assuming the convertible notes are not
converted into common stock by August 11, 2002 are as follows:

[Download Table]

2000..................................................... $ 23,781
2001..................................................... 30,335
2002..................................................... 32,934
2003..................................................... 4,010,757
2004..................................................... 38,821
Thereafter............................................... 1,072,865
----------
$5,209,493
==========

7. INCOME TAXES

Income tax expense (benefit) for the years ended June 30, 1999 and 1998
consists of currently payable state and local income taxes.

At June 30, 1999, the Company has federal net operating loss carryforwards
for tax purposes approximating $11,570,000. The years in which the net operating
loss carryforwards expire are as follows: 2000 -- $124,000; 2001 -- $684,000;
2002 -- $48,000; 2003 -- $3,000; 2004 -- $6,000; 2008 -- $1,568,000;
2009 -- $867,000; 2011 -- $2,762,000; 2012 -- $686,000, 2013 -- $3,197,000 and
2019 -- $1,625,000.

The following table reconciles the expected tax benefit at the federal
statutory rate of 34% to the effective tax rate.

[Download Table]

1999 1998
----------- -----------

Computed expected tax benefit..................... $(1,078,250) $(1,843,466)
Increase in valuation allowance................... 1,198,438 867,815
Additional tax gain on sale of subsidiary......... 393,666
Nondeductible goodwill amortization............... 27,638 79,689
Adjustment to prior years' taxes.................. (167,436)
Loss of NOL carryforward on sale of subsidiary.... 470,221
State income taxes, net of federal benefit........ (3,191) 42,101
Other nondeductible expenses...................... 17,966 32,075
----------- -----------
$ (4,835) $ 42,101
=========== ===========

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The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities as of June 30, 1999 and 1998 are presented
below:

[Download Table]

1999 1998
----------- -----------

Deferred income tax asset:
Allowance for doubtful accounts................. $ 143,146 $ 179,187
Inventories, principally due to additional costs
inventoried for tax purposes pursuant to the
Tax Reform Act of 1986 and inventory
reserves..................................... 176,026 264,368
Other liabilities............................... 186,790 180,724
Deferred revenue................................ 639,904
Net operating loss carryforward................. 3,970,517 3,350,234
----------- -----------
Total gross deferred tax assets......... 5,116,383 3,974,513
Less valuation allowance........................ (5,095,274) (3,896,836)
----------- -----------
Net deferred tax asset.................. 21,109 77,677
Deferred income tax liability:
Equipment, principally due to differences in
depreciation methods......................... (21,109) (77,677)
----------- -----------
Net deferred income taxes............... $ -0- $ -0-
=========== ===========

The valuation allowance for deferred tax assets as of July 1, 1999 and 1998
was $5,095,274 and $3,896,836, respectively. The net change in the total
valuation allowance for the years ended June 30, 1999 and 1998 was an increase
of $1,198,438 and $867,815, respectively.

8. LEASE COMMITMENTS

The Company is obligated under operating leases for certain equipment and
facilities expiring at various dates through the year 2001.

As of June 30, 1999, future minimum payments by year, and in the aggregate,
noncancelable operating leases with initial terms of one year or more consist of
the following:

[Download Table]

FISCAL YEAR ENDING JUNE 30:
---------------------------

2000...................................................... $ 76,539
2001...................................................... 76,503
--------
$153,042
========

Rental expense was approximately $216,000 and $309,000 for the years ended
June 30, 1999 and 1998, respectively.

9. PREFERRED STOCK

The Board of Directors is authorized to issue shares of preferred stock,
$.10 par value per share, from time to time in one or more series. The Board may
issue a series of preferred stock having the right to vote on any matter
submitted to shareholders including, without limitation, the right to vote by
itself as a series, or as a class together with any other or all series of
preferred stock. The Board of Directors may determine that the holders of
preferred stock voting as a class will have the right to elect one or more
additional members of the Board of Directors, or the majority of the members of
the Board of Directors. The Board of Directors has designated a series of
preferred stock which has the right to elect a majority of the Board of
Directors. The

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holders of preferred stock which have the right to elect a majority of the Board
of Directors are therefore able to control the Company's policies and affairs.

The Board of Directors may also grant to holders of any series of preferred
stock, preferential rights to dividends and amounts payable in liquidation.
Furthermore, the Board of Directors may determine whether the shares of any
series of preferred stock may be convertible into common stock or any other
series of preferred stock of the Company at a specified conversion price or
rate, and upon other terms and conditions as determined by the Board of
Directors.

The Board of Directors has designated 200 shares of preferred stock as
Series A Preferred stock, of which 100 shares have been issued to each of the
chairman/chief executive officer and senior vice president of the Company. The
holders of the Series A Preferred Stock have the right to elect a majority of
the Board of Directors as long as each holder remains, subject to certain
conditions, an officer, director and at least 5% shareholder of the Company.
During such time as the Series A Preferred Stock is outstanding, the holders
have the right to elect a majority of the Board of Directors. To date, the
holders of the Series A Preferred Stock have not exercised such right. The
Series A Preferred Stock is entitled to vote as a group. The holders of the
Series A Preferred Stock have a preference on liquidation of $1.00 per share and
no dividend or conversion rights.

10. STOCK OPTION PLANS AND STOCK WARRANTS

A) 1992 Employees Stock Option Plan:

In May 1992, the shareholders approved the 1992 Employees Stock Option Plan
(the "1992 Plan"). The Plan provided for the grant of options to purchase
600,000 shares of the Company's common stock. In January 1995, the shareholders
approved an amendment to the Plan to increase the number of shares of common
stock available under the Plan to 3,000,000 shares. Under the terms of the 1992
Plan, options granted thereunder may be designated as options which qualify for
incentive stock option treatment ("ISO") under Section 422A of the Internal
Revenue Code, or options which do not so qualify ("non-ISOs"). In 1997, the
Company filed a registration statement with the SEC to register the shares
issued under the 1992 Plan.

The 1992 Plan is administered by a Compensation Committee designated by the
Board of Directors. The Board or the Committee, as the case may be, has the
discretion to determine eligible employees and the times and the prices at which
options will be granted, whether such options shall be ISOs or non-ISOs, the
period during which each option will be exercisable and the number of shares
subject to each option. Options generally begin to vest one year after the date
of grant. Vesting occurs one-third per year over three years. The Board or the
Committee has full authority to interpret the 1992 Plan and to establish and
amend rules and regulations relating thereto. Under the 1992 Plan, the exercise
price of an option designated as an ISO may not be less than the fair market
value of the Company's common stock on the date the option is granted. However,
in the event an option designated as an ISO is granted to a ten percent
shareholder, the exercise price shall be at least 110% of such fair market
value. The aggregate fair market value on the grant date of shares subject to
options which are designated as ISOs which become exercisable in any calendar
year, shall not exceed $100,000 per optionee.

The Board or the Committee may in its sole discretion grant bonuses or
authorize loans to or guarantee loans obtained by an optionee to enable such
optionee to pay any taxes that may arise in connection with the exercise or
cancellation of an option.

Unless sooner terminated, the 1992 Plan will expire in the year 2002.

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[Download Table]

WEIGHTED
NUMBER OF AVERAGE OPTION
SHARES PRICE PER SHARE
--------- ---------------

Outstanding at July 1, 1997........................ 1,939,370 $3.53
Options granted equal to market price.............. 973,833 2.93
Options exercised.................................. (35,333) 2.33
Options canceled or surrendered.................... (539,000) 4.79
---------
Outstanding at June 30, 1998....................... 2,338,870 2.99
Options granted equal to market.................... 50,500 1.39
Options canceled or surrendered.................... (404,500) 3.48
---------
Outstanding at June 30, 1999....................... 1,984,870 2.85
=========

The following is a summary of the status of employee stock options at June
30, 1999:

[Enlarge/Download Table]

OUTSTANDING OPTIONS EXERCISABLE OPTIONS
---------------------------------- -------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
CONTRACTUAL EXERCISE EXERCISE
EXERCISE PRICE RANGE NUMBER LIFE PRICE NUMBER PRICE
-------------------- ------- ----------- -------- ------- --------

$ .34 - 2.00.................... 961,870 1.3 $1.54 888,037 $1.54
2.01 - 4.00.................... 675,500 3.1 3.04 561,333 3.09
4.01 - 8.00.................... 347,500 1.6 6.10 343,333 6.11

As of June 30, 1999 and 1998, 1,792,703 shares and 1,587,703 shares,
respectively, were exercisable under the 1992 Employees Stock Option Plan.

B) Non-Executive Director Stock Option Plan:

In April 1992, the Board of Directors adopted the Non-Executive Director
Stock Option Plan (the "Director Plan") which was approved by the Company's
stockholders in May 1992. With the approval of the shareholders, the Director
Plan was amended in December 1997. Options are granted under the Director Plan
until April 2002 to (i) non-executive directors as defined and (ii) members of
any advisory board established by the Company who are not full-time employees of
the Company or any of its subsidiaries. The Director Plan provides that each
non-executive director will automatically be granted an option to purchase
20,000 shares upon joining the Board of Directors and 10,000 on each September 1
thereafter, provided such person has served as a director for the 12 months
immediately prior to such September 1st. Each eligible director of an advisory
board will receive, upon joining the advisory board, and on each September 1st
thereafter, an option to purchase 5,000 shares of the Company's common stock,
providing such person has served as a director of the advisory board for the
previous 12-month period.

The exercise price for options granted under the Director Plan is 100% of
the fair market value of the common stock on the date of grant. The "fair market
value" is the closing NASDAQ bid price, or if the Company's common stock is not
quoted by NASDAQ, as reported by the National Quotation Bureau, Inc., or a
market maker of the Company's common stock, or if the common stock is not quoted
by any of the above by the Board of Directors acting in good faith. Until
otherwise provided in the Stock Option Plan, the exercise price of options
granted under the Director Plan must be paid at the time of exercise, either in
cash, by delivery of shares of common stock of the Company or by a combination
of each. The term of each option commences on the date it is granted and unless
terminated sooner, as provided in the Director Plan, expires five years from the
date of grant. The Director Plan is administered by a committee of the board of
directors composed of not fewer than three persons who are officers of the
Company (the "Committee"). The Committee has no discretion to determine which
non-executive director or advisory board member will

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receive options or the number of shares subject to the option, the term of the
option or the exercisability of the option. However, the Committee will make all
determinations of the interpretation of the Director Plan. Options granted under
the Director Plan are not qualified for incentive stock option treatment.

A schedule of director stock option activity is as follows:

[Download Table]

WEIGHTED
NUMBER OF AVERAGE OPTION
SHARES PRICE PER SHARE
--------- ---------------

Outstanding July 1, 1997........................... 200,000 $3.59
Options granted equal to market price.............. 70,000 2.94
Options cancelled or surrendered................... (130,000) 4.17
--------
Outstanding June 30, 1998.......................... 140,000 3.67
Options granted equal to market price.............. 50,000 1.00
Options cancelled or surrendered................... (60,000) 3.70
--------
Outstanding June 30, 1999.......................... 130,000 2.54
========

The options range in price from $1.00 to $5.13 per share and have a
weighted average remaining contractual life of 2.6 years.

C) Common Stock Warrants:

A schedule of common stock warrant activity is as follows:

[Download Table]

WEIGHTED
NUMBER OF AVERAGE WARRANT
SHARES PRICE PER SHARE
--------- ---------------

Outstanding July 1, 1997.......................... 2,326,995 $4.23
Warrants granted equal to market price............ 40,000 3.44
Warrants granted less than market price........... 400,000 3.25
---------
Outstanding June 30, 1998......................... 2,766,995 4.07
Warrants granted equal to market price............ 232,000 3.02
Warrants cancelled or surrendered................. (100,000) 7.50
---------
Outstanding June 30, 1999......................... 2,898,995
=========

In August 1997, the Company issued 400,000 detachable common stock purchase
warrants in connection with $4.0 million of convertible debt. Other warrants
issued during the years ended June 30, 1999 and 1998 were to various firms
providing services to the Company.

The following is a summary of the status of common stock warrants at June
30, 1999:

[Enlarge/Download Table]

OUTSTANDING WARRANTS EXERCISABLE WARRANTS
----------------------------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
REMAINING EXERCISE EXERCISE
EXERCISE PRICE RANGE NUMBER CONTRACTUAL LIFE PRICE NUMBER PRICE
-------------------- --------- ---------------- -------- --------- --------

$1.50 - 4.00............. 1,151,284 2.7 $2.87 1,151,284 $2.87
4.01 - 8.00............. 1,747,711 1.5 4.53 1,747,711 4.53

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D) Options and warrants valuation:

The per share weighted average fair value for all common stock options
granted to employees during fiscal 1999 and 1998 was $2.79 and $1.15,
respectively. These amounts were determined using the Black Scholes
option-pricing model which values options based on the stock price at the grant
date, the expected life of the option, the estimated volatility of the stock,
expected dividend payments and the risk-free interest rate over the expected
life of the option or warrant. The dividend yield was zero in 1999 and 1998. The
expected volatility was based on the stock prices for the period beginning in
May 1992 when the Company completed its first public offering. The expected
volatility was 75.0% and 68.7% for 1999 and 1998, respectively. The risk-free
interest rate was the rate available on zero coupon U.S. government issues with
a term equal to the remaining term for each grant. The risk free rate ranges
from 4.3% to 5.4% in 1999 and 5.5% to 6.3% in 1998, respectively. The expected
life of the option was estimated based on the exercise history from previous
grants and is estimated to be five years.

The Company applies APB No. 25 in accounting for its stock option and stock
warrant plans and, accordingly, no compensation cost has been recognized in the
Company's financial statements for stock options under any of the stock plans.
However, compensation cost has been recognized for warrants granted. If under
SFAS No. 123, the Company determined compensation cost based on the fair value
at the grant date for its stock options and warrants, net loss and loss per
share would have been increased to the pro forma amounts indicated below:

[Download Table]

JUNE 30, JUNE 30,
1999 1998
----------- -----------

Net loss
As reported..................................... $(3,166,488) $(5,464,059)
Pro forma....................................... (2,960,231) (6,160,155)
Basic and diluted loss per share
As reported..................................... $ (.43) $ (.74)
Pro forma....................................... (.40) (.83)

Under SFAS No. 123, stock options and warrants granted prior to fiscal 1996
are not required to be included as compensation in determining pro forma net
earnings. To determine pro forma net earnings, reported net earnings have been
adjusted for compensation costs calculated for vested stock options granted
during fiscal 1999 and 1998.

The effects of applying SFAS 123 on providing pro-forma disclosures are not
necessarily likely to be representative of the effects on reported net income
for future years.

11. COMMITMENTS -- EMPLOYMENT AGREEMENTS

Effective July 1, 1995, the Company entered into a new employment agreement
with its chief executive officer for a five-year term ending June 30, 2000. The
employment agreement provides for (i) annual compensation of $100,000 for the
first year of the agreement, increasing by 10% each year thereafter; (ii) a
bonus of 3% of the Company's pre-tax income, with such additional bonuses as may
be awarded at the discretion of the Board of Directors; (iii) the award of
non-qualified stock options to purchase 600,000 shares of the Company's common
stock at an exercise price of $1.5625 per share of which increments of 100,000
shares vested on June 30, 1995, and the remainder vests in increments of 125,000
shares on each of June 30, 1996, 1997, 1998 and 1999; (iv) certain insurance and
severance benefits and (v) an automobile and expenses.

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12. CASH FLOWS -- SUPPLEMENTAL INFORMATION

Cash flows:

The Company paid interest in the amounts of $451,387 and $639,446 for the
years ended June 30, 1999 and 1998, respectively. Income taxes paid aggregated
$4,304 and $27,254 during the years ended June 30, 1999 and 1998, respectively.

Noncash investing and financing activities:

During the year ended June 30, 1998, the Company received common shares of
the Company's stock with a market value of $76,296 in satisfaction of a note
receivable with the former shareholders of DJS Marketing Group, Inc. of
$145,657.

In March 1998, the Company issued 7,692 common shares of the Company's
stock pursuant to the conversion of $25,000 of convertible debt into common
stock.

13. RELATED PARTIES

At June 30, 1999 and 1998, "Due from related parties" included non-interest
bearing advances of $48,094 and $48,422, respectively, from employees and
officers of the Company.

14. EMPLOYEE BENEFIT PLAN

Effective July 1, 1993, the Company implemented a qualified defined
contribution 401(k) profit sharing plan for all eligible employees. The Company
can make contributions in percentages of compensation, or amounts as determined
by the Company. The Company did not contribute to the plan during the years
ended June 30, 1999 and 1998.

15. SALE OF BUSINESS

In June 1998, the Company sold SST in a stock sale. The Company received
approximately $3.6 million in cash and approximately $400,000 in accounts
receivable and inventory. In 1999, the Company received certain claims from the
buyer of SST for indemnification under the agreements governing its sale. A
settlement was negotiated and the Company agreed to pay the buyer $341,000 to be
paid monthly over fifteen months accruing interest at 6%. An additional reserve
of approximately $250,000 was recorded in 1999 related to these claims. The
Company realized a loss of approximately $505,000 on the sale.

16. FINANCIAL INSTRUMENTS

Concentrations of credit risk:

Financial instruments which subject the Company to concentrations of credit
risk consist of cash and cash equivalents and trade accounts receivable. To
reduce credit risk, the Company places its temporary cash investments with high
credit quality financial institutions. The Company's credit customers are not
concentrated in any specific industry or business. The Company establishes an
allowance for doubtful accounts based upon factors surrounding the credit risk
of specific customers, historical trends and other information.

Fair value:

The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value.

Cash and cash equivalents, accounts receivable, accounts payable and
accrued expenses and other current liabilities. The carrying amount of cash and
cash equivalents, accounts receivable, accounts payable and

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accrued expenses and other current liabilities approximates fair value because
of the short maturity of these instruments.

Lines of credit and long-term debt. The interest rates on the Company's
lines of credit are reset according to changes in the current market. The
remaining balance of long-term debt approximates fair value based on its
discounted face amount. Consequently, the carrying value of the borrowings under
lines of credit and long-term debt approximates fair value.

17. SEGMENT REPORTING

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 is effective for
fiscal years beginning after December 15, 1997. SFAS 131 establishes standards
for reporting financial and descriptive information about an enterprise's
operating segments in its annual financial statements and selected segment
information in interim financial reports.

The Company has two reportable segments: Bitwise, a document imaging
company and DJS Marketing Group, Inc. (DJS), a computer systems integrator.
Bitwise produces a product called DocStar which is a document storage and
retrieval business and DJS markets computer services including network services,
internet services and software installation and integration. In addition, DJS
sells a complete line of personal computers and peripheral equipment.

The accounting policies of the segments are the same as those described in
the summary of significant accounting policies.

The Company's reportable segments are separate companies which are managed
separately. In prior years the Company owned two other subsidiary companies,
Electrograph Systems, Inc. which was sold in April 1997 and Systems Solutions
Technology, Inc. which was sold in June 1998. Both companies marketed personal
computers and peripheral equipment. Those companies are included in the "All
Other" column for fiscal years ending June 30, 1998 and 1997, respectively.

[Enlarge/Download Table]

BITWISE DJS ALL OTHER TOTALS
----------- ----------- ----------- -----------

SEGMENT INFORMATION:
June 30, 1999
Revenues from external customers...... $ 7,674,451 $ 9,420,314 $17,094,765
Intersegment revenues................. 116,680 116,680
Interest and other revenue............ 107,208 107,208
Interest expense...................... 595,345 35,051 630,396
Depreciation and amortization......... 586,591 50,595 637,186
Segment profit/(loss)................. (3,331,296) 392,854 (2,938,442)
Segment assets........................ 11,831,310 2,667,161 14,498,471

June 30, 1998
Revenues from external customers...... $ 9,002,203 $11,159,759 $13,593,663 $33,755,625
Intersegment revenues................. 59,738 321,366 381,104
Interest and other revenue............ 156,241 400 6,485 163,126
Interest expense...................... 511,414 225,983 202,198 939,595
Depreciation and amortization......... 686,804 59,642 66,946 813,392
Segment profit/(loss)................. (4,196,227) (594,609) (128,593) (4,919,429)

F-19

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BITWISE DESIGNS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

[Enlarge/Download Table]

BITWISE DJS ALL OTHER TOTALS
----------- ----------- ----------- -----------

Other significant non cash items:
Receipt of common shares with a
market value of $76,296 in
satisfaction of a note
receivable....................... 145,657 145,657
Segment assets........................ 12,463,515 2,274,346 14,737,861

[Enlarge/Download Table]

JUNE 30, 1999 JUNE 30, 1998
------------- -------------

RECONCILIATIONS:
Revenues:
Total revenues for reportable segments...................... $17,211,445 $34,136,729
Elimination of intersegment revenues........................ (116,680) (381,104)
----------- -----------
Total consolidated revenues................................. $17,094,265 $33,755,625
=========== ===========
Profit or (Loss):
Total profit or loss for reportable segments................ $(2,688,874) $(4,919,429)
Product development expenses................................ (248,801) (230,652)
Loss on sale of subsidiary.................................. (249,568) (255,888)
Elimination of intersegment profits......................... 15,920 (15,989)
----------- -----------
Loss before income taxes.................................... $(3,171,323) $(5,421,958)
=========== ===========
Assets:
Total assets for reportable segments........................ $14,498,471 $14,737,861
Elimination of intersegment profit.......................... (13,487) (29,407)
----------- -----------
Consolidated total assets................................... $14,484,984 $14,708,454
=========== ===========

18. SUBSEQUENT EVENTS

On October 4, 1999, the Company closed three concurrent private offerings.
In the first offering, the Company sold 740,000 units at an aggregate offering
price of $740,000, each unit consisting of two shares of common stock and two
Series B common stock purchase warrants (the "Series B Warrants"). The Series B
Warrants entitle the holder to purchase one share of common stock at an exercise
price of $1.375 per share during the offering period commencing on the date of
issuance and terminating five years thereafter. The Series B warrants are
redeemable at any time commencing one year after issuance at the option of the
Company with not less than 30 nor more than 60 days written notice to the
registered holders at a redemption price of $.05 per warrant provided; (i) The
public sale of the shares of common stock issuable upon exercise of the Series B
warrants are covered by a tentative registration statement; and (ii) During each
of the immediately preceding 20 consecutive trading days ending within 10 days
of the date of the notice of redemption, the closing bid price of the Company's
common stock is at least $3.25 per share.

In the second offering, the Company sold 50,000 shares of a newly created
class of Series B convertible cumulative preferred stock (the "Series B
Preferred Stock"). The Series B preferred stock was sold at $25.00 per share for
an aggregate offering price of $1,250,000. Dividends on the Series B Preferred
Stock are payable at the rate of 10% per annum, semi-annually in cash. Each
share of Series B Preferred Stock is convertible into shares of the Company's
common stock or is converted into such number of shares of the common stock as
shall equal $25.00 divided by the conversion price of $1.875 per share subject
to adjustment under certain circumstances. Commencing three years after the
closing, the conversion price shall be the lower of $1.875 per share or the
average of the closing bid and asked price of the Company's common stock for the
10 consecutive trading days immediately ending one trading day prior to the
notice of the date of conversion;

F-20

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

provided, however, that the holders are not entitled to convert more than 20% of
the Series B preferred shares held by such holder on the third anniversary of
the date of issuance per month. The Series B Preferred Stock is redeemable at
any time commencing one year after issuance or not less than 30 nor more than 60
days written notice at a redemption price of $25 per share plus accrued and
unpaid dividends provided; (i) the public sale of the shares of common stock
issuable upon conversion of the Series B preferred Stock (the "Conversion
Shares") are covered by an effective registration statement or are otherwise
exempt from registration; and (ii) during the immediately preceding 20
consecutive trading days ending within 10 days of the date of the notice of
redemption, the closing bid price of the Company's Common Stock is not less than
$3.75 per share.

Commencing 34 months after the Closing, the Series B Preferred Stock is
redeemable at the option of the Company without regard to the closing price of
the Company's Common Stock.

The Company also created a new subsidiary, Authentidate.Com, LLC through
which it will market its new Internet service which allows for the verification
of the authenticity of digital images. In connection with the above offerings,
the purchasers were granted the right to purchase 20% of Authentidate.Com, LLC
for $100,000. In addition, the Purchasers were issued an aggregate of 999,999
Series C common stock purchase warrants (the "Series C Warrants"). The Series C
Warrants are redeemable at any time commencing six months after issuance, on not
less than 30 nor more than 60 days written notice to registered holders at a
redemption price equal to $.05 per Warrant, provided (i) the public sale of the
shares of common stock issuable upon exercise of the Series C Warrants (the
"Warrant Shares") are covered by an effective registration statement or are
otherwise exempt from registration; and (ii) during each of the immediately
preceding 20 consecutive trading days ending within 10 days of the date of the
notice of redemption, the closing bid price of the Company's common stock is not
less than 120% of the current exercise price of the Series C Warrants.

The Series C Warrants were also divided into three classes (333,333
warrants per class) to provide for varying exercise prices. The exercise price
of the Series C Warrants is as follows:

Class I -- $1.50 per share of Common Stock, increasing (i) $.75 per share
thirty days after the effective date of the registration statement covering the
underlying shares (the "Registration Statement"); (ii) an additional $.75 per
share seven months after the effective date of the Registration Statement; and
(iii) an additional $.75 per share 13 months after the effective date of the
Registration Statement, subject to adjustment for stock splits and corporate
reorganizations.

Class II -- $1.50 per share of Common Stock, increasing (i) $.75 per share
sixty days after the effective date of the Registration Statement; (ii) an
additional $.75 per share seven months after the effective date of the
Registration Statement; and (iii) an additional $.75 per share 13 months after
the effective date of the Registration Statement, subject to adjustment for
stock splits and corporate reorganizations.

Class III -- $1.50 per share of Common Stock, increasing (i) $.75 per share
ninety days after the effective date of the Registration Statement; (ii) an
additional $.75 per share seven months after the effective date of the
Registration Statement; and (iii) an additional $.75 per share 13 months after
the effective date of the Registration Statement, subject to adjustment for
stock splits and corporate reorganizations.

The Company received gross proceeds of approximately $2,000,000. The
Company has utilized the proceeds of the three offerings as follows:
approximately $600,000 has been utilized to repay a portion of the Company's
line of credit; approximately $400,000 will be utilized to develop the
Authentidate.com business; approximately $160,000 was utilized to make a past
due interest payment on the Company's outstanding 8% convertible notes, and the
remainder has been reserved for working capital. The Company included offering
expenses of approximately $60,000.

F-21

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[5,886,416] SHARES

BITWISE DESIGNS, INC.

COMMON STOCK

PROSPECTUS

FEBRUARY 14, [2000]

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Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘424B1’ Filing	Date	First	Last	Other Filings

	1/1/05	18	57
	9/9/04	38
	10/5/02	11	42
	8/11/02	17	59
	8/8/02	38
	9/12/01	38
	2/26/01	38
	1/1/01	18	57
	12/22/00	38		POS AM, S-3, S-3/A
	11/21/00	38
	10/5/00	42
	9/30/00	7	58	10-Q
	9/1/00	38
	6/30/00	20	64	10KSB, 10KSB/A
Filed on:	2/15/00
	1/31/00	5	32
	1/28/00	1	34
	1/1/00	21
	12/31/99	7	40	10QSB
	11/19/99	19		S-8
	10/4/99	7	67
	10/1/99	7	35
	9/30/99	15	54	10QSB
	9/23/99	37	45
	9/21/99	37
	9/15/99	35
	8/23/99	49
	8/11/99	58
	7/1/99	60
	6/30/99	7	67	10KSB, NT 10-K
	9/30/98	15	17	10-Q
	7/1/98	60
	6/30/98	7	67	10-K
	12/15/97	66
	11/1/97	18
	9/30/97	16	17	10QSB, 10QSB/A
	7/1/97	52	63
	6/30/97	7	66	10KSB, 10KSB/A
	6/30/96	31	64	10KSB
	6/25/96	45
	4/24/96	45
	7/1/95	30	64
	6/30/95	31	64
	1/26/95	31
	8/11/94	45
	7/1/93	65
	5/13/92	45
				List all Filings

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Filing Submission 0000950123-00-001261 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

Authentidate Holding Corp – ‘424B1’ on 2/15/00

On: Tuesday, 2/15/00 · Accession #: 950123-0-1261 · File #: 333-91475

Prospectus — Rule 424(b)(1)Filing Table of Contents

Document Table of Contents

Dates Referenced Herein and Documents Incorporated by Reference

Prospectus — Rule 424(b)(1)
Filing Table of Contents