Authentidate Holding Corp – ‘DEFS14A’ for 6/11/98

As of:  Friday, 5/8/98   ·   For:  6/11/98   ·   Accession #:  950123-98-4701   ·   File #:  0-20190

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Definitive Proxy Solicitation Material — Special Meeting   —   Schedule 14A
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: DEFS14A     Notice of Special Meeting-Definitive: Bitwise        191    742K 

Document Table of Contents

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 BITWISE DESIGNS, INC.
 TECHNOLOGY CENTER
 ROTTERDAM INDUSTRIAL PARK
 SCHENECTADY, NEW YORK 12306

 PROXY STATEMENT
Pursuant to Section 14(a) of the
 Securities Exchange Act of 1934

Filed by the registrant /X/                                                     
Filed by a party other than the registrant / /                                  
Check the appropriate box:                                                      

                                                                [Download Table]
                                                                                
/ /  Preliminary Proxy Statement                                                
                                           / / Confidential, For Use of the     
                                           Commission Only (as permitted by Rule
                                           14a-6(e)(2))                         
/X/  Definitive Proxy Statement                                                 
/ /  Definitive Additional Materials                                            
/ /  Soliciting Material pursuant to Rule                                       
     14a-11(c) or Rule 14a-12                                                   

 BITWISE DESIGNS, INC.
--------------------------------------------------------------------------------
 (Name of the Corporation as Specified in Charter)
 IRA C. WHITMAN, SECRETARY
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)

Payment of Filing Fee (check the appropriate box)                               

/ /    No Fee Required.                                   
          /X/    Fee computed on table below per Exchange Act Rule 14a-6(i)(1)
and 0-11                                    

(1)        Title of each class of securities to which transaction applies:      

--------------------------------------------------------------------------------
(2)        Aggregate number of securities to which transaction applies:         

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(3)        Per unit price or other underlying value of transaction computed     
pursuant to Exchange Act Rule 0-11:                       

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(4)        Proposed maximum aggregate value of transaction:          $4,000,000 
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(5)        Total Fee Paid:           $800                                       
--------------------------------------------------------------------------------

/ /        Fee paid previously with preliminary materials: $800.00              

--------------------------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule 
0-11(a)(2) and identify the filing for which the offsetting fee was paid        
previously. Identify the previous filing by registration statement number, or   
form or schedule and the date of filing.                                        
(1)        Amount previously paid:                                              

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(2)        Form schedule or registration number:                                

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(3)        Filing party:                                                        

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(4)        Dated filed:                                                         

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BITWISE DESIGNS, INC. 
Technology Center 
Rotterdam Industrial Park 
 Schenectady, NY 12306

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS 

To Be Held on June 11, 1997 

To the Stockholders of                                                          
BITWISE DESIGNS, INC.                                                           

  NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of BITWISE
DESIGNS, INC. (the "Corporation") will be held at The Holiday Inn Turf, 205 Wolf
Road, Albany, New York 12205 on June 11, 1998 at 9:30 a.m. New York time, for   
the purpose of considering and approving the sale by the Company of its         
wholly-owned subsidiary, System Solutions Technology, Inc. pursuant to Section  
271 of the Delaware General Corporation Law and to transact such other business 
as may properly be brought before the meeting or any adjournment thereof.       

THE BOARD OF DIRECTORS HAS RECOMMENDED TO THE STOCKHOLDERS THAT THEY
APPROVE THE SALE OF SYSTEM SOLUTIONS TECHNOLOGY, INC. AND IS SEEKING YOUR PROXY 
IN FAVOR OF THE PROPOSED SALE.                                                  

    The close of business on May 7, 1998 has been fixed as the Record Date for
the determination of Stockholders entitled to notice of, and to vote at, the    
meeting and any adjournment thereof. A copy of the Company's Proxy Statement    
with Exhibits is enclosed for your review and consideration. The terms of the   
transaction are outlined in the enclosed documents.                             

   You are cordially invited to attend the Special Meeting. Whether or not
you plan to attend, please complete, date and sign the accompanying proxy and   
return it promptly in the enclosed envelope to assure that your shares are      
represented at the Special Meeting. If you do attend, you may revoke any prior  
proxy and vote your shares in person if you wish to do so. Any prior proxy will 

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automatically be revoked if you execute the accompanying proxy or if you notify 
the Secretary of the Corporation, in writing, prior to the Special Meeting of   
Stockholders.                                                                   

                             By Order of the Board of Directors,

                   Ira C. Whitman, Secretary

Dated: May 8, 1998                                                              

    WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER  
TO ASSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE NEED BE AFFIXED IF MAILED   
IN THE UNITED STATES.                                                           

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 BITWISE DESIGNS, INC.
 TECHNOLOGY CENTER
 ROTTERDAM INDUSTRIAL PARK
 SCHENECTADY, NY 12306

 PROXY STATEMENT
 FOR
 Special Meeting of Stockholders
 To Be Held on June 11, 1998

       This Proxy Statement and the accompanying form of proxy have been
mailed on or about May 8, 1998 to the Stockholders of record of shares of Common
Stock and Series A Preferred Stock on May 7, 1998 of BITWISE DESIGNS, INC., a   
Delaware corporation (the "Company" or "Bitwise") in connection with the        
solicitation of proxies by the Board of Directors of the Company for use at a   
Special Meeting of Stockholders (the "Special Meeting") to be held at 9:30 a.m. 
at The Holiday Inn Turf, 205 Wolf Road, Albany, New York 12205, on              
June 11, 1998, and at any adjournment thereof.                                  

     THE BOARD OF DIRECTORS HAS CALLED THE SPECIAL MEETING TO OBTAIN
APPROVAL FROM THE COMPANY'S STOCKHOLDERS FOR THE PROPOSED SALE OF THE COMPANY'S 
SUBSIDIARY, SYSTEM SOLUTIONS TECHNOLOGY INC.                                    

SOLICITATION, VOTING AND REVOCABILITY OF PROXIES          

On May 7, 1998 (the "Record Date"), there were 7,410,745  
shares of Common Stock, par value $.001 par value ("Common Stock") and 200      
shares of Series A Preferred Stock, $.10 par value, issued and outstanding. Only
holders of Common Stock and Series A Preferred Stock of record at the close of  
business on the Record Date are entitled to receive notice of, and to vote at,  
the Special Meeting and any adjournment thereof. Each share of Common Stock and 
each share of Series A Preferred Stock is entitled to one (1) vote on each      
matter submitted to Stockholders. SHARES OF THE COMPANY'S COMMON STOCK AND      
SERIES A PREFERRED STOCK REPRESENTED BY AN EFFECTIVE PROXY IN THE ACCOMPANYING  
FORM WILL, UNLESS CONTRARY INSTRUCTIONS ARE SPECIFIED IN THE PROXY, BE VOTED FOR
THE PROPOSAL TO SELL THE COMPANY'S WHOLLY-OWNED SUBSIDIARY SYSTEM SOLUTIONS     
TECHNOLOGY, INC. (THE "PROPOSED SALE"). There are no other actions or proposals 
expected to be acted upon at the Special Meeting                                

Any proxy may be revoked at any time before it is voted. A
Stockholder may revoke a Proxy by notifying the Secretary of the Company either 
in writing prior to the Special Meeting or in person at the Special Meeting, by 
submitting a Proxy bearing a later date or by voting in person at the Special   
Meeting. Under the provisions of the General Corporation Law of Delaware, the   
affirmative vote of a majority of the Stockholders entitled to vote at the      
Special Meeting is required to approve the Proposed Sale. Therefore, abstentions
shall be counted as "no" votes and broker non-votes will not be counted. Broker 
non-votes and abstentions will be counted towards the determination of a quorum 
which, according to the Company's Bylaws, will be the presence, in              

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person or by proxy, of a majority of the issued and outstanding shares of Common
Stock entitled to vote.                                                         

        The Company will bear the cost of the solicitation of proxies. The
Board of Directors may use the services of its executive officers and certain   
directors to solicit proxies from Stockholders in person and by mail, telegram  
and telephone. The Company intends to utilize the services of a proxy           
solicitation firm to assist it in obtaining the necessary votes for the Proposed
Sale. Arrangements may also be made with brokers, fiduciaries, custodians, and  
nominees to send proxies, proxy statements and other material to the beneficial 
owners of the Company's Common Stock and Series A Preferred Stock held of record
by such persons, and the Company may reimburse them for reasonable out-of-pocket
expenses incurred by them in so doing.                                          

   The principal executive offices of the Company are located at
Technology Center, Rotterdam Industrial Park, Schenectady, New York 12306. The  
Company's telephone number is (518) 356- 9740.                                  

 SUMMARY

           The following is a summary of information contained elsewhere in this
Proxy Statement. Reference is made to and this summary is qualified in its      
entirety by, the more detailed information contained in this Proxy Statement and
the Exhibits. Stockholders are urged to read this Proxy Statement and the       
Exhibits in their entirety.                                                     

THE PARTIES                                                                     

Bitwise Designs, Inc.                       The Company is a Delaware           
                                corporation and with its
                                         wholly-owned subsidiaries, System
                                          Solutions Technology, Inc. ("SST")
                                     and DJS Marketing Group, Inc.
                                  ("DJS") are engaged in the
                                       manufacture and distribution of
                                          document imaging systems, computer
                                      systems and related peripheral
                                 equipment, components and
                                           accessories and advanced technology
                                       industrial computers as well as
                                      network and internet services.

Systems Solutions Technology, Inc.          SST is a wholly-owned subsidiary of 
                                  Bitwise. SST is a Maryland
                                     corporation and its executive
                                           offices are located at 14100 Laurel
                                          Park Drive, Laurel Maryland 20707.

United Strategies, Inc.                     United Strategies, Inc. ("USI") is a
                                   privately held newly formed
                                       corporation created to acquire,
                                      through a subsidiary, SST. The
                                          principal executive offices of USI
                                        are located at 15245 Shady Grove
                              Road, Suite 350 South,

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                                       Rockville, MD 20850. USI is not
                                           related to the Company or to any of
                                  its officers or directors.

STOCKHOLDER CONSENT                         The Board of Directors is seeking   
                                         the approval of the Stockholders,
                                      pursuant to Section 271 of the
                                        Delaware General Corporation Law
                                          ("DGCL"), for the proposed sale of
                                    SST. Section 271 of the DGCL
                                          requires the affirmative vote of a
                                      majority of the holders of the
                                           Company's outstanding Common Stock.

THE PROPOSED SALE                                                               

Business to be Sold                         Pursuant to the Stock Purchase and  
                                          Merger Agreement dated as of April
                                         7, 1998 the Company has agreed to
                                            sell its wholly owned subsidiary SST
                                    to USI. SST is a value added
                                          distributor of advanced technology
                                         industrial computers and computer
                                          peripherals and its operations are
                                           unrelated to the Company's document
                         imaging business.

Purchase Price                              The parties have negotiated a       
                                       purchase price of $4,000,000 of
                                         which at least $3,600,000 will be
                                          paid in cash to the Company at the
                                           closing. The remaining $400,000 may
                                          be paid by USI through delivery of
                                           accounts receivable or inventory of
                                           SST within 180 days of closing. The
                                      buyer will also be assuming or
                                          extinguishing substantially all of
                                  the debt of SST except for
                          intercompany debt.

Closing of the Proposed Sale                The parties have agreed to close the
                                         transaction on or before June 15,
                                            1998 unless such date is extended by
                                            mutual agreement. Closing is subject
                                         to certain conditions, including,
                                 approval by the Company's
                     Stockholders.

Approval by the Board of Directors          The Board of Directors believes that
                                        the Proposed Sale is in the best
                                      interests of the Company. This
                                            determination was based upon several
                                        factors, including the favorable
                                           price to be obtained and the desire
                         to focus upon the

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                                         Company's core business, document
                imaging.

Use of Sale Proceeds                        All of the proceeds of the Proposed 
                                           Sale will be used by the Company to
                                     operate its other businesses,
                                      including the document imaging
                                        business and the business of its
                             other subsidiary DJS.

Conduct of Business Following                                                   
the Proposed Sale                           Following consummation of the       
                                          Proposed Sale, the Company intends
                                           to continue to operate its document
                                            imaging business and the business of
                                            DJS. The Company intends to focus on
                                            the document imaging business as its
                                         core business and may continue to
                             consider selling DJS.

Certain Tax Consequences                    The Proposed Sale will be a taxable 
                                          transaction to the Company. In the
                                           event that the buyer elects to make
                                           a Section 338(h)(10) election under
                                           the United States Federal Tax Code,
                                         any taxable income of the Company
                                            that is attributable to the Proposed
                                            Sale will be substantially offset by
                                          net operating loss carry forwards.

Conditions to the Proposed Sale             The obligations of the Company and  
                                           USI to consummate the Proposed Sale
                                           are subject to the satisfaction and
                                    waiver of certain conditions
                                          customary to a transaction of this
                                            nature, including, among others, the
                                            occurrence of certain events such as
                                            Stockholder approval and the absence
                                         of orders or threatened orders or
                                   proceedings of any court or
                                        governmental entity that enjoin,
                                         restrain or prohibit the Proposed
             Sale.

Termination                                 The Stock Purchase and Merger       
                                      Agreement may be terminated in
                                            certain circumstances, including the
                                           following: (i) by mutual consent of
                                 the Company and USI; (ii)
                                      automatically, without further
                                            action of the parties if the closing
                                            does not occur on or before June 15,
                                            1998; (iii) by either the Company or
                                 USI if any court or other
                               governmental body shall

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                                          have issued a final order or taken
                                    any other action permanently
                                          restraining enjoining or otherwise
                                    prohibiting the transactions
                                          contemplated by Stock Purchase and
                         Merger Agreement.

Accounting Treatment                        In accordance with GAAP, the results
                                            of the SST business will be included
                                     in the results of the Company
                                          through the Closing Date. Any gain
                                          or loss on the disposition will be
                                          recognized as of the Closing Date.

NO APPRAISAL RIGHTS                         Under the DGCL, the holders of      
                                          shares of Common Stock will not be
                                       entitled to appraisal rights in
                                          connection with the Proposed Sale.

EXHIBITS

    The following documents are annexed to this Proxy Statement as
Exhibits and are incorporated herein. Stockholders are urged to read the        
Exhibits in their entirety.                                                     

Exhibit A                                   Stock Purchase and Merger Agreement 
                                       dated April 7, 1998 between the
                             Company, USI and SST.

Exhibit B                                   Form 10KSB of Bitwise and           
                                        subsidiaries for the fiscal year
                            ended June 30, 1997.

Exhibit C                                   Additional Financial Information of 
                                          Bitwise and Subsidiaries including
                                         Financial Statements for the year
                                           ended June 30, 1996 and "Management
                                        Discussion and Analysis" for the
                              similar fiscal period.

Exhibit D                                   Form 10QSB of Bitwise and           
                                           subsidiaries for the fiscal quarter
                                ended December 31, 1997.

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 PROPOSAL TO APPROVE
 SALE OF SYSTEM SOLUTIONS TECHNOLOGY, INC.

       The Company's Board of Directors has determined that it is in the
Company's best interests to sell its wholly-owned subsidiary, Systems Solutions 
Technology, Inc. to United Strategies Inc., a newly formed Delaware corporation 
("USI"). The terms of the agreement provide that the Company will sell all of   
its ownership in SST to USI for an aggregate price of $4,000,000 plus the       
assumption or repayment by USI of substantially all of the debt of the SST.     

           The Company and its wholly-owned subsidiaries SST and DJS are engaged
in the manufacture and distribution of document imaging systems, computer       
systems and related peripheral equipment, components and accessories and        
advanced technology industrial computers as well as network and internet        
services. SST is a value added distributor of advanced technology industrial    
computers and computer peripherals and its operations are unrelated to the      
Company's core business, its document imaging business.                         

    USI is not related to the Company or to any of its officers or
directors. USI is a privately owned company which was recently formed to acquire
SST. Certain managers of the SST, as well as all of its employees will become   
employees of USI following the closing. Upon consummation of the transaction,   
SST will be a wholly owned subsidiary of USI.                                   

Following the transaction, assuming it is approved by the 
Stockholders, the Company will operate in two units instead of three. The       
Company's primary business is its document imaging business operated under the  
name DocStar(R). The Company's other remaining subsidiary, DJS, is a system     
integrator, computer reseller and personal computer manufacturer. DJS is also an
authorized sales and support provider for Novell, Microsoft Solutions and Lotus 
Notes, as well as a member of Microage Infosystems. The Board of Directors is   
continuing to consider the sale of DJS, although there are no transactions      
currently being negotiated or considered. A detailed discussion of the Company's
business, including the businesses of DJS and SST, appears in the Company's     
report on Form 10-KSB for the fiscal year ended June 30, 1997 which is annexed  
as Exhibit B to this Proxy Statement.                                           

DISCUSSION OF THE TRANSACTION AND TERMS                                         
OF THE STOCK PURCHASE AND MERGER AGREEMENT                                      

        Although the Company believes that the following summary describes
the material terms and conditions of the Stock Purchase and Merger Agreement    
dated April 7, 1998 (the "Agreement"), such summary is qualified in its entirety
by reference to the full text of the Agreement. A copy of the Agreement is      
attached to this Proxy Statement as Exhibit A and is incorporated herein by     
reference. Terms not otherwise defined have the meanings ascribed to them in the
Agreement.                                                                      

Business to Be Sold                                                             

      Pursuant to the terms of the Stock Purchase and Merger Agreement
among USI, SST and the Company, the Company has agreed to sell all of its       
ownership interest in SST. The Company owns all of the capital stock of SST. SST
will be acquired by USI through a merger of SST into a shell company subsidiary 
of USI and upon consummation SST will be a wholly owned subsidiary of USI. As a 
result of the transaction, USI will own all of the assets of SST and have       
assumed or extinguished substantially all of its liabilities.                   

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Purchase Price                                                                  

         The parties have negotiated a purchase price of $4,000,000 of which
at least $3,600,000 will be paid in cash at the closing. The remaining $400,000 
may be paid by USI through delivery of account receivables or inventory of SST  
in an amount up to $400,000 within 180 days of closing. USI has also agreed to  
either repay at closing or assume all of the debt of SST; provided, however,    
intercompany debt existing at the time of closing (currently in the amount of   
approximately $385,000 ) owed by SST to the Company will be forgiven. As of     
February 28, 1998 the existing debt of SST was approximately $3,453,000         
(exclusive of the intercompany debt).                                           

           The sale of SST will result in a loss to the Company of approximately
$125,000 based upon its investment of approximately $4,125,000. SST was acquired
in August 1994.                                                                 

Representations and Warranties                                                  

  The Agreement contains various customary representations and
warranties of the Company, SST and USI. These include representations and       
warranties made by the Company to USI regarding the business, operations and    
assets of SST such as: (i) corporate organization and authority; (ii) required  
consents and approvals; (iii) accuracy of financial statements (iv) the absence 
of certain changes or events (v) the personal property of SST (vi) material     
contracts and agreements (vii) absence of defaults under agreements or contracts
(ix) absence of violations of law, including environmental regulations (x) the  
absence of litigation and product liabilities (xi) product warranties and       
liabilities (xii) brokers (xiii) due diligence material delivered to USI and    
(xiv) the accuracy of certain statements.                                       

         USI also made certain limited representations and warranties to the
Company regarding its corporate organization and authority to consummate the    
transaction.                                                                    

Certain Covenants                                                               

      Pursuant to the terms of the Agreement, the parties made certain
usual and customary covenants for transactions of the type involved in the      
Proposed Sale. The Company has agreed, among other things, that from the date of
the Agreement through the closing, the Company and SST will conduct the business
of SST only in ordinary and usual course consistent with past practice and shall
preserve its present business organization and personnel. In addition, the      
Company has agreed, among other things, to (i) use its best efforts to not      
permit any action or omission which would cause any of its representations or   
warranties regarding SST to become inaccurate, or any of their covenants to be  
breached and (ii) not terminate, amend or modify any material contract.         

          Each of the parties has agreed to use its best efforts to consummate
the Proposed Sale. Each party has agreed to keep the other informed of all      
developments and to make all necessary filings, applications statements and     
reports to all government authorities which are required to be made prior to the
Closing Date by such party pursuant to applicable law in connection with the    

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Agreement.                                                                      

Exclusivity                                                                     

    The Agreement provides that neither the Company, SST nor their
officers, directors or agents will take any action which would have the effect  
of preventing or impairing the performance by the Company or SST of their       
obligations under the Agreement. Pursuant to the Agreement, neither the Company 
nor SST are permitted to solicit proposals from, provide any information to,    
participate in any discussion or negotiations with any persons other than the   
buyer, any sale of stock or assets of SST.                                      

Non-Competition                                                                 

      Under the terms of Agreement, the Company has agreed that, for a
period of three years from the closing, neither it nor its affiliates will      
engage in any business that directly or indirectly, in any business that SST    
conducts as of the closing; provided, however, (i) the Company may own up to 3% 
of any publicly held entity even if it competes with SST (ii) the buyer         
acknowledged that the Company and its affiliates are presently engaged in the   
distribution of computer products which may compete with SST and (iii) the      
Company may acquire a business in connection with its document imaging business 
so long as the primary business purpose is not to compete with SST.             

Conditions                                                                      

        The obligations of the parties to consummate the Proposed Sale are
subject to the following conditions (i) the representations and warranties of   
each party shall have been accurate, true and correct in all material respects; 
(ii) each party shall have complied with all of their respective covenants,     
obligations and agreements in the Agreement to be performed on or prior to the  
closing date; (iii) no court or government order shall have been entered in any 
action or proceeding instituted by any person which enjoins, restrains or       
prohibits the Agreement or the consummation of the Proposed Sale and no such    
order or proceeding shall have been threatened or pending; and (iv) the         
Stockholders of Bitwise shall have approved the Proposed Sale.                  

Termination                                                                     

         The Agreement provides that the Proposed Sale may be terminated (i)
by mutual consent of the parties; (ii) by the buyer in the event Bitwise has    
breached any material representation or warranty or covenant in any material    
respect, which breach cannot be cured within 30 days of notice of such breach;  
(iii) by the buyer in the event that closing has not occurred on or before June 
15, 1998; (iv) by Bitwise in the event the buyer has breached any material      
representation or warranty or covenant in any material respect, which breach    
cannot be cured within 30 days of notice of such breach; (v) by Bitwise in the  
event that closing has not occurred on or before June 15, 1998.                 

  The parties have agreed that in the event USI terminates the
Agreement as a result of clauses                                                

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(ii) or (iii) above, Bitwise shall reimburse USI for its expenses up to $50,000.
Similarly, in the event Bitwise terminates the Agreement as a result of clauses 
(iv) or (v) above, USI shall reimburse Bitwise for its expenses up to $50,000.  

Indemnification                                                                 

        The Agreement provides that the Company will indemnify USI against
any and all losses or claims relating to or arising out of the breach of any    
representation or warranty made by the Company and SST; provided, the Company   
will not have any such liability unless the claims or losses equal or exceed    
$25,000. The representations and warranties of the Company and SST will survive 
the closing for a period of three (3) years. As a result, USI may bring a claim 
for any losses during such three (3) year period.                               

        The Agreement provides that USI will indemnify the Company against
any and all losses or claims relating to or arising out of the breach of any    
representation or warranty made by USI. USI has made only certain limited       
representations and warranties to the Company.                                  

Certain Tax Consequences of the Agreement                                       

       Pursuant to the Agreement, the parties agreed to consider certain
elections under the Internal Revenue Code ("IRC") regarding the tax treatment of
the transaction. Specifically, the parties have agreed to consider making a     
Section 338(h)(10) election under the IRC. Section 338(h)(10) allows the        
transaction to be treated, for tax purposes, as an acquisition of assets instead
of a stock transaction. The election could have the effect of causing Bitwise to
incur additional tax consequences. The parties agreed that in the event the     
buyer desires to make such an election, Bitwise will agree to such election;    
provided, that in no event will Bitwise be required to incur more than $33,500  
in additional tax costs. The buyer will, if it chooses to proceed with the      
election, bear all costs in excess of $33,500. In the event the election is     
made, Bitwise will be entitled to retain all net operating loss carryforwards   
of SST which would otherwise be transferred to the buyer.                       

     The Proposed Sale will be a taxable transaction for Bitwise for
Unites States Federal income tax purposes. It is anticipated, however, that for 
Federal income tax purposes, any taxable income will be substantially offset by 
existing net operating loss carryforwards of Bitwise.                           

APPROVAL BY THE BOARD OF DIRECTORS;                                             
REASONS FOR THE PROPOSED SALE                                                   

           The Board of Directors believes that the Proposed Sale is in the best
interest of the Company and its Stockholders. Accordingly, the Board of         
Directors approved the terms of the Stock Purchase and Merger Agreement. In     
reaching its determination, the Board of Directors and management consulted with
management and its accounting and legal advisors and considered several factors,
including current industry, economic and financial market conditions relating to
the Company and the business of SST, as well as the financial condition, assets,
liabilities, businesses                                                         

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and operations of SST and the Company, both on a historical and prospective     
basis.                                                                          

        The Company's management and its Board of Directors have concluded
that the best opportunities for expansion, growth and profit for the Company lay
in its document imaging business which operates under the trade name            
"DocStar(R)". The Board of Directors believes that the sale of SST is necessary 
to allow management to focus its efforts and the Company's resources on the     
Company's document imaging business. SST is a value added distributor of        
advanced technology industrial computers and computer peripherals and its       
operations are unrelated to the document imaging business. The Board also       
believes that as a result of the presently favorable economy, the Company can   
sell SST and obtain a premium price. The Board of Directors does not believe    
that there is a likelihood of obtaining a better price.                         

          During the last two years, as a result of the intense competition in
the personal computer business as well as changes in consumer and business      
needs, management and the Board of Directors have decided to focus the Company's
efforts on its document imaging business. It is the Board's belief that the     
business of SST requires capital, management time and effort which are not      
possible in light of the fact that the management has decided to concentrate its
efforts on the document imaging business. Additionally, in light of the losses  
being incurred by the Company as it attempts to establish its document imaging  
business, the Company requires an infusion of capital to sustain its operations 
and expand and support the document imaging business. The Board of Directors    
believes that the sale of SST pursuant to the Agreement will provide the        
necessary capital infusion far more quickly than any potential income which may 
be generated, if at all, by SST during the next year.                           

THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS OF
THE COMPANY APPROVE THE PROPOSED SALE.                                          

ACCOUNTING TREATMENT                                                            

          In accordance with generally accepted accounting principles ("GAAP")
the operations of SST will be included in the operations of the Company up to   
and including the closing date. Any gain or loss on the disposition of SST will 
be recognized as of the date the Proposed Sale is closed.                       

NO APPRAISAL RIGHTS FOR STOCKHOLDERS                                            

          Pursuant to the DGCL, Stockholders will not be entitled to rights of
appraisal in connection with the Proposed Sale. Appraisal Rights are provisions 
which provide stockholders of a Delaware corporation, to obtain, under certain  
circumstances, the fair value of their shares when they disagree with the terms 
of a transaction to be undertaken by the corporation.                           

CERTAIN INFORMATION CONCERNING USI                                              

          USI is a privately held entity which has been formed to purchase SST
and to operate in the computer distribution business. USI has not to date had   
any operations or revenues.                                                     

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BITWISE DESIGNS INC. AND SUBSIDIARIES 

CONSOLIDATED SELECTED HISTORICAL FINANCIAL INFORMATION  

  The selected historical financial data presented below as of and for the
fiscal year ended June 30, 1997, 1996 and 1995 have been derived from the       
consolidated financial statements of Bitwise Designs, Inc. and its subsidiaries,
including SST, included in the Forms 10KSB and additional financial information 
appearing in Exhibit B,C and D annexed hereto. The information set forth below  
should be read in conjunction with the "Management's Discussion and Analysis of 
Financial Condition and Results of Operations" appearing in Exhibits B, C and D 
of this Proxy Statement.                                                        

                                                        [Enlarge/Download Table]

                                 June 30,           June 30,           June 30,          June 30,          June 30,   
                                   1997               1996               1995              1994              1993     
--------------------------------------------------------------------------------------------------------------------- 
                                                                                                                      
Sales                        $ 53,109,469        $ 30,611,258        $23,949,368       $ 4,661,377        $5,0667,878 

Net (Loss) from operations     (2,003,976)         (2,867,328)           (66,398)         (786,264)        (1,879,408)

Net Earnings (loss)            (2,143,159)         (2,961,039)             3,681          (813,380)       (1,872,819) 

Net Earnings (loss)                 (0.30)              (0.55)              0.00             (0.30)            (0.78) 
      per share                                                                                                       

Total Assets                   18,924,765          19,880,037         13,095,479         2,092,568         2,531,064  

Long-term obligations,                                                                                                
including obligations              13,098              65,039            236,081           291,853           333,723  
under capitol leases                                                                                                  

Shareholder' equity            11,192,970          12,627,239          8,846,572         1,103,292         1,459,748  

Cash dividends                      7,610              30,441             21,424                 0                 0  
--------------------------------------------------------------------------------------------------------------------- 

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PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

PRO FORMA FINANCIAL INFORMATION RELATED TO THE SALE OF SYSTEM                   
SOLUTIONS TECHNOLOGY, INC.                                                      

      The accompanying financial information includes proforma summary
financial information for Bitwise. This proforma is based on the assumption that
Bitwise sold its subsidiary, System Solutions Technology, Inc. at the beginning 
of each period presented. It also assumes that cash received from the sale of   
SST was invested in cash equivalents and interest income was estimated and      
included in the proforma summary financial information. Actual summary financial
information is also presented so that a comparison can be made to the proforma  
financial information.                                                          

        Also included are year end financial statements as well as interim
financial statements for SST, including the related footnotes. The financial    
statements assume that SST was separate and independent of Bitwise during the   
years/periods presented. The unamortized balance of goodwill recorded by Bitwise
when SST was acquired has been included as an asset on the balance sheets       
presented. The associated amortization expense has also been included in its    
statements of operations.                                                       

      SST was acquired by Bitwise on August 18, 1994. Accordingly, the
statement of operations and cash flows for the period ended June 30, 1995 only  
includes the results of SST from the date of acquisition through the end of the 
year.                                                                           

           The proforma results of operations and cash flows are not necessarily
indicative of the results to be expected.                                       

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 Bitwise Designs, Inc.
 Proforma Selected Financial Information

                                                        [Enlarge/Download Table]

                                   ACTUALS                          PROFORMA              
                      DEC.31, 1997       JUNE 30, 1997   DEC.31, 1997       JUNE 30, 1997 

                                                                                          
Net Sales             $ 18,396,656        $ 53,109,469   $ 10,912,143        $ 41,258,309 

Loss from Operations      (702,804)         (2,003,976)      (871,917)         (2,617,953)

Net Loss                (1,038,138)         (2,143,159)      (977,062)         (2,201,486)

Loss Per Share               (0.14)              (0.30)         (0.13)              (0.31)

Total Assets            20,464,888          18,924,765     17,965,645          15,834,819 

Long- term Debt          3,405,470              13,096      3,401,824               1,601 

Redeemable Preferred                                                                      
           Stock                 0                   0              0                   0 

Cash Dividends                   0               7,610              0                   0 

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SYSTEM SOLUTIONS TECHNOLOGY, INC.                                               
BALANCE SHEETS                                                                  
UNAUDITED                                                                       

                                                                [Download Table]

               ASSETS                                      JUNE 30,         
                                                       1997             1996
                                                                            
Current assets:                                  $  829,591       $  125,449
Cash and cash equivalents                                                   
Accounts receivable, net of allowance                                       
   of $48,575 in 1997 and $6,420 in 1996          2,133,760        1,848,827
Due from related parties                              1,500                 
Inventories                                       1,453,074        1,414,296
Prepaid expenses and other current assets            16,408           71,814
                                                 ----------       ----------
  Total current assets                            4,434,333        3,460,386
Goodwill                                          2,679,119        2,832,212
Property and equipment, net                         156,843          148,255
                                                 ----------       ----------
Total assets                                     $7,270,295       $6,440,853
                                                 ==========       ==========

LIABILITIES AND SHAREHOLDERS' EQUITY                                        
Current liabilities:                                                        
Borrowings under lines of credit                 $2,123,473       $1,217,348
Accounts payable                                    914,161        1,249,551
Current portion of obligations under                                        
  capital leases                                      7,856           14,246
Income taxes payable                                 32,009           15,688
Accrued expenses and other liabilities               97,006           80,489
Due to parent company                             1,559,394        1,583,610
                                                 ----------       ----------
           Total current liabilities              4,733,899        4,160,932
                                                 ----------       ----------
Obligations under capital leases,                                           
  net of current portion                              1,297            6,904
                                                 ----------       ----------
           Total liabilities                      4,735,196        4,167,836
                                                 ----------       ----------
Common stock                                              1                1
Paid in capital                                   1,847,987        1,847,986
Retained earnings                                   687,111          425,030
                                                 ----------       ----------
           Total shareholders' equity             2,535,099        2,273,017
                                                 ----------       ----------
Total liabilities and shareholders' equity       $7,270,295       $6,440,853
                                                 ==========       ==========

The accompanying notes are an integral part of the combined financial statements

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SYSTEM SOLUTIONS TECHNOLOGY, INC.                                               
STATEMENTS OF OPERATIONS                                                        
AND RETAINED EARNINGS                                     
UNAUDITED                                                                       

                                                        [Enlarge/Download Table]

                                              YEARS ENDED JUNE 30,        PERIOD ENDED JUNE 30,
                                              1997               1996               1995       

                                                                                               
Net sales                               $ 11,851,160        $ 8,719,999        $ 7,584,951     

Cost of goods sold                         8,746,258          6,246,302          5,645,225     
                                        ------------        -----------        -----------     
  Gross profit                             3,104,902          2,473,697          1,939,726     

Selling, general and administrative                                                            
   expenses                                2,644,018          2,181,512          1,637,066     
                                        ------------        -----------        -----------     
  Total operating expenses                 2,644,018          2,181,512          1,637,066     
                                        ------------        -----------        -----------     
  Income from operations                     460,884            292,185            302,660     
                                        ------------        -----------        -----------     

Interest expense, net                       (182,481)          (114,342)           (39,785)    
                                        ------------        -----------        -----------     
  Income before income taxes                 278,403            177,843            262,875     

Income tax expense                            16,322              6,591              9,097     
                                        ------------        -----------        -----------     
Net income                                   262,081            171,252            253,778     

Retained earnings at beginning of year       425,030            253,778                        
                                        ------------        -----------        -----------     
Retained earnings at end of year        $    687,111        $   425,030        $   253,778     

The accompanying notes are an integral part of the combined financial statements

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SYSTEM SOLUTIONS TECHNOLOGY, INC.                                               
STATEMENTS OF CASH FLOW                                                         
UNAUDITED                                                                       

                                                        [Enlarge/Download Table]

                                                     YEARS ENDED JUNE 30,      PERIOD ENDED
                                                                                  JUNE 30, 
                                                     1997             1996          1995   
                                                                                           
Cash flows from operating activities:                                                      
 Net income                                       $ 262,081        $ 171,252     $ 253,778 
Adjustments to reconcile net income                                                        
 to net cash used in operating activities:                                                 
  Depreciation and amortization                     210,014          189,482        93,561 
Changes in operating assets and liabilities:                                               
  Accounts receivable and due from related                                                 
  parties                                          (286,433)        (404,080)     (610,249)
  Inventories                                       (38,778)        (542,964)     (295,858)
   Prepaid expenses and other current assets         55,406          (45,099)       40,470 

   Accounts payable and accrued expenses           (318,873)              (9)      113,533 
   Other                                                                  (1)              
   Income taxes                                      16,321            6,591         9,097 
                                                  ---------        ---------     --------- 
           Net cash used in operating activities   (100,262)        (624,828)     (395,668)
                                                  ---------        ---------     --------- 
           Cash flows from investing activities:                                           
           Purchases of property and equipment      (65,508)         (74,958)      (49,944)
                                                  ---------        ---------     --------- 
           Net cash used in investing activities    (65,508)         (74,958)      (49,944)
                                                  ---------        ---------     --------- 
Cash flows from financing activities:                                                      
Increase in borrowings under line of credit         906,125          654,876       (56,082)
(Payments) on capital lease obligations, net        (11,997)          (3,351)      (11,898)
           Payments on long-term debt                                              (57,097)
 Advances from (payments to) parent co              (24,216)          (9,093)      726,118 
                                                  ---------        ---------     --------- 
   Net cash provided by financing activities        869,912          642,432       601,041 
                                                  ---------        ---------     --------- 
Net increase (decrease) in cash and cash                                                   
equivalents                                         704,142          (57,354)      155,429 
Cash and cash equivalents, beginning of year        125,449          182,803        27,374 
                                                  ---------        ---------     --------- 
Cash and cash equivalents, end of year            $ 829,591        $ 125,449     $ 182,803 
                                                  =========        =========     ========= 

The accompanying notes are an integral part of the combined financial statements

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SYSTEM SOLUTIONS TECHNOLOGY, INC.                                               
BALANCE SHEETS - INTERIM PERIOD                                                 
UNAUDITED                                                                       

                                                                [Download Table]

                       ASSETS                                          
                                                          DEC. 31, 1997
                                                                       
Current assets:                                                        
           Cash and cash equivalents                       $  400,463  
           Accounts receivable, net of allowance                       
             of $82,000 in 1997                             2,065,013  
           Due from related parties                             8,000  
           Inventories                                      1,196,979  
           Prepaid expenses and other current assets          180,324  
                                                           ----------  
                     Total current assets                   3,850,779  
           Goodwill                                         2,602,572  
           Property and equipment, net                        140,390  
                                                           ----------  
           Total assets                                    $6,593,741  

            LIABILITIES AND SHAREHOLDERS' EQUITY                       
Current liabilities:                                                   
           Borrowings under lines of credit                $1,795,957  
           Accounts payable                                   655,215  
           Current portion of obligations under                        
              capital leases                                    3,646  
           Income taxes payable                                32,010  
           Accrued expenses and other liabilities              30,849  
           Due to parent company                            1,550,595  
                                                           ----------  
              Total current liabilities                     4,068,272  

Other liabilities                                                      
                                                           ----------  
             Total liabilities                              4,068,272  
                                                           ----------  
Common stock                                                        1  
Paid in capital                                             1,847,987  
Retained earnings                                             677,481  
                                                           ----------  
            Total shareholders' equity                      2,525,469  
                                                           ----------  
Total liabilities and shareholders' equity                 $6,593,741  
                                                           ==========  

The accompanying notes are an integral part of the combined financial statement 

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SYSTEM SOLUTIONS TECHNOLOGY, INC.                                               
STATEMENTS OF OPERATIONS - INTERIM PERIODS                                      
UNAUDITED                                                                       

                                                                [Download Table]

                                               SIX MONTHS    THREE MONTHS
                                                  ENDED          ENDED   
                                              DEC. 31,1997   DEC. 31,1997

                                                                         
Net sales                                      $ 7,484,513   $ 3,120,916 

Cost of goods sold                               5,880,912     2,605,544 
                                               -----------   ----------- 
  Gross profit                                   1,603,601       515,372 

Selling, general and administrative expenses     1,511,035       680,702 
                                               -----------   ----------- 
           Total operating expenses              1,511,035       680,702 
                                               -----------   ----------- 
            lncome(loss) from operations            92,566      (165,330)
                                               -----------   ----------- 
           Interest expense, net                  (102,195)      (59,964)
                                               -----------   ----------- 
           (Loss) before income taxes               (9,629)     (225,294)

Income tax expense                                       0             0 
                                               -----------   ----------- 
Net (loss)                                     ($    9,629)  ($  225,294)

The accompanying notes are an integral part of the combined financial statements

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SYSTEM SOLUTIONS TECHNOLOGY, INC.                                               
STATEMENTS OF CASH FLOW - INTERIM PERIOD                                        
UNAUDITED                                                                       

                                                                [Download Table]

                                                                 SIX MONTHS  
                                                                     ENDED   
                                                                 DEC.31, 1997
                                                                             
Cash flows from operating activities:                                        
           Net income                                            ($  9,629)  
Adjustments to reconcile net income to net cash                              
           used in operating activities:                                     
           Depreciation and amortization                           102,860   
           Provision for doubtful accounts receivable               47,000   
           Changes in operating assets and liabilities:                      
         Accounts receivable and due from related parties           15,247   
           Inventories                                             256,095   
           Prepaid expenses and other current assets              (163,916)  
           Accounts payable and accrued expenses                  (325,103)  
           Other                                                         1   
                                                                 ---------   
           Net cash (used in) operating activities                 (77,445)  
                                                                 ---------   
Cash flows from investing activities:                                        
  Purchases of property and equipment                               (9,860)  
                                                                 ---------   
           Net cash (used in) investing activities                  (9,860)  
                                                                 ---------   

Cash flows from financing activities:                                        
           Decrease in borrowings under line of credit            (327,516)  
           Principal payments on capital lease obligations          (5,507)  
           Payments on advances from parent company                 (8,800)  
                                                                 ---------   
           Net cash (used in) financing activities                (341,823)  
                                                                 ---------   
Net decrease in cash and cash equivalents                         (429,128)  
Cash and cash equivalents, beginning of year                       829,591   
                                                                 ---------   
Cash and cash equivalents, end of year                           $ 400,463   
                                                                 =========   

The accompanying notes are an integral part of the combined financial statements

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NOTES TO FINANCIAL STATEMENTS                                                   

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                   

Description of business:                                                        
System Solutions Technology, Inc. (SST) is a wholly-owned subsidiary of Bitwise 
Designs, Inc. ("Bitwise"). SST was acquired in August 1994. SST is a value-added
distributor of advanced technology industrial computers and computer            
peripherals.                                                                    

Principles of presentation:                                                     
The attached financial statements represent the financial statements for SST as 
if it was a separate entity from Bitwise. Management of Bitwise believes the    
accompanying unaudited financial statements contain all adjustments necessary to
fairly present the financial position, results of operations and cash flows for 
the periods presented.                                                          

The results for the three and six months ended December 31, 1997 are not        
necessarily indicative of the results to be expected for the full year. It is   
suggested that these financial statements be read in conjunction with the       
Bitwise annual and quarterly consolidated financial statements and notes thereto
included in the Company's Form 10-KSB for the fiscal years ended June 30, 1997  
and 1996 and Form 10-QSB for the six and three months ended December 31, 1997.  

Cash equivalents:                                                               
SST considers all highly liquid debt instruments with original maturities not   
exceeding three months to be cash equivalents. At June 30, 1997 and 1996, cash  
equivalents were composed primarily of investments in 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.

Goodwill:                                                                       
The goodwill balance (net of accumulated amortization) and the related          
amortization expense on the accompanying financial statements reflect the       
goodwill arising from the acquisition of SST by Bitwise.                        
Goodwill is being amortized on a straight-line basis over 20 years.             

Management 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 1997, 1996 
and 1995 was $153,093, $153,093 and $76,546, respectively. Accumulated          
amortization                                                                    

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at June 30, 1997 and 1996 was $382,732 and $229,639, respectively.              

footnotes - continued                                                           

Income taxes:                                                                   
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.                                        

Revenue recognition and warranty provisions:                                    
Revenue from the sale of products and services is recognized when the products  
are shipped or services are rendered to customers. On products distributed for  
other manufacturers, warranties are provided by the original manufacturer.      
Warranty expense was not significant to any of the years presented.             

Advertising expenses:                                                           
SST recognizes advertising expenses as incurred. Advertising and promotion      
expense for 1997, 1996 and 1995 was approximately $124,360, $8,273 and $0,      
respectively.                                                                   

Use of estimates:                                                               
Management 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 financial statements in conformity with generally  
accepted accounting principles. Actual results could differ from those          
estimates.                                                                      

New Accounting Pronouncements:                                                  
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,     
"Reporting Comprehensive Income." SFAS No. 130 requires reporting and display of
comprehensive income and its components (revenues, expenses, gains, and losses) 
in a full set of general purpose financial statements. This statement will be   
effective for annual and interim financial statements beginning the fiscal year 
ending 1999, and will require reclassifications of prior periods. The adoption  
of this standard is not expected to have a significant impact on SST's financial
statements.                                                                     

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 will be effective for annual financial statements beginning the  
fiscal year ending 1999, and for interim periods beginning the fiscal year      
ending 1999. The adoption of this standard is not expected to have a significant
impact on the SST's financial statements.                                       

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footnotes - continued                                                           

2. INVENTORIES                                                                  

Inventories at June 30, 1997 and 1996 consist of finished goods amounting to    
$1,453,074 and $1,414,296, respectively. Inventories are pledged as collateral  
for borrowings under the line of credit.                                        

3. PROPERTY AND EQUIPMENT                                                       

Property and equipment at June 30, 1997 and 1996 consists of the following:     

                                                                [Download Table]

                                                              ESTIMATED  
                                                              USEFUL LIFE
                                          1997         1996    IN YEARS  

                                                                         
Machinery and equipment             $  219,961   $  176,040          3-6 
Demonstration and rental computers      32,297       12,519          5-6 
Furniture and fixtures                  13,100       13,100          5-7 
Vehicles                                 1,809           --            5 
                                    ----------   ----------              
                                       267,167      201,659              
Less accumulated depreciation                                            
 and amortization                     (110,324)     (53,404)             
                                    ----------   ----------              
                                    $  156,843   $  148,255              
                                    ==========   ==========              

Depreciation and amortization expense on property and equipment for the periods 
ended June 30, 1997, 1996 and 1995 was $56,921, $36,389 and $17,015,            
respectively. Assets under capital lease arrangements included in the above     
amounts are $28,938 and $52,280 of machinery and equipment, before related      
accumulated amortization totaling $15,064 and $9,930, at June 30, 1997 and 1996,
respectively.                                                                   

Property and equipment are pledged as collateral for borrowings under the lines 
of credit.                                                                      

4. CREDIT FACILITIES                                                            

Lines of credit:                                                                
SST together with Bitwise has a line of credit totaling $3,000,000. SST's       
outstanding balance was $2,123,473 and $1,217,348 on June 30, 1997 and 1996,    
respectively. The line of credit is collateralized by accounts receivable,      
inventory and all other assets. The interest rate is based on the prime rate    
plus 2% per annum (10.25% at June 30, 1997). The line of credit agreement       
includes covenants which require Bitwise to maintain a minimum tangible net     
worth, a maximum debt-to-                                                       

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footnotes - continued                                                           

tangible net worth and a certain profitability level on a consolidated basis, as
well as requiring delivery of periodic financial information and quarterly      
audits conducted by the lender. Bitwise was not in compliance with the minimum  
profitability level for the fiscal year ended June 30, 1997 and subsequent to   
June 30, 1997, Bitwise received a waiver of the covenant violation.             

5. INCOME TAXES                                                                 

SST files a consolidated tax return with Bitwise. Amounts shown on the financial
statements are approximations of income taxes SST would incur if they were a    
separate company.                                                               

Through the acquisition of SST, Bitwise acquired $1,544,000 of federal net      
operating loss carryforwards for tax purposes, subject to certain annual        
limitations on the use of the net operating loss carryforwards arising prior to 
the acquisition in accordance with Internal Revenue Code Section 382. At June   
30, 1997, the remaining federal net operating loss carryforward was $1,383,000  
for SST.                                                                        

Because of these net operating loss carryforwards SST would not have incurred   
any Federal income taxes but would have incurred state income taxes during the  
periods presented on the financial statements.                                  

6. LEASE COMMITMENTS                                                            

SST is obligated under operating and capital leases for certain equipment and   
facilities expiring at various dates through the year 2000. As of June 30, 1997,
future minimum payments by year, and in the aggregate, under capital and        
noncancelable operating leases with initial terms of one year or more consist of
the following:                                                                  

                                                                [Download Table]

                                             CAPITAL     OPERATING LEASES
                                             LEASES        RELATED PARTY 
                                           ---------      ---------------
                                                                         
Fiscal year ending June 30:                                              
              1998                         $   8,499        $147,200     
              1999                             1,333         147,200     
              2000                                            24,533     
                                           ---------        --------     
                                           $   9,832        $318,933     
Amount representing interest                    (679)       ========     
                                           ---------                     
Present value of net minimum                                             
           lease payments                      9,153                     
Less current portion                          (7,856)                    
                                           ---------                     

Long-term portion                          $   1,297                     
                                           =========                     


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footnotes - continued                                                           

Rent expense was $131,162, $111,300 and $79,873 for the periods ended June 30,  
1997, 1996 and 1995, respectively.                                              

7. CASH FLOWS - SUPPLEMENTAL INFORMATION                                        

Cash flows:                                                                     
SST paid interest in the amounts of $176,988, $106,232 and $39,785 for the      
periods ended June 30, 1997, 1996 and 1995, respectively. Income taxes paid     
aggregated $13,194, $10,937 and $0 during the periods ended June 30, 1997, 1996 
and 1995, respectively.                                                         

Noncash investing and financing activities:                                     
During the year ended June 30, 1996, the SST entered into capital lease         
obligations for the purchase of equipment aggregating $12,555.                  

8. RELATED PARTIES                                                              

SST conducts its primary operations from a building leased from its former      
President and two other individuals. During 1997, 1996 and 1995, SST paid rent  
on this building of approximately $144,200, $108,000 and $79,900, respectively. 

9. EMPLOYEE BENEFIT PLAN                                                        

SST has a qualified defined contribution 401(k) profit sharing plan for all     
eligible employees. SST will make contributions in percentages of compensation, 
or amounts as determined by the management. Nothing was contributed during the  
years ended June 30, 1997, 1996 and 1995, respectively.                         

During 1997, SST dissolved its Employee Stock Ownership Plan by converting the  
SST common stock shares to shares of Bitwise common stock.                      

10. ACQUISITIONS AND SALES OF BUSINESSES                                        

On August 18, 1994 the Bitwise acquired SST for 425,000 shares of Bitwise common
stock. In addition, approximately $392,000 of SST debt was exchanged for a new  
class of Bitwise convertible preferred stock, which bears dividends at 7% (10%  
with respect to approximately $100,000 of such preferred stock) per annum and   
will be convertible into common stock at the rate of $3.50 per share. Bitwise   
also provided a capital infusion of $600,000 used by SST to reduce debt. The    
cost of the acquisition was $2,515,000. The preferred stock was converted into  
Bitwise common stock during the year ended June 30, 1997.                       

In October 1997, Bitwise announced the signing of a letter of intent to sell SST
and DJS Marketing Group, Inc. to MSTC, Inc. The agreement was later modified to 
sell only SST to MSTC, Inc. The agreement contemplates a sale price of          
$4,000,000 with $3,600,000 payable in cash and $300,000 payable in SST accounts 
receivable and $100,000 payable in SST inventory. The transaction as presently  
contemplated, will be in the form of a stock sale and MSTC will be assuming all 
liabilities of SST. Consummation of the transaction is subject to approval of   
the shareholders of Bitwise. The                                                

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footnotes - continued                                                           

parties are currently proceeding with the shareholder approval.                 

11. FINANCIAL INSTRUMENTS                                                       

Concentrations of credit risk:                                                  
Financial instruments which subject the Companies to concentrations of credit   
risk consist of cash and cash equivalents and trade accounts receivable. To     
reduce credit risk, SST places their temporary cash investments with high credit
quality financial institutions. SST's credit customers are not concentrated in  
any specific industry or business. SST established 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, notes receivable, accounts      
payable and accrued expenses and other current liabilities. The carrying amount 
of cash and cash equivalents, accounts receivable, accounts payable and accrued 
expenses and other current liabilities approximates fair value because of the   
short maturity of these instruments. The carrying amount of notes receivable,   
included within "Due from related parties," approximates fair value because the 
notes bear interest that approximates the market rate.                          

Lines of credit. The interest rates on SST's line of credit is reset according  
to changes in the current market. Consequently, the carrying value of the       
borrowings under the line of credit approximates fair value.                    

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VOTING SECURITIES AND SECURITY OWNERSHIP
 OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The securities entitled to vote at the meeting are the Company's
Common Stock, $.001 par value and Series A Preferred Stock, $.10 par value per  
share. Each share of Common Stock and Series A Preferred Stock entitles its     
holder to one vote on each matter submitted to Stockholders, voting together as 
a single class. As of the Record Date, there were 7,410,745 shares of Common    
Stock and 200 shares of Series A Preferred Stock issued and outstanding.        

          Under the terms of the Series A Preferred Stock, no shares of Series
A Preferred Stock may be issued to any persons other than John Botti and Ira    
Whitman, currently President and Secretary, respectively of the Company.        
Additionally, the holders of the Series A Preferred Stock, voting as a separate 
class, have the sole right to elect a majority of the Board of Directors, and to
remove any such directors elected by the holders of the Series A Preferred      
Stock. The Series A Preferred Stock are deemed automatically canceled upon the  
occurrence of any of the following (i) the death of the holder; (ii) the        
voluntary termination of employment by the holder; (iii) the voluntary          
resignation by a holder from the Board of Directors; or (iv) the failure by such
holder to own, beneficially, as determined under Regulation 13d-3 of the        
Exchange Act of 1934, at least 5% of the issued and outstanding Common Stock of 
the Company.                                                                    

          The following table sets forth certain information as of May 7, 1998
with respect to (i) each director and each executive officer, (ii) and all      
directors and officers as a group, and (iii) the persons (including any "group" 
as that term is used in Section 13(d)(3) of the Securities Exchange Act of      
1934), known by the Company to be the beneficial owner of more than five (5%)   
percent of the Company's Common Stock and Series A Preferred Stock.             

       ALL OF THE OFFICERS AND DIRECTORS OF THE COMPANY HAVE ADVISED THE
COMPANY THAT THEY WILL VOTE THEIR SHARES FOR THE PROPOSED SALE.                 

                                                                [Download Table]

                                       Amount and Nature            
Type of  Name and Address of           of Beneficial      Percentage
Class    Beneficial Holder             Ownership (1)      of Class  
-----    -----------------             -------------      --------  

                                                                    
Common   John T. Botti                  854,223 (2)       8.9%      
         c/o Bitwise Designs                                        
         Rotterdam Industrial Park                                  
         Schenectady, NY 12306                                      

Common   Ira C. Whitman                 761,538 (3)       7.6%      
         c/o Bitwise Designs                                        
         Rotterdam Industrial Park                                  
         Schenectady, NY 12306                                      

Common   Steven A. Kreigsman             20,000 (4)         *%      
         c/o Bitwise Designs, Inc.                                  
         Rotterdam Industrial Park                                  
         Schenectady, New York 12306                                

Common   Dennis H. Bunt                 105,000 (5)         1%      
         c/o Bitwise Designs, Inc.                                  
         Rotterdam Industrial Park                                  
         Schenectady, New York  12306                               

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                                                                [Download Table]
                                                                            
Common                Donald J. Payne                     187,000 (6)   2.1%
                      c/o Bitwise Designs, Inc.                             
                      Rotterdam Industrial Park                             
                      Schenectady, New York  12306                          

Common                J. Edward Sheridan                   60,000 (7)     * 
                      Sheridan Management Co.                               
                      421 Sasco Hill Rd.                                    
                      Fairfield, CT 06430                                   

Common                Charles C. Johnson                   20,000 (8)     *%
                      c/o Bitwise Designs, Inc.                             
                      Rotterdam Industrial Park                             
                      Schenectady, N.Y.  12306                              

Common                Edward N. Pantone                    20,000 (9)     *%
                      c/o Bitwise Designs, Inc.                             
                      Rotterdam Industrial Park                             
                      Schenectady, N.Y.  12306                              

Series A              John T. Botti                           100 (10)   50%
Preferred Stock       c/o Bitwise Designs, Inc.                             
                      Rotterdam Industrial Park                             
                      Schenectady, N.Y. 12306                               

Series A              Ira C. Whitman                          100 (11)   50%
Preferred Stock       c/o Bitwise Designs, Inc.                             
                      Rotterdam Industrial Park                             
                      Schenectady, N.Y. 12306                               

Directors/Officers as a group (2)(3)(4)(5)(6)(7)(8)(9)  2,048,762        21%

(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 585,185 shares of Common   
           Stock. Does not include non-vested options to purchase 250,000 shares
of Common Stock.                                          

(3)        Includes vested stock options to purchase 368,518 shares of Common   
          Stock. Does not include non-vested options to purchase 66,667 shares
of Common Stock.                                          

(4)        Includes vested options to purchase 20,000 shares of Common Stock.   

(5)        Includes vested options to purchase 93,000 shares of Common Stock and
           excludes nonvested options to purchase 11,000 shares of Common Stock.
     Includes 1,000 shares of Common Stock owned by Mr. Bunt's wife.

(6)        Includes options to purchase 80,000 shares of Common Stock. Also     
        includes warrants to purchase 100,000 shares of Common Stock at an
exercise price of $1.5625 per share.                      

(7)        Includes vested options to purchase 60,000 shares of Common Stock.   

(8)        Includes vested options to purchase 20,000 shares of Common Stock.   

(9)        Includes vested options to purchase 20,000 shares of Common Stock.   

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

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

*         Percentage not significant.                                         

INDEPENDENT PUBLIC ACCOUNTANTS                                                  

   The Board of Directors of the Company has selected Coopers & Lybrand LLP,
Certified Public Accountants, as independent accountants of the Company for the 
fiscal year ending June 30, 1998. The audit services provided by Coopers &      
Lybrand consist of examination of financial statements, services relative to    
filings with the Securities and Exchange Commission, and consultation in regard 
to various accounting matters. Representatives of Coopers & Lybrand are expected
to be present at the meeting and will have the opportunity to make a statement  
if they so desire and answer appropriate questions.                             

INDEMNIFICATION OF DIRECTORS AND OFFICERS                                       

       The General Corporation Law of Delaware provides generally that a
corporation may indemnify any person who was or is a party to or is threatened  
to be made a party to any threatened, pending or completed action, suit or      
proceeding, whether civil, criminal, administrative, or investigative in nature 
to procure a judgment in its favor, by reason of the fact that he is or was a   
director, officer, employee or agent of the Company, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another 
corporation, partnership, joint venture, trust or other enterprise, against     
expenses (including attorneys' fees) and, in a proceeding not by or in the right
of the corporation, judgments, fines and amounts paid in settlement, actually   
and reasonably incurred by him in connection with such suit or proceeding, if he
acted in good faith and in a manner believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or       
proceeding, had no reason to believe his conduct was unlawful. The Delaware     
General Corporation law further provides that a corporation will not indemnify  
any person against expenses incurred in connection with an action by or in the  
right of the corporation if such person shall have been adjudged to be liable   
for negligence or misconduct in the performance of his duty to the corporation  
unless and only to the extent that the court in which such action or suit was   
brought shall determine that, despite the adjudication of liability but in view 
of all the circumstances of the case, such person is fairly and reasonably      
entitled to indemnity for the expenses which such court shall deem proper.      

        The By-Laws of the Company provide for indemnification of officers
and directors of the Company 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 the Company, 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.                        

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   In accordance with Delaware law, the Company's Certificate of
Incorporation contains provisions eliminating the personal liability of         
directors, except for breach of a director's fiduciary duty of loyalty to the   
Company or to its 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 the Company nor 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 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   
the Company pursuant to the foregoing provisions, the Company has 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.                                                     

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                  

     There are no relationships between the Company, its officers or
directors on the one hand and USI and its shareholders, officers or directors   
on the other hand.                                                              

II. OTHER BUSINESS

         As of the date of this Proxy Statement, the only business which the
Board of Directors intends to present, and knows that others will present, at   
the Special Meeting is the Proposed Sale. If any other matter or matters are    
properly brought before the Special Meeting, or any adjournments thereof, it is 
the intention of the persons named in the accompanying form of proxy to vote the
proxy on such matters in accordance with their judgment.                        

                               By Order of the Board of Directors,

          Ira C. Whitman
     Secretary

May 8, 1998                                                                     

WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE     
COMPLETE AND RETURN YOUR PROXY PROMPTLY IN THE ENCLOSED                         
ENVELOPE. NO POSTAGE IS REQUIRED IF IT IS MAILED IN THE UNITED STATES           
OF AMERICA.                                                                     

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STOCK PURCHASE
AND MERGER AGREEMENT

 AMONG

UNITED STRATEGIES, INC.,

SST ACQUISITION CORP.,

 SYSTEM SOLUTION TECHNOLOGIES, INC.,

 AND

 BITWISE DESIGNS, INC.

 April 7, 1998

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TABLE OF CONTENTS 

                                                                [Download Table]

                                                                              Page
                                                                              ----
                                                                                  
1. Definitions...............................................................   1 
2. The Transaction...........................................................   6 
   (a)   The Merger..........................................................   6 
   (b)   The Closing.........................................................   6 
   (c)   Actions at the Closing..............................................   6 
   (d)   Effect of Merger....................................................   6 
   (e)   Purchase Price......................................................   7 
3. Representations and Warranties Concerning the Transaction.................   7 
   (a)   Representations and Warranties of the Seller........................   7 
   (b)   Representations and Warranties of the Buyer.........................   8 
4. Representations and Warranties Concerning the Target......................   9 
   (a)   Organization, Qualification, and Corporate Power....................  10 
   (b)   Capitalization......................................................  10 
   (c)   Noncontravention....................................................  10 
   (d)   Brokers' Fees.......................................................  11 
   (e)   Title to Assets.....................................................  11 
   (f)   Subsidiaries........................................................  11 
   (g)   Financial Statements................................................  11 
   (h)   Events Subsequent to Most Recent Fiscal Year End....................  11 
   (i)   Undisclosed Liabilities.............................................  13 
   (j)   Legal Compliance....................................................  14 
   (k)   Tax Matters.........................................................  14 
   (l)   Real Property.......................................................  16 
   (m)   Intellectual Property...............................................  17 
   (n)   Tangible Assets.....................................................  20 
   (o)   Inventory...........................................................  20 
   (p)   Contracts...........................................................  20 
   (q)   Notes and Accounts Receivable.......................................  21 
   (r)   Powers of Attorney..................................................  22 
   (s)   Insurance...........................................................  22 
   (t)   Litigation..........................................................  22 
   (u)   Product Warranty....................................................  23 
   (v)   Product Liability...................................................  23 
   (w)   Employees...........................................................  23 
   (x)   Employee Benefits...................................................  24 
   (y)   Guaranties..........................................................  26 
   (z)   Environment, Health, and Safety.....................................  26 
   (aa)  Disclosure..........................................................  27 
5. Pre-Closing Covenants.....................................................  27 
   (a)   General.............................................................  27 
   (b)   Notices and Consents................................................  27 
   (c)   Operation of Business...............................................  28 
   (d)   Preservation of Business............................................  28 
   (e)   Full Access.........................................................  28 

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                                                                [Download Table]
                                                                                 
    (f)   Notice of Developments.............................................. 28
    (g)   Exclusivity......................................................... 28
6.  Post-Closing Covenants.................................................... 29
    (a)   General............................................................. 29
    (b)   Litigation Support.................................................. 29
    (c)   Transition.......................................................... 29
    (d)   Confidentiality..................................................... 29
    (e)   Covenant Not to Compete............................................. 30
7.  Conditions to Obligation to Close......................................... 30
    (a)   Conditions to Obligation of the Buyer............................... 30
    (b)   Conditions to Obligation of the Seller.............................. 31
8.  Remedies for Breaches of This Agreement................................... 32
    (a)   Survival of Representations and Warranties.......................... 32
    (b)   Indemnification Provisions for Benefit of the Buyer................. 32
    (c)   Indemnification Provisions for Benefit of the Seller................ 33
    (d)   Matters Involving Third Parties..................................... 34
    (e)   Determination of Adverse Consequences............................... 35
    (f)   Recoupment and/or Set Off........................................... 35
    (g)   Other Indemnification Provisions.................................... 35
8A. Tax Matters............................................................... 36
    (a)   Tax Sharing Agreements.............................................. 36
    (b)   Taxes of Other Persons.............................................. 36
    (c)   Returns for Periods Through the Closing Date........................ 36
    (d)   Audits.............................................................. 36
    (e)   Carrybacks.......................................................... 36
    (f)   Retention of Carryovers............................................. 37
9.  Allocation of Responsibility for Certain Tax Matters...................... 37
    (a)   Section 338(h)(10) Election......................................... 37
    (b)   Tax Periods Ending on or Before the Closing Date.................... 37
    (c)   Tax Periods Beginning Before and Ending After the Closing Date...... 38
    (d)   Cooperation on Tax Matters.......................................... 38
    (e)   Tax Sharing Agreements.............................................. 39
    (f)   Certain Taxes....................................................... 39
10. Termination............................................................... 39
    (a)   Termination of Agreement............................................ 39
    (b)   Effect of Termination............................................... 40
11. Miscellaneous............................................................. 40
    (a)   Press Releases and Public Announcements............................. 40
    (b)   No Third Party Beneficiaries........................................ 40
    (c)   Entire Agreement.................................................... 40
    (d)   Succession and Assignment........................................... 40
    (e)   Counterparts........................................................ 41
    (f)   Headings............................................................ 41
    (g)   Notices............................................................. 41
    (h)   Governing Law....................................................... 41
    (i)   Amendments and Waivers.............................................. 42

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                                                                [Download Table]
                                                                            
(j)  Severability........................................................ 42
(k)  Expenses............................................................ 42
(l)  Construction........................................................ 42
(m)  Incorporation of Exhibits, Annexes, and Schedules................... 42
(n)  Specific Performance................................................ 42
(o)  Submission to Jurisdiction.......................................... 43

Exhibit A--Articles of Merger                                                   
Exhibit B--Other Consideration                                                  
Exhibit C--Financial Statements                                                 
Exhibit D--Form of Opinion of Counsel to the Buyer                              
Annex II--Exceptions to the Buyer's Representations and Warranties Concerning   
the Transaction                                                                 
Disclosure Schedule--Exceptions to Representations and Warranties Concerning the
Seller, the Target and the Subsidiaries                                         

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STOCK PURCHASE
AND MERGER AGREEMENT

    Agreement entered into on April 7, 1998, by and among United Strategies,
Inc., a Delaware corporation, and SST Acquisition Corp., a Maryland corporation,
(collectively, the "Buyer"), and Bitwise Designs, Inc., a Delaware corporation  
("Seller"), and Systems Solution Technologies, Inc., a Maryland corporation, .  
The Buyer and the Seller are referred to collectively herein as the "Parties."  

   Bitwise Designs, Inc. (sometimes "Bitwise") owns all of the outstanding
capital stock of Systems Solution Technologies, Inc. ("Target").                

    SST Acquisition Corp. is a wholly owned subsidiary of United Strategies,
Inc.                                                                            

 This Agreement contemplates a transaction in which Buyer will acquire
Target from Seller in return for cash. This Agreement further contemplates that 
to consummate this purchase, SST Acquisition Corp. will merge with Target which 
will be the surviving corporation.                                              

    Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and       
covenants herein contained, the Parties agree as follows.                       

1. Definitions.                                                     

"Accredited Investor" has the meaning set forth in Regulation D     
promulgated under the Securities Act.                                           

   "Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,   
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid  
in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and    
fees, including court costs and reasonable attorneys' fees and expenses.        

  "Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.                                  

    "Affiliated Group" means any affiliated group within the meaning of Code
Section 1504.                                                                   

 "Applicable Laws" means any and all federal, state, local and foreign
laws, whether statutory, regulatory, case law or otherwise, that apply to a     
given situation.                                                                

    "Basis" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,       
failure to act, or transaction that forms or could form the basis for any       
specified consequence.                                                          

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"Buyer" has the meaning set forth in the preface above.             

"Buyer Note" has the meaning set forth in Section 2(e) below.       

"Closing" has the meaning set forth in Section 2(b) below.          

"Closing Date" has the meaning set forth in Section 2(b) below.     

"Code" means the Internal Revenue Code of 1986, as amended.         

      "Confidential Information" means any information concerning the businesses
and affairs of the Target and its Subsidiaries that is not already generally    
available to the public.                                                        

"Controlled Group of Corporations" has the meaning set forth in Code
Section 1563.                                                                   

   "Deferred Intercompany Transaction" has the meaning set forth in Treas.
Reg. Section 1.1502-13.                                                         

"Disclosure Schedule" has the meaning set forth in Section 4 below. 

    "Employee Benefit Plan" means any (a) nonqualified deferred compensation
or retirement plan or arrangement which is an Employee Pension Benefit Plan, (b)
qualified defined contribution retirement plan or arrangement which is an       
Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or 
arrangement which is an Employee Pension Benefit Plan (including any            
Multiemployer Plan), or (d) Employee Welfare Benefit Plan or material fringe    
benefit plan or program.                                                        

"Employee Pension Benefit Plan" has the meaning set forth in ERISA  
Section 3(2).                                                                   

"Employee Welfare Benefit Plan" has the meaning set forth in ERISA  
Section 3(1).                                                                   

"Environmental, Health, and Safety Laws" means the Comprehensive    
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), the  
Resource Conservation and Recovery Act of 1976 ("RECRA"), and the Occupational  
Safety and Health Act of 1970, the Hazardous Materials Transportation Act       
("HMTA"), each as amended, together with all other laws (including rules,       
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder) of federal, state, local, and foreign governments (and all  
agencies thereof) concerning pollution or protection of the environment, public 
health and safety, or employee health and safety, including laws relating to    
soil, emissions, discharges, releases, or threatened releases of pollutants,    
contaminants, or chemical, industrial, hazardous, or toxic materials or wastes  
into ambient air, surface water, ground water, or lands or                      

 -2-

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otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport, or handling of pollutants, contaminants, or       
chemical, industrial, hazardous, or toxic materials or wastes, including,       
without limitation, any "hazardous substance", "hazardous material" or "toxic   
substance" as defined in CERCLA, RECRA, HMTA or the Resource Conservation and   
Recovery Act.                                                                   

 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.                                                                        

  "Excess Loss Account" has the meaning set forth in Treas. Reg. Section
1.1502-19.                                                                      

    "Extremely Hazardous Substance" has the meaning set forth in Section 302
of the Emergency Planning and Community Right-to-Know Act of 1986, as amended.  

"Fiduciary" has the meaning set forth in ERISA Section 3(21).       

  "Financial Statement" has the meaning set forth in Section 4(g) below.

     "GAAP" means United States generally accepted accounting principles as in
effect from time to time.                                                       

"Indemnified Party" has the meaning set forth in Section 8(d) below.

 "Indemnifying Party" has the meaning set forth in Section 8(d) below.

   "Intellectual Property" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto, 
and all patents, patent applications, and patent disclosures, together with all 
reissuances, continuations, continuations-in-part, revisions, extensions, and   
reexaminations thereof, (b) except for the name "Bitwise", all trademarks,      
service marks, trade dress, logos, trade names, and corporate names, together   
with all translations, adaptations, derivations, and combinations thereof and   
including all goodwill associated therewith, and all applications,              
registrations, and renewals in connection therewith, (c) all copyrightable      
works, all copyrights, and all applications, registrations, and renewals in     
connection therewith, (d) all mask works and all applications, registrations,   
and renewals in connection therewith, (e) all trade secrets and confidential    
business information (including ideas, research and development, know-how,      
formulas, compositions, manufacturing and production processes and techniques,  
technical data, designs, drawings, specifications, customer and supplier lists, 
pricing and cost information, and business and marketing plans and proposals),  
(f) all computer software (including data and related documentation), (g) all   
other proprietary rights, and (h) all copies and tangible embodiments thereof   
(in whatever form or medium).                                                   

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  "Knowledge" means actual knowledge after reasonable investigation. For
purposes hereof, a Party shall be deemed to have knowledge of the contents of   
all books and records with respect to which such Party's employees, officers and
directors have reasonable access and all facts and circumstances to which such  
employee reasonably should have been aware or was aware in the performance of   
such person's duties as an employee, officer or director of such Party.         

"Liability" means any liability (whether known or unknown, whether  
asserted or unasserted, whether absolute or contingent, whether accrued or      
unaccrued, whether liquidated or unliquidated, and whether due or to become     
due), including any liability for Taxes.                                        

   "Materially" means valued at or having a financial impact of $15,000 or
more.                                                                           

    "Most Recent Balance Sheet" means the balance sheet contained within the
Most Recent Financial Statements.                                               

   "Most Recent Financial Statements" has the meaning set forth in Section
4(g) below.                                                                     

    "Most Recent Fiscal Month End" has the meaning set forth in Section 4(g)
below.                                                                          

   "Most Recent Fiscal Year End" has the meaning set forth in Section 4(g)
below.                                                                          

  "Multiemployer Plan" has the meaning set forth in ERISA Section 3(37).

"Ordinary Course of Business" means the ordinary course of business 
consistent with past custom and practice (including with respect to quantity and
frequency).                                                                     

"Party" has the meaning set forth in the preface above.             

"PBGC" means the Pension Benefit Guaranty Corporation.              

"Person" means an individual, a partnership, a corporation, an      
association, a joint stock company, a trust, a joint venture, an unincorporated 
organization, or a governmental entity (or any department, agency, or political 
subdivision thereof).                                                           

   "Prohibited Transaction" has the meaning set forth in ERISA Section 406
and Code Section 4975.                                                          

"Purchase Price" has the meaning set forth in Section 2(e) below.   

"Reportable Event" has the meaning set forth in ERISA Section 4043. 

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"Securities Act" means the Securities Act of 1933, as amended.      

   "Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.                                                                        

      "Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
or other security interest.                                                     

"Seller" has the meaning set forth in the preface above.            

"Subsidiary" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the 
power to vote or direct the voting of sufficient securities to elect a majority 
of the directors.                                                               

     "Target" has the meaning set forth in the preface above, and includes any
Subsidiary owned by Target .                                                    

     "Target  Share" means any share of the Common Stock, no par value, of the
Target.                                                                         

     "Tax" means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,    
windfall profits, environmental (including taxes under Code Section 59A),       
customs duties, capital stock, franchise, profits, withholding, social security 
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,        
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.                                   

    "Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or    
attachment thereto, and including any amendment thereof.                        

"Third Party Claim" has the meaning set forth in Section 8(d) below.

   "Year 2000 Compliant" shall mean that all hardware, software, and other
equipment owned or leased and all products sold or leased accurately and with   
equivalent functionality record, store, recognize, interpret, process and       
present dates in all centuries (not only the 20th Century and whether or not the
dates were effected by leap years) and operate at a programming interface level 
with other programs for which it could reasonably be expected to operate without
causing the other programs to violate such Year 2000 standards.                 

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2. The Transaction.                                                 

(a) The Merger. On and subject to the terms and conditions of this  
Agreement, SST Acquisition Corporation will merge with and into Target (the     
"Merger") at the Effective Time. The Target shall be the corporation surviving  
the Merger (the "Surviving Corporation").                                       

 (b) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Mason, Ketterman & 
Morgan in Baltimore, Maryland, commencing at 9:00 a.m. local time on the third  
business day following the approval of the transaction by Seller's shareholders,
if required, or a date to be agreed upon, but no later than June 15, 1998.      

  (c) Actions at the Closing. At the Closing, (i) Target will deliver to
United Strategies, Inc. and SST Acquisition Corporation the various             
certificates, instruments, and documents referred to in Section 7(a) below;     
(ii) United Strategies, Inc. and SST Acquisition Corporation will deliver to the
Target the various certificates, instruments, and documents referred to in      
Section 7(b) below, and (iii) the Target and SST Acquisition Corporation will   
file with the Department of Assessments and Taxation of the State of Maryland   
the Articles of Merger substantially in the form attached hereto as Exhibit A   
(The "Articles of Merger").                                                     

(d) Effect of Merger.                                               

       (i) General. The Merger shall become effective at the time (the
"Effective Time") of the filing of the Articles of Merger with the  
Department of Assessments and Taxation of the State of Maryland for 
Target. The Merger shall have the effect set forth in the respective
      General Corporation law of Maryland. The Surviving Corporation may, at any
    time after the Effective Time, take any actions (including executing and
      delivering any document) in the name and on behalf of either the Target or
SST Acquisition Corporation in order to carry out and effectuate the
transactions contemplated by this Agreement.                        

           (ii) Certificate of Incorporation. The Certificate of Incorporation
   of the Surviving Corporation shall be amended and restated at and as of
     the Effective Time to read as did the Certificate of Incorporation of SST
Acquisition Corporation and immediately prior to the Effective Time 
      (except that the name of the Surviving Corporation will remain unchanged).

       (iii) Bylaws. The Bylaws of the Surviving Corporations shall be
   amended and restated at and as of the Effective Time to read as did the
Bylaws of the SST Acquisition Corporation immediately prior to the  
Effective                                                           

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Time (except that the name of the Surviving Corporation will remain 
unchanged).                                                         

          (iv) Directors and Officers. The directors and officers of the SST
  Acquisition Corporation shall become the directors and officers of the
  Surviving Corporation at and as of the Effective Time (retaining their
respective positions and terms of office).                          

            (v) Conversion of Capital Stock of the SST Acquisition Corporation .
At and as of the Effective Time, each share of Common Stock of SST  
Acquisition Corp. shall be converted into one share of the Surviving
Corporation.                                                        

           (vi) Conversion of Targets Shares. At and as of the Effective Time,
the shares of Target owned by Seller shall convert into the right to
    receive the Purchase Price as set forth below in Section 2(e) hereof and
     Seller's Shares in Target shall be canceled. No shares in Target shall be
     deemed to be outstanding or to have any rights other than those set forth
above in Section 2(d)(v) hereof.                                    

   (e) Purchase Price. Immediately after the Effective Time the Buyer will
pay, or cause to be paid, the Seller $4,000,000.00 (the "Purchase Price") by    
delivery of (i) cash in the amount of not less than $3,600,000 payable by wire  
transfer or delivery of other immediately available funds and (ii) Other        
Consideration not to exceed $400,000 as set forth on Exhibit B.                 

3. Representations and Warranties Concerning the Transaction.       

   (a) Representations and Warranties of the Seller. Seller represents and
warrants to the Buyer that the statements contained in this Section 3(a) are    
correct and complete as of the date of this Agreement and will be correct and   
complete as of the Closing Date (as though made then and as though the Closing  
Date were substituted for the date of this Agreement throughout this Section    
3(a)) with respect to itself, except as set forth in the Disclosure Statement   
attached hereto.                                                                

      (i) Organization of Seller. Bitwise is duly organized, validly
    existing, and in good standing under the laws of the jurisdiction of its
incorporation.                                                      

           (ii) Authorization of Transaction. Subject to shareholder approval,
     Bitwise has full power and authority (including, full corporate power and
authority) to execute and deliver this Agreement and to perform its 
   obligations hereunder. This Agreement constitutes the valid and legally
binding obligation of each of Bitwise and the Target, enforceable in
  accordance with its terms and conditions. Except for SEC filings which
   will be accomplished prior to Closing, Bitwise need give any notice to,
make any filing with, or obtain any authorization, consent, or      

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    approval of any government or governmental agency in order to consummate
the transactions contemplated by this Agreement.                    

         (iii) Noncontravention. Neither the execution and the delivery of
 this Agreement, nor the consummation of the transactions contemplated
 hereby, will (A) violate any constitution, statute, regulation, rule,
     injunction, judgment, order, decree, ruling, charge, or other restriction
   of any government, governmental agency, or court to which the Seller is
    subject or, any provision of its charter or bylaws or (B) except for the
 lending agreement with NationsCredit Bank, conflict with, result in a
 breach of, constitute a default under, result in the acceleration of,
      create in any party the right to accelerate, terminate, modify, or cancel,
or require any notice under any agreement, contract, lease, license,
 instrument, or other arrangement to which the Seller is a party or by
which it is bound or to which any of its assets is subject.         

       (iv) Brokers' Fees. Except for fees due David Patton (which are
   Seller's responsibility), Bitwise has no Liability or obligation to pay
   any fees or commissions to any broker, finder, or agent with respect to
     the transactions contemplated by this Agreement for which the Buyer could
become liable or obligated.                                         

            (v) Target Shares. Bitwise holds of record and owns beneficially the
     number of Target Shares set forth next to its name in Section 4(b) of the
 Disclosure Schedule which represent all of the issued and outstanding
    shares of capital stock of Target, free and clear of any restrictions on
    transfer (other than any restrictions under the Securities Act and state
      securities laws), free and clear of any and all Taxes, Security Interests,
 options, warrants, purchase rights, contracts, commitments, equities,
  claims, and demands. The Seller is not a party to any option, warrant,
  purchase right, or other contract or commitment that could require the
      Seller to sell, transfer, or otherwise dispose of any capital stock of the
Target (other than this Agreement). The Seller is not a party to any
    voting trust, proxy, or other agreement or understanding with respect to
    the voting of any capital stock of the Target. Upon consummation of this
      Agreement, legal, valid and marketable title to all issued and outstanding
shares of Target will be transferred to Buyer, free and clear of all
liens, pledges, mortgages, encumbrances, charges or other security  
interests.                                                          

     (b) Representations and Warranties of the Buyer. The Buyer represents and
warrants to the Seller that the statements contained in this Section 3(b) are   
correct and complete as of the date of this Agreement and will be correct and   
complete as of the Closing Date (as though made then and as though the Closing  
Date were substituted for the date of this Agreement throughout this Section    
3(b)), except as set forth on the Disclosure Statement attached hereto.         

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      (i) Organization of the Buyer. The Buyer is a corporation duly
   organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation.                                  

       (ii) Authorization of Transaction. The Buyer has full power and
   authority (including full corporate power and authority) to execute and
 deliver this Agreement and to perform its obligations hereunder. This
 Agreement constitutes the valid and legally binding obligation of the
     Buyer, enforceable in accordance with its terms and conditions. The Buyer
need not give any notice to, make any filing with, or obtain any    
 authorization, consent, or approval of any government or governmental
agency in order to consummate the transactions contemplated by this 
Agreement.                                                          

         (iii) Noncontravention. Neither the execution and the delivery of
 this Agreement, nor the consummation of the transactions contemplated
 hereby, will (A) violate any constitution, statute, regulation, rule,
     injunction, judgment, order, decree, ruling, charge, or other restriction
  of any government, governmental agency, or court to which the Buyer is
   subject or any provision of its charter or bylaws or (B) conflict with,
result in a breach of, constitute a default under, result in the    
    acceleration of, create in any party the right to accelerate, terminate,
 modify, or cancel, give rise to any penalty or premium or require any
      notice under any material agreement, contract, lease, license, instrument,
      or other arrangement to which the Buyer is a party or by which it is bound
or to which any of its assets is subject.                           

           (iv) Brokers' Fees. The Buyer has no Liability or obligation to pay
   any fees or commissions to any broker, finder, or agent with respect to
      the transactions contemplated by this Agreement for which any Seller could
become liable or obligated.                                         

           (v) Investment. The Buyer is not acquiring the Target Shares with a
      view to or for sale in connection with any distribution thereof within the
meaning of the Securities Act.                                      

    4. Representations and Warranties Concerning the Target. Each of Bitwise
and the Target, jointly and severally, represent and warrant to the Buyer that  
the statements contained in this Section 4 are correct and complete as of the   
date of this Agreement and will be correct and complete as of the Closing Date  
(as though made then and as though the Closing Date were substituted for the    
date of this Agreement throughout this Section 4), except as set forth in the   
disclosure schedule delivered by the Seller and the Targets to the Buyer on the 
date hereof and initialed by the Parties (the "Disclosure Schedule"). Nothing in
the Disclosure Schedule shall be deemed adequate to disclose an exception to a  
representation or warranty made herein, however, unless the Disclosure Schedule 
identifies the exception with reasonable particularity and describes the        
relevant facts in reasonable detail. Without limiting the generality of the     
foregoing, the mere listing (or inclusion of a copy) of a document or other item
shall                                                                           

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not be deemed adequate to disclose an exception to a representation or warranty 
made herein (unless the representation or warranty has to do with the existence 
of the document or other item itself). The Disclosure Schedule will be arranged 
in paragraphs corresponding to the lettered and numbered paragraphs contained in
this Agreement.                                                                 

 (a) Organization, Qualification, and Corporate Power. The Target is a
corporation duly organized, validly existing, and in good standing under the    
laws of the jurisdiction of its incorporation. The Target is duly authorized to 
conduct business and is in good standing under the laws of each jurisdiction    
where such qualification is required. The Target has full corporate power and   
authority and all licenses, permits, and authorizations necessary to carry on   
the businesses in which it is engaged and in which it presently proposes to     
engage and to own and use the properties owned and used by it. Section 4(a) of  
the Disclosure Schedule lists the directors and officers of each Target and such
directors and officers have been duly elected or appointed. The Seller has      
delivered to the Buyer correct and complete copies of the charter and bylaws of 
the Target (as amended to date). The minute books (containing the records of    
meetings of the stockholders, the board of directors, and any committees of the 
board of directors), the stock certificate books, and the stock record books of 
each Target are correct and complete. The Target is not in default under or in  
violation of any provision of its charter or bylaws.                            

      (b) Capitalization. The entire authorized capital stock of Target consists
of 1,000 Target Shares, of which 1,000 Target Shares are issued and outstanding.
All of the issued and outstanding Target Shares have been duly authorized, are  
validly issued, fully paid, and nonassessable, and are held of record by the    
Seller as set forth in Section 4(b) of the Disclosure Schedule. There are no    
outstanding or authorized options, warrants, purchase rights, subscription      
rights, conversion rights, exchange rights, or other contracts or commitments   
that could require Target to issue, sell, or otherwise cause to become          
outstanding any of its capital stock. There are no outstanding or authorized    
stock appreciation, phantom stock, profit participation, or similar rights with 
respect to Target. There are no voting trusts, proxies, or other agreements or  
understandings with respect to the voting of the capital stock of Target.       

(c) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will   
(i) violate any constitution, statute, regulation, rule, injunction, judgment,  
order, decree, ruling, charge, or other restriction of any government,          
governmental agency, or court to which any of Target is subject or any provision
of the charter or bylaws of any of Target or (ii) except for the lending        
agreements with NationsCredit Bank, conflict with, result in a breach of,       
constitute a default under, result in the acceleration of, create in any party  
the right to accelerate, terminate, modify, or cancel, give rise to any penalty 
or premium, or require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which Target is a party or by which it is   
bound or to which any of its assets is subject (or result in the imposition of  
any Security Interest upon any of its assets). The Target does not need to give 
any notice to, make any filing with, or obtain any authorization, consent, or   
approval of any government or                                                   

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governmental agency in order for the Parties to consummate the transactions     
contemplated by this Agreement.                                                 

   (d) Brokers' Fees. The Target has no Liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the         
transactions contemplated by this Agreement.                                    

  (e) Title to Assets. The Target has good and marketable title to, or a
valid leasehold interest in, the properties and assets used by it, located on   
its premises, or shown on the Most Recent Balance Sheet or acquired after the   
date thereof, free and clear of all Security Interests, except for properties   
and assets disposed of in the Ordinary Course of Business since the date of the 
Most Recent Balance Sheet.                                                      

(f) Subsidiaries. Except as set forth on in the Disclosure Schedule,
neither Target has no Subsidiaries.                                             

    (g) Financial Statements. Attached hereto as Exhibit C are the following
financial statements of Bitwise (collectively the "Financial Statements"): (i)  
audited consolidated and unaudited consolidating balance sheets and statements  
of income, changes in stockholders' equity, and cash flow as of and for the     
fiscal years ended June 30, 1996 and June 30, 1997 (the "Most Recent Fiscal Year
End") and (ii) unaudited consolidated and consolidating balance sheets and      
statements of income, changes in stockholders' equity, and cash flow for Target 
(the "Most Recent Financial Statement") as of and for the eight (8) months ended
February 28, 1998 (the "Most Recent Fiscal Month End"). The Financial Statements
(including the notes thereto) have been prepared in accordance with GAAP applied
on a consistent basis throughout the periods covered thereby, present fairly the
financial condition of the Target and its Subsidiaries as of such dates and the 
results of operations of the Target and its Subsidiaries for such periods, are  
correct and complete, and are consistent with the books and records of the      
Target and its Subsidiaries (which books and records are correct and complete). 

 Prior to Closing, Bitwise and Target will provide Buyer the financial
statements for the month or months subsequent to February 28, 1998 and, if      
Closing is on or after the twenty-first of a month, Bitwise and Target will     
provide (prior to Closing) the financial statements for the immediately         
preceding month.                                                                

     (h) Events Subsequent to Most Recent Fiscal Year End. Except as set forth
in the Disclosure Schedule, since the Most Recent Fiscal Year End, there has not
been any Materially adverse change in the business, financial condition,        
operations, results of operations, or future prospects of the Target. Without   
limiting the generality of the foregoing, since that date:                      

            (i) the Target has not sold, leased, transferred, or assigned any of
      its assets, tangible or intangible, other than for a fair consideration in
the Ordinary Course of Business;                                    

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            (ii) the Target has not entered into any agreement, contract, lease,
or license (or series of related agreements, contracts, leases, and 
licenses) either involving more than $15,000 or outside the Ordinary
Course of Business;                                                 

          (iii) no party (including the Target) has accelerated, terminated,
 modified, or cancelled any agreement, contract, lease, or license (or
    series of related agreements, contracts, leases, and licenses) involving
    more than $15,000 to which the Target is a party or by which any of them
is bound;                                                           

         (iv) the Target has not imposed any Security Interest upon any of
its assets, tangible or intangible;                                 

         (v) the Target has not made any capital expenditure (or series of
related capital expenditures) either involving more than $15,000 or 
outside the Ordinary Course of Business;                            

            (vi) the Target has not made any capital investment in, any loan to,
   or any acquisition of the securities or assets of, any other Person (or
  series of related capital investments, loans, and acquisitions) either
   involving more than $15,000 or outside the Ordinary Course of Business;

     (vii) the Target has not issued any note, bond, or other debt
      security or created, incurred, assumed, or guaranteed any indebtedness for
     borrowed money or capitalized lease obligation either involving more than
$5,000 singly or $15,000 in the aggregate;                          

     (viii) the Target has not delayed or postponed the payment of
 accounts payable and other Liabilities outside the Ordinary Course of
Business;                                                           

          (ix) the Target has not canceled, compromised, waived, or released
any right or claim (or series of related rights and claims) either  
   involving more than $15,000 or outside the Ordinary Course of Business;

       (x) the Target has not granted any license or sublicense of any
rights under or with respect to any Intellectual Property;          

          (xi) there has been no change made or authorized in the charter or
bylaws of the Target;                                               

           (xii) the Target has not issued, sold, or otherwise disposed of any
      of its capital stock, or granted any options, warrants, or other rights to
     purchase or obtain (including upon conversion, exchange, or exercise) any
of its capital stock;                                               

           (xiii) the Target has not declared, set aside, or paid any dividend
  or made any distribution with respect to its capital stock (whether in
     cash or in kind) or redeemed, purchased, or otherwise acquired any of its
capital stock;                                                      

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        (xiv) the Target has not experienced any damage, destruction, or
 loss (whether or not covered by insurance) to its property other than
ordinary wear and tear;                                             

           (xv) the Target has not made any loan to, or entered into any other
   transaction with, any of its directors, officers, and employees outside
the Ordinary Course of Business;                                    

        (xvi) the Target has not entered into any employment contract or
      collective bargaining agreement, written or oral, or modified the terms of
any existing such contract or agreement;                            

  (xvii) the Target has not granted any increase in the base
     compensation of any of its directors, officers, and employees outside the
Ordinary Course of Business;                                        

            (xviii) the Target has not adopted, amended, modified, or terminated
     any bonus, profit-sharing, incentive, severance, or other plan, contract,
or commitment for the benefit of any of its directors, officers, and
  employees (or taken any such action with respect to any other Employee
Benefit Plan);                                                      

          (xix) Target has not made any other change in employment terms for
     any of its directors, officers, and employees outside the Ordinary Course
of Business;                                                        

           (xx) Target has not made or pledged to make any charitable or other
capital contribution outside the Ordinary Course of Business;       

           (xxi) Target has not made or received any inter-company (i.e. among
      Bitwise and its Affiliates) transfers of funds, securities or any personal
    property outside the normal course of business (stated monthly corporate
assessments) since the Most Recent Financial Statement and that any 
 inter-company transfers or obligations shown on the December 31, 1997
  Financial Statements have been forgiven by Bitwise or will be prior to
Closing;                                                            

       (xxii) Target has maintained substantially similar liquidity as
   shown for the Most Recent Financial Statement, in that the relationship
between cash, accounts receivable, draws on the line of credit, and 
accounts payable has been consistent;                               

         (xxiii) there has not been any other occurrence, event, incident,
 action, failure to act, or transaction outside the Ordinary Course of
Business involving the Target; and                                  

    (xxiv) the Target has not committed to any of the foregoing.

(i) Undisclosed Liabilities. Except as set forth in the Disclosure  
Schedule, the Target has no Liability (and there is no Basis for any present or 
future action, suit,                                                            

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proceeding, hearing, investigation, charge, complaint, claim, or demand against 
it giving rise to any Liability), except for (i) Liabilities set forth on the   
face of the Most Recent Balance Sheet (rather than in any notes thereto) and    
(ii) Liabilities which have arisen after the Most Recent Fiscal Month End in the
Ordinary Course of Business (none of which results from, arises out of, relates 
to, is in the nature of, or was caused by any breach of contract, breach of     
warranty, tort, infringement, or violation of law or is prohibited by, or in    
breach of any provision of this Agreement).                                     

    (j) Legal Compliance. The Target and its predecessors and Affiliates has
complied with all Applicable Laws (including rules, regulations, codes, plans,  
injunctions, judgments, orders, decrees, rulings, and charges thereunder) of    
federal, state, local, and foreign governments (and all agencies thereof), and  
no action, suit, proceeding, hearing, investigation, charge, complaint, claim,  
demand, or notice has been filed or commenced against any of them alleging any  
failure so to comply. No condition exists or event has occurred that will cause 
any Target to be Materially in violation of any Applicable Law.                 

(k) Tax Matters.                                                    

      (i) Except for Virginia, District of Columbia and Pennsylvania
 income tax and Maryland personal property returns which will be filed
prior to Closing, the Target has filed all Tax Returns that it was  
   required to file. All such Tax Returns were correct and complete in all
   respects. All Taxes owed by the Target (whether or not shown on any Tax
      Return) have been paid. The Target currently is not the beneficiary of any
     extension of time within which to file any Tax Return other than in those
states noted above. No claim has ever been made by an authority in a
     jurisdiction where the Target does not file Tax Returns that it is or may
be subject to taxation by that jurisdiction. There are no Security  
      Interests on any of the assets of the Target that arose in connection with
any failure (or alleged failure) to pay any Tax.                    

         (ii) Target has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any   
   employee, independent contractor, creditor, stockholder, or other third
party.                                                              

         (iii) Neither the Seller nor any director or officer (or employee
      responsible for Tax matters) of the Target expects any authority to assess
     any additional Taxes for any period for which Tax Returns have been filed
by either Target. There is no dispute or claim concerning any Tax   
    Liability of the Target either (A) claimed or raised by any authority in
     writing or (B) as to which the Seller and the directors and officers (and
    employees responsible for Tax matters) of the Target has Knowledge based
   upon personal contact with any agent of such authority. Section 4(k) of
the Disclosure Schedule lists all federal, state, local, and foreign
   income Tax Returns filed with respect to the Target for taxable periods
  ended on or after June 30, 1994, indicates those Tax Returns that have
been audited, and indicates those Tax Returns that currently are the
    subject of audit. Seller has delivered to the Buyer correct and complete
copies of all federal income Tax Returns, examination reports, and  
statements of deficiencies                                          

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   assessed against or agreed to by any of the Target and its Subsidiaries
since June 30, 1994.                                                

            (iv) The Target has not waived any statute of limitations in respect
of Taxes or agreed to any extension of time with respect to a Tax   
assessment or deficiency.                                           

        (v) The Target has not filed a consent under Code Section 341(f)
      concerning collapsible corporations. The Target has not made any payments,
      is obligated to make any payments, or is not a party to any agreement that
   under certain circumstances could obligate it to make any payments that
     will not be deductible under Code Section 280G. The Target has not been a
      United States real property holding corporation within the meaning of Code
    Section 897(c)(2) during the applicable period specified in Code Section
897(c)(1)(A)(ii). The Target has disclosed on its federal income Tax
     Returns all positions taken therein that could give rise to a substantial
   understatement of federal income Tax within the meaning of Code Section
6662. The Target is not a party to any Tax allocation or sharing    
     agreement. The Target has not been a member of an Affiliated Group filing
  a consolidated federal income Tax Return other than a group the common
parent of which is Bitwise.                                         

       (vi) Section 4(k)(vi) of the Disclosure Schedule sets forth the
following information with respect to the Target (or, in the case of
   clause (B) below, with respect to any Subsidiary) as of the most recent
  practicable date (as well as on an estimated pro forma basis as of the
      Closing giving effect to the consummation of the transactions contemplated
    hereby): (A) the basis of the Target in its assets; (B) the basis of the
      stockholder(s) of any Subsidiary in its stock (or the amount of any Excess
      Loss Account); (C) the amount of any net operating loss, net capital loss,
unused investment or other credit, unused foreign tax, or excess    
      charitable contribution allocable to the Target; and (D) the amount of any
     deferred gain or loss allocable to the Target arising out of any Deferred
Intercompany Transaction.                                           

        (vii) The unpaid Taxes of the Target (A) did not, as of the Most
      Recent Fiscal Month End, exceed the reserve for Tax Liability (rather than
    any reserve for deferred Taxes established to reflect timing differences
 between book and Tax income) set forth on the face of the Most Recent
  Balance Sheet (rather than in any notes thereto) and (B) do not exceed
     that reserve as adjusted for the passage of time through the Closing Date
   in accordance with the past custom and practice of the Target in filing
their Tax Returns.                                                  

      (viii) Each Affiliated Group has filed all material income Tax
     Returns that it was required to file for each taxable period during which
      any of the Target and its Subsidiaries was a member of the group. All such
      Tax Returns were correct and complete in all respects. All material income
Taxes owed by any Affiliated Group (whether or not shown on any Tax 
Return) have been paid for                                          

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   each taxable period during which any of the Target and its Subsidiaries
was a member of the group.                                          

          (ix) No Seller or director or officer (or employee responsible for
     Tax matters) of any of Bitwise Designs, Inc. and its Subsidiaries expects
      any authority to assess any additional income Taxes against any Affiliated
    Group for any taxable period during which the Target was a member of the
      group. There is no dispute or claim concerning any income Tax Liability of
     any Affiliated Group for any taxable period during which the Target was a
member of the group either (A) claimed or raised by any authority in
     writing or (B) as to which the Seller and the directors and officers (and
employees responsible for Tax matters) of any of Bitwise and its    
    Subsidiaries has Knowledge based upon personal contact with any agent of
 such authority. Except as disclosed on Section 4(k) of the Disclosure
  Schedule, no Affiliated Group has waived any statute of limitations in
respect of any income Taxes or agreed to any extension of time with 
   respect to a income Tax assessment or deficiency for any taxable period
   during which any of the Target and its Subsidiaries was a member of the
group.                                                              

       (x) The Target has no any liability for the Taxes of any Person
other than the Target and its Subsidiaries (A) under Reg. Section   
    1.1502-6 (or any similar provision of state, local, or foreign law), (B)
as a transferee or successor, (C) by contract, or (D) otherwise.    

(l) Real Property.                                                  

(i)  The Target does not own any real property.         

  (ii) Section 4(l)(ii) of the Disclosure Schedule lists and
 describes briefly all real property leased or subleased to the Target
   ("Leased Real Property"). The Seller has delivered to the Buyer correct
and complete copies of the leases and subleases listed in Section   
     4(l)(ii) of the Disclosure Schedule (as amended to date). With respect to
each lease and sublease listed in Section 4(l)(ii) of the Disclosure
Schedule:                                                           

       (A) the lease or sublease is legal, valid, binding,
enforceable, and in full force and effect;              

               (B) the lease or sublease will continue to be legal, valid,
       binding, enforceable, and in full force and effect on identical
         terms following the consummation of the transactions contemplated
hereby;                                                 

                  (C) no party to the lease or sublease is in breach or default,
            and no event has occurred which, with notice or lapse of time, would
           constitute a breach or default or permit termination, modification,
or acceleration thereunder;                             

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            (D) no party to the lease or sublease has repudiated any
provision thereof;                                      

              (E) there are no disputes, oral agreements, or forbearance
programs in effect as to the lease or sublease;         

              (F) with respect to each sublease, the representations and
         warranties set forth in subSection (A) through (E) above are true
and correct with respect to the underlying lease;       

                  (G) the Target has assigned, transferred, conveyed, mortgaged,
       deeded in trust, or encumbered any interest in the leasehold or
subleasehold;                                           

                 (H) There are no restrictions in any lease or sublease to the
           transfer of such lease or sublease to the Buyer or if there are any
        such restrictions, all required consents will be obtained before
Closing;                                                

          (I) all facilities leased or subleased thereunder have
     received all approvals of governmental authorities (including
       licenses and permits) required in connection with the operation
  thereof and have been operated and maintained by lessor in
accordance with applicable laws, rules, and regulations;

                  (J) all facilities leased or subleased thereunder are supplied
        with utilities and other services necessary for the operation of
said facilities; and                                    

             (K) to the best of Seller's knowledge without independent
        investigation, the owner of the facility leased or subleased has
          good and marketable title to the parcel of real property, free and
    clear of any Security Interest, easement, covenant, or other
         restriction, except for installments of special easements not yet
            delinquent and recorded easements, covenants, and other restrictions
        which do not impair the current use, occupancy, or value, or the
marketability of title, of the property subject thereto.

(m) Intellectual Property.                                          

        (i) The Target owns or has the right to use pursuant to license,
    sublicense, agreement, or permission all Intellectual Property necessary
  or desirable for the operation of the businesses of the Target and its
Subsidiaries as presently conducted and as presently proposed to be 
      conducted. Except as set forth on the Disclosure Schedule in Section 4(m),
      each item of Intellectual Property owned or used by the Target immediately
    prior to the Closing hereunder will be owned or available for use by the
  Target on identical terms and conditions immediately subsequent to the
Closing hereunder. The Target                                       

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     has taken all necessary and desirable action to maintain and protect each
item of Intellectual Property that it owns or uses.                 

           (ii) To the knowledge of the Target and its officers and directors,
   the Target has not interfered with, infringed upon, misappropriated, or
 otherwise come into conflict with any Intellectual Property rights of
     third parties, and none of the Seller and the directors and officers (and
   employees with responsibility for Intellectual Property matters) of the
    Target has ever received any charge, complaint, claim, demand, or notice
alleging any such interference, infringement, misappropriation, or  
  violation (including any claim that the Target must license or refrain
   from using any Intellectual Property rights of any third party). To the
      Knowledge of the Seller and the directors and officers (and employees with
     responsibility for Intellectual Property matters) of the Target, no third
    party has interfered with, infringed upon, misappropriated, or otherwise
   come into conflict with any Intellectual Property rights of the Target.

          (iii) Section 4(m)(iii) of the Disclosure Schedule identifies each
      patent or registration which has been issued to the Target with respect to
any of its Intellectual Property, identifies each pending patent    
      application or application for registration which the Target has made with
     respect to any of its Intellectual Property, and identifies each license,
    agreement, or other permission which the Target has granted to any third
     party with respect to any of its Intellectual Property (together with any
   exceptions). The Seller has delivered to the Buyer correct and complete
copies of all such patents, registrations, applications, licenses,  
    agreements, and permissions (as amended to date) and have made available
to the Buyer correct and complete copies of all other written       
      documentation evidencing ownership and prosecution (if applicable) of each
   such item. Section 4(m)(iii) of the Disclosure Schedule also identifies
      each trade name or unregistered trademark used by the Target in connection
 with any of its businesses. With respect to each item of Intellectual
     Property required to be identified in Section 4(l)(iii) of the Disclosure
Schedule:                                                           

                  (A) the Target possesses all right, title, and interest in and
         to the item, free and clear of any Security Interest, license, or
other restriction;                                      

              (B) the item is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge;             

            (C) no action, suit, proceeding, hearing, investigation,
           charge, complaint, claim, or demand is pending or, to the Knowledge
        of the Seller and the directors and officers (and employees with
           responsibility for Intellectual Property matters) of the Target, is
           threatened which challenges the legality, validity, enforceability,
use, or ownership of the item; and                      

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                  (D) the Target has never agreed to indemnify any Person for or
          against any interference, infringement, misappropriation, or other
conflict with respect to the item.                      

        (iv) Section 4(m)(iv) of the Disclosure Schedule identifies each
item of Intellectual Property that any third party owns and that the
      Target uses pursuant to license, sublicense, agreement, or permission. The
     Seller has delivered to the Buyer correct and complete copies of all such
    licenses, sublicenses, agreements, and permissions (as amended to date).
With respect to each item of Intellectual Property required to be   
identified in Section 4(m)(iv) of the Disclosure Schedule:          

                  (A) the license, sublicense, agreement, or permission covering
         the item is legal, valid, binding, enforceable, and in full force
and effect;                                             

              (B) the license, sublicense, agreement, or permission will
            continue to be legal, valid, binding, enforceable, and in full force
and effect on identical terms following the Closing;    

          (C) no party to the license, sublicense, agreement, or
           permission is in breach or default, and no event has occurred which
            with notice or lapse of time would constitute a breach or default or
     permit termination, modification, or acceleration thereunder;

          (D) no party to the license, sublicense, agreement, or
permission has repudiated any provision thereof;        

                (E) with respect to each sublicense, the representations and
         warranties set forth in subSection (A) through (D) above are true
and correct with respect to the underlying license;     

           (F) the underlying item of Intellectual Property is not
       subject to any outstanding injunction, judgment, order, decree,
ruling, or charge;                                      

            (G) no action, suit, proceeding, hearing, investigation,
           charge, complaint, claim, or demand is pending or, to the Knowledge
        of the Seller and the directors and officers (and employees with
           responsibility for Intellectual Property matters) of the Target, is
threatened which challenges the legality, validity, or  
           enforceability of the underlying item of Intellectual Property; and

                  (H) the Target has not granted any sublicense or similar right
          with respect to the license, sublicense, agreement, or permission.

         (v) To the Knowledge of the Seller and Target (and employees with
    responsibility for Intellectual Property matters) the use of any license
    or sublicense will not interfere with, infringe upon, misappropriate, or
otherwise                                                           

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      come into conflict with, any Intellectual Property rights of third parties
as a result of the continued operation of its business as presently 
conducted and as presently proposed to be conducted.                

    (n) Tangible Assets. The Target owns or leases all buildings, machinery,
equipment, and other tangible assets necessary for the conduct of their         
businesses as presently conducted and as presently proposed to be conducted.    
Each such tangible asset is free from defects (patent and latent), has been     
maintained in accordance with normal industry practice, is in good operating    
condition and repair (subject to normal wear and tear), and is suitable for the 
purposes for which it presently is used and presently is proposed to be used.   
All hardware, software, and other equipment is Year 2000 Compliant.             

     (o) Inventory. The inventory of the Target and supplies, manufactured and
purchased parts, goods in process, and finished goods, all of which is          
merchantable and fit for the purpose for which it was procured or manufactured, 
and none of which is slow-moving, obsolete, damaged, or defective, subject only 
to the reserve for inventory writedown set forth on the face of the Most Recent 
Fiscal Year End (rather than in any notes thereto). All inventory which is      
hardware, software, or related equipment is Year 2000 Compliant.                

(p) Contracts. Section 4(p) of the Disclosure Schedule lists the    
following contracts and other agreements to which the Target is a party:        

           (i) any agreement (or group of related agreements) for the lease of
   personal property to or from any Person providing for lease payments in
excess of $15,000 per annum;                                        

            (ii) any agreement (or group of related agreements) for the purchase
or sale of raw materials, commodities, supplies, products, or other 
personal property, or for the furnishing or receipt of services, the
 performance of which will extend over a period of more than one year,
    result in a loss to either Target, or involve consideration in excess of
$15,000;                                                            

      (iii) any agreement concerning a partnership or joint venture;

          (iv) any agreement (or group of related agreements) under which it
has created, incurred, assumed, or guaranteed any indebtedness for  
     borrowed money, or any capitalized lease obligation, in excess of $15,000
   or under which it has imposed a Security Interest on any of its assets,
tangible or intangible;                                             

       (v) any agreement concerning confidentiality or noncompetition;

         (vi) any agreement with the Seller and its Affiliates (other than
the Target);                                                        

       (vii) any agreement between the Target and any Affiliate of the
Target;                                                             

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      (viii) any profit sharing, stock option, stock purchase, stock
     appreciation, deferred compensation, severance, or other material plan or
     arrangement for the benefit of its current or former directors, officers,
and employees;                                                      

(ix) any collective bargaining agreement;               

   (x) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing annual   
compensation in excess of $15,000 or providing severance benefits;  

           (xi) any agreement under which it has advanced or loaned any amount
 to any of its directors, officers, and employees outside the Ordinary
Course of Business;                                                 

        (xii) any agreement under which the consequences of a default or
termination could have a material adverse effect on the business,   
financial condition, operations, results of operations, or future   
prospects of either Target;                                         

       (xiii) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $15,000;   

           (xiv) the agreements pursuant to which Bitwise purchased all of the
shares of stock of the Target; or                                   

            (xv) any other contract which is material to the business or results
of operations of the Target.                                        

The Seller has delivered to the Buyer a correct and complete copy of each       
written agreement listed in Section 4(p) of the Disclosure Schedule (as amended 
to date) and a written summary setting forth the terms and conditions of each   
oral agreement referred to in Section 4(p) of the Disclosure Schedule. With     
respect to each such agreement: (A) the agreement is legal, valid, binding,     
enforceable, and in full force and effect; (B) the agreement will continue to be
legal, valid, binding, enforceable, and in full force and effect on identical   
terms following the consummation of the transactions contemplated hereby; (C) no
party is in breach or default, and no event has occurred which with notice or   
lapse of time would constitute a breach or default, or permit termination,      
modification, or acceleration, under the agreement; (D) no party has repudiated 
any provision of the agreement; and (E) execution and consummation of the       
transactions completed by this Agreement will not conflict with or result in a  
default under any of such agreement and/or if any consents are required said    
consents will be obtained prior to Closing.                                     

   (q) Notes and Accounts Receivable. All notes and accounts receivable of
the Target are reflected properly on their books and records, are valid         
receivables subject to no setoffs or counterclaims, are current and collectible,
and will be collected in accordance with their terms at their recorded amounts, 
subject only to the reserve for                                                 

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bad debts set forth on the face of the Most Recent Financial Statement (rather  
than in any notes thereto).                                                     

(r) Powers of Attorney. There are no outstanding powers of attorney 
executed on behalf of the Target.                                               

 (s) Insurance. Section 4(s) of the Disclosure Schedule sets forth the
following information with respect to each insurance policy (including policies 
providing property, casualty, liability, business interruption, directors' and  
officers' liability, errors and omissions, and workers' compensation coverage   
and bond and surety arrangements) to which the Target has been a party, a named 
insured, or otherwise the beneficiary of coverage at any time since September   
1994:                                                                           

 (i) the name, address, and telephone number of the agent;

           (ii) the name of the insurer, the name of the policyholder, and the
name of each covered insured;                                       

(iii) the policy number and the period of coverage;     

           (iv) the scope (including an indication of whether the coverage was
 on a claims made, occurrence, or other basis) and amount (including a
      description of how deductibles and ceilings are calculated and operate) of
coverage; and                                                       

         (v) a description of any retroactive premium adjustments or other
loss-sharing arrangements.                                          

         (vi) a list of all pending insurance claims and the basis of such
claims.                                                             

With respect to each such insurance policy: (A) the policy is legal, valid,     
binding, enforceable, and in full force and effect; (B) the policy will continue
to be legal, valid, binding, enforceable, and in full force and effect on       
identical terms following the consummation of the transactions contemplated     
hereby; (C) the Target nor any other party to the policy is in breach or default
(including with respect to the payment of premiums or the giving of notices),   
and no event has occurred which, with notice or the lapse of time, would        
constitute such a breach or default, or permit termination, modification, or    
acceleration, under the policy; (D) no party to the policy has repudiated any   
provision thereof; and (E) all insurance claims are fully collectible. The      
Target has been covered during the past five (5) years by insurance in scope and
amount customary and reasonable for the businesses in which it has engaged      
during the aforementioned period. Section 4(s) of the Disclosure Schedule       
describes any self-insurance arrangements affecting either Target.              

   (t) Litigation. Section 4(t) of the Disclosure Schedule sets forth each
instance in which the Target (i) is subject to any outstanding injunction,      
judgment, order, decree, ruling, or charge or (ii) is a party or, to the        
Knowledge of the Seller and the directors and officers (and employees with      
responsibility for litigation matters) of the Target, is                        

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threatened to be made a party to any action, suit, proceeding, hearing, or      
investigation of, in, or before any court or quasi-judicial or administrative   
agency of any federal, state, local, or foreign jurisdiction or before any      
arbitrator. None of the actions, suits, proceedings, hearings, and              
investigations set forth in Section 4(t) of the Disclosure Schedule could       
result in any material adverse change in the business, financial condition,     
operations, results of operations, or future prospects of the Target. Neither   
Seller nor the directors and officers (and employees with responsibility for    
litigation matters) of the Target have any reason to believe that any such      
action, suit, proceeding, hearing, or investigation may be brought or threatened
against the Target.                                                             

(u) Product Warranty. Each product manufactured, sold, leased, or   
delivered by the Target has been in conformity with all applicable contractual  
commitments and all express and implied warranties (including, but not limited  
to, Year 2000 Compliant), and the Target has no Liability (and there is no Basis
for any present or future action, suit, proceeding, hearing, investigation,     
charge, complaint, claim, or demand against any of them giving rise to any      
Liability including, but not limited to, Year 2000 Compliant) for replacement or
repair thereof or other damages in connection therewith, subject only to the    
reserve for product warranty claims set forth on the face of the Most Recent    
Balance Sheet (rather than in any notes thereto) as adjusted for the passage of 
time through the Closing Date in accordance with the past custom and practice of
the Target. Section 4(u) of the Disclosure Schedule includes copies of the      
standard terms and conditions of sale or lease for the Target (containing       
applicable guaranty, warranty, and indemnity provisions). No product            
manufactured, sold, leased, or delivered by the Target is subject to any        
guaranty, warranty, or other indemnity beyond such applicable standard terms and
conditions of sale or lease.                                                    

     (v) Product Liability. The Target has no Liability (and there is no Basis
for any present or future action, suit, proceeding, hearing, investigation,     
charge, complaint, claim, or demand against any of them giving rise to any      
Liability), whether arising out of contract, tort, strict liability or other,   
arising out of any injury to individuals or property as a result of the         
ownership, possession, or use of any product manufactured, sold, leased, or     
delivered by the Target.                                                        

(w) Employees. To the Knowledge of the Seller and the directors and 
officers (and employees with responsibility for employment matters) of the      
Target, no executive, key employee, or group of employees has any plans to      
terminate employment with the Target. The Target is not a party to or bound by  
any collective bargaining agreement, nor has any of them experienced any        
strikes, grievances, claims of unfair labor practices, or other collective      
bargaining disputes. Neither Target nor any of its employees has committed any  
unfair labor practice or unlawful or discriminatory act or course of conduct.   
Neither Seller nor the directors and officers (and employees with responsibility
for employment matters) of the Target has any Knowledge of any organizational   
effort presently being made or threatened by or on behalf of any labor union    
with respect to employees of the Target. The Target is not delinquent in any    
material respect in payments to any of its current or former officers,          
directors, employees, consultants or agents for any wages, salaries, commissions
or other direct compensation for any services performed by them or amounts      
required to be reimbursed to such officers, directors, employees, consultants or
agent. In the                                                                   

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event of termination of the employment of service of any such officers,         
directors, employees, consultants or agents for any wages, salaries, commissions
or other director compensation for any services performed by them or amounts    
required to be reimbursed to such officers, directors, employees, consultants or
agents, the Target will not be liable to any such Person for severance or       
continuation pay arising from any policies or practices of any of Seller or the 
Target in effect prior to Closing or any other facts or circumstances existing  
prior to Closing. Since January 1, 1997, there has not been any termination of  
employment of any officer, director or employee of any Target, except for those 
whose names, title and position appear on the Disclosure Statement. If required 
under the Workers Adjustment and Restraining Notification Act or other          
applicable state law regulating plant closing or mass layoffs, the Target has   
timely caused there to be filed or distributed, as appropriate, all required    
filings and notices with respect to employment losses occurring through the     
Closing Date. The Target has complied and is currently complying in all material
respects, in respect of all its employees, with all Applicable Laws respecting  
employment and employment practices, including, without limitation, payment of  
wages, discrimination, workplace safety and equal employment opportunity ("Labor
Laws"). There is no charge or complaint by or against the Target which is       
pending or, to Seller's Knowledge, threatened in writing, before the National   
Labor Relations Board, the Equal Employment Opportunity Commission, the U.S.    
Department of Labor, or any other federal, state or local governmental authority
or court relating to labor or employment matters or any Labor Laws. To Seller's 
Knowledge, there is no arbitration, suit or other proceeding or claim, actually 
pending or threatening in writing relating to any claim against the Target or   
against any current or former director or officer or managing agent or other    
representative of the Target, alleging, in whole or in part, wrongful employment
termination or other wrongful act or omission or breach of contract or covenant 
or any tort claim with respect to employment, employment termination, or        
post-employment conduct purportedly injuring any employee or former employee of 
the Target nor are there facts in existence that are reasonably likely to result
in any such claim being asserted. The Target is in possession of completed      
federal immigration Form I-9's with respect to its employees to the extent so   
required by Applicable Law. The Target has not classified any individuals as    
"independent contractor."                                                       

(x) Employee Benefits.                                              

       (i) Section 4(x) of the Disclosure Schedule lists each Employee
Benefit Plan that each Target maintains or to which the Target      
contributes.                                                        

                (A) Each such Employee Benefit Plan (and each related trust,
         insurance contract, or fund) complies in form and in operation in
         all respects with the applicable requirements of ERISA, the Code,
and other applicable laws.                              

                  (B) All required reports and descriptions (including Form 5500
          Annual Reports, Summary Annual Reports, PBGC-1's, and Summary Plan
       Descriptions) have been filed or distributed appropriately with
            respect to each such Employee Benefit Plan. The requirements of Part
6                                                       

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        of Subtitle B of Title 1 of ERISA and of Code Section 4980B have
            been met with respect to each such Employee Benefit Plan which is an
Employee Welfare Benefit Plan.                          

               (C) All contributions (including all employer contributions
            and employee salary reduction contributions) which are due have been
            paid to each such Employee Benefit Plan which is an Employee Pension
      Benefit Plan and all contributions for any period ending on or
            before the Closing Date which are not yet due have been paid to each
        such Employee Pension Benefit Plan or accrued on the most recent
            balance sheet. All premiums or other payments for all periods ending
         on or before the Closing Date have been paid with respect to each
       such Employee Benefit Plan which is an Employee Welfare Benefit
Plan.                                                   

            (D) Each such Employee Benefit Plan which is an Employee
         Pension Benefit Plan meets the requirements of a "qualified plan"
       under Code Section 401(a) and has received, within the last two
         years, a favorable determination letter from the Internal Revenue
Service.                                                

           (E) The market value of assets under each such Employee
          Benefit Plan which is an Employee Pension Benefit Plan (other than
          any Multiemployer Plan) equals or exceeds the present value of all
            vested and nonvested Liabilities thereunder determined in accordance
    with PBGC methods, factors, and assumptions applicable to an
 Employee Pension Benefit Plan terminating on the date for
determination.                                          

                  (F) The Seller has delivered to the Buyer correct and complete
            copies of the plan documents and summary plan descriptions, the most
      recent determination letter received from the Internal Revenue
         Service, the most recent Form 5500 Annual Report, and all related
           trust agreements, insurance contracts, and other funding agreements
which implement each such Employee Benefit Plan.        

          (ii) With respect to each Employee Benefit Plan that either Target
and the Controlled Group of Corporations which includes the Targets 
      maintains or ever has maintained or to which any of them contributes, ever
has contributed, or ever has been required to contribute:           

                  (A) No such Employee Benefit Plan which is in Employee Pension
            Benefit Plan (other than any Multiemployer Plan) has been completely
            or partially terminated or been the subject of a Reportable Event as
        to which notices would be required to be filed with the PBGC. No
     proceeding by the PBGC to terminate any such Employee Pension
            Benefit Plan (other than any Multiemployer Plan) has been instituted
         or, to the Knowledge of the Seller and the directors and officers
            (and employees with responsibility for employee benefits matters) of
the Target, threatened.                                 

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                  (B) There have been no Prohibited Transactions with respect to
          any such Employee Benefit Plan. No Fiduciary has any Liability for
         breach of fiduciary duty or any other failure to act or comply in
         connection with the administration or investment of the assets of
    any such Employee Benefit Plan. No action, suit, proceeding,
           hearing, or investigation with respect to the administration or the
         investment of the assets of any such Employee Benefit Plan (other
            than routine claims for benefits) is pending or, to the Knowledge of
      the Seller and officers (and employees with responsibility for
         employee benefits matters) of the Target, threatened. Neither the
 Seller nor the directors and officers (and employees with
           responsibility for employee benefits matters) of the Target has any
     Knowledge of any Basis for any such action, suit, proceeding,
hearing, or investigation.                              

               (C) The Target has not incurred, and neither the Seller nor
         the directors and officers (and employees with responsibility for
         employee benefits matters) of the Target has any reason to expect
         that the Target will incur, any Liability to the PBGC (other than
   PBGC premium payments) or otherwise under Title IV of ERISA
           (including any withdrawal Liability) or under the Code with respect
      to any such Employee Benefit Plan which is an Employee Pension
Benefit Plan.                                           

          (iii) Neither Target nor the other members of the Controlled Group
of Corporations that includes the Target contributes to, ever has   
contributed to, or ever has been required to contribute to any      
    Multiemployer Plan or has any Liability (including withdrawal Liability)
under any Multiemployer Plan.                                       

   (iv) The Target does not maintain or ever has maintained or
      contributes, ever has contributed, or ever has been required to contribute
   to any Employee Welfare Benefit Plan providing medical, health, or life
     insurance or other welfare-type benefits for current or future retired or
   terminated employees, their spouses, or their dependents (other than in
accordance with Code Section 4980B).                                

    (y) Guaranties. The Target is not a guarantor or otherwise is liable for
any Liability or obligation (including indebtedness) of any other Person.       

(z) Environment, Health, and Safety.                                

        (i) The Target and its predecessors and Affiliates have complied
 with all Environmental, Health, and Safety Laws, and no action, suit,
    proceeding, hearing, investigation, charge, complaint, claim, demand, or
notice has been filed or commenced against any of them alleging any 
  failure so to comply. Without limiting the generality of the preceding
     sentence, the Target and its predecessors and Affiliates has obtained and
     been Materially in compliance with all of the terms and conditions of all
     permits, licenses, and other authorizations which are required under, and
has complied with all other limitations, restrictions, conditions,  
standards, prohibitions, requirements, obligations,                 

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schedules, and timetables which are contained in, all Environmental,
Health, and Safety Laws.                                            

(ii) The Target has no Liability (and the Target and its
 predecessors and Affiliates has handled or disposed of any substance,
     arranged for the disposal of any substance, exposed any employee or other
    individual to any substance or condition, or owned or leased or operated
      any property or facility in any manner (including, but not limited to, the
     existence of underground storage tanks) that could form the Basis for any
present or future action, suit, proceeding, hearing, investigation, 
     charge, complaint, claim, or demand against the Target giving rise to any
     Liability) for damage to any site, location, or body of water (surface or
 subsurface), for any illness of or personal injury to any employee or
    other individual, or for any reason under any Environmental, Health, and
Safety Law.                                                         

      (iii) All properties and equipment used in the business of the
  Target and its predecessors and Affiliates have been free of asbestos,
     PCB's, methylene chloride, trichloroethylene, 1,2-trans-dichloroethylene,
dioxins, dibenzofurans, and Extremely Hazardous Substances.         

 (aa) Disclosure. The representations and warranties contained in this
Section 4 do not contain any untrue statement of a material fact or omit to     
state any material fact necessary in order to make the statements and           
information contained in this Section 4 not misleading.                         

      5. Pre-Closing Covenants. The Parties agree as follows with respect to the
period between the execution of this Agreement and the Closing. With respect to 
Seller and the Target, each of Seller and the Target, jointly and severally     
agrees as follows, provided however, that after the Closing, the Target shall   
not have any liability to any Party (including Seller for contribution in the   
event Seller is obligated to indemnify or pay damages to any party as a result  
of such breach), and Seller shall remain liable for any breach thereof by Seller
or the Target.                                                                  

    (a) General. Each of the Parties will use its reasonable best efforts to
take all action and to do all things necessary, proper, or advisable in order to
consummate and make effective the transactions contemplated by this Agreement   
(including satisfaction, but not waiver, of the closing conditions set forth in 
Section 7 below).                                                               

      (b) Notices and Consents. Seller will cause the Target to give any notices
to third parties, and will cause the Target to use its reasonable best efforts  
to obtain any third party consents, that the Buyer reasonably may request in    
connection with the matters referred to in Section 4(c) above. Each of the      
Parties will (and the Seller will cause the Target to) give any notices to, make
any filings with, and use its reasonable best efforts to obtain any             
authorizations, consents, and approvals of governments and governmental agencies
in connection with the matters referred to in Section 3(a)(ii), Section         
3(b)(ii), and Section 4(c) above.                                               

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    (c) Operation of Business. Seller will not cause or permit the Target to
engage in any practice, take any action, or enter into any transaction outside  
the Ordinary Course of Business or which would result in a breach of any        
representation and warranty made herein. Without limiting the generality of the 
foregoing, Seller will not cause or permit the Target to (i) declare, set aside,
or pay any dividend or make any distribution with respect to its capital stock  
or redeem, purchase, or otherwise acquire any of its capital stock, or (ii)     
otherwise engage in any practice, take any action, or enter into any transaction
of the sort described in Section 4(h) above.                                    

      (d) Preservation of Business. The Seller will cause the Target to keep its
business and properties substantially intact, including its present operations, 
physical facilities, working conditions, and relationships with lessors,        
licensors, suppliers, customers, and employees.                                 

  (e) Full Access. The Seller will permit, and the Seller will cause the
Target to permit, representatives of the Buyer to have full access at all       
reasonable times, and in a manner so as not to interfere with the normal        
business operations of the Target, to all premises, properties, personnel,      
books, records (including Tax records), contracts, and documents of or          
pertaining to the Target.                                                       

     (f) Notice of Developments. The Seller will give prompt written notice to
the Buyer of any material adverse development causing a breach of any of the    
representations and warranties in Section 4 above. Each Party will give prompt  
written notice to the others of any material adverse development causing a      
breach of any of his or its own representations and warranties in Section 3     
above. No disclosure by any Party pursuant to this Section 5(f), however,       
shall be deemed to amend or supplement the Disclosure Schedule or to prevent or 
cure any misrepresentation, breach of warranty, or breach of covenant.          

     (g) Exclusivity. Neither Bitwise nor the Target will (and the Seller will
not cause or permit either Target to) (i) solicit, initiate, or encourage the   
submission of any proposal or offer from any Person relating to the acquisition 
of any capital stock or other voting securities, or any substantial portion of  
the assets of the Target (including any acquisition structured as a merger,     
consolidation, or share exchange) or (ii) participate in any discussions or     
negotiations regarding, furnish any information with respect to, assist or      
participate in, or facilitate in any other manner any effort or attempt by any  
Person to do or seek any of the foregoing. Seller will not vote its Target      
Shares in favor of any such acquisition structured as a merger, consolidation,  
or share exchange. The Seller will notify the Buyer immediately if any Person   
makes any proposal, offer, inquiry, or contact with respect to any of the       
foregoing.                                                                      

(h) Seller will deliver a current Certificate of Occupancy from the 
municipality or jurisdiction for each parcel of Real Property in which the      
Target conducts its business.                                                   

(i) Buyer has delivered to Seller reasonable evidence that Buyer has
obtained the financing necessary to consummate this transaction. Buyer will keep
Seller                                                                          

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advised of any material changes in the financing arrangements which effect its  
ability to deliver the Purchase Price and complete the transactions contemplated
herein.                                                                         

   6. Post-Closing Covenants. The Parties agree as follows with respect to
the period following the Closing.                                               

    (a) General. In case at any time after the Closing any further action is
necessary to carry out the purposes of this Agreement, each of the Parties will 
take such further action (including the execution and delivery of such further  
instruments and documents) as any other Party reasonably may request, all at the
sole cost and expense of the requesting Party (unless the requesting Party is   
entitled to indemnification therefor under Section 8 below). The Seller         
acknowledges and agrees that from and after the Closing the Buyer will be       
entitled to possession of all documents, books, records (including Tax records),
agreements, and financial data of any sort relating to the Target.              

      (b) Litigation Support. In the event and for so long as any Party actively
is contesting or defending against any action, suit, proceeding, hearing,       
investigation, charge, complaint, claim, or demand in connection with (i) any   
transaction contemplated under this Agreement or (ii) any fact, situation,      
circumstance, status, condition, activity, practice, plan, occurrence, event,   
incident, action, failure to act, or transaction on or prior to the Closing Date
involving any of the Target and its Subsidiaries, each of the other Parties will
cooperate with him or it and his or its counsel in the contest or defense, make 
available their personnel, and provide such testimony and access to their books 
and records as shall be necessary in connection with the contest or defense, all
at the sole cost and expense of the contesting or defending Party (unless the   
contesting or defending Party is entitled to indemnification therefor under     
Section 8 below).                                                               

(c) Transition. Seller will not take any action that is designed or 
intended to have the effect of discouraging any lessor, licensor, customer,     
supplier, or other business associate of the Target from maintaining the same   
business relationships with the Target after the Closing as it maintained with  
the Target prior to the Closing. Seller will refer all customer inquiries       
relating to the businesses of both Targets to the Buyer from and after the      
Closing. Buyer acknowledges and agrees that Seller may need assistance and      
information from Target's comptroller or accountants for the tax, audit and     
financial reporting purposes, etc. and will provide such information.           

      (d) Confidentiality. Seller and Buyer each agree to treat and hold as such
all of the Confidential Information, refrain from using any of the Confidential 
Information except in connection with this Agreement, and deliver promptly to   
the Buyer or destroy, at the request and option of the Buyer, all tangible      
embodiments (including magnetic disks and all copies) of the Confidential       
Information which are in its possession. In the event that Seller is requested  
or required (by oral question or request for information or documents in any    
legal proceeding, interrogatory, subpoena, civil investigative demand, or       
similar process) to disclose any Confidential Information, Seller will notify   
the Buyer promptly of the request or requirement so that the Buyer              

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may seek an appropriate protective order or waive compliance with the provisions
of this Section 6(d). If, in the absence of a protective order or the receipt   
of a waiver hereunder, Seller is, on the advice of counsel, compelled to        
disclose any Confidential Information to any tribunal or else stand liable for  
contempt, Seller may disclose the Confidential Information to the tribunal;     
provided, however, that the Seller shall use its reasonable best efforts to     
obtain, at the reasonable request of the Buyer, an order or other assurance that
confidential treatment will be accorded to such portion of the Confidential     
Information required to be disclosed as the Buyer shall designate. The foregoing
provisions shall not apply to any Confidential Information which is generally   
available to the public immediately prior to the time of disclosure.            

   (e) Covenant Not to Compete. For a period of three years from and after
the Closing Date, Bitwise and its Affiliates will not engage directly or        
indirectly in any business that the Target conducts as of the Closing Date in   
any geographic area in which the Target conducts that business as of the Closing
Date; provided, however, (i) that no owner of less than 3% of the outstanding   
stock of any publicly traded corporation shall be deemed to engage solely by    
reason thereof in any of its businesses and, (ii) the Buyer acknowledges that   
Bitwise and/or its Affiliates are engaged in the distribution, sale and resale  
of computer related software, hardware and imaging products and with respect to 
its DocStar business and such continued activities or any expansion thereof     
(including any acquisition of or merger with entities which may sell computer   
hardware or software or imaging products except there shall be no acquisition or
merger when the primary effect of the acquisition or merger is to compete with  
SST's business as of Closing in the states of Maryland, Virginia, District of   
Columbia, Pennsylvania, Delaware, West Virginia, North Carolina or New Jersey)  
shall not be deemed a violation of this paragraph. If the final judgment of a   
court of competent jurisdiction declares that any term or provision of this     
Section 6(e) is invalid or unenforceable, the Parties agree that the court      
making the determination of invalidity or unenforceability shall have the power 
to reduce the scope, duration, or area of the term or provision, to delete      
specific words or phrases, or to replace any invalid or unenforceable term or   
provision with a term or provision that is valid and enforceable and that comes 
closest to expressing the intention of the invalid or unenforceable term or     
provision, and this Agreement shall be enforceable as so modified after the     
expiration of the time within which the judgment may be appealed.               

7. Conditions to Obligation to Close.                               

     (a) Conditions to Obligation of the Buyer. The obligation of the Buyer to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:                         

        (i) the representations and warranties set forth in Section 3(a)
     and Section 4 above shall be true and correct in all material respects at
and as of the Closing Date;                                         

           (ii) the Seller shall have performed and complied with all of their
covenants hereunder in all material respects through the Closing;   

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            (iii) the Target shall have procured all of the third party consents
specified in Section 5(b) above;                                    

          (iv) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any  
   federal, state, local, or foreign jurisdiction or before any arbitrator
  wherein an unfavorable injunction, judgment, order, decree, ruling, or
charge would (A) prevent consummation of any of the transactions    
contemplated by this Agreement, (B) cause any of the transactions   
      contemplated by this Agreement to be rescinded following consummation, (C)
   affect adversely the right of the Buyer to own the Target Shares and to
   control the Targets, or (D) affect adversely the right of the Target to
 own its assets and to operate its businesses (and no such injunction,
judgment, order, decree, ruling, or charge shall be in effect);     

         (v) the Seller shall have delivered to the Buyer a certificate to
the effect that each of the conditions specified above in Section   
7(a)(i)-(iv) is satisfied in all respects;                          

         (vi) the Buyer shall have received from counsel to the Seller and
 the Target an opinion in form and substance as set forth in Exhibit D
      attached hereto, addressed to the Buyer, and dated as of the Closing Date;

          (vii) the Buyer shall have received the resignations, effective as
  of the Closing, of each director and officer of each Target other than
those whom the Buyer shall have specified in writing at least five  
business days prior to the Closing;                                 

    (viii) the Buyer shall have obtained on terms and conditions
   reasonably satisfactory to it all of the financing it needs in order to
consummate the transactions contemplated hereby and fund the working
capital requirements of the Target after the Closing; and           

            (ix) all actions to be taken by Bitwise and the Target in connection
with consummation of the transactions contemplated hereby and all   
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably      
satisfactory in form and substance to the Buyer.                    

The Buyer may waive any condition specified in this Section 7(a) if it executes 
a writing so stating at or prior to the Closing.                                

    (b) Conditions to Obligation of the Seller. The obligation of the Seller
to consummate the transactions to be performed by it in connection with the     
Closing is subject to satisfaction of the following conditions:                 

        (i) the representations and warranties set forth in Section 3(b)
     above shall be true and correct in all material respects at and as of the
Closing Date;                                                       

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        (ii) the Buyer shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;   

           (iii) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any  
   federal, state, local, or foreign jurisdiction or before any arbitrator
  wherein an unfavorable injunction, judgment, order, decree, ruling, or
charge would (A) prevent consummation of any of the transactions    
contemplated by this Agreement or (B) cause any of the transactions 
      contemplated by this Agreement to be rescinded following consummation (and
      no such injunction, judgment, order, decree, ruling, or charge shall be in
effect);                                                            

          (iv) the Buyer shall have delivered to the Seller a certificate to
the effect that each of the conditions specified above in Section   
7(b)(i)-(iii) is satisfied in all respects;                         

           (v) the Seller shall have received the approval of its shareholders
      (as may be required by Delaware General Corporate Law) of the transaction;

    (vi) all actions to be taken by the Buyer in connection with
      consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the   
    transactions contemplated hereby will be reasonably satisfactory in form
and substance to the Seller; and                                    

            (vii) by Closing satisfactory arrangements with NationsBank (for its
   financing with Target) so that bank releases its liens on the assets of
the Target and Bitwise if any and any guarantees of Bitwise.        

The Seller may waive any condition specified in this Section 7(b) if they       
execute a writing so stating at or prior to the Closing.                        

8. Remedies for Breaches of This Agreement.                         

(a) Survival of Representations and Warranties.                     

All of the representations and warranties of the Parties contained in this      
Agreement shall survive the Closing hereunder (even if the damaged Party knew or
had reason to know of any misrepresentation or breach of warranty at the time of
Closing) and continue in full force and effect for a period of three (3) years  
following Closing.                                                              

(b) Indemnification Provisions for Benefit of the Buyer.            

        (i) In the event either Seller or the Target breaches (or in the
    event any third party alleges facts that, if true, would mean the Seller
   or the Target has breached) any of its representations, warranties, and
covenants contained herein (other than the covenants in Section 2(a)
above and the representations and                                   

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warranties in Section 3(a) above), and, if there is an applicable   
   survival period pursuant to Section 8(a) above, provided that the Buyer
    makes a written claim for indemnification against the Seller pursuant to
   Section 11(g) below within such survival period, then the Seller agrees
to indemnity the Buyer from and against the entirety of any Adverse 
     Consequences the Buyer may suffer through and after the date of the claim
 for indemnification (including any Adverse Consequences the Buyer may
   suffer after the end of any applicable survival period) resulting from,
      arising out of, relating to, in the nature of, or caused by the breach (or
      the alleged breach); provided, however, that the Seller shall not have any
obligation to indemnify the Buyer from and against any Adverse      
   Consequences resulting from, arising out of, relating to, in the nature
    of, or caused by the breach (or alleged breach) of any representation or
warranty of the Seller contained in Section 4(a)-(j) and Section    
4(l)-(aa) above until the Buyer has suffered Adverse Consequences by
    reason of all such breaches (or alleged breaches) in excess of a $25,000
    aggregate threshold; provided however, that upon the Closing, the Target
      shall have no liability to any Party (including Seller for contribution in
     the event Seller is obligated to indemnify or pay damages to any party as
   a result of such breach), and Seller shall remain liable for any breach
thereof by Seller or the Target.                                    

         (ii) In the event either Seller or the Target breaches (or in the
    event any third party alleges facts that, if true, would mean the Seller
  has breached) any of its covenants in Section 2(a) above or any of its
     representations and warranties in Section 3(a) above, and, if there is an
    applicable survival period pursuant to Section 8(a) above, provided that
  the Buyer makes a written claim for indemnification against the Seller
 pursuant to Section 11(g) below within such survival period, then the
     Seller agrees to indemnify the Buyer from and against the entirety of any
   Adverse Consequences the Buyer may suffer through and after the date of
 the claim for indemnification (including any Adverse Consequences the
Buyer may suffer after the end of any applicable survival period)   
    resulting from, arising out of, relating to, in the nature of, or caused
  by the breach (or the alleged breach); provided however, that upon the
      Closing, the Target shall have no liability to any Party (including Seller
 for contribution in the event Seller is obligated to indemnify or pay
     damages to any party as a result of such breach), and Seller shall remain
liable for any breach thereof by Seller or the Target.              

   Notwithstanding the foregoing, and without limiting the other rights or
remedies Buyer may have hereunder, Buyer shall be entitled, to recoup or set off
any amounts to which Buyer may be entitled under this Section 8 against any     
payments of Other Consideration as described in Exhibit B in accordance with    
Section 8(f) below.                                                             

      (c) Indemnification Provisions for Benefit of the Seller. In the event the
Buyer breaches (or in the event any third party alleges facts that, if true,    
would mean the Buyer has breached) any of its representations, warranties, and  
covenants contained herein, and, if there is an applicable survival period      
pursuant to Section 8(a) above, provided that the Seller makes a written claim  
for indemnification against the Buyer pursuant to Section 11(g) below within    
such survival period, then the Buyer agrees to indemnify each of                

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the Seller from and against the entirety of any Adverse Consequences the Seller 
may suffer through and after the date of the claim for indemnification          
(including any Adverse Consequences the Seller may suffer after the end of any  
applicable survival period) resulting from, arising out of, relating to, in the 
nature of, or caused by the breach (or the alleged breach).                     

(d) Matters Involving Third Parties.                                

       (i) If any third party shall notify any Party (the "Indemnified
     Party") with respect to any matter (a "Third Party Claim") which may give
rise to a claim for indemnification against any other Party (the    
  "Indemnifying Party") under this Section 8, then the Indemnified Party
shall promptly notify each Indemnifying Party thereof in writing;   
    provided, however, that no delay on the part of the Indemnified Party in
      notifying any indemnifying Party shall relieve the Indemnifying Party from
any obligation hereunder unless (and then solely to the extent) the 
Indemnifying Party thereby is prejudiced.                           

     (ii) Any Indemnifying Party will have the right to defend the
      Indemnified Party against the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party so long as (A) the 
  Indemnifying Party notifies the Indemnified Party in writing within 15
      days after the Indemnified Party has given notice of the Third Party Claim
     that the Indemnifying Party will indemnify the Indemnified Party from and
      against the entirety of any Adverse Consequences the Indemnified Party may
    suffer resulting from, arising out of, relating to, in the nature of, or
    caused by the Third Party Claim, (B) the Indemnifying Party provides the
    Indemnified Party with evidence reasonably acceptable to the Indemnified
  Party that the Indemnifying Party will have the financial resources to
defend against the Third Party Claim and fulfill its indemnification
obligations hereunder, (C) the Third Party Claim involves only money
  damages and does not seek an injunction or other equitable relief, (D)
  settlement of, or an adverse judgment with respect to, the Third Party
     Claim is not, in the good faith judgment of the Indemnified Party, likely
    to establish a precedential custom or practice materially adverse to the
continuing business interests of the Indemnified Party, and (E) the 
     Indemnifying Party conducts the defense of the Third Party Claim actively
and diligently.                                                     

            (iii) So long as the Indemnifying Party is conducting the defense of
    the Third Party Claim in accordance with Section 8(d)(ii) above, (A) the
 Indemnified Party may retain separate co-counsel at its sole cost and
    expense and participate in the defense of the Third Party Claim, (B) the
    Indemnified Party will not consent to the entry of any judgment or enter
 into any settlement with respect to the Third Party Claim without the
prior written consent of the Indemnifying Party (not to be withheld 
 unreasonably), and (C) the Indemnifying Party will not consent to the
  entry of any judgment or enter into any settlement with respect to the
  Third Party Claim without the prior written consent of the Indemnified
Party (not to be withheld unreasonably).                            

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         (iv) In the event any of the conditions in Section 8(d)(ii) above
    is or becomes unsatisfied, however, (A) the Indemnified Party may defend
against, and consent to the entry of any judgment or enter into any 
settlement with respect to, the Third Party Claim in any manner it  
reasonably may deem appropriate (and the Indemnified Party need not 
consult with, or obtain any consent from, any Indemnifying Party in 
  connection therewith), (B) the Indemnifying Parties will reimburse the
  Indemnified Party promptly and periodically for the costs of defending
   against the Third Party Claim (including reasonable attorneys' fees and
   expenses), and (C) the Indemnifying Parties will remain responsible for
     any Adverse Consequences the Indemnified Party may suffer resulting from,
 arising out of, relating to, in the nature of, or caused by the Third
Party Claim to the fullest extent provided in this Section 8.       

   (e) Determination of Adverse Consequences. All indemnification payments
under this Section 8 shall be deemed adjustments to the Purchase Price.         

(f) Recoupment and/or Set Off. The Buyer shall have the option of   
recouping all or any part of any Adverse Consequences it may suffer (in lieu of 
seeking any indemnification to which it is entitled under this Section 8) by    
notifying the Seller in writing that the Buyer is reducing any payment of       
Additional Consideration as described in Exhibit B hereto.                      

     The notice delivered to Seller hereunder shall set forth in detail claims
for which buyer seeks recoupment and/or set off. Seller shall have fifteen (15) 
business days to dispute Buyer's Notice in writing. The parties shall use best  
effort to resolve disputes within thirty (30) days thereafter. In the event the 
Parties are unable to resolve the dispute, and the dispute involves accounting  
issues or is solely a matter of determining a monetary valuation of any claim,  
the parties agree to submit the dispute to the offices of Coopers & Lybrand     
located in Albany, New York and Washington, D.C. All other disputes will be     
submitted to binding arbitration before the American Arbitration Association    
according to the rules thereof.                                                 

(g) Other Indemnification Provisions. The foregoing indemnification 
provisions are in addition to, and not in derogation of, any statutory,         
equitable, or common law remedy any Party may have for breach of representation,
warranty, or covenant. The Seller hereby agrees that he or it will not make any 
claim for indemnification against either Target by reason of the fact that he or
it was a director, officer, employee, or agent of any such entity or was serving
at the request of any such entity as a partner, trustee, director, officer,     
employee, or agent of another entity (whether such claim is for judgments,      
damages, penalties, fines, costs, amounts paid in settlement, losses, expenses, 
or otherwise and whether such claim is pursuant to any statute, charter         
document, bylaw, agreement, or otherwise) with respect to any action, suit,     
proceeding, complaint, claim, or demand brought by the Buyer against such Seller
(whether such action, suit, proceeding, complaint, claim, or demand is pursuant 
to this Agreement, applicable law, or otherwise).                               

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8A. Tax Matters.                                                    

     (a) Tax Sharing Agreements. Any Tax Sharing Agreement between Bitwise and
the Target is terminated as of 5:00 p.m. on the Closing Date and will have no   
further effect for any taxable year (whether the current year, a future year, or
a past year).                                                                   

      (b) Taxes of Other Persons. Bitwise agrees to indemnify the Buyer from and
against the entirety of any Adverse Consequences the Buyer may suffer resulting 
from, arising out of, relating to, in the nature of, or caused by any Liability 
of the Target for Taxes of any Person other than the Target arising out of      
activities prior to the Closing (i) under Reg. Section 1.1502-6 (or any similar 
provision of state, local or foreign law), (ii) as a transferee or successor,   
(iii) by contract, or (iv) otherwise.                                           

      (c) Returns for Periods Through the Closing Date. Bitwise will include the
income of the Target (including any deferred income triggered into income by    
Reg. Section 1.1502-13 and Reg. Section 1.1502-14 and any excess loss accounts  
taken into income under Reg. Section 1.1502-19) on the Bitwise consolidated     
federal income Tax Returns for all periods through the Closing Date and pay any 
federal income taxes attributable to such income. The Target will furnish Tax   
information to Bitwise for inclusion in Bitwise's federal consolidated income   
Tax Return for the period which includes the Closing Date in accordance with    
Target's past custom and practice. Bitwise will allow Buyer to review and       
comments upon such Tax Returns (including any amended returns) to the extent    
that they relate to the Target. Bitwise will take no position on such returns   
that relate to the Target that would adversely affect the Target after the      
Closing Date. The income of the Target will be apportioned to the period up to  
and including the Closing Date and the period after the Closing Date by closing 
the books of the Target as of the end of the Closing Date. Sales invoiced as    
shipped through the Closing Date and expenses incurred through the Closing Date 
will be apportioned to Bitwise. The Buyer will cause the Target to provide the  
necessary information (financial and otherwise) to the Seller as promptly as    
possible following Closing in order for the Seller to prepare and complete the  
Tax Returns and financial reports. Seller reserves the right to review and      
request changes to interim financial statements of the Target prepared after    
Closing.                                                                        

    (d) Audits. Bitwise will allow the Target and its counsel to participate
in any audits of Bitwise's consolidated federal income Tax Returns to the extent
that such returns and audits relate to the Target. Bitwise will not settle any  
such audit in a manner which would adversely affect the Target after the Closing
Date without the prior written consent of the Buyer, which consent shall not    
unreasonably be withheld.                                                       

    (e) Carrybacks. Bitwise will immediately pay to the Buyer any Tax refund
(or reduction in Tax liability) resulting from a carryback of a postacquisition 
Tax attribute of the Target into the Bitwise consolidated Tax return, when such 
refund or reduction is realized by the Bitwise group. Bitwise will cooperate    
with the Target in obtaining such refunds (or reduction in Tax liability),      
including through the filing of amended Tax                                     

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returns or refund claims. The Buyer agrees to indemnify Bitwise for any Taxes   
resulting from the disallowance of such postacquisition Tax attribute on audit  
or otherwise. In the event the Buyer files the election under Section 338(h)10, 
all carrybacks and carryovers will remain the property of the Seller.           

 (f) Retention of Carryovers. Bitwise will not elect to retain any net
operating loss carryovers or capital loss carryovers of the Target under Reg.   
Section 1.1502-20(g). In the event the Buyer files the election under Section   
338(h)10, all carrybacks and carryovers will remain the property of the Seller. 

  9. Allocation of Responsibility for Certain Tax Matters. The following
provisions shall govern the allocation of responsibility as between Buyer and   
Seller for certain tax matters following the Closing Date:                      

 (a) Section 338(h)(10) Election. Seller agrees, if so directed by the
Buyer, to join with Buyer in making an election under Section 338(h)(10) of the 
Code (and any corresponding elections under state, local, or foreign tax law)   
(collectively, a "Section 338(h)(10) Election") with respect to the purchase and
sale of the stock of the Target hereunder. The parties, in accordance herewith, 
will pay any Tax, including any liability of the Target for Tax resulting from  
the application to it of Treasury Regulation Section 1.338(h)(10)-1(f)(5),      
attributable to the making of the Section 338(h)(10) Election and will indemnify
the Buyer and Target against any Adverse Consequences arising out of any failure
to pay such Tax. Seller will also pay any state, local, or foreign Tax (and     
indemnify the Buyer and Target against any Adverse Consequences arising out of  
any failure to pay such Tax) attributable to an election under state, local or  
foreign law similar to the election available under Section 338(g) of the Code  
(or which results from the making of an election under Section 338(g) of the    
Code) with respect to the purchase and sale of the stock of the Target          
hereunder. Notwithstanding anything in this paragraph 9(a) to the contrary, it  
is agreed by the parties, that if the election under Section 338(h)(10) of the  
Code would create an adverse tax consequence to Bitwise (the "Adverse Tax       
Consequences"), the parties agree to adjust the figures in such a way that the  
Adverse Tax Consequences will be shared equally by the Buyer and Bitwise;       
provided, however, Bitwise shall not bear any obligation in excess of $33,500.  
In the event that the Adverse Tax Consequences to Bitwise (before sharing with  
Buyer) caused by the Section 338(h)(10) election exceeds $67,000, then Buyer may
choose either not to file the election under Section 338(h)(10) or pay in       
addition the amount of the Adverse Tax Consequences in excess of $67,000. Both  
parties shall approve the 338(h)(10) election form prior to filing. The form    
will not be filed for at least ninety (90) days after Closing. The form will be 
filed thereafter unless Buyer is provided reasonable information by Seller      
relating to the calculation of the Adverse Tax Consequences.                    

     (b) Tax Periods Ending on or Before the Closing Date. Buyer shall prepare
or cause to be prepared and file or cause to be filed all Tax Returns for the   
Target for all periods ending on or prior to the Closing Date which are filed   
after the Closing Date other than income Tax Returns with respect to periods for
which a consolidated, unitary or combined income Tax Return of Bitwise will     
include the operations of each                                                  

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Target. Buyer shall permit the Seller to review and comment on each such Tax    
Return described in the preceding sentence prior to filing. Seller shall        
reimburse Buyer for Taxes of the Target with respect to such periods within     
fifteen (15) days after payment by Buyer or the Target and its Subsidiaries of  
such Taxes to the extent such Taxes are not reflected in the reserve for Tax    
Liability (rather than any reserve for deferred Taxes established to reflect    
timing differences between book and Tax income) shown on the face of the Closing
Balance Sheet.                                                                  

     (c) Tax Periods Beginning Before and Ending After the Closing Date. Buyer
shall prepare or cause to be prepared and file or cause to be filed any Tax     
Returns of the Target for Tax periods which begin before the Closing Date and   
end after the Closing Date. Seller shall pay to Buyer within fifteen (15) days  
after the date on which Taxes are paid with respect to such periods an amount   
equal to the portion of such Taxes which relates to the portion of such Taxable 
period ending on the Closing Date to the extent such Taxes are not reflected in 
the reserve for Tax Liability (rather than any reserve for deferred Taxes       
established to reflect timing differences between book and Tax income) shown on 
the face of the Closing Balance Sheet. For purposes of this Section, in the case
of any Taxes that are imposed on a periodic basis and are payable for a Taxable 
period that includes (but does not end on) the Closing Date, the portion of such
Tax which relates to the portion of such Taxable period ending on the Closing   
Date shall (x) in the case of any Taxes other than Taxes based upon or related  
to income or receipts, be deemed to be the amount of such Tax for the entire    
Taxable period multiplied by a fraction the numerator of which is the number of 
days in the Taxable period ending on the Closing Date and the denominator of    
which is the number of days in the entire Taxable period, and (y) in the case of
any Tax based upon or related to income or receipts be deemed equal to the      
amount which would be payable if the relevant Taxable period ended on the       
Closing Date. Any credits relating to a Taxable period that begins before and   
ends after the Closing Date shall be taken into account as though the relevant  
Taxable period ended on the Closing Date. All determinations necessary to give  
effect to the foregoing allocations shall be made in a manner consistent with   
prior practice of the Target. To the extent such additional taxes are the result
of a Section 338 (h)(10) election, the Seller will have no responsibility for   
such additional tax except as set forth in Section 9(a) hereof.                 

(d) Cooperation on Tax Matters.                                     

          (i) Buyer and the Target and Bitwise shall cooperate fully, as and
     to the extent reasonably requested by the other party, in connection with
the filing of Tax Returns pursuant to this Section and any audit,   
  litigation or other proceeding with respect to Taxes. Such cooperation
shall include the retention and (upon the other party's request) the
     provision of records and information which are reasonably relevant to any
     such audit, litigation or other proceeding and making employees available
on a mutually convenient basis to provide additional information and
  explanation of any material provided hereunder. The Target and Bitwise
 agree (A) to retain all books and records with respect to Tax matters
   pertinent to the Target relating to any taxable period beginning before
     the Closing Date until the expiration of the statute of limitations (and,
      to the extent notified by Buyer or Bitwise, any extensions thereof) of the
respective                                                          

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    taxable periods, and to abide by all record retention agreements entered
      into with any taxing authority, and (B) to give the other party reasonable
   written notice prior to transferring, destroying or discarding any such
books and records and, if the other party so requests, the Target or
Bitwise, as the case may be, shall allow the other party to take    
possession of such books and records.                               

        (ii) Buyer and Bitwise further agree, upon request, to use their
best efforts to obtain any certificate or other document from any   
governmental authority or any other Person as may be necessary to   
   mitigate, reduce or eliminate any Tax that could be imposed (including,
      but not limited to, with respect to the transactions contemplated hereby).

           (iii) Buyer and Bitwise further agree, upon request, to provide the
 other party with all information that either party may be required to
   report pursuant to Section 6043 of the Code and all Treasury Department
Regulations promulgated thereunder.                                 

(e) Tax Sharing Agreements. All tax sharing agreements or similar   
agreements with respect to or involving the Target shall be terminated as of the
Closing Date and, after the Closing Date, the Target shall not be bound thereby 
or have any liability thereunder.                                               

(f) Certain Taxes. All transfer, documentary, sales, use, stamp,    
registration and other such Taxes and fees (including any penalties and         
interest) incurred in connection with this Agreement shall be paid by Seller    
when due, and Seller will, at its own expense, file all necessary Tax Returns   
and other documentation with respect to all such transfer, documentary, sales,  
use, stamp, registration and other Taxes and fees, and, if required by          
applicable law, Buyer will, and will cause its affiliates to, join in the       
execution of any such Tax Returns and other documentation.                      

10. Termination.                                                    

   (a) Termination of Agreement. Certain of the Parties may terminate this
Agreement as provided below:                                                    

           (i) the Buyer and the Seller may terminate this Agreement by mutual
written consent at any time prior to the Closing;                   

            (ii) the Buyer may terminate this Agreement by giving written notice
      to the Seller at any time prior to the Closing (A) in the event the Seller
     has breached any material representation, warranty, or covenant contained
 in this Agreement in any material respect, the Buyer has notified the
 Seller of the breach, and the breach has continued without cure for a
period of thirty (30) days after the notice of breach or (B) if the 
    Closing shall not have occurred on or before June 15, 1998, by reason of
    the failure of any condition precedent under Section 7(a) hereof (unless
the failure results primarily from the Buyer itself breaching any   
   representation, warranty, or covenant contained in this Agreement); and

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       (iii) the Seller may terminate this Agreement by giving written
     notice to the Buyer at any time prior to the Closing (A) in the event the
 Buyer has breached any material representation, warranty, or covenant
   contained in this Agreement in any material respect, and the Seller has
  notified the Buyer of the breach, and the breach has continued without
      cure for a period of thirty (30) days after the notice of breach or (B) if
     the Closing shall not have occurred on or before June 15, 1998, by reason
of the failure of any condition precedent under Section 7(b) hereof 
   (unless the failure results primarily from any of the Seller themselves
 breaching any representation, warranty, or covenant contained in this
Agreement).                                                         

      (b) Effect of Termination. If any Party terminates this Agreement pursuant
to Section 10(a) above, all rights and obligations of the Parties hereunder     
shall terminate without any Liability of any Party to any other Party (except   
for any Liability of any Party then in breach), except in the event Buyer       
terminates pursuant to Section 10(a)(ii) hereof the Seller agrees to pay Buyer  
those costs incurred by Buyer, and except in the event Seller terminates        
pursuant to Section 10(a)(iii) hereof, the Buyer agrees to pay Seller those     
costs incurred by Seller, however the costs to be paid by either party shall be 
a maximum of $50,000.                                                           

11. Miscellaneous.                                                  

 (a) Press Releases and Public Announcements. No Party shall issue any
press release or make any public announcement relating to the subject matter of 
this Agreement prior to the Closing without the prior written approval of the   
Buyer and the Seller; provided, however, that any Party may make any public     
disclosure it believes in good faith is required by applicable law or any       
listing or trading agreement concerning its publicly-traded securities (in which
case the disclosing Party will use and give the other Parties an opportunity to 
renew prior to making the disclosure).                                          

 (b) No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective  
successors and permitted assigns.                                               

     (c) Entire Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement among the Parties and supersedes any   
prior understandings, agreements, or representations by or among the Parties,   
written or oral, to the extent they related in any way to the subject matter    
hereof.                                                                         

   (d) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of his  
or its rights, interests, or obligations hereunder without the prior written    
approval of the Buyer and the Seller; provided, however, that the Buyer may (i) 
assign any or all of its rights and interests hereunder to one or more of its   
Affiliates and (ii) designate one or more of its Affiliates to perform its      
obligations hereunder (in any or all of which cases                             

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the Buyer nonetheless shall remain responsible for the performance of all of its
obligations hereunder).                                                         

(e) Counterparts. This Agreement may be executed in one or more     
counterparts, each of which shall be deemed an original but all of which        
together will constitute one and the same instrument.                           

(f) Headings. The section headings contained in this Agreement are  
inserted for convenience only and shall not affect in any way the meaning or    
interpretation of this Agreement.                                               

(g) Notices. All notices, requests, demands, claims, and other      
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two    
business days after) it is sent by registered or certified mail, return receipt 
requested, postage prepaid, and addressed to the intended recipient as set forth
below:                                                                          

If to the Seller:       Bitwise Designs, Inc.                       
     Rotterdam Industrial Park
Building 50         
                            Schenectedy, New York 12306 - Attn:  Dennis Bunt

Copy to:                Brian Daughney, Esq.                        
   Goldstein & DiGioia LLP
369 Lexington Avenue
    New York, New York 10017

If to the Buyer:        United Strategies, Inc.                     
  15245 Shady Grove Road
Suite 350 South     
Rockville, MD 20850 

Copy to:                William C. Stifler, Esq.                    
     Mason, Ketterman & Morgan
          100 N. Charles St., Suite 1700
Baltimore, MD 21201 

Any Party may send any notice, request, demand, claim, or other communication   
hereunder to the intended recipient at the address set forth above using any    
other means (including personal delivery, expedited courier, messenger service, 
telecopy, telex, ordinary mail, or electronic mail), but no such notice,        
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any   
Party may change the address to which notices, requests, demands, claims, and   
other communications hereunder are to be delivered by giving the other Parties  
notice in the manner herein set forth.                                          

   (h) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Delaware without giving effect
to                                                                              

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any choice or conflict of law provision or rule (whether of the State of        
Delaware or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of Delaware.                           

(i) Amendments and Waivers. No amendment of any provision of this   
Agreement shall be valid unless the same shall be in writing and signed by the  
Buyer and the Seller. No waiver by any Party of any default, misrepresentation, 
or breach of warranty or covenant hereunder, whether intentional or not, shall  
be deemed to extend to any prior or subsequent default, misrepresentation, or   
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.                           

     (j) Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the      
validity or enforceability of the remaining terms and provisions hereof or the  
validity or enforceability of the offending term or provision in any other      
situation or in any other jurisdiction.                                         

    (k) Expenses. Subject to Section 8, each of the Parties and both Targets
will bear their own costs and expenses (including legal fees and expenses)      
incurred in connection with this Agreement and the transactions contemplated    
hereby. The Seller agrees that the Target has not borne or will bear any of the 
Seller's costs and expenses (including any of their legal fees and expenses) in 
connection with this Agreement or any of the transactions contemplated hereby.  

      (l) Construction. The Parties have participated jointly in the negotiation
and drafting of this Agreement. In the event an ambiguity or question of intent 
or interpretation arises, this Agreement shall be construed as if drafted       
jointly by the Parties and no presumption or burden of proof shall arise        
favoring or disfavoring any Party by virtue of the authorship of any of the     
provisions of this Agreement. Any reference to any federal, state, local, or    
foreign statute or law shall be deemed also to refer to all rules and           
regulations promulgated thereunder, unless the context requires otherwise. The  
word "including" shall mean including without limitation. The Parties intend    
that each representation, warranty, and covenant contained herein shall have    
independent significance. If any Party has breached any representation,         
warranty, or covenant contained herein in any respect, the fact that there      
exists another representation, warranty, or covenant relating to the same       
subject matter (regardless of the relative levels of specificity) which the     
Party has not breached shall not detract from or mitigate the fact that the     
Party is in breach of the first representation, warranty, or covenant.          

   (m) Incorporation of Exhibits, Annexes, and Schedules. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference and 
made a part hereof.                                                             

      (n) Specific Performance. Each of the Parties acknowledges and agrees that
the other Parties would be damaged irreparably in the event any of the          
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise                                                              

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are breached. Accordingly, each of the Parties agrees that the other Parties    
shall be entitled to an injunction or injunctions to prevent breaches of the    
provisions of this Agreement and to enforce specifically this Agreement and the 
terms and provisions hereof in any action instituted in any court of the United 
States or any state thereof having jurisdiction over the Parties and the matter 
(subject to the provisions set forth in Section 10(o) below), in addition to    
any other remedy to which they may be entitled, at law or in equity.            

(o) Submission to Jurisdiction. Each of the Parties submits to the  
jurisdiction of any state or federal court sitting in Baltimore, Maryland, in   
any action or proceeding arising out of or relating to this Agreement and agrees
that all claims in respect of the action or proceeding may be heard and         
determined in any such court. Each Party also agrees not to bring any action or 
proceeding arising out of or relating to this Agreement in any other court. Each
of the Parties waives any defense of inconvenient forum to the maintenance of   
any action or proceeding so brought and waives any bond, surety, or other       
security that might be required of any other Party with respect thereto.        

     IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on as
of the date first above written.                                                

                           UNITED STRATEGIES, INC.

                                   By:____________________________
                                     Title:___________________________

                         SST ACQUISITION CORP.

                                   By: ___________________________
                                     Title: __________________________

                   SYSTEM SOLUTION
                                  TECHNOLOGIES, INC.

                                   By: ___________________________
                                     Title: __________________________

                         BITWISE DESIGNS, INC.

                                   By: ___________________________
                                     Title: __________________________

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                                                                     Exhibit B

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

--------------- 

FORM 10-KSB 

(Mark One)                                                                      

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE        
[  X  ]   SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]                        

For the fiscal year ended           June 30, 1997                               
      ----------------------------------

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF        
[      ]  THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]                 

For the transition period from _______________ to ________________              

Commission File No.  0-20190

 BITWISE DESIGNS, INC.
--------------------------------------------------------------------------------
(Name of Small Business Issuer in its charter)

Delaware                               14-1673067           
------------------------------------------   ---------------------------        
(State or other jurisdiction of              (I.R.S. Employer                   
incorporation or organization)               Identification No.)                

Building 50, Rotterdam Industrial Park                      
------------------------------------------------------------------------        
Schenectady, N.Y.                12306          
------------------------------------------------------------------------        
(Address of principal executive offices)        (Zip Code)                      

Issuer's telephone number, including area code (518) 356-9741                   
                            --------------

------------------------------------------------------------------------        
Securities registered pursuant to Section 12(b) of the Exchange Act:            

                Name of Each Exchange on
Title of Each Class            Which Registered               
 -------------------        ------------------------------------

Common Stock, $.001 par value       Pacific Stock Exchange                      
-------------------------------     ------------------------------------        

Securities registered pursuant to Section 12(g) of the Exchange Act:            

NONE
------------------------------------------------------------------------        
(Title of class)

------------------------------------------------------------------------        
(Title of class)
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                Check whether the Issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months   
(or for such shorter period that the registrant was required to file such       
reports), and (2) has been subject to such filing requirements for the past 90  
days.  Yes X  No                                                                
---    ---                                                  

               Check if there is no disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained in this form, and no disclosure  
will be contained, to the best of Registrant's knowledge, in definitive proxy   
or information statements incorporated by reference in Part III of this Form    
10-KSB or any amendment to this Form 10-KSB.  [ ]                               

             The Issuer's revenues for its most recent fiscal ended June
30, 1997 were $53,109,469.                                                      

          On September 22, 1997, the aggregate market value of the
voting stock of Bitwise Designs, Inc. (consisting of Common Stock, $.001 par    
value) held by non-affiliates of the Registrant (approximately 6,610,009        
shares) was approximately $24,374,408 based on the closing bid price for such   
Common Stock ($3.6875) on said date as reported by the Nasdaq SmallCap Market.  

APPLICABLE ONLY TO CORPORATE REGISTRANTS

              On September 22, 1997, there were 7,367,720 shares of Common
Stock, $.001 par value, issued and outstanding.                                 

DOCUMENTS INCORPORATED BY REFERENCE 

None

--------------------------

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PART I

ITEM 1. DESCRIPTION OF BUSINESS                                                 

INTRODUCTION                                                                    

       Bitwise Designs, Inc. ("Bitwise"), and its wholly-owned subsidiaries,
System Solutions Technology, Inc. ("SST") and DJS Marketing Group, Inc. ("DJS") 
(Bitwise, SST and DJS are sometimes collectively referred to herein as the      
"Company") are engaged in the manufacture and distribution of document imaging  
systems, computer systems and related peripheral equipment, components and      
accessories and advanced technology industrial computers as well as network and 
internet services.                                                              

     In April 1997, the Company sold a subsidiary, Electrograph Systems,
Inc. ("ESI").  ESI was acquired in August 1994 and is a value-added distributor 
of monitors and other microcomputer peripherals, components and accessories.    

        In March 1996, the Company acquired DJS Marketing Group, Inc. 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.         

  Simultaneously with its acquisition of Electrograph in 1994, the
Company acquired SST, a value added distributor of advanced technology          
industrial computers and computer peripherals.  SST has three separate          
operating divisions: Promark Technology ("Promark"), SST Technical Services     
("TSD") and Electronic Marketing Associates ("EMA").  Each of these divisions   
is designed to address a specific market segment related to SST's customer      
base.  Promark is a value added distributor of high technology computer and     
peripheral products to a customer base of value added resellers (VARS), systems 
integrators, commercial and industrial market OEMs, government agencies, and    
Fortune 500 companies which perform their own system integration.  TSD provides 
value added services (such as, customization and integration of hardware and    
software systems) for computers or peripherals sold through Promark including   
warranty on products which have been customized or privately labeled.  EMA is a 
manufacturers' representative selling on a commission only basis for            
approximately 15 small and medium size manufacturers of high technology         
products.                                                                       

       The Company was organized in August 1985 and reincorporated under the
laws of the state of Delaware in May 1992.  The Company's executive offices are 
located at Technology Center, Rotterdam Industrial Park, Schenectady, New York  
12306, and its telephone number is (518) 356-9741.                              

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GENERAL BUSINESS DEVELOPMENTS DURING THE LAST FISCAL YEAR                       

     In April 1997, the Company sold ESI for $2,522,361, as subsequently
adjusted, plus the Company received $646,912 to satisfy an intercompany         
receivable from ESI.  The sale was structured as an asset sale with all         
liabilities assumed by the purchaser.                                           

INDUSTRY OVERVIEW                                                               

       The Company competes in the manufacturing and distribution market for
document imaging systems, personal computers, workstations and portable         
personal computers as well as microcomputer peripherals, networks, components   
accessories, Internet/Intranet development and advanced technology industrial   
computers.  Each of these markets has experienced significant growth over the   
last decade, and the Company believes such growth will continue, particularly   
in the document imaging market.                                                 

........Document Imaging and Management                                       

    A document imaging system enables the user to scan paper documents
onto an optical disk, hard disk drive or other storage medium.  The Company's   
DocStar product line utilizes a personal computer, proprietary software and a   
scanner.  Such a system can be utilized as a "stand-alone" system or as part of 
a network installation.  In January 1996, the Company, on a national level,     
introduced its document imaging system under the tradename DocStar, designed    
and manufactured by Bitwise.                                                    

      The Company believes the document imaging market is still developing
and will experience significant growth in the future and that this market has   
the potential to provide profitable growth for the Company.  There can be no    
assurance that the Company's efforts in this emerging market will result in     
profits, income or significant revenues to the Company.                         

........Personal Computers                                                    

     Personal computers ("PCS") are another principal product offered by
the Company through its DJS subsidiary.  The Company believes that the PC       
market has become less vendor-specific or brand name oriented due to the        
standardization of technology and the ease with which off-the-shelf components  
and circuit boards can be utilized in almost any configuration adopted by a     
manufacturer.                                                                   

........Peripheral Computer Products                                          

     Peripheral computer products includes printers, monitors, scanners,
modems, software, etc.  that operate in conjunction with a computer.  Peripheral
products are purchased from a wide assortment of suppliers and come in a        
variety of performance speeds, capabilities, features and prices.  The market   
for these                                                                       

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products is directly related to the computer market, however, there is a        
significant "after market" opportunity for these products.  Customers           
frequently add peripheral products after the initial computer purchase.  A value
added distributor, such as SST and DJS, configures various computer hardware    
and peripheral products such as software together, to meet a specific           
customer's needs.  The Company believes a significant portion of its business   
will continue to be sales of peripheral computer products.                      

.........Workstations and Advanced Technology Industrial Computers            

      Workstations are single user, high performance computer systems with
advanced capabilities for computationally intensive scientific, engineering and 
industrial applications.  Such uses include electronic publishing, business     
graphics, financial services, mapping, office automation or other applications  
which manipulate large amounts of data.                                         

.........Transportables                                                       

   Transportables are PCS which offer the functionality of a desktop
computer in a compact, AC-powered case weighing less than 40 pounds.            
Transportables typically offer brighter, flat panel displays, higher-powered    
microprocessors, larger mass storage devices and more expansion options than    
are available in smaller laptop or notebook computers.  The Company believes    
the transportable PC user is more interested in compatibility with desktop      
processing power and display quality than with weight, size, or battery life.   
Notebook and laptop computers cannot offer the expansion capabilities of        
transportables.  Users with a need for specialized data acquisition devices,    
accelerator boards, and truly high capacity mass storage will continue to       
require transportable designs to meet their mobile computing needs.             
Transportables can also be produced in a ruggedized case for industrial uses.   

.........Notebooks/Laptops                                                    

     Notebooks and laptops use battery power and are smaller in size and
weight than transportable or desktop designs.  These products range in weight   
from under six pounds to about fifteen pounds, and in size from the equivalent  
of a narrow three-ring notebook binder to a small briefcase.  Notebooks now     
offer the power and speed of desktop systems, but at a significantly higher     
cost.                                                                           

.........Networks                                                             

 A network installation involves network software installed on a
fileserver computer with less powerful computers sharing information from the   
fileserver.  Applications include E-mail, accounting systems, word processing,  
communication and any other                                                     

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applications requiring the sharing of information.  Management believes that    
designing and installing network systems may be an area of growth for the       
Company, although there can be no assurance that growth in the network market   
can be realized.                                                                

.........Internet/Intranet Development                                        

      The Internet/Intranet is a computer based communication system which
has international applicability.  Customers utilize the Internet to advertise   
products, provide news and stock market products, provide educational data      
bases, as well as one on one and Group Communications.  Through its DJS         
subsidiary, the Company provides customer Internet services, including          
installation of web pages.                                                      

BITWISE 

PRODUCTS                                                                        

Document Imaging and Management                                                 

        In January 1996, Bitwise, on a national level, introduced its document
imaging management system under the tradename DocStar which enables users to    
scan paper documents onto an optical disk, hard drive or other storage medium   
from which they can be retrieved in seconds.  This system allows users to       
eliminate or significantly reduce paper filing systems.  The Company believes   
that the problem of storage and management of paper documents confronts a broad 
spectrum of businesses and governmental agencies.  The DocStar product line is  
intended to provide a cost effective method to reduce the space necessary to    
store documents while providing instantaneous retrieval of any document and     
improved security of documents.                                                 

 The operation of a document management system is similar to the
operation of a facsimile machine.  Documents are fed into an optical scanner    
which reads the documents and stores the information on one of several          
alternative mass storage devices.  Documents can also be transmitted from or to 
the system via facsimile machine or modem.  Documents can be retrieved almost   
instantaneously for viewing, printing or faxing thereby offering a significant  
time-saving tool to the modern office.                                          

    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.  Bitwise purchases the scanner, laser       
printer and other necessary hardware from unaffiliated third parties and        
manufactures the PC for the system.  The software utilized in DocStar consists  
of various versions of existing software from other developers, as well as      
software developed by the Company.                                              

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The Company offers the DocStar System in three models: System 10X, System 20,   
System 20FS and System 25.  The DocStar System 10X is the base model.  The      
Systems 20, 20FS and 25 offer faster 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 Company markets the document management system under the tradename
DocStar through a national dealer network.  The Company owns one dealership in  
the Albany, New York region, which also serves as a test market for new         
applications and software.                                                      

BACKLOG                                                                         

   Bitwise normally ships products within 5 days after receipt of an
order and typically has no more than two weeks of sales in backlog at any time. 
Accordingly, Bitwise's backlog of orders at any point in time fluctuates and is 
not material.                                                                   

RESEARCH AND DEVELOPMENT                                                        

The market for Bitwise's 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.  Bitwise's ability to remain  
competitive depends upon its ability to anticipate and effectively react to     
technological change, as well as the application requirements of its customers. 

        From its inception, Bitwise has devoted continuing efforts to research
and development activities to enhance its current products and introduce new    
products.  Current development efforts are principally directed toward          
improving ease of use, adding system enhancements and increasing performance    
Product development expense was $176,539 and $129,075 for fiscal years          
1997 and 1996, respectively.  The Company believes it must continue to enhance  
its document imaging products to respond to the needs of an ever changing       
marketplace.                                                                    

QUALITY CONTROL AND SERVICE                                                     

Quality control at Bitwise is addressed at 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.                                                                    

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

      The Company's dealers provide service to the end users.  All dealers
receive service training from the national service staff.  The Company provides 
the dealer with replacement parts free of charge for 13 months after date of    
shipment.  The Company's vendors provide a similar warranty for failed          
components.  The Company offers liberal telephone support service to its        
dealers.                                                                        

MANUFACTURING AND SUPPLIERS                                                     

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

    Bitwise uses standard parts and components in its existing product
lines which it purchases from unaffiliated third parties.  The Company believes 
adequate alternative suppliers are available.                                   

    Bitwise has no contractual arrangements with any of its suppliers.
Shortages of component parts could occur, which could delay or interrupt        
Bitwise's manufacture and delivery of products and thereby adversely affect     
Bitwise's operating results.  To date, Bitwise has not experienced any material 
delays in deliveries from its suppliers.  Although Bitwise endeavors to         
mitigate the potentially adverse effect of supply interruptions by evaluating   
alternative sources of supply, there can be no assurance that such components   
will be available as and when needed.                                           

        All of the peripherals available through Bitwise, such as monitors and
scanner/printer units, are manufactured by third parties.  Bitwise only         
assembles the computer which is part of the DocStar system.                     

PATENTS AND TRADEMARKS                                                          

      Bitwise has no patents but has registered the logo "BitWise Designs"
and Bitwise's associated trademark, "DocStar".  No assurance can be given that  
registration will be effective to protect Bitwise's trademarks.  The Company    
believes the tradename "BitWise Designs" is material to its business.           

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SALES AND MARKETING                                                             

  Currently, Bitwise's products are distributed through a national
dealer network.  The Company also sells direct through one dealership it owns   
in its local market area.  Primarily through national advertising and favorable 
reviews in industry publications, newspapers, magazines, press releases and     
other periodicals serving the document imaging industry, management believes    
that Bitwise has achieved a national sales presence.  The Company also offers a 
co-op advertising program to all its dealers whereby a dealer can earn co-op    
advertising credits on everything they purchase and they can use those credits  
to advertise in their market area.                                              

Management hopes to continue to increase the number of dealer 
locations during the remainder of the current fiscal year, although there can   
be no assurance it will be successful in such efforts.                          

    Bitwise's products are typically 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.  Bitwise currently employs three regional sales managers.  The        
regional sales managers employ several district managers to cover all the       
significant markets in their region.                                            

      The Company is also pursuing international dealers through agents of
large multi-national firms.                                                     

COMPETITION                                                                     

        The market for Bitwise's products is competitive and rapidly changing,
and Bitwise expects competition to continue to be intense in the foreseeable    
future.  This competition is direct (i.e., companies that make similar          
products) and indirect (i.e., companies that participate in the market, but are 
not direct competitors of Bitwise).  Bitwise competes with major document       
imaging manufacturers such as Canon, Panasonic, Sharp and Mita.  Many of        
Bitwise's current and prospective competitors have significantly greater        
financial, technical, manufacturing and marketing resources, and a larger       
installed base, than Bitwise.                                                   

EMPLOYEES                                                                       

Bitwise employs 62 full-time employees including its executive
officers.  No employees are covered by a collective bargaining agreement, and   
Bitwise believes its relations with its employees is satisfactory.              

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SYSTEM SOLUTIONS TECHNOLOGY, INC. 

    SST is a value added distributor of advanced technology industrial
computers and computer peripherals.  SST's main offices are located in Laurel,  
Maryland.                                                                       

PROMARK TECHNOLOGY DIVISION                                                     

      Promark distributes a full range of ruggedized computers: hand held,
portable, luggable or rackmounted.  Promark also distributes high technology    
microcomputer peripherals including document scanners, optical disk drives and  
juke boxes, high capacity magnetic tape drives and tape library systems for     
imaging and network mass storage applications.  These computers are frequently  
used as portable work stations and therefore, must have the ability to accept   
devices providing additional capabilities.  They function in hostile            
environments such as, factory floors, outdoor unheated sheds, bright sunlight,  
and field service applications.                                                 

       Although Promark has a broad list of suppliers, nine were responsible
for approximately eighty (80%) percent of its sales in fiscal 1997: Getac       
Computer, Exabyte, UMAX, Ricoh, Hitachi, Radius, Maxoptic, GCC Technologies and 
Storage Technology.  None of these suppliers accounts for 10% or more of        
Promark's purchases.  Promark is distributor and service center for several of  
these companies.                                                                

     Promark manufacturers its own line of high performance portable and
mobile computers.  These computers range in price from $5,000.00 to $10,000.00  
and possess workstation capabilities.                                           

TECHNICAL SERVICES DIVISION                                                     

       TSD provides all value added service to computers or peripherals sold
by Promark.  TSD provides all warranty on products that have been customized or 
privately labeled.  This division also performs on-site and depot service for   
many other products sold by SST.  TSD is currently authorized to service        
Ricoh's laser printers and page scanners, Exabyte and Shugart tape drives, UMAX 
page scanners and Kontron computers.  On-site contracts are in force with AT&T, 
Martin Lockheed and others.                                                     

        TSD also sells replacement parts for those products which it services,
as well as other related supplies.                                              

ELECTRONIC MARKETING ASSOCIATES DIVISION                                        

     EMA is a manufacturers' representative selling on a commission only
basis for small and medium size manufacturers of high technology products.      
This sales effort has for the last 20 years been technology driven primarily to 
the military electronics markets.  In the 1990s with the reduction in defense   
spending, a shift to the commercial and industrial market was completed.        

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       For example, EMA represents four manufacturers, Dranetz Technologies,
Westinghouse SureSine, Westinghouse FTMS and Scientific Atlanta, that assist    
power companies in analyzing their power at the generator and at the point of   
use to enable these utilities to recommend to their users, or within their own  
distribution system, the equipment required for quality improvement and         
monitoring.  EMA sells equipment used in each of these phases: generation,      
distribution and use of power.                                                  

     In addition, EMA has moved aggressively into the expanding cellular
market.  EMA offers products used in the testing of transmitters, phones,       
antennas and the location of faults in cable, tower transmitters and receivers. 

       Manufacturers represented by EMA include: Dranetz Technology, Marconi
Instrument, GenRad, Loral Narda Microwave, Spectracom, Scientific Atlanta,      
Westinghouse SureSine, Westinghouse FTMS, Intercontinental Microwave and        
TRIQUINT.                                                                       

PATENTS, TRADEMARKS AND LICENSES                                                

      SST does not have any patents, trade names or service marks and does
not consider patents, trade names or service marks significant to its business. 

SALES AND MARKETING                                                             

SST markets from Maine to Florida and all states east of the  
Mississippi River, with offices in Reading, Massachusetts, and Laurel,          
Maryland.                                                                       

COMPETITION                                                                     

        In addition to the competitors and competitive factors described above
with respect to Bitwise, SST also competes with numerous small and local        
technicians and service companies who provide similar technical services in     
SST's area of operation.  Further, SST competes with national distributors such 
as Ingram Micro D and Tech Data Corporation, and regional distributors such as  
Law Cypress and Peak Technologies.  There can be no assurance SST will be able  
to successfully compete in the future.                                          

EMPLOYEES                                                                       

  SST has 22 full-time employees, including 11 marketing and sales
personnel (including one executive officer), 3 customer service personnel, 1    
warehouse employee, and 7 administrative personnel.  None of SST's employees    
are covered by a collective bargaining agreement.  SST considers relations with 
its employees to be satisfactory.                                               

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DJS MARKETING GROUP, INC. 

DJS (d/b/a "Computer Professionals") is a network and systems 
integrator of computer and peripheral products to a varied customer base        
consisting of individuals, schools, government agencies, large manufacturers    
and distributors.  DJS is the largest systems integrator in the Albany, New     
York region.                                                                    

    DJS also produces Bitwise PCs at their Albany, New York production
facility.  Additionally, contained within this facility is the DJS Service      
Department where factory trained computer technicians diagnose, service and     
upgrades all major brands of computer equipment.                                

  DJS provides network integration, Internet/Intranet development,
accounting solutions, service and consultation, document management and video   
conferences.                                                                    

PRODUCTS                                                                        

Network Integration.                                          

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

  Because DJS's clients have custom objectives, DJS designs custom
solutions 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 and Macola
to various end-users such as distributors, manufacturers and wholesalers.  DJS  
personnel conduct analyses of each client's requirements and custom designs an  
accounting system to satisfy these requirements.                                

Service and Consultation.                                     

   DJS's service department is authorized to repair and maintain all
major brands of the products sold by DJS, including warranty and post-warranty  
equipment.  DJS generally guarantees a four hour                                

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response time for all service calls, with an average resolution time of next    
day.                                                                            

      DJS's engineers also provide complete system configuration services.
These include 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, eliminating       
malfunctioning units.                                                           

Document Management.                                          

       DJS also offers document imaging services which it believes offers 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 the Company's DocStar line.                                           

Video Conferencing.                                           

   DJS offers video conferencing services which it believes offers a
cost-effective means of "buying" more hours in a day and eliminating the high   
cost of travel while satisfying each customer's communication needs.            

DJS provides flexible platform-independent video-conferencing 
solutions that can be integrated into a single workstation environment or an    
enterprise network.                                                             

SALES AND MARKETING.                                                            

     DJS markets its products and services to all of New York State, and
parts of Vermont and Massachusetts with a satellite affiliate in Chicago.  DJS  
intends to expand its national and international growth of its sales and        
marketing departments.  Clients include individuals, small office/home office   
owners, schools, government agencies, large corporations, 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 offers the 
breadth of services of DJS, competitors of computer sales, service and support  
in general, would include Computerland, Computers Etc., CompUSA, Entex and      
Ameridata.                                                                      

EMPLOYEES                                                                       

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   DJS has 32 full-time staff members, including three (3) executive
officers.  None of the employees of DJS are represented by a collective         
bargaining agreement.  DJS believes that its employee relations are good.       

CAUTIONARY STATEMENTS 

       As provided for under the Private Securities Litigation Reform Act of
1995, the Company wishes to caution stockholders and investors that the         
following important factors, among others discussed throughout this report, in  
some cases have affected and in some cases could affect the Company's actual    
results of operations and cause such results to differ materially from those    
anticipated in forward looking statements made herein.                          

SIGNIFICANT LOSSES                                                              

The Company has incurred losses of $2,143,159 and $2,961,039, 
respectively, for its fiscal years ended June 30, 1997 and 1996.  The Company   
commenced marketing of its DocStar line of document imaging systems on a        
national basis in January 1996 which has led to increased costs associated with 
the product line.  These costs will continue for the foreseeable future as the  
Company attempts to increase market awareness and sales.  Moreover, the         
Company's 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 the Company operates.  There can  
be no assurance that the Company will be able to achieve profitable operations  
in future operating periods.                                                    

UNCERTAINTY OF WIDESPREAD MARKET ACCEPTANCE OF NEW PRODUCTS                     

    The Company introduced the DocStar system on a national level in
January, 1996.  As is typical with new products, demand and market acceptance   
for the DocStar imaging system is subject to a high level of uncertainty.       
Achieving widespread acceptance of this product line will require substantial   
marketing efforts and the expenditure of significant funds to create brand      
recognition and customer demand for such products.  There can be no assurance   
that adequate marketing arrangements will be made for such products.  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.                                                                     

COMPETITION                                                                     

        The Company and its subsidiaries 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            
businesses.  The document                                                       

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imaging business is competitive and the Company competes with major             
manufacturers such as Sharp, Canon, Panasonic and Mita.  All of these companies 
have substantially more experience and greater sales, as well as greater        
financial and distribution resources than those of the Company.  The Company    
also competes with many independent imaging software companies, smaller than    
those mentioned, many of which also have substantially greater sales, financial 
resources and experience than those of the Company.  The most significant       
factors which form the basis upon which the Company competes are the quality of 
its products, including advanced capabilities, and price.  There can be no      
assurance the Company can effectively continue to compete in the future.        

        In addition to the competitors and competitive factors described above
with respect to Bitwise, SST also competes with numerous small and local        
service companies who provide similar technical services in SST's area of       
operation.  Further, SST competes with national distributors such as Ingram and 
Tech Data Corporation, and regional distributors such as Law Cypress and Peak   
Technologies.  There can be no assurance SST will be able to successfully       
compete in the future.                                                          

The Company's other subsidiary, DJS, is engaged in the highly 
competitive business of systems integration 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.                                            

ITEM 2. DESCRIPTION OF PROPERTIES                                               

      Bitwise's executive offices and production facilities are located at
Technology Center, Rotterdam Industrial Park, Schenectady, New York 12306 where 
Bitwise leases approximately 15,080 square feet of office space pursuant to a   
ten year lease at an annual rent of approximately $90,000 plus utilities,       
maintenance and escalation charges.  The lease expires March 31, 1998.          

       SST currently leases 11,200 square feet of office and warehouse space
in Laurel, Maryland at a cost of $147,200 per year.  This lease expires in      
August 1999.  Additionally, it leases a 500 square foot sales/service regional  
office in Reading, Massachusetts at a cost of $3,000 per year.  This lease is a 
year to year lease and can be cancelled upon 30 days notice.                    

 DJS currently leases 7,990 square feet of office, warehouse and
showroom space in Albany, New York for $70,700 per year.  This lease expires in 
May 2001.                                                                       

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      Management believes that its current facilities are adequate to meet
its present and foreseeable requirements.                                       

ITEM 3. LEGAL PROCEEDINGS                                                       

 The Company is a party to no legal proceedings which may have a
material adverse effect on its operations.                                      

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                     

Not Applicable                                                

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PART II 

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                

    Upon the effectiveness of the Company's public offering on May 13,
1992, its Common Stock commenced trading in the over-the-counter market and was 
listed on the SmallCap Market of the Nasdaq Stock Market ("NASDAQ") 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, the Company      
withdrew its listing on the Boston Stock Exchange.  On April 24, 1996, the      
Company's Common Stock commenced trading on the Pacific Stock Exchange.         

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

                                                                [Download Table]

                                         High            Low   
                                         ----            ---   

Common Stock                                                   
------------                                                   
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 


Fiscal Year 1996                                               
----------------                                               
                                                               
         1st Quarter  . . . . . . . .    5-1/4           1-9/16

         2nd Quarter  . . . . . . . .    7-3/8           4-3/8 

         3rd Quarter  . . . . . . . .    7-15/16         5-3/8 

         4th Quarter  . . . . . . . .    6-7/8           4-5/8 

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

   As of September 22, 1997, there were approximately 618 holders of
record of the Company's Common Stock but the Company believes there are more    
than 500 beneficial holders of the Company's Common Stock.                      

        The Company has not paid any dividends upon its Common Stock since its
inception.  The Company does 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, the Company's  
Certificate of Incorporation authorizes the Company's Board of Directors to     
issue Preferred Stock with a preferential right to dividends.  There are no     
outstanding shares of Preferred Stock with dividend rights.                     

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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS                                    

   The following analysis of the results of operations and financial
condition of the Company should be read in conjunction with the Company's       
financial statements, including the notes thereto, contained elsewhere in this  
report.                                                                         

RESULTS OF OPERATIONS                                                           

Fiscal Year 1997 Compared to Fiscal Year 1996                                   

       The Company realized a consolidated net loss of $2,143,159, ($.30 per
share) compared to $2,961,039 ($.55 per share) for the years ended June 30,     
1997 and 1996, respectively.  Consolidated net sales totaled $53,109,469 and    
$30,611,258 for the years ended June 30, 1997 and 1996, respectively.           

The sales increase is due in part to the acquisition of DJS on
March 8, 1996.  DJS had sales of $16,560,884 for the year ended June 30,        
1997 compared to $3,023,648 for the period March 8, 1996 to June 30, 1996.      
The sales increase is also due to the growth in the Company's DocStar product   
line.  DocStar sales totaled $7,792,125 for the year ended June 30, 1997        
compared to $1,650,921 for the prior year.  All other businesses also           
experienced sales growth in fiscal 1997 compared to fiscal 1996.  The sales     
results also include sales from ESI for all but two months of the 1997 fiscal   
year until its sale by the Company in April 1997.                               

  The Company's loss for the year is due to losses incurred by the
Company's Imaging Division, which markets the DocStar product line.  DocStar    
was introduced to the national marketplace in January 1996.  Previously it was  
only test marketed in the Albany, NY region.  The DocStar product line has      
not yet achieved sufficient sales volume to generate a profit.                  

      Gross profit for the fiscal year ended June 30, 1997 was $10,006,736
compared to $4,826,693 for the prior year.  The gross profit margin was 18.8%   
and 15.8% for years ended June 30, 1997 and 1996, respectively.  The gross      
profit margin (which is defined as gross profit as a percentage of sales)       
increased in fiscal 1997 compared to the prior year due to the growth of        
the Company's DocStar product line which has significantly higher margins than  
other product lines of the Company.                                             

    Selling, general and administrative expenses (SG&A) consist of all
other Company expenses except product development costs and interest.  SG&A     
expenses amounted to $11,834,173 and $7,564,946 for the years ended             
June 30, 1997 and 1996, respectively.  SG&A expenses increased due to the       
addition of DJS in March 1996, which incurred SG&A expenses of $1,631,791 for   
the                                                                             

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year ended June 30, 1997 compared to $472,432 for the period March 8, 1996 to   
June 30, 1996.  In addition, the Company incurred significant expenses related  
to the DocStar product line.  SG&A expenses related to the DocStar product line 
amounted to $5,636,151 and $2,649,203 for the years ended June 30, 1997 and     
1996, respectively.                                                             

    As a percentage of sales, SG&A costs decreased from 24.7% to 22.3%
from fiscal 1996 to fiscal 1997.  The decrease is due to the sales growth in    
all Company businesses and the fact that sales have grown at a faster rate than 
SG&A costs, so that as a percentage of sales SG&A costs have decreased.         

       Product development expenses relate primarily to software development
of the Company's DocStar product line and increased from $129,075 to $176,539   
for the years ended June 30, 1996 and 1997, respectively.  The Company has a    
policy of capitalizing software development costs and generally amortizing      
those costs over three years as product development expense.                    

     Interest expenses totaled $444,918 and $232,678 for the years ended
June 30,1997 and 1996, respectively.  The increase in interest cost is due to   
the acquisition of DJS which incurred interest on its line of credit            
borrowings.  It is also due to increased borrowings by all other operations of  
the Company under an existing line of credit caused by an increase in sales and 
related increases in inventory and accounts receivable.  Interest rates         
decreased slightly during fiscal 1997 compared to fiscal 1996.                  

   In the last fiscal year the Company incurred significant costs to
introduce, market and sell the DocStar product line, as well as continued       
research and development expenditures.  The Docstar product line is sold        
nationally through office equipment dealer channels.  The Company continues to  
recruit new dealers across the country which results in significant             
personnel, advertising, marketing and travel expenditures.                      

Fiscal Year 1996 Compared to Fiscal Year 1995                                   

        The Company realized a consolidated net loss of $2,961,039 or $.55 per
share, for the fiscal year ended June 30, 1996 compared to a net profit of      
$3,681, or $.00 per share, for the fiscal year ended June 30, 1995.             
Consolidated net sales totaled $30,611,258 for fiscal year 1996 compared to     
$23,949,368 for fiscal year 1995.                                               

The sales increase is partially attributed to the acquisition 
of DJS in March 1996.  Sales increases also reflect the inclusion of            
Electrograph and SST as wholly-owned subsidiaries of the Company for the entire 
fiscal year 1996 compared to inclusion for only approximately 10 1/2 months in  
fiscal year 1995.  The Company also experienced significant sales growth        
in its                                                                          

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document imaging product line known as DocStar.  Additionally, Electrograph     
Systems, Inc., and System Solutions Technology, Inc. ("SST") also               
experienced sales growth.                                                       

Gross profit for fiscal year 1996 was $4,826,693 compared to  
$3,956,846 for the 1995 fiscal year.  The gross profit margin was 15.8% for     
fiscal 1996 compared to 16.5% for fiscal 1995.  The Company's gross profit      
margin (which is defined as gross profit as a percentage of sales) decreased    
slightly due to aggressive pricing of certain Company products such as          
personal computers and peripheral computer products.  This was partially        
offset by the growth in sales of the Company's DocStar product line which       
has significantly higher gross margins than other product lines of the Company. 
Increases in gross profit also resulted from inclusion of SST and Electrograph  
for a full fiscal year as compared to the previous fiscal year, as well as the  
acquisition of DJS, as described above.                                         

   Selling, general and administrative expenses consist of all other
Company expenses, except product development and interest.  These costs         
increased from $3,993,861 in fiscal 1995 to $7,564,946 in fiscal 1996.  The     
increase in such expenses is due to the acquisition of DJS as well as the       
growth of SST and Electrograph.  Additionally, these increased expenses         
resulted from inclusion of SST and Electrograph for the full fiscal year 1996.  
In addition, the Company incurred significant selling, general and              
administrative costs related to the DocStar product line in fiscal 1996,        
including costs associated with the hiring of a national dealer sales force and 
related expenses such as salaries, travel and living expenses, moving expenses, 
communication costs, equipment costs and benefits as well as advertising,       
promotion, sales training, service training, technical support, production      
overhead and office overhead.  The Company is continuing to recruit sales,      
marketing and service personnel for the DocStar line, and therefore additional  
costs will be incurred during the next fiscal year.                             

As a percentage of sales, selling, general and                
administrative costs increased from 16.7% in fiscal 1995 to 24.7% in fiscal     
1996.  Management believes that as the DocStar sales volume increases this      
percentage of selling, general and administrative costs to sales will decrease. 
Recently the Company opened its Central and Western United States dealership    
territories and expects significant growth in the future.  Prior to June 30,    
1996 most sales were limited to dealers in the Northeastern United States with  
some minor volume in the Southern United States.                                

Product development expenses that relate primarily to         
development of the Company's DocStar product line, increased from $29,384 in    
fiscal 1995 to $129,075 in fiscal 1996.  The Company has a policy of            
capitalizing qualifying software development costs                              

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and amortizing those costs generally over three years, the estimated economic   
life of the product. During fiscal year 1996, the Company capitalized $29,957 in
such costs as compared to $48,911 in fiscal 1995.                               

        Interest costs totaled $232,678 in fiscal 1996 compared to $108,239 in
fiscal 1995.  The increase in interest cost is related to the increase in sales 
volume over the prior year.  As sales increased the Company increased its       
borrowings to fund inventory and receivables.  Additionally, this increase      
reflects interest costs associated with the $2.3 million credit facility        
obtained by the Company's recently acquired subsidiary, DJS.  To a lesser       
extent the increase is also due to an increase in interest rates compared to    
the prior year.                                                                 

      The decrease in profits can be attributed to the introduction of the
DocStar product line.  During fiscal year 1996, the Company incurred and        
expects to continue to incur, significant selling and administration            
costs to build a management and sales team, significantly expand its            
distribution network and to advertise and promote DocStar.  As a result of      
these various costs, the Company has incurred a loss for the year ended         
June 30, 1996.                                                                  

LIQUIDITY AND CAPITAL RESOURCES                                                 

       The Company's primary sources of funds to date have been the issuance
of equity and the incurrence of third party debt.  The principal balance of     
long-term debt at June 30, 1997 totaled $1,601.  The Company also has two       
working capital lines of credit totaling $5,300,000 which are collateralized by 
all accounts receivable, inventory and all other assets of the Company and its  
subsidiaries.  At June 30, 1997 the total outstanding balance was $4,219,877.   
One of the credit lines, in the principal amount of $2,300,000, may only be     
utilized by DJS.  The other line of credit of $3,000,000 may be utilized by     
Bitwise and SST.  Subsequent to June 30, 1997, the DJS line of credit was       
increased to $3,500,000, thereby increasing the total lines of credit to        
$6,500,000.                                                                     

     The debt accrues interest at rates ranging from the prime rate plus
1.75% to 2% per annum.  The line of credit agreements include various covenants 
which require the Company and the subsidiaries to maintain a minimum tangible   
net worth, maximum debt to tangible net worth and for DJS a minimum tangible    
current ratio and for BitWise a minimum annual net profit.  They also require   
delivery of periodic financial information and quarterly audits conducted by    
the lender.  At June 30, 1997 the Company was not in compliance with one of its 
debt covenants which required the Company to report a profit for the year ended 
June 30, 1997.  Subsequent to year end the Company received a covenant waiver   
from its lending institution.                                                   

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        The Company completed a private equity offering including common stock
and warrants with gross proceeds of $5,000,000 in December 1995 under Section   
4(2) of the Securities Act of 1933 or Regulation D; net proceeds approximated   
$4,200,000, after expenses.  The Company has used the proceeds to fund sales,   
marketing and distribution of its DocStar product line on a national basis.     
These expenditures include staffing, advertising and promotion, travel,         
consulting, office expansion, equipment, furniture and other related costs.     

      In April 1997, the Company sold substantially all of the assets of a
subsidiary Electrograph Systems, Inc. for $2,500,000 plus $646,912 to satisfy   
intercompany payables owed to Bitwise by Electrograph.  All liabilities were    
assumed by the purchaser as well.  The Company later received an additional     
$22,361 for adjustments in the selling price which became due upon completion   
of Electrograph's final balance sheet.                                          

     Property, plant and equipment expenditures totaled $425,739 for the
year ended June 30, 1997.  There were no purchase commitments outstanding or    
contemplated.                                                                   

Subsequent to year end in August 1997 the Company completed a 
financing with an offshore bank with gross proceeds of $4,000,000 (net proceeds 
of about $3.6M after expenses) in the form of unsecured, convertible, bearer    
notes with 400,000 detachable Common Stock purchase warrants.  The notes accrue 
interest at 8%, payable semiannually in arrears.  Each note is in the           
denomination of $5,000.  The holder of 10 or more notes may convert the notes   
into common stock commencing November 1, 1997 until August 11, 2002 at the rate 
of $3.25 per share.  The warrants may be exercised at $3.25 per share of common 
stock from November 1, 1997 until August 11, 2002.                              

The Company anticipates that cash expected to be provided by  
operations together with the proceeds from the sale of Electrograph,            
the proceeds of the August 1997 offering described above and borrowings under   
its lines of credit will be sufficient to satisfy normal operating obligations. 

        During the fiscal year ended June 30, 1997, the Company incurred a net
loss of $2,143,159, and cash used by operating activities totaled $5,132,156.   
The Company's available cash balance (before the $4 million financing in August 
1997) at June 30, 1997 totaled approximately $3 million and it had available    
approximately $l.l million under existing lines of credit.  Under its current   
operating plan to obtain a national acceptance of the DocStar product line, the 
Company's ability to improve operating cash flow is highly dependent on the     
market acceptance of its DocStar document imaging system.  If the Company is    
unable to attain projected sales levels for its DocStar systems, it may be      
necessary to raise additional capital to fund operations and meet its           
obligations.                                                                    

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SAFE HARBOR STATEMENT                                                           

   Certain statements in this Form l0-KSB, including information set
forth under Item 6 Management's Discussion and Analysis of Financial            
Condition and Results of Operations constitute "forward-looking statements"     
within the meaning of the Private Securities Litigation Reform Act of 1995 (the 
Act).  The Company desires to avail itself of certain "safe harbor"             
provisions of the Act and is therefore including this special note to enable    
the Company to do so.  Forward-looking statements in this Form l0-KSB or        
hereafter included in other publicly available documents filed with the         
Securities and Exchange Commission, reports to the Company's stockholders       
and other publicly available statements issued or released by the Company       
involve known and unknown risks, uncertainties and other factors which could    
cause the Company's actual results, performance (financial or operating) or     
achievements to differ from the future results, performance (financial or       
Operating) or achievements expressed or implied by such forward-looking         
statements.  Such future results are based upon management's best estimates     
based upon current conditions and the most recent results of operations.  These 
risks include, but are not limited to risks associated with the market          
acceptance of the DocStar product line, competition and technological changes   
and other risks as discussed in the Company's filings with the Securities and   
Exchange Commission, including its Registration Statement on Form S-3 declared  
effective on July 30, 1996 all of which risk factors could adversely affect the 
Company's business and the accuracy of the forward-looking statements contained 
herein.                                                                         

EFFECTS OF INFLATION AND CHANGING PRICES                                        

     The impact of general inflation on the Company's operations has not
been significant to date and the Company believes inflation will continue to    
have an insignificant impact on the Company.  However, price deflation in the   
major categories of components purchased by the Company has been substantial    
and is anticipated to continue through fiscal 1998.  Typically, new components  
such as new generations of microprocessors and new optical disk drive           
technologies are introduced at premium prices, and command high margins and     
high market prices for the initial six to twelve months of their availability.  
During this period, the Company is able to earn premium margins on its          
products.  As the life cycle progresses competitive pressures could force       
prices down and thus lower the premium margins that existed.  The Company does  
not believe price deflation will have an impact on the Imaging Systems product  
line because it serves a niche market although there can be no assurances that  
changing prices will not have an impact in the future on this product line.     

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NEW ACCOUNTING STANDARDS                                                        

In March 1995, the Financial Accounting Standards Board issued
Statement No.  121, "Accounting for the Impairment of Long-Lived Assets and for 
Long-Lived Assets to Be Disposed Of" which is effective for the Company in      
fiscal 1997.  The adoption of this standard did not have a material effect on   
the Company's consolidated financial statements.                                

       In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-Based Compensation" which became effective for   
the Company in fiscal year 1997.  The Company has complied with the disclosure  
requirements of SFAS No.  123 in fiscal year 1997.                              

        In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings per Share.' SFAS No.  128 amends the requirements of APB     
Opinion NO.  15, "Earnings per Share" by replacing the presentation of primary  
earnings per share with basic earnings per share.  It also requires dual        
presentation of basic and diluted earnings per share on the face of the income  
statement and requires a reconciliation of the numerator and the denominator of 
the diluted earnings per share computation.  This statement will be effective   
for the interim periods of and the fiscal year ended June 30, 1998, and will    
require restatement of previously issued per share data.  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 No.  130 requires reporting and    
display of comprehensive income and its components (revenues, expenses, gains   
and losses) in a full set of general purpose financial statements.  This        
statement will be effective for annual and interim financial statements         
beginning the fiscal year ending 1999, and will require reclassifications of    
prior periods.  The adoption of this standard is not expected to have a         
significant impact on the Company's consolidated financial statements.          

         In June 1997, The Financial Accounting Standards Board 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 will be effective for annual financial statements    
beginning the fiscal year ending 1999, and for interim periods beginning the    
fiscal year ending 2000.  The adoption of this standard is not expected to have 
a significant impact on the Company's consolidated financial statements.        

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ITEM 7. FINANCIAL STATEMENTS                                                    

See attached Financial Statements and Notes annexed hereto.   

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING             
AND FINANCIAL DISCLOSURE                                        

        In June 1997, the Board of Directors of the Company determined that it
would be in the best interests of the Company to terminate the services of its  
independent accountant KPMG Peat Marwick LLP, which acted as its independent    
accountant with respect to the fiscal years ended June 30, 1994 through June    
30, 1996.  The Board of Directors also decided to retain the firm of Coopers &  
Lybrand to be its independent accountants for the fiscal year ending June 30,   
1997.  The dismissal of KPMG Peat Marwick LLP was recommended and approved by   
the Board of Directors of the Company and is not the result of any disagreement 
with KPMG Peat Marwick LLP on any matter of accounting principles or practice,  
financial statement disclosure or auditing scope or procedure during fiscal     
periods ended June 30, 1996 and June 30, 1995 and through the date of           
dismissal.  Management of the Company recommended the change in order to        
reduce the Company's audit and income tax preparation costs.                    

       The audit reports issued by KPMG Peat Marwick LLP for the years ended
June 30, 1996 and 1995 did not contain an adverse opinion or a disclaimer of    
opinion, nor were they qualified or modified as to uncertainty, audit scope, or 
accounting principles.                                                          

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ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS.                                       

MANAGEMENT

     The executive officers and directors of the Company are as follows:

                                                        [Enlarge/Download Table]

       NAME             AGE                OFFICE                                                   
                                                                                                    
John T. Botti           33   President, Chief Executive Officer and Chairman of the Board           

Ira C. Whitman          34   Senior Vice-President--Research and Development, Secretary and Director

Donald J. Payne         64   Chief Operating Officer and Director                                   

John W. Loofbourrow     59   Director                                                               

J. Edward Sheridan      61   Director                                                               

Richard F. Clowes       61   Director                                                               

William E. Bierlin, Jr. 56   Director                                                               

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 officers or directors  
of the Company.  In addition, in connection with the Electrograph acquisition,  
Barry Steinberg, the former Chairman of the Board of Electrograph, had been     
granted the right to designate one member of the Board of Directors until       
September 1996.  Mr. Steinberg had designated himself.  The Company has also    
granted the principals of SST the right to designate a member of the Board of   
Directors for a period of three years and William Bierlin, Jr.  has been so     
designated.                                                                     

  In connection with the Company's 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.  To  
date, Whale has not exercised its right to have a nominee elected to the Board. 

       John T. Botti, a co-founder, has served as President, Chief Executive
Officer and Director since the incorporation of the                             

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Company 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 Senior Vice-President -- Research and
Development and a Director of the Company since the incorporation of the        
Company in August 1985.  Mr. Whitman graduated from RPI in 1984 with a          
B.S.--Computer and Systems Engineering and in 1990 he earned a Masters in       
Engineering from RPI.                                                           

        Donald J. Payne joined the Board of Directors in June 1992.  Mr. Payne
was hired by the Company in January 1996 as Chief Operating Officer of the      
Company and as President of the DocStar Division.  Prior to that, Mr. Payne was 
President of Federal Armored Express Air Courier Division since 1993.  From     
1990 to 1993 he was the President and Chief Executive Officer of Enable         
Software, Inc. From 1983 to 1990, he was President of Federal Armored Express,  
Inc. From 1977 to 1983, Mr. Payne was Executive Vice President, North American  
Operations for Brinks, Inc. For approximately 22 years prior to 1977, Mr.       
Payne served in various sales and marketing management capacities within the    
computer and office products industries, 17 of which were with International    
Business Machines Corporation.  Mr. Payne holds a B.B.A. degree from Adelphi    
University.                                                                     

        John W. Loofbourrow has been a Director of the Company since September
of 1987.  From June 1979 to the present, Mr. Loofbourrow has been the           
principal of John W. Loofbourrow Associates, Inc., a broker-dealer registered   
with the National Association of Securities Dealers, Inc. specializing in       
institutional private debt financing.  Mr. Loofbourrow holds a B.S. degree 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  
-- 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           
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.                                                  

    Richard F. Clowes joined the Board of Directors in June 1992.  Mr.
Clowes is currently Vice President of Nonstop Networks Limited where he is      
responsible for sales, marketing and product planning.                          

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For approximately twenty years prior to 1989, Mr. Clowes served in various      
capacities in the computer industry, 13 of which were with International        
Business Machines Corporation holding various positions in sales, technical     
support and management.  He was educated at Rugby and Warwick University (B.S.  
Economics) in England, and holds an Associate Professorship at City University  
of New York, in Library Information Science.                                    

        William E. Bierlin, Jr.  joined the Board of Directors in August 1994,
as the nominee for the former Systems Solutions Technology shareholders         
pursuant to the terms of the acquisition of SST.  Since September 1997, Mr.     
Bierlin has been Chairman of Hamburg Industries Inc., a privately held entity.  
Mr. Bierlin was a Managing Director of W. H. Newbold's Son & Co. Inc., a        
division of Fahnestock & Co., Inc., since 1980 and its Chairman from 1991 to    
September 1997.  Prior to 1980, Mr. Bierlin was employed at DeHaven & Townsend  
Crouten & Bodine where he was a member of the Executive Committee and the Board 
of Directors from 1975 through 1978.                                            

        Mr. Barry Steinberg resigned as a director of the Company on September
19, 1996.  Mr. Steinberg had served as a director since December 1994.          

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, William E. Bierlin, Jr.  and John W. Loofbourrow.  The Audit          
Committee acts to: (i) acquire a complete understanding of the Corporation's    
audit functions; (ii) review with management the finances, financial condition  
and interim financial statements of the Corporation; (iii) review with the      
Corporation's 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, 
1997, the Audit Committee met on one occasion.                                  

       Executive Committee.  The members of the Executive Committee are John
Botti, Ira C. Whitman and Donald Payne.  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    
the Company's securities; (v) authorize the acquisition of any major assets or  
business or change the business of the Corporation; 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                                                             

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convened.  During Fiscal 1997, the Executive Committee did not deem it          
necessary to meet.                                                              

        Compensation Committee.  The members of the Compensation Committee are
John W. Loofbourrow, William E. Bierlin, Jr.  and J. Edward Sheridan.  The      
Compensation Committee functions include administration of the Corporation's    
1992 Employee Stock Option Plan and Non-Executive Director Stock Option Plan    
and negotiation and review of all employment agreements of executive officers   
of the Corporation.  During the fiscal year ended June 30, 1997, the            
Compensation Committee held one meeting.                                        

MEETINGS OF THE BOARD OF DIRECTORS                                              

       During the fiscal year ended June 30, 1997, the Board of Directors of
the Company met on four occasions and voted by unanimous written consent on two 
occasions.  No member of the Board of Directors attended less than 75% 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 the Company's Directors and officers, and persons who own, directly or 
indirectly, more than 10% of a registered class of the Corporation's equity     
securities, to file with the Securities and Exchange Commission ("SEC") reports 
of ownership and reports of changes in ownership of common stock and other      
equity securities of the Company.  Officers, directors and greater than 10%     
shareholders are required by SEC regulations to furnish the Company with copies 
of all Section 16(a) forms that they file.  Based solely on review of the       
copies of such reports received by the Company, the Company believes that all   
Section 16(a) filing requirements applicable to officers, directors and 10%     
shareholders were complied with during the 1997 fiscal year.                    

SIGNIFICANT EMPLOYEES                                                           

      Dennis H. Bunt has been Chief Financial Officer of the Company 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 Peat, Marwick,        
Mitchell & Co. 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.                  

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   Robert C. Fallows has been Vice President of Sales of the Imaging
Division since September 1995.  From 1988 to 1995 Mr. Fallows served in         
various sales management positions with Riso Inc., the last being Vice          
President of Sales.  Riso Inc. is a copier manufacturer.  Prior to that, Mr.    
Fallows had 21 years of experience in sales management position in the office   
products and computer industries.  Mr. Fallows has a B.A. degree from Hamilton  
College.                                                                        

 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.         

ITEM 10.  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, paid by the Company during the years ended June 30,      
1997, 1996 and 1995 to each of the named executive officers of the Company.     

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SUMMARY COMPENSATION TABLE

                                                        [Enlarge/Download Table]

                                             ANNUAL COMPENSATION                                              
                                                                                           LONG TERM          
                                                                                      COMPENSATION AWARDS     

                                                                                                      NO. OF  
                                                                                                    SECURITIES
    NAME AND PRINCIPAL  FISCAL                                   OTHER ANNUAL    RESTRICTED         UNDERLYING
         POSITION        YEAR      SALARY          BONUS         COMPENSATION  STOCK AWARD(S)     OPTIONS/SARS
                                                                                                              
John Botti              1997    $110,000(1)         0(1)          $1,415(2)         0(3)                0     
 Chairman,              1996    $ 90,000(1)         0             $1,472            0                   0     
 President and          1995    $ 85,962            0             $1,179            0                600,000  
 Chief Executive                                                                                              
 Officer                                                                                                      

Donald Payne            1997     $100,000           0             $ 5,844(6)        0                   0     
 Chief Operating        1996      $43,554           0             $42,729(6)        0              100,000(7) 
 Officer,                                                                                                     
 President-                                                                                                   
 Imaging Div.-                                                                                                
 Director                                                                                                     

Joseph Vartabedian(4)   1997     $77,500          $118,609        $2,516(4)         0                   0     
 President of           1996     $77,500          $77,480         $2,516            0                   0     
 System                 1995     $67,782          $51,669         $2,316                            80,000(5) 
 Solutions                                                                                                    
 Technology, Inc.                                                                                             

(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 the pre-tax profits of the Company, which
  criteria was not met in 1997 or 1996, therefore, no bonuses were
     issued.  Additionally, Mr. Botti is entitled to receive $110,000 in
salary per year.  See "Employment Agreements."                

(2)      Includes: (i) for 1997, an automobile and expenses of $1,213 and the   
     payment of premiums on term life insurance policy of $202; (ii) for
        1996, an automobile and expenses of $1,213 and the payment of premiums
 on a term life insurance policy of $259; and (iii) for 1995, an
       automobile and expenses of $963 and the payment of premiums on a term
life insurance policy of $216.                                

(3)      No restricted stock awards were granted to Mr. Botti in fiscal 1997.   
      Mr. Botti, however, owned 244,038 restricted shares of the Company's
Common Stock on June 30, 1997, the market value of which was  
approximately $724,488 on such date,                          

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    without giving effect to the diminution in value attributed to the
restriction on such shares.                                   

(4)      Includes for fiscal years 1996 and 1997: (i) personal automobile       
       expenses of $2,400 and $2,400; (ii) the payment of premiums on a term
life insurance policy of $116 and $116, respectively.         

(5)      In connection with the Company's acquisition of SST, and its           
   employment of Mr. Vartabedian, the Company granted options to Mr.
     Vartabedian to acquire 80,000 shares of Common Stock at an exercise
       price of $5.125 per share.  The options expire on August 22, 1999 and
        vest at the rate of 20,000 shares per year commencing August 25, 1995.
        On June 30, 1995, the Compensation Committee of the Board of Directors
        cancelled the options previously granted and issued 80,000 new options
with an exercise price of $3.50 per share.                    

(6)      Includes (i) for fiscal year 1997 includes personal transportation of  
        $5,642 and $202 for premiums on a term life insurance policy; (ii) for
       fiscal year 1996 includes personal automobile expenses of $1,177, the
payment of premiums on a term life insurance policy of $84 and
     consulting fees of $41,468 which were paid prior to Mr. Payne being
hired by the Company.                                         

(7)      On June 30, 1995, Mr. Payne was granted five-year warrants to purchase 
  100,000 shares of Common Stock at an exercise price of $1.56 per
share.                                                        

STOCK OPTION GRANTS                                                             

    No stock options were granted during the year ended June 30, 1997,
under the Company's 1992 Employees Stock Option Plan to any of the named        
executive officers of the Company.  Additionally, no Stock Appreciation Rights  
were granted to any of the named executive officers during the last fiscal      
year.                                                                           

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, 1997.  

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

                                                        [Enlarge/Download Table]

                                                                                     Value of     
                                                                                     --------     
                                                                                   Unexercised    
                                                                                   -----------    
                                                                                   In-the-Money   
                                                                                   ------------   
                                                                                    Options at    
                                                                                    ----------    
                                                                                     June 30,     
                                                                                     --------     
                                                        Number of Unexercised        1997(1)      
                                                        ---------------------        -------      
                    Shares Acquired                  Options as of June 30, 1997   Exercisable/   
                    ---------------                  ---------------------------   ------------   
 Name               on Exercise      Value Realized   Exercisable/Unexercisable   Unexercisable   
 ----               -----------      --------------   -------------------------   -------------   
                                                                                                  
John T. Botti                0             --              585,185/250,000     $ 1,182,747/350,000
Joseph Vartabedian           0             --               60,000/20,600              0/0        
Donald Payne(2)              0             --                 170,000/0        $     238,000/0    

-------------------------                                                       

(1)      Based upon the closing bid price ($2.96 per share) of the Company's    
Common Stock on June 30, 1997 less the exercise price for the 
aggregate number of shares subject to the options.            

(2)      Includes warrants to purchase 100,000 shares of Common Stock at an     
      exercise price of $1.56 per share.  The warrants were issued on June
30, 1995 and are exercisable over a five-year period.         

EMPLOYMENT AGREEMENTS                                                           

     Effective July 1, 1995, the Company entered into a new employment
agreement with Mr. Botti 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% in each of the second and third  
years; (ii) a bonus of 3% of the Company's pre-tax net income, with such        
additional bonuses as may be awarded in 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 100,000 vested in on June 30, 1995, 125,000 vested on June 30, 1996    
and 125,000 vest on each of June 30, 1997, 1998 and 1999; (iv) certain          
insurance and severance benefits and (v) automobile and expenses.               

COMPENSATION OF DIRECTORS                                                       

       In August 1994, the Company entered into an employment agreement with
Joseph Vartabedian pursuant to which Mr. Vartabedian agreed to serve as the     
President of the Company's subsidiary, Systems Solutions Technology, Inc.       
Prior to the acquisition of SST by the Company in August, 1994, Mr. Vartabedian 
served as its President.  Under the terms of the employment agreement, Mr.      
Vartabedian receives annual compensation in the amount of $77,500.  He is also  
entitled to (i) a profit bonus equal to (a) 25% of the first $400,000 of net    
profit, (b) 20% of the next $200,000 of                                         

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profit and (c) 15% of any profit exceeding $600,000 and (ii) a revenue bonus    
equal on a sliding scale of between $5,000 and $15,000 if revenues are at least 
$9,000,000.  The employment agreement is for a term of two years and expired in 
August 1996.                                                                    

Effective June 30, 1995, the Company entered into a consulting
agreement with Donald Payne pursuant to which Mr. Payne will provide certain    
services to the Company with respect to marketing and sales of its DocStar      
system.  Pursuant to the agreement, Mr. Payne received compensation equal to    
$700 per diem and warrants to purchase 100,000 shares of Common Stock at an     
exercise price of $1.5625 per share.  Subsequently, in January 1996, Mr. Payne  
was hired as Chief Operating Officer of the Company and President of the        
DocStar Division.                                                               

      Directors were not compensated for their services as such during the
last fiscal year.  The Directors receive options to purchase 10,000 shares for  
each year of service under the Non-Executive Director Stock Option Plan and are 
reimbursed for expenses incurred in order to attend meetings of the Board of    
Directors.                                                                      

STOCK OPTION PLANS                                                              

    In April 1992, the Company 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 the Company's Common Stock.  On January 26, 1995, the      
stockholders of the Company 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 June 30, 1997, there were outstanding 1,939,370 options    
under the 1992 Plan with exercise prices ranging from $.34 to $7.25.            

      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 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                                                                        

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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 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.                                              

       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.

  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.  The Director Plan provides for issuance   
of a maximum of 400,000 shares of Common Stock upon the exercise of stock       
options granted under the Director Plan.  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 10,000 shares, upon joining the Board of Directors, and on   
each September 1st thereafter, provided such person has served as a director    
for the 12 months immediately prior to such September 1st.  Similarly, 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.                         

      As of June 30, 1997, there are outstanding 220,000 options under the
Director Plan with exercise prices from $3.375 to $5.125.                       

      The exercise price for options granted under the Director Plan shall
be 100% of the fair market value of the Common Stock on the date of grant.  The 
"fair market value" will be 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                                        

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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 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.                         

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN                                         
BENEFICIAL OWNERS AND MANAGEMENT                            

        The following table sets forth certain information as of September 22,
1997 with respect to (i) each director and each executive officer, (ii) all     
directors and officers as a group, and (iii) 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 the Corporation's Common Stock and Series A Preferred Stock.    

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                                                                [Download Table]

                                               Amount and Nature             
Type of          Name and Address of           of Beneficial      Percentage 
Class            Beneficial Holder             Ownership (1)      of Class   
-----            -----------------             -------------      --------   
                                                                             
Common           John T. Botti                 854,223 (2)               8.9%
                 c/o Bitwise Designs                                         
                 Rotterdam Industrial Park                                   
                 Schenectady, NY 12306                                       

Common           Ira C. Whitman                761,538 (3)               7.6%
                 c/o Bitwise Designs                                         
                 Rotterdam Industrial Park                                   
                 Schenectady, NY 12306                                       

Common           John W. Loofbourrow            68,350 (4)               1.1%
                 c/o John W. Loofbourrow                                     
                 Associates, Inc.                                            
                 One World Trade Center                                      
                 Suite 2413                                                  
                 New York, NY 10048                                          

Common           Dennis Bunt                   105,000 (5)                 1%
                 c/o Bitwise Designs, Inc.                                   
                 Rotterdam Industrial Park                                   
                 Schenectady, New York  12306                                

Common           Donald J. Payne               177,000 (6)               2.1%
                 c/o Bitwise Designs, Inc.                                   
                 Rotterdam Industrial Park                                   
                 Schenectady, New York  12306                                

Common           J. Edward Sheridan             50,000 (7)                *  
                 Sheridan Management Co.                                     
                 421 Sasco Hill Rd.                                          
                 Fairfield, CT 06430                                         

Common           Richard F. Clowes              50,000 (8)                *  
                 Nonstop Networks Ltd.                                       
                 20 Waterside Plaza #6J                                      
                 New York, NY 10010                                          

Common           William E. Bierlin, Jr.        42,653 (9)                *  
                 c/o W. H. Newbold's Son & Co.                               
                 500 Old York Road                                           
                 Jenkintown, PA  19046                                       

Series A         John T. Botti                     100 (10)               50%
Preferred Stock  c\o Bitwise Designs, Inc.                                   
                 Rotterdam Industrial Park                                   
                 Schenectady, N.Y. 12306                                     

Series A         Ira C. Whitman                    100 (11)               50%
Preferred Stock  c/o Bitwise Designs, Inc.                                   
                 Rotterdam Industrial Park                                   
                 Schenectady, N.Y. 12306                                     

Directors/Officers as a group                                             __%

(Footnotes appear on next page....)                                             

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(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 585,185 shares of Common     
        Stock.  Does not include non-vested options to purchase 250,000 shares
of Common Stock.                                              

(3)      Includes vested stock options to purchase 368,518 shares of Common     
       Stock.  Does not include non-vested options to purchase 66,667 shares
of Common Stock.                                              

(4)      Includes shares held by John W. Loofbourrow Associates, Inc. Profit    
     Sharing Plan and options to purchase 50,000 shares of Common Stock.

(5)      Includes vested options to purchase 93,000 shares of Common Stock and  
       excludes nonvested options to purchase 11,000 shares of Common Stock.
 Includes 1,000 shares of Common Stock owned by Mr. Bunt's wife.

(6)      Includes options to purchase 70,000 shares of Common Stock.  Also      
    includes warrants to purchase 100,000 shares of Common Stock at an
exercise price of $1.5625 per share.                          

(7)      Includes vested options to purchase 50,000 shares of Common Stock.     

(8)      Includes vested options to purchase 50,000 shares of Common Stock.     

(9)      Includes vested options to purchase 40,000 shares of Common Stock.     

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

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

*  Percentage not significant.                                                

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                        

  Except as disclosed herein, the Company has 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 the Company's     
Common Stock.                                                                   

Mr. Botti has personally guaranteed the lease of the Company's
facilities from Rotterdam Ventures, Inc. The Company may attempt to negotiate   
with this entity to cancel or limit the personal guarantee.                     

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    On July 17, 1995, the Company entered into an agreement with Whale
Securities Co., L.P. pursuant to which Whale Securities has been retained as    
the Company's financial consultant and investment banker for a one-year period. 
Under the terms of the consulting agreement, Whale Securities receives a        
consulting fee of $2,500 per month and received five-year warrants to purchase  
200,000 shares of Common Stock at an exercise price of $1.50 per share.         

    In connection with the December 1995 private offering, the Company
issued to Whale Securities Co. L.P.  and its designees, for services Whale      
provided as placement agent, warrants (the "Placement Agent Warrants") to       
purchase (i) 214,884 shares of common Stock and (ii) Warrants to purchase       
214,884 Unit Warrants.  The terms of the Warrants issued to Whale are similar   
to those sold to the investors in the December private offering, in that they   
are exercisable for a period of five years, and have an exercise price of $4.50 
per share.  The Warrants issued to Whale and its designees are not redeemable   
by the Company.  The Warrants issued to Whale contain certain anti-dilution     
provisions.                                                                     

      During fiscal 1996 the Company loaned $50,000 to Mr. Richard Clowes.
The loan bears interest at 6% per annum and is secured by all of the securities 
owned by Mr. Clowes.  The loan is payable in full in November 1997.             

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

ITEM 13.  EXHIBITS, FINANCIAL STATEMENT                                         
SCHEDULES AND REPORTS ON FORM 8-K                           

(a)  Financial Statement Schedules                                              

None                        

(b)  Reports on Form 8-K                                                        

        During the quarter ended June 30, 1997 the Company filed the following
reports:                                                                        

    Form 8K/A dated June 27, 1997, relating to the termination of KPMG
Peat Marwick, LLP as its independent auditor.                                   

(c)  Exhibits                                                                   

  The following exhibits, designated by an asterisk (*), have been
previously filed with the Commission and, pursuant to 17 C.F.R. Section         
230.411, are incorporated by reference to the document referenced in brackets   
following the descriptions of such exhibits.                                    

Exhibit No.                       Description                                   
-----------                       -----------                                   

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2.1*     Agreement and Plan of Merger between Bitwise Designs, Inc. and         
Electrograph Systems, Inc. dated February 7, 1994             

2.2*     Agreement and Plan of Merger between Bitwise Designs, Inc. and Systems 
Solutions, Inc. dated April 29, 1994                          

3.1*     Certificate of Incorporation of Bitwise Designs, Inc.-Delaware (Exhibit
     3.3.1 to Registration Statement on Form S-18, File No. 33-46246-NY)

3.1.1*   Certificate of Designation of Series B Preferred Stock                 

3.2*     By-Laws (Exhibit 3.2 to Registration Statement on Form S-18, File No.  
33-46246-NY)                                                  

4.1*     Form of Common Stock Certificate (Exhibit 4.1 to Registration Statement
on Form S-18, File No. 33-46246-NY)                           

4.2*     Form of Series A Preferred Stock Certificate (Exhibit 4.2 to           
Registration Statement on Form S-18, File No. 33-46246-NY)    

4.3*     Form of Warrant issued to Berkeley Securities Corp. (Exhibit 4.3 to    
Registration Statement on Form S-18, File No. 33-46246-NY)    

4.4*     Form of Warrant issued to certain individuals in April, 1992 (Exhibit  
   4.4 to Registration Statement on Form S-18, File No. 33-46246-NY)

4.5*     Form of Series B Preferred Stock Certificates (Exhibit 4.5 to the      
Registration Statement on form SB-2, File No. 33-76494)       

4.6*     Form of Warrant to be issued to Berkeley Securities Corp. (Exhibit 4.6 
to the Registration Statement on form SB-2, File No. 33-76494)

4.7      Form of Notice and Warrant Purchase, Paying and Conversion/Exercise    
     Agency Agreement dated as of August 8, 1997 between the Company and
Barca Del Gottardo.                                           

4.8      Terms of 8% Convertible Notes due August 11, 2002.                     

4.9      Terms of Warrants and Global Warrant expiring August 11, 2002.         

10.1*    Lease agreement with Rotterdam Industrial Park, dated August 7, 1991   
(Exhibit 10.1 to Registration Statement on Form S-18, File No.
33-46246-NY)                                                  

10.1.1*  Lease warrant waiver agreement (Exhibit 10.1.1 to Registration         
Statement on Form S-18, File No. 33-46246-NY)                 

10.2*    Lease with Siemens Credit Corporation for telephone system dated       
         November 25, 1991 (Exhibit 10.2 to Registration Statement on Form S-18,
File No. 33-46246-NY)                                         

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10.3*    Lease agreement with Apple Commercial Credit for laser printer, dated  
     June 23, 1987 (Exhibit 10.3 to Registration Statement on Form S-18,
File No. 33-46246-NY)                                         

10.4*    Leases with Adirondack Leasing Associates, Ltd. (Exhibit 10.4 to       
Registration Statement on Form S-18, File No. 33-46246-NY)    

10.5*    Loan agreement with U.S. Small Business Administration and Norstar     
      Bank, dated April 4, 1991 (Exhibit 10.5 to Registration Statement on
Form S-18, File No. 33-46246-NY)                              

10.6*    Loan agreement with Schenectady Economic Development Corporation, dated
      August 7, 1991 (Exhibit 10.6 to Registration Statement on Form S-18,
File No. 33-46246-NY)                                         

10.8*    Employment agreement with John T. Botti, dated April, 1992 (Exhibit    
    10.8 to Registration Statement on Form S-18, File No. 33-46246-NY)

10.9*    Employment agreement with Ira C. Whitman, dated April, 1992 (Exhibit   
    10.9 to Registration Statement on Form S-18, File No. 33-46246-NY)

10.10*   1992 Employee stock option plan (Exhibit 10.10 to Registration         
Statement on Form S-18, File No. 33-46246-NY)                 

10.11*   1992 Nonexecutive Directors stock option plan (Exhibit 10.11 to        
Registration Statement on Form S-18, File No. 33-46246-NY)    

10.13*   Loan agreement with Norstar Bank dated February 6, 1992 (Exhibit 10.13 
to Registration Statement on Form S-18, File No. 33-46246-NY) 

10.13.1* Norstar Bank waiver agreement (Exhibit 10.13.1 to Registration         
Statement on Form S-18, File No. 33-46246-NY)                 

10.14*   Agreement with Prime Computer, Inc. (Exhibit 10.14 to Registration     
Statement on Form S-18, File No. 33-46246-NY)                 

10.15*   Agreement with Mentor Computer Graphics Ltd. (Exhibit 10.15 to         
Registration Statement on Form S-18, File No. 33-46246-NY)    

10.16*   Agreement with Robert W. Schwartz, Inc. dated February 10, 1992        
 (Exhibit 10.16 to Registration Statement on Form S-18, File No.
33-46246-NY)                                                  

41

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10.17*   Form of Financial Consulting Agreement with the Underwriter (Exhibit   
      10.17 to the Registration Statement on form SB-2, File No. 33-76494)

10.18*   Financing Agreement by and among Maryland Industrial Development       
       Financing Authority, JED Associates, State National Bank of Maryland,
   Electronic Marketing Associates, Inc. (name was changed to System
        Solutions Technology, Inc.), Trimarc Systems Incorporated and Intermec
        Mid-Atlantic Corporation dated December 11, 1985 (Exhibit 10.18 to the
Registration Statement on form SB-2, File No. 33-76494)       

10.19*   Maryland Industrial Development Financing Authority Limited Obligation 
      Economic Development Revenue Bond (Exhibit 10.19 to the Registration
Statement on form SB-2, File No. 33-76494)                    

10.20*   Cross-Collateral Security Agreement between NationsCredit Corporation, 
  Bitwise Designs, Electrograph Systems, Inc. and System Solutions
Technology, Inc. dated July 18, 1995.                         

10.21*   Subcontract dated September 28, 1995 between PRC, Inc. and System      
Solutions Technology, Inc.                                    

10.22*   Financial Consulting Agreement dated July 17, 1995 between the Company 
and Whale Securities, Co.                                     

10.23*   Agreement and Plan of Merger by and among Bitwise Designs, Inc.,       
      Bitwise DJS, Inc., certain individuals and DJS Marketing Group, Inc.
  dated March 6, 1996 (Exhibit 2 to Form 8-K dated March 22, 1996)

10.24    Form of Conversion Agency Agreement between the Company and Banca      
Del Gottardo dated as of August 8, 1997.                      

10.25    Form of Warrant Agency Agreement between the Company and Banca Del     
Gottardo dated as of August 8, 1997.                          

11       Statement re: Computation of Per Share Earnings                        

21       Subsidiaries of Registrant                                             

23       Consent of KPMG Peat Marwick LLP                                       

23.1     Consent of Coopers & Lybrand, LLP                                      

27       Financial Data Schedule                                                

42

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SIGNATURES

       Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed   
on its behalf by the undersigned, thereunto duly authorized.                    

                                     BITWISE DESIGNS, INC.

                                   By:/s/John T. Botti
                                                  ----------------------------
                                   John T. Botti
                                                President, Chairman of the
                                               Board and Chief Executive
                             Officer

Dated: September 26, 1997                                                       

  Pursuant to the requirements of the Securities Act of 1933, this
Report has been signed below by the following persons in the capacities and on  
the dates indicated:                                                            

                                                                [Download Table]

         Signature         Capacity                        Date     
         ---------         --------                        ----     
                                                                    
/s/ John T. Botti         President,              September 26, 1997
------------------------  Chairman of the                           
John T. Botti             Board and Chief                           
                          Executive Officer                         

/s/ Donald J. Payne       Chief Operating         September 26, 1997
------------------------  Officer and Director                      
Donald J. Payne                                                     

/s/ Ira C. Whitman        Senior Vice             September 26, 1997
------------------------  President and Director                    
Ira C. Whitman                                                      

/s/ John W. Loofbourrow   Director                September 26, 1997
------------------------                                            
John W. Loofbourrow                                                 

/s/ J. Edward Sheridan    Director                September 26, 1997
------------------------                                            
J. Edward Sheridan                                                  

/s/ Richard F. Clowes     Director                September 26, 1997
------------------------                                            
Richard F. Clowes                                                   

/s/ William Bierlin, Jr.  Director                September 26, 1997
------------------------                                            
William Bierlin, Jr.                                                

/s/ Dennis H. Bunt        Chief Financial         September 26, 1997
------------------------  Officer and Principal                     
Dennis H. Bunt            Accounting Officer                        

43

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  The following exhibits, designated by an asterisk (*), have been
previously filed with the Commission and, pursuant to 17 C.F.R. Section         
230.411, are incorporated by reference to the document referenced in brackets   
following the descriptions of such exhibits.                                    

Exhibit No.                       Description                                   
-----------                       -----------                                   

2.1*     Agreement and Plan of Merger between Bitwise Designs, Inc. and         
Electrograph Systems, Inc. dated February 7, 1994             

2.2*     Agreement and Plan of Merger between Bitwise Designs, Inc. and Systems 
Solutions, Inc. dated April 29, 1994                          

3.1*     Certificate of Incorporation of Bitwise Designs, Inc.-Delaware (Exhibit
     3.3.1 to Registration Statement on Form S-18, File No. 33-46246-NY)

3.1.1*   Certificate of Designation of Series B Preferred Stock                 

3.2*     By-Laws (Exhibit 3.2 to Registration Statement on Form S-18, File No.  
33-46246-NY)                                                  

4.1*     Form of Common Stock Certificate (Exhibit 4.1 to Registration Statement
on Form S-18, File No. 33-46246-NY)                           

4.2*     Form of Series A Preferred Stock Certificate (Exhibit 4.2 to           
Registration Statement on Form S-18, File No. 33-46246-NY)    

4.3*     Form of Warrant issued to Berkeley Securities Corp. (Exhibit 4.3 to    
Registration Statement on Form S-18, File No. 33-46246-NY)    

4.4*     Form of Warrant issued to certain individuals in April, 1992 (Exhibit  
   4.4 to Registration Statement on Form S-18, File No. 33-46246-NY)

4.5*     Form of Series B Preferred Stock Certificates (Exhibit 4.5 to the      
Registration Statement on form SB-2, File No. 33-76494)       

4.6*     Form of Warrant to be issued to Berkeley Securities Corp. (Exhibit 4.6 
to the Registration Statement on form SB-2, File No. 33-76494)

4.7      Form of Notice and Warrant Purchase, Paying and Conversion/Exercise    
     Agency Agreement dated as of August 8, 1997 between the Company and
Barca Del Gottardo.                                           

4.8      Terms of 8% Convertible Notes due August 11, 2002.                     

4.9      Terms of Warrants and Global Warrant expiring August 11, 2002.         

10.1*    Lease agreement with Rotterdam Industrial Park, dated August 7, 1991   
(Exhibit 10.1 to Registration Statement on Form S-18, File No.
33-46246-NY)                                                  

10.1.1*  Lease warrant waiver agreement (Exhibit 10.1.1 to Registration         
Statement on Form S-18, File No. 33-46246-NY)                 

10.2*    Lease with Siemens Credit Corporation for telephone system dated       
         November 25, 1991 (Exhibit 10.2 to Registration Statement on Form S-18,
File No. 33-46246-NY)                                         

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10.3*    Lease agreement with Apple Commercial Credit for laser printer, dated  
     June 23, 1987 (Exhibit 10.3 to Registration Statement on Form S-18,
File No. 33-46246-NY)                                         

10.4*    Leases with Adirondack Leasing Associates, Ltd. (Exhibit 10.4 to       
Registration Statement on Form S-18, File No. 33-46246-NY)    

10.5*    Loan agreement with U.S. Small Business Administration and Norstar     
      Bank, dated April 4, 1991 (Exhibit 10.5 to Registration Statement on
Form S-18, File No. 33-46246-NY)                              

10.6*    Loan agreement with Schenectady Economic Development Corporation, dated
      August 7, 1991 (Exhibit 10.6 to Registration Statement on Form S-18,
File No. 33-46246-NY)                                         

10.8*    Employment agreement with John T. Botti, dated April, 1992 (Exhibit    
    10.8 to Registration Statement on Form S-18, File No. 33-46246-NY)

10.9*    Employment agreement with Ira C. Whitman, dated April, 1992 (Exhibit   
    10.9 to Registration Statement on Form S-18, File No. 33-46246-NY)

10.10*   1992 Employee stock option plan (Exhibit 10.10 to Registration         
Statement on Form S-18, File No. 33-46246-NY)                 

10.11*   1992 Nonexecutive Directors stock option plan (Exhibit 10.11 to        
Registration Statement on Form S-18, File No. 33-46246-NY)    

10.13*   Loan agreement with Norstar Bank dated February 6, 1992 (Exhibit 10.13 
to Registration Statement on Form S-18, File No. 33-46246-NY) 

10.13.1* Norstar Bank waiver agreement (Exhibit 10.13.1 to Registration         
Statement on Form S-18, File No. 33-46246-NY)                 

10.14*   Agreement with Prime Computer, Inc. (Exhibit 10.14 to Registration     
Statement on Form S-18, File No. 33-46246-NY)                 

10.15*   Agreement with Mentor Computer Graphics Ltd. (Exhibit 10.15 to         
Registration Statement on Form S-18, File No. 33-46246-NY)    

10.16*   Agreement with Robert W. Schwartz, Inc. dated February 10, 1992        
 (Exhibit 10.16 to Registration Statement on Form S-18, File No.
33-46246-NY)                                                  

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10.17*   Form of Financial Consulting Agreement with the Underwriter (Exhibit   
      10.17 to the Registration Statement on form SB-2, File No. 33-76494)

10.18*   Financing Agreement by and among Maryland Industrial Development       
       Financing Authority, JED Associates, State National Bank of Maryland,
   Electronic Marketing Associates, Inc. (name was changed to System
        Solutions Technology, Inc.), Trimarc Systems Incorporated and Intermec
        Mid-Atlantic Corporation dated December 11, 1985 (Exhibit 10.18 to the
Registration Statement on form SB-2, File No. 33-76494)       

10.19*   Maryland Industrial Development Financing Authority Limited Obligation 
      Economic Development Revenue Bond (Exhibit 10.19 to the Registration
Statement on form SB-2, File No. 33-76494)                    

10.20*   Cross-Collateral Security Agreement between NationsCredit Corporation, 
  Bitwise Designs, Electrograph Systems, Inc. and System Solutions
Technology, Inc. dated July 18, 1995.                         

10.21*   Subcontract dated September 28, 1995 between PRC, Inc. and System      
Solutions Technology, Inc.                                    

10.22*   Financial Consulting Agreement dated July 17, 1995 between the Company 
and Whale Securities, Co.                                     

10.23*   Agreement and Plan of Merger by and among Bitwise Designs, Inc.,       
      Bitwise DJS, Inc., certain individuals and DJS Marketing Group, Inc.
  dated March 6, 1996 (Exhibit 2 to Form 8-K dated March 22, 1996)

10.24    Form of Conversion Agency Agreement between the Company and Banca      
Del Gottardo dated as of August 8, 1997.                      

10.25    Form of Warrant Agency Agreement between the Company and Banca Del     
Gottardo dated as of August 8, 1997.                          

11       Statement re: Computation of Per Share Earnings                        

21       Subsidiaries of Registrant                                             

23       Consent of KPMG Peat Marwick, LLP                                      

23.1     Consent of Coopers & Lybrand, LLP                                      

27       Financial Data Schedule                                                

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BITWISE DESIGNS, INC. AND SUBSIDIARIES

 CONSOLIDATED FINANCIAL STATEMENTS
(AND REPORTS OF INDEPENDENT ACCOUNTANTS)

FOR THE YEARS ENDED JUNE 30, 1997 AND 1996

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TABLE OF CONTENTS                                                               

                                                                Page
                                                                ----

CONSOLIDATED FINANCIAL STATEMENTS                                               
Balance sheets                                                       3  
Statements of operations                                             4  
Statements of shareholders' equity                                   5  
Statements of cash flows                                             6  
Notes to consolidated financial statements                        7-21  

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REPORT OF INDEPENDENT ACCOUNTANTS                                               

The Shareholders and Board of Directors                                         
Bitwise Designs, Inc.                                                           

We have audited the accompanying consolidated balance sheet of Bitwise          
Designs, Inc. and Subsidiaries as of June 30, 1997, and the related             
consolidated statements of operations, shareholders' equity and cash flows for  
the year then ended. These consolidated financial statements are the            
responsibility of the Company's management. Our responsibility is to express an 
opinion on these consolidated financial statements based on our audit.          

We conducted our audit in accordance with generally accepted auditing standards.
Those standards 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. An audit    
also includes assessing the accounting principles used and significant          
estimates made by management, as well as evaluating the overall financial       
statement presentation. We believe that our audit provides a reasonable basis   
for our opinion.                                                                

In our opinion, the consolidated financial statements referred to above present 
fairly, in all material respects, the financial position of Bitwise Designs,    
Inc. and Subsidiaries as of June 30, 1997, and the results of their operations  
and their cash flows for the year then ended in conformity with generally       
accepted accounting principles.                                                 

                                                      COOPERS & LYBRAND L.L.P.

Albany, New York                                                                
September 4, 1997                                                               

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BITWISE DESIGNS, INC. AND SUBSIDIARIES                                          

CONSOLIDATED BALANCE SHEETS                                                     
June 30, 1997 and 1996                                                          

                                                        [Enlarge/Download Table]

                                                                                  1997           1996     
                                      ASSETS                                                              

Current assets:                                                                                           
                                                                                                          
    Cash and cash equivalents                                                 $  2,863,847   $  3,377,305 
    Accounts receivable, net of allowance for doubtful accounts of                                        
      $189,126 in 1997 and $215,000 in 1996                                      7,219,539      5,271,933 
    Due from related parties (Note 12)                                             216,465        124,136 
    Inventories (Note 2)                                                         3,137,332      4,061,645 
    Income taxes receivable                                                          8,650         16,810 
    Prepaid expenses and other current assets                                      176,338        249,893 
                                                                              ------------   ------------ 
         Total current assets                                                   13,622,171     13,101,722 

Property and equipment, net (Notes 3 and 4)                                        998,781        946,931 

Other assets:                                                                                             
    Due from related parties (Note 12)                                                            128,123 
    Software development costs, net of accumulated amortization of                                        
      $115,758 in 1997 and $50,153 in 1996                                          81,059         36,275 
    Excess of cost over net assets of companies acquired, net                    4,182,932      5,609,055 
    Other assets                                                                    39,822         57,931 
                                                                              ------------   ------------ 

            Total assets (Notes 4 and 5)                                      $ 18,924,765   $ 19,880,037 
                                                                              ============   ============ 

                       LIABILITIES AND SHAREHOLDERS' EQUITY                                               

Current liabilities:                                                                                      
    Borrowings under lines of credit (Note 4)                                 $  4,219,877   $  2,815,942 
    Accounts payable                                                             2,956,270      3,968,248 
    Current portion of long-term debt (Note 5)                                       1,601         20,205 
    Current portion of obligations under capital leases (Note 7)                    10,200         26,885 
    Accrued expenses and other current liabilities                                 542,550        403,569 
                                                                              ------------   ------------ 
            Total current liabilities                                            7,730,498      7,234,849 

Long-term debt, net of current portion (Note 5)                                                     1,905 
Obligations under capital leases, net of current portion (Note 7)                    1,297          9,268 
Other liabilities                                                                                   6,776 
                                                                              ------------   ------------ 
            Total liabilities                                                    7,731,795      7,252,798 
                                                                              ------------   ------------ 

Commitments (Notes 7 and 10)                                                                              

Shareholders' equity (Notes 8 and 9):                                                                     
    Preferred stock - $.10 par value, 5,000,000 shares authorized:                                        
      Series A - 200 shares issued and outstanding ($1.00 liquidation value)            20             20 
      Series B convertible preferred - 0 and 112,003 shares issued and                                    
         outstanding in 1997 and 1996, respectively                                                11,200 
    Common stock, $.001 par value; authorized 20,000,000 shares; issued                                   
      7,367,720 and 6,754,606 shares in 1997 and 1996, respectively                  7,368          6,755 
    Additional paid-in capital                                                  18,996,591     18,277,114 
    Accumulated deficit                                                         (7,810,586)    (5,667,427)
                                                                              ------------   ------------ 
                                                                                11,193,393     12,627,662 
    Less cost of common shares in treasury (338 shares)                               (423)          (423)
                                                                              ------------   ------------ 
            Total shareholders' equity                                          11,192,970     12,627,239 
                                                                              ------------   ------------ 

            Total liabilities and shareholders' equity                        $ 18,924,765   $ 19,880,037 
                                                                              ============   ============ 

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

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BITWISE DESIGNS, INC. AND SUBSIDIARIES                                          

CONSOLIDATED STATEMENTS OF OPERATIONS                                           
Years Ended June 30, 1997 and 1996                                              

                                                                [Download Table]

                                                  1997           1996     

                                                                          
Net sales                                     $ 53,109,469   $ 30,611,258 

Cost of goods sold                              43,102,733     25,784,565 
                                              ------------   ------------ 

      Gross profit                              10,006,736      4,826,693 
                                              ------------   ------------ 

Selling, general and administrative expenses    11,834,173      7,564,946 

Product development expenses                       176,539        129,075 
                                              ------------   ------------ 

      Total operating expenses                  12,010,712      7,694,021 
                                              ------------   ------------ 

      Loss from operations                      (2,003,976)    (2,867,328)
                                              ------------   ------------ 

Other income (expense):                                                   

    Interest and other income                      116,565        157,218 

    Gain on sale of subsidiary                     214,989                

    Interest expense                              (444,918)      (232,678)
                                              ------------   ------------ 
                                                  (113,364)       (75,460)
                                              ------------   ------------ 

      Loss before income taxes                  (2,117,340)    (2,942,788)

Income tax expense (Note 6)                         25,819         18,251 
                                              ------------   ------------ 

      Net loss                                $ (2,143,159)  $ (2,961,039)
                                              ============   ============ 

Per share amounts:                                                        

    Net loss per common share                 $       (.30)  $       (.55)
                                              ============   ============ 

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

4 

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BITWISE DESIGNS, INC. AND SUBSIDIARIES                                          

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY                                 
Years Ended June 30, 1997 and 1996                                              

                                                        [Enlarge/Download Table]

                                                       PREFERRED STOCK             COMMON STOCK                      
                                                   ------------------------  -------------------------               
                                                   NUMBER OF     $.10 PAR     NUMBER OF    $.001 PAR      PAID-IN    
                                                     SHARES       VALUE        SHARES        VALUE        CAPITAL    
                                                   -----------  -----------  ------------  -----------  -------------

                                                                                                                     
Balances at June 30, 1995                             112,203   $   11,220     4,473,661   $    4,473   $ 11,537,690 

Issuance of common stock pursuant to private                                                                         
   placement under Regulation D, net (Note 9)                                  1,428,565        1,429      4,242,218 

Issuance of stock pursuant to acquisition, net                                   200,000          200      1,049,800 
     (Note 14)                                                                                                       

Compensation expense                                                                                          25,000 

Stock warrants exercised (Note 9)                                                652,380          653      1,452,847 

Preferred stock dividends                                                                                            
   7% Class B shares ($.25 per share)                                                                       (20,441) 

   10% Class B shares ($.35 per share)                                                                      (10,000) 

Net loss - 1996                                                                                                      
                                                   -----------  -----------  ------------  -----------  -------------

Balances at June 30, 1996                             112,203       11,220     6,754,606        6,755     18,277,114 

Stock options exercised (Note 9)                                                  30,527           30         26,532 

Stock warrants exercised (Note 9)                                                358,142          358        724,969 

Conversion of preferred shares to common (Note 8)   (112,003)     (11,200)       112,003          112         11,088 

Issuance of shares pursuant to dissolution of                                                                        
   subsidiary Employee Stock Ownership Plan (Note                                112,442          113          (113) 
        12)                                                                                                          

Cost of filing stock registration statement                                                                 (35,389) 

Preferred stock dividends                                                                                            
   7% Class B shares ($.25 per share)                                                                        (5,110) 

   10% Class B shares ($.35 per share)                                                                       (2,500) 

Net loss - 1997                                                                                                      
                                                   -----------  -----------  ------------  -----------  -------------

Balances at June 30, 1997                                 200   $       20     7,367,720   $    7,368   $ 18,996,591 
                                                   ===========  ===========  ============  ===========  =============

                                                        [Enlarge/Download Table]

                                                                                  TOTAL     
                                                   ACCUMULATED     TREASURY    SHAREHOLDERS'
                                                     DEFICIT        STOCK         EQUITY    
                                                   -------------  -----------  -------------

                                                                                            
Balances at June 30, 1995                          $ (2,706,388)  $    (423)   $  8,846,572 

Issuance of common stock pursuant to private                                                
   placement under Regulation D, net (Note 9)                                     4,243,647 

Issuance of stock pursuant to acquisition, net                                    1,050,000 
     (Note 14)                                                                              

Compensation expense                                                                 25,000 

Stock warrants exercised (Note 9)                                                 1,453,500 

Preferred stock dividends                                                                   
   7% Class B shares ($.25 per share)                                              (20,441) 

   10% Class B shares ($.35 per share)                                             (10,000) 

Net loss - 1996                                      (2,961,039)                (2,961,039) 
                                                   -------------  -----------  -------------

Balances at June 30, 1996                            (5,667,427)       (423)     12,627,239 

Stock options exercised (Note 9)                                                     26,562 

Stock warrants exercised (Note 9)                                                   725,327 

Conversion of preferred shares to common (Note 8)                                           

Issuance of shares pursuant to dissolution of                                               
   subsidiary Employee Stock Ownership Plan (Note                                           
        12)                                                                                 

Cost of filing stock registration statement                                        (35,389) 

Preferred stock dividends                                                                   
   7% Class B shares ($.25 per share)                                               (5,110) 

   10% Class B shares ($.35 per share)                                              (2,500) 

Net loss - 1997                                      (2,143,159)                (2,143,159) 
                                                   -------------  -----------  -------------

Balances at June 30, 1997                          $ (7,810,586)  $    (423)   $ 11,192,970 
                                                   =============  ===========  =============

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

5 

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BITWISE DESIGNS, INC. AND SUBSIDIARIES                                          

CONSOLIDATED STATEMENTS OF CASH FLOWS                                           
Years Ended June 30, 1997 and 1996                                              

                                                        [Enlarge/Download Table]

                                                                           1997             1996       
Cash flows from operating activities:                                                                  
                                                                                                       
    Net income (loss)                                                 $  (2,143,159)   $   (2,961,039) 
    Adjustments to reconcile net (loss) to net cash                                                    
         used in operating activities:                                                                 
         Depreciation and amortization                                       671,440           549,547 
         Provision for doubtful accounts receivable                          118,710            93,721 
         Gain on sale of subsidiary                                        (214,989)                   
         Non-cash compensation expense                                                          25,000 
         Loss on disposals of equipment                                                         87,235 
         Changes in operating assets and liabilities:                                                  
            Accounts receivable and due from related parties             (3,801,719)       (1,817,346) 
            Inventories                                                    (785,305)       (1,137,804) 
            Prepaid expenses and other current assets                         69,234            31,694 
            Accounts payable and accrued expenses                            956,948           103,110 
            Other                                                           (11,476)                   
            Income taxes receivable                                            8,160             (760) 
                                                                      ---------------  ----------------
                 Net cash used in operating activities                   (5,132,156)       (5,026,642) 
                                                                      ---------------  ----------------

Cash flows from investing activities:                                                                  
    Purchases of property and equipment                                    (425,739)         (565,753) 
    Trademarks acquired                                                     (25,000)                   
    Proceeds from sale of equipment                                                              6,000 
    Deferred licensing costs                                                                   (6,190) 
    Software development costs                                             (110,390)          (29,957) 
    Increase in notes receivable                                                             (175,000) 
    Proceeds from sale of business (Note 14)                               1,855,636                   
    Acquisition of business, net of cash acquired (Note 14)                                   (34,179) 
    Other                                                                    (7,187)                   
                                                                      ---------------  ----------------
                 Net cash provided by (used in) investing activities       1,287,320         (805,079) 
                                                                      ---------------  ----------------

Cash flows from financing activities:                                                                  
    Increase in borrowings under line of credit, net (Note 4)              2,667,653         1,650,267 
    Principal payments on long-term debt (Note 5)                           (20,509)         (134,664) 
    Principal payments on capital lease obligations (Note 7)                (24,656)          (31,781) 
    Dividends paid                                                           (7,610)          (30,441) 
    Stock options exercised                                                   26,562                   
    Stock warrants exercised                                                 725,327         1,453,500 
    Proceeds from issuance of common stock, net                                              4,243,647 
    Payment of deferred offering costs                                      (35,389)                   
                                                                      ---------------  ----------------
              Net cash provided by financing activities                    3,331,378         7,150,528 
                                                                      ---------------  ----------------

Net (decrease) increase in cash and cash equivalents                       (513,458)         1,318,807 

Cash and cash equivalents, beginning of year                               3,377,305         2,058,498 
                                                                      ---------------  ----------------

Cash and cash equivalents, end of year                                $    2,863,847   $     3,377,305 
                                                                      ===============  ================

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

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BITWISE DESIGNS, INC. AND SUBSIDIARIES                                          

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                      

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                

Description of business:                                              

    Bitwise Designs, Inc. (Bitwise) and its subsidiaries, System Solutions
      Technology, Inc. (SST) and 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 and
  Internet services. Bitwise has introduced a line of document imaging
  systems which it markets under the tradename "DocStar" on a national
level.                                                            

      In August 1994, Bitwise acquired 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 SST, a value-added distributor of
    advanced technology industrial computers and computer peripherals (see
also Note 14).                                                    

       In March 1996, Bitwise acquired DJS Marketing Group, Inc. DJS distributes
  personal computer systems, workstations and peripheral equipment. In
      addition, DJS offers training programs for the use of computer software,
   as well as systems integration, network, Internet and hardware repair
     services. Subsequent to the acquisition of DJS, Bitwise transferred its
personal computer division to DJS.                                

   During the fiscal year ended June 30, 1997 the Company incurred a net
loss of $2,143,159, and cash used by operating activities totaled 
       $5,132,156. The Company's available cash balance at June 30, 1997 totaled
     approximately $3 million, and it has available approximately $1 million
   under existing lines of credit. To date, the Company has been largely
       dependent on its ability to sell additional shares of its common stock to
       fund its operating deficits. Under its current operating plan to obtain a
       national acceptance of the DocStar product line, the Company's ability to
      improve operating cash flow is highly dependent on the market acceptance
 of its DocStar document imaging system. If the Company is unable to
attain projected sales levels for its DocStar systems, it may be  
   necessary to raise additional capital to fund operations and meet its
     obligations. There is no assurance that such funding will be available,
if needed.                                                        

Principles of consolidation:                                          

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

Cash equivalents:                                                     

     The Company considers all highly liquid debt instruments with
       original maturities not exceeding three months to be cash equivalents. At
 June 30, 1997 and 1996, cash equivalents were composed primarily of
   investments in commercial paper and overnight deposits (see also Note
16).                                                              

Inventories:                                                          

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

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BITWISE DESIGNS, INC. AND SUBSIDIARIES                                          

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED                           

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED                     

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 1997 and 1996 amounted to $110,390
 and $29,957, respectively. Amortization expense related to software
      development costs for the years ended June 30, 1997 and 1996 was $65,606
and $28,810, 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 1997 and 1996 was $282,520 and $256,551, respectively.
 Accumulated amortization at June 30, 1997 and 1996 was $502,159 and
$365,514, respectively.                                           

Income taxes:                                                         

   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.

Revenue recognition and warranty provisions:                          

   Revenue from the sale of products is recognized when the products are
shipped to customers. 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.        

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BITWISE DESIGNS, INC. AND SUBSIDIARIES                                          

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED                           

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED                     

Advertising expenses:                                                 

      The Company recognizes advertising expenses as incurred. Advertising and
  promotion expense for 1997 and 1996 was approximately $1,361,000 and
$968,000, respectively.                                           

Earnings per common share:                                            

  Earnings per share of common stock are based on the weighted average
 number of common shares outstanding during each year. There were no
     dilutive common equivalent shares for the years ended June 30, 1997 and
1996. The weighted average number of common shares outstanding was
 7,194,096 and 5,479,237 for the years ended June 30, 1997 and 1996,
respectively.                                                     

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.                 

New Accounting Pronouncements:                                        

    In February 1997, the Financial Accounting Standards Board issued SFAS
    No. 128, "Earnings per Share." SFAS No. 128 amends the requirements of
       APB Opinion No. 15, "Earnings per Share" by replacing the presentation of
primary earnings per share with basic earnings per share. It also 
       requires dual presentation of basic and diluted earnings per share on the
face of the income statement and requires a reconciliation of the 
numerator and the denominator of the diluted earnings per share   
      computation. This statement will be effective for the interim periods of
      and the fiscal year ended June 30, 1998, and will require restatement of
    previously issued per share data. 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 No. 130 requires reporting
and display of comprehensive income and its components (revenues, 
     expenses, gains, and losses) in a full set of general purpose financial
 statements. This statement will be effective for annual and interim
  financial statements beginning the fiscal year ending 1999, and will
       require reclassifications of prior periods. The adoption of this standard
is not expected to have a significant impact on the Company's     
consolidated financial statements.                                

     In June 1997, the Financial Accounting Standards Board 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 will be effective
    for annual financial statements beginning the fiscal year ending 1999,
and for interim periods beginning the fiscal year ending 1999. The
       adoption of this standard is not expected to have a significant impact on
the Company's consolidated financial statements.                  

Reclassifications:                                                    

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

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BITWISE DESIGNS, INC. AND SUBSIDIARIES                                          

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED                           

2.    INVENTORIES                                                               

Inventories at June 30, 1997 and 1996 consist of:                     

                                                                [Download Table]

                                             1997          1996   
                                          ----------    ----------

                                                                  
Purchased components and raw materials    $1,301,871    $1,175,088
Finished goods                             1,835,461     2,886,557
                                          ----------    ----------
                                          $3,137,332    $4,061,645
                                          ==========    ==========

 Inventories are pledged as collateral for borrowings under the lines of
     credit, long-term debt and to certain suppliers as described in Notes 4 and
5.                                                                    

3.     PROPERTY AND EQUIPMENT                                                   

Property and equipment at June 30, 1997 and 1996 consists of the  
following:                                                                      

                                                        [Enlarge/Download Table]

                                                                                     ESTIMATED 
                                                                                    USEFUL LIFE
                                                        1997             1996         IN YEARS 
                                                        ----             ----       -----------
                                                                                               
Machinery and equipment                         $       1,245,668  $       965,535       3-6   
Demonstration and rental computers                        293,336          183,123       5-6   
Furniture and fixtures                                    241,907          242,513       5-7   
Leasehold improvements                                     80,699           76,182         6   
Vehicles                                                    7,804           28,162         5   
                                                   --------------   --------------             
                                                        1,869,414        1,495,515             
Less accumulated depreciation and amortization          (870,633)        (548,584)             
                                                   --------------   --------------             

                                                   $      998,781   $      946,931             
                                                   ==============   ==============             

     Depreciation and amortization expense on property and equipment for the
years ended June 30, 1997 and 1996 was $319,543 and $258,043,     
   respectively. Assets under capital lease arrangements included in the
    above amounts are $28,938 and $123,550 of machinery and equipment, and
      $7,172 and $76,638 of furniture and fixtures, before related accumulated
    amortization totaling $18,053 and $103,627, at June 30, 1997 and 1996,
respectively.                                                     

       Property and equipment are pledged as collateral for borrowings under the
lines of credit and long-term debt as described in Notes 4 and 5. 

4.     CREDIT FACILITIES                                                        

Lines of credit:                                                  

         The Company has two lines of credit totaling $5,300,000, as described
      further below, of which $1,080,123 was available at June 30, 1997.

        One line of credit may be utilized by SST and Bitwise for $3 million
($2.7 and $1.6 million outstanding in 1997 and 1996) and is 
          collateralized by accounts receivable, inventory and all other assets.
       The interest rate on this line of credit is based on the prime rate
   plus 2% per annum (10.25% at June 30, 1997). The line of credit
        agreement includes covenants which require the Company to maintain a
          minimum tangible net worth, a maximum debt-to-tangible net worth and a
   certain profitability level on a consolidated basis, as well as
      requiring delivery of periodic financial information and quarterly
          audits conducted by the lender. Bitwise was not in compliance with the
       minimum profitability level for the fiscal year ended June 30, 1997
         and subsequent to June 30, 1997, the Company received a waiver of the
covenant violation.                                         

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BITWISE DESIGNS, INC. AND SUBSIDIARIES                                          

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED                           

4.     CREDIT FACILITIES, CONTINUED                                             

Lines of credit, continued:                                       

 DJS has a $2.3 million credit facility ($1.5 and $1.2 million
     outstanding in 1997 and 1996) from a financial institution. Under
 the revolving accounts receivable credit line portion of this
      agreement, DJS may receive advances of up to $1.0 million based on
        85% of eligible accounts receivable. In addition, DJS may receive up
  to $1.3 million for vendor-subsidized inventory purchases. The
     revolving accounts receivable credit line bears interest at prime
         plus 1.75% (10% at June 30, 1997), subject to a minimum prime rate of
        6%, and transaction fees of .10% on each advance. No finance charges
        are assessed on borrowings for vendor-subsidized inventory purchases
  if repayment complies with vendor specified criteria. The $2.3
      million credit facility is collateralized by a first priority lien
     on accounts receivable, inventory, fixed assets, other assets and
general intangibles of DJS.                                 

         The $2.3 million credit facility includes covenants which require DJS
          to maintain a minimum tangible net worth, maximum debt-to-tangible net
      worth and a minimum tangible current ratio. Subsequent to June 30,
          1997, the total credit facility for DJS was increased to $3.5 million.

5.     LONG-TERM DEBT                                                           

 Long-term debt at June 30, 1997 and 1996 consists of the following:

                                                        [Enlarge/Download Table]

                                                                              1997              1996       

                                                                                                           
Notes payable, Schenectady Economic Development Corporation and                                            
Schenectady Employment Training Development Corporation, interest                                          
accrues at 9% per annum. Monthly payments of interest and principal of                                     
$2,716 are due through January 1997. Collateralized by all assets of                                       
the Company subject to the rights of the holders of the line of credit                                     
as described in Note 4.                                                 $                  $        18,474 

Other                                                                              1,601             3,636 
                                                                         ----------------  ----------------
                                                                                   1,601            22,110 
Less current portion                                                               1,601            20,205 
                                                                         ----------------  ----------------

   Long-term debt, net of current portion                                $           -0-   $         1,905 
                                                                         ================  ================

     Subsequent to year end in August 1997 the Company completed a financing
      with an offshore bank with gross proceeds of $4,000,000 (net proceeds of
     about $3,600,000 after expenses) in the form of unsecured, convertible,
      bearer notes with 400,000 detachable Common Stock purchase warrants. The
     notes accrue interest at 8%, payable semiannually in arrears. Each note
  is in the denomination of $5,000. The holder of 10 or more notes may
   convert the notes into common stock commencing November 1, 1997 until
 August 11, 2002 at the rate of $3.25 per share. The warrants may be
      exercised at $3.25 per share of common stock from November 1, 1997 until
August 11, 2002.                                                  

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BITWISE DESIGNS, INC. AND SUBSIDIARIES                                          

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED                           

6.     INCOME TAXES                                                             

     Income tax expense (benefit) for the years ended June 30, 1997 and 1996
consists of:                                                                    

                                                                [Download Table]

                             CURRENT         DEFERRED          TOTAL      
                          --------------  ---------------  ---------------

                                                                          
Year ended June 30, 1997                                                  
  Federal                 $               $                $              
  State and local                 25,819                           25,819 
                          --------------  ---------------  ---------------
                          $       25,819  $                $       25,819 
                          ==============  ===============  ===============

Year ended June 30, 1996                                                  
  Federal                 $               $                $              
  State and local                 18,251                           18,251 
                          --------------  ---------------  ---------------
                          $       18,251  $                $       18,251 
                          ==============  ===============  ===============

At June 30, 1997, the Company has federal net operating loss      
   carryforwards for tax purposes approximating $7,997,000. The years in
which the net operating loss carryforwards expire are as follows: 
   2000-$224,000; 2001-$684,000; 2002-$48,000; 2003-$3,000; 2004-$6,000;
2005-$48,000; 2006-$32,000; 2007-$430,000; 2008-$1,557,000;       
2009-$1,740,000; 2010-$10,000; 2011-$2,665,000; and 2012-$550,000.

    Through the acquisitions of Electrograph and SST, the Company acquired
   approximately $1,066,000 and $1,544,000 of federal net operating loss
      carryforwards for tax purposes, subject to certain annual limitations on
  the use of the net operating loss carryforwards arising prior to the
       acquisition in accordance with Internal Revenue Code Section 382. At June
   30, 1997, the remaining federal net operating loss carryforwards were
$966,000 and $1,383,000 for Electrograph and SST, respectively.   

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

                                                                [Download Table]

                                                   1997            1996   

                                                                          
Computed expected tax benefit                 $  (719,896)    $(1,000,548)
Increase in valuation allowance                   210,211         914,153 
Additional tax gain on sale of assets             381,464                 
Nondeductible goodwill amortization                96,057          87,227 
Adjustment to prior years' taxes                                  (17,911)
State income taxes, net of federal benefit         25,819          18,251 
Other nondeductible expenses                       32,164          17,079 
                                              -----------     ----------- 

                                              $    25,819     $    18,251 
                                              ===========     =========== 

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BITWISE DESIGNS, INC. AND SUBSIDIARIES                                          

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED                           

6.     INCOME TAXES, CONTINUED                                                  

     The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities as of June 30, 1997 and 1996 are presented  
below:                                                                          

                                                        [Enlarge/Download Table]

                                                                      1997             1996        

                                                                                                   
Deferred income taxes:                                                                             
   Allowance for doubtful accounts                               $        70,136   $        73,209 
   Inventories, principally due to additional costs inventoried                                    
     for tax purposes pursuant to the Tax Reform Act of 1986                                       
     and inventory reserves                                              177,206           186,198 
   Deferred rent and other liabilities                                   134,120            82,864 
   Net operating loss carryforward                                     2,719,117         2,532,117 
                                                                 ---------------   --------------- 
        Total gross deferred tax assets                                3,100,579         2,874,388 
   Less valuation allowance                                           (3,029,021)       (2,818,810)
                                                                 ---------------   --------------- 
        Net deferred tax asset                                            71,558            55,578 
Deferred income tax liability:                                                                     
   Equipment, principally due to differences in                                                    
     depreciation methods                                                (71,558)          (55,578)
                                                                 ---------------   --------------- 

        Net deferred income taxes                                $           -0-   $            -0-
                                                                 ===============   =============== 

    The valuation allowance for deferred tax assets as of July 1, 1996 and
     1995 was $2,818,810 and $1,946,505, respectively. The net change in the
      total valuation allowance for the years ended June 30, 1997 and 1996 was
an increase of $210,211 and $872,305, respectively.               

7.     LEASE COMMITMENTS                                                        

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

As of June 30, 1997, future minimum payments by year, and in the  
      aggregate, under capital and noncancelable operating leases with initial
terms of one year or more consist of the following:               

                                                        [Enlarge/Download Table]

                                                                    OPERATING                
                                                    CAPITAL           LEASES                 
                                                    LEASES       RELATED PARTY      OTHER    
                                                -------------  ---------------  -------------
                                                                                             
Fiscal year ending June 30:                                                                  
   1998                                         $     11,055   $    147,200     $     148,632
   1999                                                1,333        147,200            71,469
   2000                                                              24,533            64,299
   2001                                                                                58,593
   2002                                                                                      
                                                ------------   ------------     -------------
                                                      12,388   $    318,933     $     342,993
                                                               ============     =============
   Amount representing interest                         (891)                                
                                                ------------                                 
   Present value of net minimum lease payments        11,497                                 
   Less current portion                              (10,200)                                
                                                ------------                                 
   Long-term portion                            $      1,297                                 
                                                ============                                 

  Rental expense was approximately $277,000 and $317,000 for the years
ended June 30, 1997 and 1996, respectively (see also Note 12).                  

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BITWISE DESIGNS, INC. AND SUBSIDIARIES                                          

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED                           

8.     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 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.                                                

    In connection with the Company's acquisition of SST, 112,003 shares of
     preferred stock designated as Series B Convertible Preferred Stock were
    issued. The holders of the Series B Convertible Stock were entitled to
   quarterly dividends at 7% and 10%. The Series B Convertible Preferred
     Stock was convertible into common stock at the rate of $3.50 per share.
       In August 1996, all of the Series B shareholders elected to convert their
shares into common stock (see also Note 14).                      

9.     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.             

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BITWISE DESIGNS, INC. AND SUBSIDIARIES                                          

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED                           

9.     STOCK OPTION PLANS AND STOCK WARRANTS, CONTINUED                         

A) 1992 Employees Stock Option Plan, Continued:                   

        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 vest one year after the date of grant. 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 of shares subject to options which are
          designated as ISOs which become exercisable in any calendar year shall
not exceed $100,000.                                        

          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.

                                                                [Download Table]

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

                                                                    
Outstanding at June 30, 1995                1,503,880   $     1.98  
Options granted:                                                    
  Equal to market price                       692,500         5.78  
  Exceeding market price                       75,000         7.13  
  Options canceled or surrendered             (95,000)        2.29  
                                         ------------    ---------  

Outstanding at June 30, 1996                2,176,380         3.37  
  Options granted equal to market price       226,500         4.26  
  Options exercised                           (33,825)        1.37  
  Options canceled or surrendered            (429,685)        3.10  
                                         ------------               

Outstanding at June 30, 1997                1,939,370         3.53  
                                         ============               

         The following is a summary of the status of employee stock options at
June 30, 1997:                                              

                                                        [Enlarge/Download Table]

                              OUTSTANDING OPTIONS              EXERCISABLE OPTIONS   
                      -------------------------------------  ------------------------
                                    WEIGHTED                                         
                                    AVERAGE      WEIGHTED                  WEIGHTED  
                                   REMAINING     AVERAGE                   AVERAGE   
                                   CONTRACTUAL   EXERCISE                  EXERCISE  
Exercise Price Range    NUMBER        LIFE         PRICE        NUMBER       PRICE   
--------------------    -------   -----------   ----------    ---------   ---------- 
                                                                                     
    $ .34 - 2.00        884,370         3.0   $     1.53      563,037   $     1.52   
     2.01 - 4.00        225,500         2.9         3.35       84,500         3.23   
     4.01 - 6.00        394,000         3.7         4.98      101,165         5.04   
     6.01 - 8.00        435,500         3.8         6.35      141,830         6.36   

    As of June 30, 1997 and 1996, 890,537 shares and 770,722 shares,
        respectively, were exercisable under the 1992 Employees Stock Option
Plan.                                                       

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BITWISE DESIGNS, INC. AND SUBSIDIARIES                                          

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED                           

9.     STOCK OPTION PLANS AND STOCK WARRANTS, CONTINUED                         

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 shareholders on May 6, 1992. The Director Plan provides
        for issuance of a maximum of 400,000 shares of common stock upon the
          exercise of stock options granted under the Director Plan. Options can
be 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 10,000 shares upon joining the Board of Directors
          and on each September 1 thereafter, provided such person has served as
    a director for the previous twelve-month period. Similarly, each
         eligible director of an advisory board will receive, upon joining the
   advisory board and on each September 1 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
       twelve-month period. Options vest immediately on the date of grant.

        The exercise price for options granted under the Director Plan shall
       be 100% of the fair market value of the common stock on the date of
          grant. Until otherwise provided, 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 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.                                           

      As of June 30, 1997, options to purchase up to 220,000 shares have
       been granted to non-executive directors. Options to purchase 40,000
      and 50,000 shares were granted in 1997 and 1996, respectively, and
         10,000 shares were canceled or surrendered in 1997. These options are
          exercisable at prices between $3.375 and $5.125 per share. During 1997
and 1996, none of the options were exercised or canceled.   

C) Common Stock Warrants:                                         

A schedule of common stock warrant activity is as follows:  

                                                                [Download Table]

                                                             WEIGHTED 
                                                              AVERAGE 
                                             NUMBER           WARRANT 
                                               OF              PRICE  
                                             SHARES          PER SHARE
                                            ---------        ---------
                                                                      
Outstanding June 30, 1995                   1,312,000        $    2.36
  Warrants granted:                                                   
     Equal to market price                     22,000             6.21
     Less than market price                 1,957,137             4.39
  Warrants exercised                         (652,380)            2.23
  Adjustments for antidilution                 36,380             3.59
                                            ---------                 

Outstanding June 30, 1996                   2,675,137             3.75
  Warrants granted                             10,000             4.44
  Warrants exercised                         (358,142)            2.03
                                            ---------                 
Outstanding June 30, 1997                   2,326,995             4.23
                                            =========                 

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BITWISE DESIGNS, INC. AND SUBSIDIARIES                                          

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED                           

9.     STOCK OPTION PLANS AND STOCK WARRANTS, CONTINUED                         

C) Common Stock Warrants, Continued:                              

          In December 1995, the Company issued 1,528,569 redeemable common stock
     warrants in connection with the Company's private placement under
    Regulation D. Other warrants issued during 1997 and 1996 were to
various firms providing services to the Company.            

        The following is a summary of the status of common stock warrants at
June 30, 1997:                                              

                                                        [Enlarge/Download Table]

                              OUTSTANDING WARRANTS            EXERCISABLE WARRANTS   
                      -------------------------------------  ------------------------
                                    WEIGHTED                                         
                                    AVERAGE      WEIGHTED                  WEIGHTED  
                                   REMAINING     AVERAGE                   AVERAGE   
                                   CONTRACTUAL   EXERCISE                  EXERCISE  
Exercise Price Range    NUMBER        LIFE        PRICE        NUMBER       PRICE    
--------------------  -----------  -----------  -----------  -----------  -----------
                                                                                     
    $1.50 - 2.00         250,000         3.00   $     1.53      250,000         1.53 
     2.01 - 4.00         229,284         3.43         3.47      229,284         3.43 
     4.01 - 6.00       1,722,711         3.47         4.51    1,722,711         3.47 
     6.01 - 8.00         125,000         2.58         7.15      120,000         7.26 

D) SFAS No. 123:                                                  

         The per share weighted average fair value of stock options and common
    stock warrants granted during fiscal 1997 and 1996 was $1.00 and
      $3.88, respectively. These amounts were determined using the Black
        Scholes option-pricing model which values options and warrants based
         on the stock price at the grant date, the expected life of the option
        or warrant, 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 calculated by dividing the
       current annualized dividend by the option or warrant price for each
        grant. The expected volatility was based on the stock prices for the
     period beginning in May 1992 when the Company completed its first
   public offering until June 30, 1997 and 1996, 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 expected life of the option or warrant was estimated based
on the exercise history from previous grants.               

         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 or
      warrants granted under any of the stock or warrant plans. 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, 
                                            1997              1996   
                                                                     
Net loss                                                             
  As reported                           $  2,143,159      $ 2,961,039
  Pro forma                                2,237,301        4,151,890

Loss per share                                                       
  As reported                           $        .30      $       .55
  Pro forma                                      .31              .76

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BITWISE DESIGNS, INC. AND SUBSIDIARIES                                          

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED                           

9.     STOCK OPTION PLANS AND STOCK WARRANTS, CONTINUED                         

D) SFAS No. 123, Continued:                                       

          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 1997 and 1996.   

       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.                       

10.    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% in each of the second and third years; (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.                

         In March 1996, the Company entered into employment agreement with the
        three principals of DJS Marketing Group, Inc. in connection with the
          acquisition of DJS as described in Note 14. The president and two vice
         presidents entered into two-year employment agreements each providing
          for a specified annual compensation, performance bonus payments and an
         aggregate of 375,000 employee stock options to purchase shares of the
    Company's common stock at exercise prices ranging from $6.125 to
$7.125 per share.                                           

11.    CASH FLOWS - SUPPLEMENTAL INFORMATION                                    

Cash flows:                                                       

         The Company paid interest in the amounts of $424,843 and $207,684 for
      the years ended June 30, 1997 and 1996, respectively. Income taxes
       paid aggregated $40,446 and $19,011 during the years ended June 30,
1997 and 1996, respectively.                                

Noncash investing and financing activities (see also Note 14):    

       During the year ended June 30, 1997, the Company received a note of
      $296,912 in exchange for assets disposed of as part of the sale of
Electrograph.                                               

         During the year ended June 30, 1996, the Company entered into capital
        lease obligations for the purchase of equipment aggregating $12,555.

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BITWISE DESIGNS, INC. AND SUBSIDIARIES                                          

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED                           

12.    RELATED PARTIES                                                          

Employee receivables:                                             

  At June 30, 1997 and 1996, "Due from related parties" included
       non-interest bearing advances of $25,056 and $74,136, respectively,
from employees and officers of the Company.                 

Notes receivable:                                                 

          During 1996, Bitwise entered into two promissory notes receivable with
     a director (hereinafter referred to as the Director Note) and the
          former shareholders of DJS Marketing Group, Inc. (hereinafter referred
       to as the DJS Note), included within "Due from related parties," in
         the amounts of $50,000 and $125,000. The director Note bears interest
        at the rate of 6% per annum. The note principal and accrued interest
        thereon was due and payable on May 10, 1997 and is secured by all of
        the borrowers issued and outstanding director stock options (options
      to purchase 40,000 shares at June 30, 1997). The due date has been
          extended to November 10, 1997. The DJS Note bears interest at the rate
       of 8% per annum. The note principal and accrued interest thereon is
          due on March 8, 1998 and is collateralized by 30,000 shares of Bitwise
Designs, Inc. common stock.                                 

Other transactions:                                               

         The Company's subsidiary, SST, conducts its primary operations from a
        building leased from its President and two other individuals. During
  1997 and 1996, SST paid rent on this building of approximately
$144,200 and $108,000, respectively.                        

          During 1997, the Company dissolved SST's Employee Stock Ownership Plan
         by converting the SST common stock shares to shares of Bitwise common
stock.                                                      

13.    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 will make contributions in percentages of compensation, or
      amounts as determined by the Company. The Company contributed $1,341 and
 $1,750 during the years ended June 30, 1997 and 1996, respectively.

14.    ACQUISITIONS AND SALES OF BUSINESSES                                     

  On March 8, 1996, Bitwise completed its acquisition of DJS Marketing
Group, Inc. The shareholders of DJS Marketing Group, Inc. received
      $80,000 in cash and 200,000 shares of restricted common stock of Bitwise
       in exchange for the 4,000 outstanding shares of DJS Marketing Group, Inc.
     common stock. The cost of the acquisition was approximately $1,140,000.

      Under the indemnification provisions of the merger, 25,000 common shares
      of Bitwise received by the former shareholders of DJS are held in escrow
      for a period of 18 months from the date of the acquisition. In addition,
the common shares of Bitwise transferred in connection with the   
acquisition are restricted for a period of two years. Also, as a  
    condition of the acquisition, the former shareholders of DJS Marketing
     Group, Inc. have entered into employment and non-competition agreements
expiring on March 31, 1998 (see also Note 10).                    

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BITWISE DESIGNS, INC. AND SUBSIDIARIES                                          

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED                           

14.    ACQUISITIONS AND SALES OF BUSINESSES, CONTINUED                          

In April 1997, the Company sold Electrograph with the transaction 
       structured as an asset sale. The Company realized a gain of $214,989. The
Company received $2,522,361 in cash including an adjustment to the
     purchase price of $22,361 based on the final balance sheet. In addition
    the Company was owed $646,912 by Electrograph at the date of sale. The
   buyer paid $350,000 in cash and $296,912 with a nine-month note at 3%
interest.                                                         

15.    SECURITIES OFFERINGS                                                     

In December 1995, the Company completed a private equity offering 
       including common stock and redeemable common stock warrants of $5,000,000
  exempt from registration under Regulation D of the Securities Act of
       1933. Each redeemable common stock warrant entitles the holder thereof to
 purchase on or prior to the last business day of the sixtieth month
   following the date of the first closing of this offering one share of
  common stock of the Company at an exercise price of $4.50 per share,
       subject to adjustment in certain circumstances. The common stock purchase
warrants are redeemable, in whole or in part, at the option of the
      Company, for $.10 per warrant on not less than thirty days prior written
       notice, at any time, commencing six months from the first closing of this
    offering, provided that (i) the closing bid quotation of the Company's
      common stock is at least 150% of the then exercise price of the warrants
     on each of the 20 trading days ending on the third trading day prior to
   the day on which notice of redemption is given; and (ii) the warrants
have been registered under the Securities Act of 1933, as amended 
    (registration completed in fiscal 1997). Proceeds from the offering of
   the 1,428,565 shares aggregated $5,000,000. The Company also incurred
expenses associated with the offering in the amount of $756,353.  

       In addition, the Company granted Whale Securities Co. L.P. (Whale), which
     acted as the placement agent in the December 1995 offering, warrants to
       purchase 428,568 shares of common stock, exercisable for a period of five
   years, at a price equal to the offering price. These warrants contain
    anti-dilution provisions and registration rights, including demand and
  "piggy back" registration rights, and shall not be redeemable by the
  Company. Also, the Company granted Whale a three-year right of first
   refusal with respect to certain future financings of the Company, the
      right to designate, at its option, a nominee for election as a member of
     the Board of Directors of the Company or as a non-voting advisor to the
    Board of Directors, and the Company will use its best efforts to cause
     such nominee to be elected and continued in office as a director of the
   Company or as such advisor for a period of three years from the first
     closing of the offering. The Company has also agreed to indemnify Whale
     against certain liabilities, including liabilities under the Securities
Act of 1933, in connection with the offering.                     

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BITWISE DESIGNS, INC. AND SUBSIDIARIES                                          

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED                           

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, notes receivable,
        accounts payable and accrued expenses and other current liabilities.
          The carrying amount of cash and cash equivalents, accounts receivable,
       accounts payable and accrued expenses and other current liabilities
  approximates fair value because of the short maturity of these
         instruments. The carrying amount of notes receivable, included within
         "Due from related parties," approximates fair value because the notes
bear interest that approximates the market rate.            

 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 (see Note 4). The remaining balance of long-term debt
       approximates fair value because of its short maturity (see Note 5).
     Consequently, the carrying value of the borrowings under lines of
credit and long-term debt approximates fair value.          

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                                                                     Exhibit C

BITWISE DESIGNS, INC. AND SUBSIDIARIES

 Consolidated Financial Statements

June 30, 1996 and 1995

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BITWISE DESIGNS, INC. AND SUBSIDIARIES

 Table of Contents

Consolidated Financial Statements:                                              

Balance Sheets as of June 30, 1996 and 1995                           

Statements of Operations for the years ended June 30, 1996 and 1995   

Statements of Shareholders' Equity for the years ended June 30,       
1996 and 1995                                                 

Statements of Cash Flows for the years ended June 30, 1996 and 1995   

Notes to Consolidated Financial Statements                            

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BITWISE DESIGNS, INC. AND SUBSIDIARIES

 Consolidated Balance Sheets

June 30, 1996 and 1995

                                                        [Enlarge/Download Table]

                            Assets                                        1996           1995   
                            ------                                        ----           ----   
                                                                                                
Current assets:                                                                                 
     Cash and cash equivalents (note 4)                              $  3,377,305     2,058,498 
     Accounts receivable, net of allowance for doubtful accounts of                             
         $215,000 in 1996 and $111,000 in 1995 (note 4)                 5,271,933     3,081,589 
     Due from related parties (note 13)                                   124,136        36,142 
     Inventories (notes 2 and 4)                                        4,061,645     2,783,124 
     Income taxes receivable                                               16,810        16,050 
     Prepaid expenses and other current assets                            249,893       241,102 
                                                                     ------------   ----------- 
              Total current assets                                     13,101,722     8,216,505 

Property and equipment, net (notes 3 and 4)                               946,931       523,371 

Other assets:                                                                                   
     Due from related parties (note 13)                                   128,123          --   
     Deferred licensing costs, net of accumulated amortization of                               
         $49,567 in 1996 and $43,424 in 1995                                4,585         4,538 
     Software development costs, net of accumulated amortization                                
         of $50,153 in 1996 and $21,343 in 1995                            36,275        35,128 
     Excess of cost over net assets of companies acquired, net          5,609,055     4,249,552 
     Other assets                                                          53,346        66,385 
                                                                     ------------   ----------- 

              Total assets (notes 4 and 5)                           $ 19,880,037    13,095,479 
                                                                     ============   =========== 

            Liabilities and Shareholders' Equity                                                
            ------------------------------------                                                
Current liabilities:                                                                            
     Borrowings under lines of credit (note 4)                          2,815,942     1,062,472 
     Current portion of long-term debt (note 5)                            20,205       149,236 
     Current portion of obligations under capital leases (note 7)          26,885        27,021 
     Accounts payable                                                   3,968,248     2,638,838 
     Accrued expenses and other current liabilities                       403,569       311,516 
                                                                     ------------   ----------- 
              Total current liabilities                                 7,234,849     4,189,083 

Long-term debt, net of current portion (note 5)                             1,905        21,990 

Obligations under capital leases, net of current portion (note 7)           9,268        13,443 

Other liabilities                                                           6,776        24,391 
                                                                     ------------   ----------- 
              Total liabilities                                         7,252,798     4,248,907 
                                                                     ------------   ----------- 

Shareholders' equity (notes 8, 9 and 10):                                                       
     Preferred stock - $.10 par value, 5,000,000 shares authorized:                             
         Series A - 200 shares issued and outstanding ($1.00                                    
             liquidation value)                                                20            20 
         Series B convertible preferred - 112,003 shares issued                                 
             and outstanding                                               11,200        11,200 
     Common stock, $.001 par value; authorized 20,000,000 shares;                               
         issued 6,754,606 and 4,473,661 shares in 1996 and 1995,                                
         respectively                                                       6,755         4,473 
     Additional paid-in capital                                        18,277,114    11,537,690 
     Accumulated deficit                                               (5,667,427)   (2,706,388)
                                                                     ------------   ----------- 
                                                                       12,627,662     8,846,995 
     Less cost of common shares in treasury (338 shares)                     (423)         (423)
                                                                     ------------   ----------- 
              Total shareholders' equity                               12,627,239     8,846,572 
                                                                     ------------   ----------- 
Commitments (notes 7 and 11)                                                                    
              Total liabilities and shareholders' equity             $ 19,880,037    13,095,479 
                                                                     ============   =========== 

See accompanying notes to consolidated financial statements.                    

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BITWISE DESIGNS, INC. AND SUBSIDIARIES

 Consolidated Statements of Operations

Years ended June 30, 1996 and 1995

                                                                [Download Table]

                                                   1996            1995    
                                                   ----            ----    
                                                                           
Net sales                                      $ 30,611,258     23,949,368 

Cost of goods sold                               25,784,565     19,992,522 
                                               ------------    ----------- 

         Gross profit                             4,826,693      3,956,846 
                                               ------------    ----------- 

Selling, general and administrative expenses      7,564,946      3,993,861 

Product development expenses                        129,075         29,384 
                                               ------------    ----------- 
         Total operating expenses                 7,694,021      4,023,245 
                                               ------------    ----------- 

         Loss from operations                    (2,867,328)       (66,399)
                                               ------------    ----------- 

Other income (expense):                                                    

     Interest and other income                      157,218        159,594 

     Interest expense                              (232,678)      (108,239)
                                               ------------    ----------- 
                                                    (75,460)        51,355 
                                               ------------    ----------- 

         Loss before income taxes                (2,942,788)       (15,044)

Income tax expense (benefit) (note 6)                18,251        (18,725)
                                               ------------    ----------- 

         Net income (loss)                     $ (2,961,039)         3,681 
                                               ============    =========== 

Per share amounts:                                                         

         Net income (loss) per common share    $       (.55)          --   
                                               ============    =========== 

See accompanying notes to consolidated financial statements.                    

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BITWISE DESIGNS, INC. AND SUBSIDIARIES

Consolidated Statements of Shareholders' Equity 

Years ended June 30, 1996 and 1995

                                                        [Enlarge/Download Table]

                                              Preferred stock         Common stock                             
                                            --------------------  ---------------------                        
                                            Number of   $.10 Par  Number of  $.001 Par   Paid-in    Accumulated
                                              shares     value     shares     value      capital      deficit  
                                              ------     -----     ------     -----      -------      -------  
                                                                                                               
Balances at June 30, 1994                        200   $    20   2,685,361   $2,685     3,810,656   (2,710,069)

Issuance of common stock pursuant                                                                              
    to public offering, net                     --        --     1,000,000    1,000     3,572,409         --   

Issuance of stock pursuant to                                                                                  
    acquisitions, net                        112,003    11,200     783,300      783     4,170,204         --   

Stock options exercised                         --        --         5,000        5         5,845         --   

Preferred stock dividends:                                                                                     
    7% Class B shares ($.17 per share)          --        --          --       --         (14,183)        --   

    10% Class B shares ($.25 per share)         --        --          --       --          (7,241)        --   

Purchase of treasury stock (338 shares)         --        --          --       --            --           --   

Net income - 1995                               --        --          --       --            --          3,681 
                                            --------   -------   ---------   ------   -----------   ---------- 

Balances at June 30, 1995                    112,203    11,220   4,473,661    4,473    11,537,690   (2,706,388)

Issuance of common stock pursuant                                                                              
     to private placement under                                                                                
         Regulation D, net                      --        --     1,428,565    1,429     4,242,218         --   

Issuance of stock pursuant to                                                                                  
     acquisition, net                           --        --       200,000      200     1,049,800         --   

Compensation expense                            --        --          --       --          25,000         --   

Stock warrants exercised                        --        --       652,380      653     1,452,847         --   

Preferred stock dividends                                                                                      
     7% Class B shares ($.25 per share)         --        --          --       --         (20,441)        --   

     10% Class B shares ($.35 per share)        --        --          --       --         (10,000)        --   

Net loss - 1996                                 --        --          --       --            --     (2,961,039)
                                            --------   -------   ---------   ------   -----------   ---------- 

Balances at June 30, 1996                   $112,203   $11,220   6,754,606   $6,755    18,277,114   (5,667,427)
                                            ========   =======   =========   ======   ===========   ========== 



                                                        Total                                                  
                                          Treasury  shareholders'                                              
                                           stock       equity                                                  
                                           -----       ------                                                  
                                                                                                               
Balances at June 30, 1994                   --        1,103,292                                                

Issuance of common stock pursuant                                                                              
    to public offering, net                 --        3,573,409                                                

Issuance of stock pursuant to                                                                                  
    acquisitions, net                       --        4,182,187                                                

Stock options exercised                     --            5,850                                                

Preferred stock dividends:                                                                                     
    7% Class B shares ($.17 per share)      --          (14,183)                                               

    10% Class B shares ($.25 per share)     --           (7,241)                                               

Purchase of treasury stock (338 shares)     (423)          (423)                                               

Net income - 1995                           --            3,681                                                
                                            ----    -----------                                                

Balances at June 30, 1995                   (423)     8,846,572                                                

Issuance of common stock pursuant                                                                              
     to private placement under                                                                                
         Regulation D, net                  --        4,243,647                                                

Issuance of stock pursuant to                                                                                  
     acquisition, net                       --        1,050,000                                                

Compensation expense                        --           25,000                                                

Stock warrants exercised                    --        1,453,500                                                

Preferred stock dividends                                                                                      
     7% Class B shares ($.25 per share)     --          (20,441)                                               

     10% Class B shares ($.35 per share)    --          (10,000)                                               

Net loss - 1996                             --       (2,961,039)                                               
                                            ----    -----------                                                

Balances at June 30, 1996                   (423)    12,627,239                                                
                                            ====    ===========                                                

See accompanying notes to consolidated financial statements.                    

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BITWISE DESIGNS, INC. AND SUBSIDIARIES

 Consolidated Statements of Cash Flows

Years ended June 30, 1996 and 1995

                                                        [Enlarge/Download Table]

                                                                        1996           1995  
                                                                        ----           ----  
                                                                                             
Cash flows from operating activities:                                                        
     Net income (loss)                                              $(2,961,039)       3,681 
     Adjustments to reconcile net income (loss) to net                                       
         cash used in operating activities:                                                  
              Depreciation and amortization                             549,547      309,859 
              Provision for doubtful accounts receivable                 93,721       17,656 
              Non-cash compensation expense                              25,000         --   
              Loss on disposals of equipment                             87,235         --   
              Changes in operating assets and liabilities:                                   
                  Accounts receivable and due from related parties   (1,817,346)    (311,561)
                  Inventories                                        (1,137,804)    (733,902)
                  Prepaid expenses and other current assets              31,694       12,840 
                  Accounts payable and accrued expenses                 103,110     (540,296)
                  Income taxes receivable                                  (760)     (15,940)
                                                                    -----------   ---------- 
                      Net cash used in operating activities          (5,026,642)  (1,257,663)
                                                                    -----------   ---------- 

Cash flows from investing activities:                                                        
     Purchases of property and equipment                               (565,753)    (138,909)
     Proceeds from sale of equipment                                      6,000         --   
     Deferred licensing costs                                            (6,190)      (1,376)
     Software development costs                                         (29,957)     (48,911)
     Increase in notes receivable                                      (175,000)        --   
     Acquisition of business, net of cash acquired                      (34,179)        --   
                                                                    -----------   ---------- 
                      Net cash used in investing activities            (805,079)    (189,196)
                                                                    -----------   ---------- 

Cash flows from financing activities:                                                        
    Increase in borrowings under line of credit, net                  1,650,267       43,918 
    Principal payments on long-term debt                               (134,664)    (109,250)
    Principal payments on capital lease obligations                     (31,781)     (42,334)
    Purchase of treasury stock                                             --           (423)
    Dividends paid                                                      (30,441)     (21,424)
    Stock options exercised                                                --          5,850 
    Stock warrants exercised                                          1,453,500         --   
    Proceeds from issuance of common stock, net                       4,243,647    3,573,409 
                                                                    -----------   ---------- 
                      Net cash provided by financing activities       7,150,528    3,449,746 
                                                                    -----------   ---------- 

Net increase in cash and cash equivalents                             1,318,807    2,002,887 

Cash and cash equivalents, beginning of year                          2,058,498       55,611 
                                                                    -----------   ---------- 

Cash and cash equivalents, end of year                              $ 3,377,305    2,058,498 
                                                                    ===========   ========== 

See accompanying notes to consolidated financial statements.                    

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BITWISE DESIGNS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 1996 and 1995

(1)    Summary of Significant Accounting Policies                               
(a)  Description of Business                                      
Bitwise Designs, Inc. (Bitwise) and its subsidiaries,   
                Electrograph Systems, Inc. (Electrograph), Systems Solutions
                Technology, Inc. (SST), and 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. Bitwise has introduced a line of
                 document imaging systems which it markets under the tradename
"DocStar" on a national level.              

     In  August 1994, Bitwise acquired Electrograph, a value-added
        distributor of microcomputer peripherals, components and
           accessories throughout the East Coast of the United States.
            Simultaneously with its acquisition of Electrograph, Bitwise
              acquired SST, a value-added distributor of advanced technology
            industrial computers and computer peripherals (see also note
15).                                            

      In  March 1996, Bitwise acquired DJS Marketing Group, Inc. DJS
        distributes high quality, specialized, portable personal
          computer systems and workstations. In addition, DJS offers
              training programs for the use of computer software, as well as
           systems integration, Internet and hardware repair services.
             Subsequent to the acquisition of DJS, Bitwise transferred its
personal computer division to DJS.              

          During the fiscal year ended June 30, 1996, the Company incurred a
             net loss of $2,961,039, and cash used by operating activities
                totaled $5,026,642. The Company's available cash balance at June
               30, 1996 totaled approximately $3 million, and it has available
           approximately $2 million under existing lines of credit. To
              date, the Company has been largely dependent on its ability to
                sell additional shares of its common stock to fund its operating
               deficits. Under its current operating plan to obtain a national
                acceptance of the DocStar product line, the Company's ability to
             improve operating cash flow is highly dependent on the market
         acceptance of its DocStar document imaging system. If the
          Company is unable to attain projected sales levels for its
                DocStar systems, it may be necessary to raise additional capital
to fund operations and meet its obligations.    

(b)  Principles of Consolidation                                  
     The consolidated financial statements include the accounts of
            Bitwise Designs, Inc. and its subsidiaries, all of which are
        wholly-owned. The accounts of the subsidiaries have been
          consolidated since their respective acquisition dates. All
                intercompany balances and transactions since that date have been
eliminated in consolidation.                    

(c)  Cash Equivalents                                             
     The Company considers all highly liquid debt instruments with
         original maturities not exceeding three months to be cash
             equivalents. At June 30, 1996 and 1995, cash equivalents were
      composed primarily of investments in commercial paper,
             certificates of deposit and overnight deposits (see also note
17).                                            

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

                                                                 (Continued)

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BITWISE DESIGNS, INC. AND SUBSIDIARIES

 Notes to Consolidated Financial Statements, Continued

(e)  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 two 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.

(f)  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.                                          

(g)  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 1996 and 1995 amounted to $29,957 and $48,911,
      respectively. Amortization expense related to software
                development costs for the years ended June 30, 1996 and 1995 was
$28,810 and $18,823, respectively.              

(h)  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 1996 and 1995 was $256,551 and
            $108,963, respectively. Accumulated amortization at June 30,
      1996 and 1995 was $365,514 and $108,963, respectively.

(i)  Income Taxes                                                 
         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.                                 

(j)  Revenue Recognition and Warranty Provisions                  
         Revenue from the sale of products is recognized when the products
         are shipped to customers. 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.                                

                                                                     (Continued)

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BITWISE DESIGNS, INC. AND SUBSIDIARIES

 Notes to Consolidated Financial Statements, Continued

(k)  Earnings per Common Share                                    
    Earnings per share of common stock are computed based on the
                weighted average number of common shares outstanding during each
             year. There were no dilutive common equivalent shares for the
               years ended June 30, 1996 and 1995. The weighted average number
                of common shares outstanding was 5,479,237 and 4,235,775 for the
 years ended June 30, 1996 and 1995, respectively.

(l)  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.              

(m)  Reclassifications                                            
     It is the Company's policy to reclassify prior year financial
       statements to conform to the current year presentation.

(2)    Inventories                                                              
Inventories at June 30, 1996 and 1995 consist of:                 

                                                                [Download Table]

                                                    1996          1995  
                                                    ----          ----  

                                                                        
Purchased components and raw materials            $1,175,088   1,823,365
Finished goods                                     2,886,557     959,759
                                                  ----------   ---------
                                                  $4,061,645   2,783,124
                                                  ==========   =========

     Inventories are pledged as collateral for borrowings under the lines of
           credit, long-term debt and to certain suppliers as described in notes
4 and 5.                                                  

(3)    Property and Equipment                                                   
      Property and equipment at June 30, 1996 and 1995 consists of the
following:                                                

                                                                [Download Table]

                                                             Estimated 
                                                            Useful Life
                                       1996        1995      In Years  
                                       ----        ----      --------  
                                                                       
Leasehold improvements              $   76,182     16,398         6    
Machinery and equipment                965,535    528,365       3-6    
Demonstration and rental computers     183,123     62,276       5-6    
Furniture and fixtures                 242,513    116,797       5-7    
Product molds and tooling                 --      218,093         5    
Vehicles                                28,162     25,316         5    
                                    ----------   --------              
                                     1,495,515    967,245              
Less accumulated depreciation and                                      
amortization                          (548,554)  (443,874)             
                                    ----------   --------              
                                    $  946,931    523,371              
                                    ==========   ========              

     Depreciation and amortization expense on property and equipment for the
 years ended June 30, 1996 and 1995 was $258,043 and $172,223,
respectively.                                               

                                                                   (Continued)

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BITWISE DESIGNS, INC. AND SUBSIDIARIES

 Notes to Consolidated Financial Statements, Continued

   Assets under capital lease arrangements included in the above amounts
         are $123,550 and $110,995 of machinery and equipment, and $76,638 and
 $50,258 of furniture and fixtures, before related accumulated
          amortization totaling $103,627 and $81,294, at June 30, 1996 and 1995,
respectively.                                               

       Property and equipment are pledged as collateral for borrowings under the
     lines of credit and long-term debt as described in notes 4 and 5.

(4)    Credit Facilities                                                        
(a)  Lines of Credit                                              
   The Company has two lines of credit totaling $4,800,000, as
             described further below, of which $1,984,058 was available at
June 30, 1996.                                  

          At June 30, 1995, the Company had three working capital lines of
               credit with three commercial banks totaling $1,275,000. On July
               20, 1995, the Company refinanced its short-term borrowings with
                one financial institution and paid off the commercial bank lines
                of credit and the bank loan (see note 5). The new line of credit
               totals $2,500,000 and is collateralized by accounts receivable,
                inventory and all other assets of the Company. The interest rate
             on this line of credit is based on the prime rate plus 2% per
               annum (10.25% at June 30, 1996). Under the terms of the line of
           credit, Bitwise may borrow up to $500,000, Electrograph may
              borrow up to $900,000 and SST may borrow up to $1,100,000. The
             line of credit agreement includes covenants which require the
           Company to maintain a minimum tangible net worth, a maximum
            debt-to-tangible net worth, as well as requiring delivery of
                periodic financial information and quarterly audits conducted by
the lender.                                     

            On April 4, 1996, DJS obtained a $2.3 million credit facility from
                a financial institution. Under the revolving accounts receivable
               credit line portion of this agreement, DJS may receive advances
       of up to $1.0 million based on 85% of eligible accounts
               receivable. In addition, DJS may receive up to $1.3 million for
             vendor-subsidized inventory purchases. The revolving accounts
              receivable credit line bears interest at prime plus 1.75% (10%
             at June 30, 1996), subject to a minimum prime rate of 6%, and
                transaction fees of .10% on each advance. No finance charges are
                assessed on borrowings for vendor-subsidized inventory purchases
              if repayment complies with vendor specified criteria. The $2.3
              million credit facility is secured by a first priority lien on
              accounts receivable, inventory, fixed assets, other assets and
general intangibles of DJS.                     

         The $2.3 million credit facility includes covenants which require
     DJS to maintain a minimum tangible net worth, maximum
                debt-to-tangible net worth and a minimum tangible current ratio.
            At June 30, 1996, DJS was not in compliance with the minimum
            tangible net worth covenant associated with the $2.3 million
            credit facility. The financial institution did not declare a
               default and, subsequent to June 30, 1996, DJS received a waiver
              of the covenant violation that, under the terms of the waiver,
              required Bitwise to make an additional capital contribution to
DJS in the amount of $150,000.                  

(b)  Letter of Credit                                             
            The Company has outstanding a standby letter of credit in the amount
                of $350,000 as of June 30, 1996. The letter of credit expires on
               June 30, 1997 and requires the Company to maintain a restricted
cash deposit of $350,000.                       

                                                                     (Continued)

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BITWISE DESIGNS, INC. AND SUBSIDIARIES

 Notes to Consolidated Financial Statements, Continued

(5) Long-term Debt                                                      
   Long-term debt at June 30, 1996 and 1995 consists of the following:

                                                        [Enlarge/Download Table]

                                                                              1996      1995 
                                                                              ----      ---- 
                                                                                             
  Bank loan payable, guaranteed by U.S. Small Business Administration for                    
    85% of loan amount. On July 20, 1995, the Company paid off this bank                     
    loan pursuant to the establishment of a new line of credit as                            
    described in note 4                                                    $   --     104,167

  Notes payable, Schenectady Economic Development Corporation and                            
    Schenectady Employment Training Development Corporation, interest                        
    accrues at 9% per annum. Monthly payments of interest and principal                      
    of $2,716 are due through January 1997. Collateralized by all assets                     
    of the Company subject to the rights of the holders of the line of                       
    credit as described in note 4                                            18,474    47,293

  Other                                                                       3,636    19,766
                                                                           --------  --------
                                                                             22,110   171,226

  Less current portion                                                       20,205   149,236
                                                                           --------  --------
         Long-term debt, net of current portion                            $  1,905    21,990
                                                                           ========  ========

The future principal payments on long-term debt are as follows:                              

         Year ending June 30, 1997                                         $ 20,205          
                              1998                                            1,905          
                                                                           --------          
                                                                           $ 22,110          
                                                                           ========          

(6)    Income Taxes                                                             
     Income tax expense (benefit) for the years ended June 30, 1996 and 1995
consists of:                                                  

                                                                [Download Table]

                            Current   Deferred     Total  
                            -------   --------     -----  
                                                          
Year ended June 30, 1996                                  
     Federal               $   --         --         --   
     State and local         18,251       --       18,251 
                           --------    -------    ------- 
                           $ 18,251       --       18,251 
                           ========    =======    ======= 


                            Current   Deferred     Total  
                            -------   --------     -----  
                                                          
Year ended June 30, 1995                                  
     Federal               $ (9,251)      --       (9,251)
     State and local         (9,474)      --       (9,474)
                           --------    -------    ------- 
                           $(18,725)      --      (18,725)
                           ========    =======    ======= 

At June 30, 1996, the Company has Federal net operating loss      
         carryforwards for tax purposes approximating $7,447,000. The years in
     which the net operating loss carryforwards expire are as follows:
2000-$224,000; 2001-$684,000; 2002-$48,000; 2003 - $3,000;  
 2004-$6,000; 2005-$48,000; 2006-$32,000; 2007-$430,000; 2008-
   $1,557,000; 2009-$1,740,000; 2010-$10,000; and 2011-$2,665,000.

                                                                   (Continued)

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BITWISE DESIGNS, INC. AND SUBSIDIARIES

 Notes to Consolidated Financial Statements, Continued

    Through the acquisitions of Electrograph and SST, the Company acquired
         approximately $1,066,000 and $1,544,000 of Federal net operating loss
         carryforwards for tax purposes, subject to certain annual limitations
       on the use of the net operating loss carryforwards arising prior to
         the acquisition in accordance with Internal Revenue Code Section 382.
At June 30, 1996, the remaining Federal net operating loss  
        carryforwards were $966,000 and $1,383,000 for Electrograph and SST,
respectively.                                               

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

                                                                [Download Table]

                                                            1996      1995 
                                                            ----      ---- 
                                                                           
Computed expected tax benefit                       $ (1,000,548)   (5,115)
Increase in valuation allowance                          914,153      -    
Nondeductible goodwill amortization                       87,227      -    
Adjustment to prior years' taxes                          17,911    (9,251)
State income taxes, net of Federal benefit in 1995        18,251    (6,253)
Other nondeductible expenses                              17,079     1,894 
                                                    ------------   ------- 

                                                    $     18,251   (18,725)
                                                    ============   ======= 

     The tax effects of temporary differences that give rise to deferred tax
        assets and deferred tax liabilities as of June 30, 1996 and 1995 are
presented below:                                            

                                                                [Download Table]

                                                            1996           1995   
                                                            ----           ----   
                                                                                  
Deferred income tax assets:                                                       
     Allowance for doubtful accounts                      $   73,209       37,904 
     Inventories, principally due to additional costs                             
        inventoried for tax purposes pursuant to the Tax                          
        Reform Act of 1986 and inventory reserves            186,198      139,882 
     Deferred rent and other liabilities                      82,864       45,866 
     Net operating loss carryforward                       2,532,117    1,764,940 
                                                          ----------   ---------- 
         Total gross deferred tax assets                   2,874,388    1,988,592 
         Less valuation allowance                         (2,818,810)  (1,946,505)
                                                          ----------   ---------- 
         Net deferred tax asset                               55,578       42,087 
                                                          ----------   ---------- 
Deferred income tax liability:                                                    
     Equipment, principally due to differences in                                 
         depreciation methods                                (55,578)     (42,087)
                                                          ----------   ---------- 
         Net deferred income taxes                        $      -            -   
                                                          ==========   ========== 

    The valuation allowance for deferred tax assets as of July 1, 1995 and
         1994 was $1,946,505 and $918,974, respectively. The net change in the
        total valuation allowance for the years ended June 30, 1996 and 1995
was an increase of $872,305 and $1,027,531, respectively.   

                                                                     (Continued)

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BITWISE DESIGNS, INC. AND SUBSIDIARIES

 Notes to Consolidated Financial Statements, Continued

(7)  Lease Commitments                                                      
     The Company is obligated under operating and capital leases for certain
       equipment and facilities expiring at various dates through the year
2001.                                                       

As of June 30, 1996, future minimum payments by year, and in the  
    aggregate, under capital and noncancelable operating leases with
initial terms of one year or more consist of the following: 

                                                                [Download Table]

                                                  Capital    Operating
                                                  Leases      Leases  
                                                  ------      ------  
Fiscal year ending June 30:                                           
                                                                      
     1997                                        $  31,011    382,135 
     1998                                            8,250    203,254 
     1999                                            1,333    176,469 
     2000                                             --       64,299 
     2001                                             --       58,543 
                                                 ---------    ------- 
                                                    40,594    884,700 
                                                              ======= 
   Amount representing interest                     (4,441)           
                                                 ---------            
   Present value of net minimum lease payments      36,153            

   Less current portion                            (26,885)           
                                                 ---------            
   Long-term portion                             $   9,268            
                                                 =========            

  Rental expense was approximately $317,000 and $256,000 for the years
  ended June 30, 1996 and 1995, respectively (see also note 13).

(8)    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 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, a majority of the Board will
       be designated as "Preferred Directors" and be elected solely by the
         holders of the 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.

                                                                     (Continued)

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BITWISE DESIGNS, INC. AND SUBSIDIARIES

 Notes to Consolidated Financial Statements, Continued

    In connection with the Company's acquisition of SST, 112,003 shares of
      preferred stock designated as Series B Convertible Preferred Stock
        were issued. The holders of the Series B Convertible Preferred Stock
   are entitled to quarterly dividends at 7% and 10%. The Series B
       Convertible Preferred Stock is convertible into common stock at the
rate of $3.50 per share. In August 1996, all of the Series B
       shareholders elected to convert their shares into common stock (see
also note 15).                                              

(9)    Stock Option Plans                                                       
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 quality ("Non-ISOs"). The
         Company has not registered the shares under the 1992 Plan and options
          may not be exercised until such time that they are registered with the
Securities and Exchange Commission.                         

     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. The Board
         or the 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 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. Exercise prices of Non-ISO options may be less than such
        fair market value. The aggregate fair market value of shares subject
       to options which are designated as ISOs which become exercisable in
any calendar year shall not exceed $100,000.                

    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.

                                                                     (Continued)

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BITWISE DESIGNS, INC. AND SUBSIDIARIES

 Notes to Consolidated Financial Statements, Continued

1992 Employees Stock Option Plan Summary:                   

                                                                [Download Table]

                           Number of shares  Option price per share
                           ----------------  ----------------------
                                                                   
Outstanding June 30, 1994       425,250         $   .34 - 3.625    
     Options granted          1,111,000          1.5625 - 5.125    
     Options exercised           (5,000)                   1.17    
     Options canceled or                                           
     surrendered                (27,370)             .34 - 1.17    
                              ---------                            

Outstanding June 30, 1995     1,503,880             .34 - 5.125    

     Options granted            767,500           4.4375 - 7.25    
     Options canceled or                                           
         surrendered           (111,825)           .34 - 1.5625    
                              ---------                            

Outstanding June 30, 1996     2,159,555              .34 - 7.25    
                             ==========                            

As of June 30, 1996 and 1995, 770,722 shares and 547,880 shares,    
        respectively, were exercisable under the 1992 Employees Stock Option
Plan.                                                       

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 shareholders on May 6, 1992. The Director Plan provides for
    issuance of a maximum of 400,000 shares of common stock upon the
          exercise of stock options granted under the Director Plan. Options can
be 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 10,000 shares upon joining the Board of Directors
          and on each September 1 thereafter, provided such person has served as
    a director for the previous twelve-month period. Similarly, each
         eligible director of an advisory board will receive, upon joining the
   advisory board and on each September 1 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
twelve-month period.                                        

  The exercise price for options granted under the Director Plan shall
       be 100% of the fair market value of the common stock on the date of
          grant. Until otherwise provided, 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 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.                                           

     As of June 30, 1996, options to purchase up to 190,000 shares have been
         granted to non- executive directors. These options are exercisable at
         prices between $3.50 and $5.125 per share. During 1996 and 1995, none
of the options were exercised or canceled.                  

                                                                     (Continued)

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BITWISE DESIGNS, INC. AND SUBSIDIARIES

 Notes to Consolidated Financial Statements, Continued

(10)     Common Stock Warrants                                    
A schedule of common stock warrant activity is as follows:        

                                                                [Download Table]

                                  Number of shares  Warrant price per share
                                                                           
Outstanding June 30, 1994               237,000           $.50 - 4.90      
    Warrants granted                  1,075,000            1.50- 7.50      
                                      ---------                            
Outstanding June 30, 1995             1,312,000            .50 - 7.50      
    Warrants granted                  1,979,137           3.50 - 7.00      
    Warrants exercised                 (652,380)         .50 - 3.5929      
    Adjustments for antidilution         36,380                3.5929      
                                      ---------                            
Outstanding June 30, 1996             2,675,137           1.50 - 7.50      
                                      =========                            

    In December 1995, the Company issued 1,528,569 redeemable common stock
     warrants in connection with the Company's private placement under
       Regulation D. Other warrants issued during the year were to various
     firms providing service to the Company. None of the warrants were
exercised as of June 30, 1996.                              

      During the year ended June 30, 1995, the Company issued 1,075,000 common
      stock warrants to various firms providing services to the Company.

(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% in each of the second and third years; (ii) a bonus
   of 3% of the Company's pre-tax net 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 which shall vest in increments of 100,000 shares on each of
          June 30, 1995, and at 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.                

          In March 1996, the Company entered into employment agreements with the
        three principles of DJS Marketing Group, Inc. in connection with the
          acquisition of DJS as described in note 15. The President and two Vice
         Presidents entered into two-year employment agreements each providing
          for a specified annual compensation, performance bonus payments and an
         aggregate of 375,000 employee stock options to purchase shares of the
    Company's common stock at exercise prices ranging from $6.125 to
$7.125 per share.                                           

  In August 1994, the Company entered into a two-year employment
        agreement with the President of SST providing for a specified annual
          compensation, performance bonus payments and employee stock options to
       purchase 80,000 shares of the Company's common stock at an exercise
price of $3.50 per share.                                   

  In August 1994, the Company entered into a two-year employment
       agreement with the Vice President of Administration of Electrograph
   Systems, Inc. providing for a specified annual compensation and
     employee stock options to purchase 20,000 shares of the Company's
       common stock at an exercise price of $1.563 per share. During 1996,
the agreement was terminated and settled.                   

                                                                     (Continued)

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BITWISE DESIGNS, INC. AND SUBSIDIARIES

 Notes to Consolidated Financial Statements, Continued

Consulting Agreement:                                           

        In August 1994, the Company entered into a consulting agreement with
  the former Chairman of the Board of Electrograph Systems, Inc.
         (hereinafter referred to as the Consultant) to provide consulting and
advisory services to the Company for a period of two years. 
       Additionally, the Consultant will consent to serve as a Director of
Bitwise or to appoint his representative as a Director. No  
          compensation will be paid for these Director services. As compensation
          for consulting services, stock options to purchase 200,000 shares have
       been issued. The options are exercisable for a period of five years
        and shall vest at the rate of 100,000 options per year provided that
      (i) the gross dollar amount of equipment/component parts purchased
from Bitwise, SST or Electrograph by sources provided by the
    Consultant or (ii) sales by Bitwise or any Bitwise subsidiary of
        products of others as a result of becoming an authorized distributor
       through the efforts of the Consultant, shall be at least $3,000,000
         during each twelve-month period of the consulting agreement (see also
note 13).                                                   

(12)  Cash Flows - Supplemental Information                                     
Cash Flows:                                                         

         The Company paid interest in the amounts of $207,684 and $108,239 for
      the years ended June 30, 1996 and 1995, respectively. Income taxes
      paid aggregated $19,011 and $8,750 during the years ended June 30,
1996 and 1995, respectively.                                

Noncash investing and financing activities (see also note 15):    

         During the year ended June 30, 1996, the Company entered into capital
       lease obligation for the purchase of equipment aggregating $12,555.

(13)   Related Parties                                                          
(a)  Employee Receivables                                         
      At June 30, 1996 and 1995, "Due from related parties" included
   non-interest bearing advances of $74,136 and $36,142,
       respectively, from employees and officers of the Company.

(b)  Notes Receivable                                             
      During 1996, Bitwise entered into two promissory notes
          receivable with a director (hereinafter referred to as the
           Director Note) and the former shareholders of DJS Marketing
               Group, Inc. (hereinafter referred to as the DJS Note), included
                within "Due from related parties," in the amounts of $50,000 and
                $125,000. The Director Note bears interest at the rate of 6% per
             annum. The note principal and accrued interest thereon is due
            and payable on May 10, 1997 and is secured by all issued and
              outstanding director stock options (options to purchase 40,000
            shares at June 30, 1996). The DJS Note bears interest at the
             rate of 8% per annum. The note principal and accrued interest
             thereon is due and payable on March 8, 1998 and is secured by
              30,000 shares of Bitwise Designs, Inc. common stock pledged as
collateral.                                     

                                                                     (Continued)

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BITWISE DESIGNS, INC. AND SUBSIDIARIES

 Notes to Consolidated Financial Statements, Continued

(c)    Other Transactions                                             
     During 1996 and 1995, the Company's subsidiary, Electrograph,
            purchased and sold computer-related equipment with a company
              owned by the former Chairman of the Board of Electrograph (see
      also note 11). Purchases from this company amounted to
         approximately $591,000 and $316,000 during 1996 and 1995,
             respectively. Sales to this Company amounted to approximately
            $445,000 and $395,000 during 1996 and 1995, respectively. At
              June 30, 1996 and 1995, $31,786 and $96,410, respectively, and
           $79,200 and $3,359, respectively, were included as accounts
              receivable and accounts payable, respectively, of Electrograph
related to these transactions.                  

           The Company's subsidiary, SST, conducts its primary operations from
               a building leased from its President and two other individuals.
       During 1996 and 1995, SST paid rent on this building of
 approximately $108,000 and $80,000, respectively.

(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 will make contributions in percentages of compensation, or
        amounts as determined by the Company. The Company contributed $1,750
       and $0 during the years ended June 30, 1996 and 1995, respectively.

(15)   Acquisitions                                                             
  On March 8, 1996, Bitwise completed its acquisition of DJS Marketing
      Group, Inc. The shareholders of DJS Marketing Group, Inc. received
    $80,000 in cash and 200,000 shares of restricted common stock of
         Bitwise in exchange for the 4,000 outstanding shares of DJS Marketing
         Group, Inc. common stock. The cost of the acquisition was $1,130,000.

      Under the indemnification provisions of the merger, 25,000 common shares
     of Bitwise received by the former shareholders of DJS are held in
         escrow for a period of 18 months from the date of the acquisition. In
      addition, the sale of the common shares of Bitwise, transferred in
      connection with the acquisition, is restricted for a period of two
years. Also, as a condition of the acquisition, the former  
          shareholders of DJS Marketing Group, Inc. have entered into employment
       and non-competition agreements expiring on March 31, 1998 (see also
note 11).                                                   

     On August 18, 1994, the Company acquired Electrograph Systems, Inc. and
    SST. Electrograph is a distributor of microcomputer peripherals,
        components and accessories. All of Electrograph's outstanding common
     stock was acquired for 333,333 shares of Bitwise common stock (an
          exchange ratio of one share of the Company's common stock for every 28
        shares of Electrograph's common stock). In addition, an aggregate of
        25,000 shares of the Company's common stock was issued as a finder's
       fee in connection with the acquisition. The cost of the acquisition
was $1,667,000.                                             

                                                                     (Continued)

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BITWISE DESIGNS, INC. AND SUBSIDIARIES

 Notes to Consolidated Financial Statements, Continued

SST is a value-added distributor of advanced technology industrial
        computers and computer peripherals. All of the outstanding shares of
    SST were acquired for 425,000 shares of Bitwise common stock. In
        addition, approximately $392,000 of SST debt was exchanged for a new
          class of convertible preferred stock, which bears dividends at 7% (10%
       with respect to approximately $100,000 of such preferred stock) per
        annum and will be convertible into common stock at the rate of $3.50
       per share. The Company also provided a capital infusion of $600,000
used by SST to reduce debt. The cost of the acquisition was 
$2,515,000.                                                 

     All of these acquisitions were accounted for using the purchase method.
          The excess of cost over net assets of acquired companies, amounting to
        $5,974,369, is being amortized over 20 years using the straight-line
method.                                                     

Proforma consolidated financial information, presented as if the  
      acquisitions of DJS, Electrograph and SST had been completed as of
June 30, 1994, is as follows:                               

PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
 OF THE COMPANY, DJS, ELECTROGRAPH AND SST

                                                                [Download Table]

                                             Year ended          Year ended  
                                            June 30, 1996       June 30, 1995
                                            -------------       -------------
                                                                             
Unaudited Pro Forma Consolidated                                             
   Statement of Operations Data:                                             

   Net sales                                $ 39,694,898         46,412,354  
   Gross profit                                5,905,362          6,031,506  
   Loss before extraordinary item             (3,343,319)           (75,616) 
   Net loss                                   (3,343,319)           (75,616) 
   Loss per common share                            (.61)              (.01) 

 The pro-forma consolidated financial information of the Company, DJS,
         Electrograph and SST has been adjusted to reflect the amortization of
      goodwill, conversion of debt to equity and accrual of dividends in
arrears.                                                    

     The pro-forma results of operations are not necessarily indicative of the
          actual results of operations that would have occurred had the purchase
        been made at the beginning of the period, or of the results that may
occur in the future.                                        

                                                                     (Continued)

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BITWISE DESIGNS, INC. AND SUBSIDIARIES

 Notes to Consolidated Financial Statements, Continued

(16)   Securities Offerings                                                     
In December 1995, the Company completed a private equity offering 
  including common stock and redeemable common stock warrants of
 $5,000,000 exempt from registration under Regulation D of the
         Securities Act of 1933. Each redeemable common stock warrant entitles
          the holder thereof to purchase on or prior to the last business day of
      the sixtieth month following the date of the first closing of this
          offering one share of common stock of the Company at an exercise price
       of $4.50 per share, subject to adjustment in certain circumstances.
     The common stock purchase warrants are redeemable, in whole or in
        part, at the option of the Company, for $.10 per warrant on not less
      than thirty days prior written notice, at any time, commencing six
         months from the first closing of this offering, provided that (i) the
        closing bid quotation of the Company's common stock is at least 150%
        of the then exercise price of the warrants on each of the 20 trading
         days ending on the third trading day prior to the day on which notice
      of redemption is given; and (ii) the warrants have been registered
   under the Securities Act of 1933, as amended. Proceeds from the
       offering of the 1,428,565 shares aggregated $5,000,000. The Company
        also incurred expenses associated with the offering in the amount of
$756,353.                                                   

In addition, the Company agreed to grant Whale Securities Co. L.P.
   (Whale) (see below), which acted as the placement agent in this
  offering, warrants to purchase 428,568 shares of common stock,
   exercisable for a period of five years, at a price equal to the
       offering price. These warrants contain anti-dilution provisions and
       registration rights, including demand and "piggy back" registration
         rights, and shall not be redeemable by the Company. Also, the Company
      has agreed to grant Whale a three-year right of first refusal with
     respect to certain future financings of the Company, the right to
       designate, at its option, a nominee for election as a member of the
       Board of Directors of the Company or as a non-voting advisor to the
          Board of Directors, and the Company will use its best efforts to cause
       such nominee to be elected and continued in office as a director of
       the Company or as such advisor for a period of three years from the
 first closing of the offering. The Company has also agreed to
      indemnify Whale against certain liabilities, including liabilities
      under the Securities Act of 1933, in connection with the offering.

  In August 1994, the Company successfully completed its second public
     offering for 1,000,000 shares at $5.00 per share, underwritten by
        Berkeley Securities Corporation (Berkeley). The Company also granted
     Berkeley an option to acquire up to an additional 150,000 shares,
         subject to sale upon exercise, to cover over allotments. Net proceeds
        from the offering of the 1,000,000 shares aggregated $4,375,100. The
          Company also incurred additional expenses associated with the offering
          in the amount of $801,691. The underwriter did not exercise its option
        to acquire the additional 150,000 shares. In addition, Berkeley also
         received common stock purchase warrants for a total of 100,000 shares
         exercisable over a period of four years, commencing one year from the
      date of the August 1994 offering at an exercise price of $7.50 per
    share. In January 1995, Berkeley ceased its business operations.

    In July 1995, the Company entered into an investment banking agreement
          with Whale Securities Co. L.P. Under the agreement, Whale will provide
       financial consulting services including the evaluation of financing
transactions and acquisitions, the introduction to financial
        institutions and security analysts, and act as a liaison to the Wall
Street community.                                           

                                                                     (Continued)

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BITWISE DESIGNS, INC. AND SUBSIDIARIES

Notes to Financial Statements, Continued

(17) Financial Instruments                                                      
(a)  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 but are concentrated in the
            geographic regions of the Northeast and the mid-Atlantic states. The
            Company reviews a customer's credit history before extending credit.
        The Company establishes an allowance for doubtful accounts based
       upon factors surrounding the credit risk of specific customers,
historical trends and other information.                

(b)  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.                     

          (i)  Cash and Cash Equivalents, Accounts Receivable, Notes Receivable,
     Accounts Payable and Accrued Expenses and Other Current
Liabilities                                       
        The carrying amount of cash and cash equivalents, accounts
             receivable, accounts payable and accrued expenses and other
            current liabilities approximates fair value because of the
             short maturity of these instruments. The carrying amount of
               notes receivable, included within "Due from related parties",
              approximates fair value because the notes bear interest that
approximates the market rate.                 

(ii) 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 (see note 4). The
             remaining balance of long-term debt approximates fair value
           because of its short maturity. Consequently, the carrying
             value of the borrowings under lines of credit and long-term
debt approximates fair value.                 

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ITEM 6.        MANAGEMENT'S DISCUSSION AND ANALYSIS                             

 The following analysis of the results of operations and financial
condition of the Company should be read in conjunction with the Company's       
financial statements, including the notes thereto, contained elsewhere in this  
report.                                                                         

RESULTS OF OPERATIONS                                                           

Fiscal Year 1996 Compared to Fiscal Year 1995                                   

      The Company realized a consolidated net loss of $2,961,039 or $.55 per
share, for the fiscal year ended June 30, 1996 compared to a net profit of      
$3,681, or $.00 per share, for the fiscal year ended June 30, 1995. Consolidated
net sales totaled $30,611,258 for fiscal year 1996 compared to $23,949,368 for  
fiscal year 1995.                                                               

    The sales increase is partially attributed to the acquisition of DJS
Marketing Group, Inc. in March 1996. Sales increases also reflect the inclusion 
of Electrograph and SST as wholly-owned subsidiaries of the Company for         
the entire fiscal year 1996 compared to inclusion for only approximately 10 1/2 
months in fiscal year 1995. The Company also experienced significant sales      
growth in its document imaging product line known as DocStar. Additionally,     
Electrograph Systems, Inc., and System Solutions Technology, Inc. ("SST") also  
experienced sales growth. The decrease in profits can be attributed to the      
introduction of the DocStar product line. During fiscal year 1996, the Company  
incurred and expects to continue to incur, significant costs to build a         
management and sales team, significantly expand its distribution network and to 
advertise and promote DocStar. As a result of these various costs, the Company  
has incurred a loss for the year ended June 30, 1996.                           

       Gross profit for fiscal year 1996 was $4,826,693 compared to $3,956,846
for the 1995 fiscal year. The gross profit margin was 15.8% for fiscal 1996     
compared to 16.5% for fiscal 1995. The Company's gross profit margin (which is  
defined as gross profit as a percentage of sales) decreased slightly due to     
aggressive pricing of certain Company products such as personal computers and   
peripheral computer products. This was partially offset by the growth in sales  
of the Company's DocStar product line which has significantly higher gross      
margins than other product lines of the Company. Increases in gross profit also 
resulted from inclusion of SST and Electrograph for a full fiscal year as       
compared to the previous fiscal year, as well as the acquisition of DJS, as     
described above.                                                                

21

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 Selling, general and administrative expenses consist of all other
Company expenses, except product development and interest. These costs increased
from $3,993,861 in fiscal 1995 to $7,564,946 in fiscal 1996. The increase in    
such expenses is due to the acquisition of DJS as well as the growth of SST and 
Electrograph. Additionally, these increased expenses resulted from inclusion of 
SST and Electrograph for full fiscal year 1996. In addition, the Company        
incurred significant selling, general and administrative costs related to the   
DocStar product line in fiscal 1996, including costs associated with the hiring 
of a national dealer sales force and related expenses such as salaries, travel  
and living expenses, moving expenses, communication costs, equipment costs and  
benefits as well as advertising, promotion, sales training, service training,   
technical support, production overhead and office overhead. The Company is      
continuing to recruit sales, marketing and service personnel for the DocStar    
line, and therefore additional costs will be incurred during the next fiscal    
year.                                                                           

   As a percentage of sales, selling, general and administrative costs
increased from 16.7% in fiscal 1995 to 24.7% in fiscal 1996. Management believes
that as the DocStar sales volume increases this percentage of selling, general  
and administrative costs to sales will decrease. Recently the Company opened its
Central and Western United States dealership territories and expects significant
growth in the future. Prior to June 30, 1996 most sales were limited to dealers 
in the Northeastern United States with some minor volume in the Southern United 
States.                                                                         

      Interest costs totaled $232,678 in fiscal 1996 compared to $108,239 in
fiscal 1995. The increase in interest cost is related to the increase in sales  
volume over the prior year. Additionally, this increase reflects interest costs 
associated with the $2.3 million credit facility obtained by the Company's      
recently acquired subsidiary, DJS. As sales increased the Company increased its 
borrowings to fund inventory and receivables. To a lesser extent the increase is
also due to an increase in interest rates compared to the prior year.           

        Product development expenses that relate primarily to development of the
Company's DocStar product line, increased from $29,384 in fiscal 1995 to        
$129,075 in fiscal 1996. The Company has a policy of capitalizing qualifying    
software development costs and amortizing those costs over three years. During  
fiscal year 1996, the Company capitalized $29,957 in such costs as compared to  
$48,911 in fiscal 1995.                                                         

Fiscal Year 1995 Compared to Fiscal Year 1994                                   

     Sales for the years ended June 30, 1995 and 1994 were $23,949,368 and
$4,661,377, respectively. The increase of sales for fiscal 1995 of $19,287,991  
resulted primarily from the                                                     

22

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acquisitions of Electrograph Systems, Inc. and System Solutions Technology, Inc.
on August 18, 1994. Net income also increased from the prior year as a result of
the acquisitions from a loss of $813,380 for the year ended June 30, 1994 to a  
profit of $3,681 for the year ended June 30, 1995.                              

  Gross profit was $3,956,846 in fiscal 1995 compared to $663,450 in
fiscal 1994. The increase was also due to the acquisitions of Electrograph and  
SST. Gross margins (defined as a percentage of gross profits to sales) increased
from 14.2% in fiscal 1994 to 16.5% in fiscal 1995. The increase in gross margin 
is due to the acquisition of SST, which sells higher margin products and an     
increase in sales by Bitwise of portable systems and document imaging systems,  
both of which produce higher margins.                                           

        Selling, general and administrative expense increased from $1,421,401 in
fiscal 1994 to $3,993,861 in 1995. As a percentage of sales, these costs        
decreased from 30.5% in fiscal 1994 to 16.7% in fiscal 1995. As anticipated by  
management when it sought to acquire SST and Electrograph, the Company has      
achieved significant benefits through the synergy of the three entities and the 
elimination of duplication and also through the process of streamlining the     
three businesses.                                                               

     Interest costs totaled $108,239 in fiscal 1995 compared to $37,495 in
fiscal 1994. The increase is due to the acquisitions of SST and Electrograph,   
both of which had outstanding debt during fiscal 1995 and which was assumed by  
the Company as a result of the acquisitions in August 1994. With respect to     
Bitwise, interest rates increased in fiscal 1995 compared to fiscal 1994, but   
the increase was offset by lower borrowing.                                     

     Product development and research expenses in fiscal 1995 were $29,384
compared to $28,313 in fiscal 1994. During fiscal year 1995, these costs were   
incurred for the development of Bitwise's document imaging product line known as
DocStar. Fiscal year 1994 product development and research expenses were        
primarily related to Bitwise's portable product line.                           

LIQUIDITY AND CAPITAL RESOURCES                                                 

        The Company's primary sources of funds to date have been the issuance of
equity and the incurrence of third party debt. The principal balance of         
long-term debt at June 30, 1996 totaled $22,110.                                

 The Company also has two working capital lines-of-credit totaling
$4,800,000 which are collateralized by all accounts receivable, inventory and   
all other assets of the Company and its subsidiaries. One of the credit lines,  
in the principal amount of $2.3 million, may only be utilized by DJS. The other 
line-of-credit may be utilized by Bitwise, Electrograph and SST and under the   
terms of this line-of-credit, Bitwise may borrow up to $500,000, Electrograph   
may borrow up to $900,000 and SST may borrow up to $1,100,000. The debt         

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accrues interest at rates ranging from the prime rate plus 1.75% and 2% per     
annum. The line-of-credit agreements include various covenants which require the
Company and the subsidiaries to maintain a minimum tangible net worth and       
maximum debt-to-tangible net worth. Additionally, DJS's line of credit requires 
that DJS maintain a minimum tangible current ratio. As of June 30, 1996, DJS was
in technical non-compliance with one of its financial covenants. The lending    
institution has subsequently waived such non-compliance. They also require      
delivery of periodic financial information and quarterly audits conducted by the
respective lender. As of June 30, 1996, DJS had $721,251 outstanding on its     
line-of-credit and Bitwise, SST and Electrograph had $2,094,691 outstanding on  
their line-of-credit. As of July 31, 1996, DJS had $706,832 outstanding on its  
line-of-credit and Bitwise, SST and Electrograph had $2,430,719 outstanding on  
their line-of-credit.                                                           

      The Company completed a private equity offering including common stock
and redeemable common stock purchase warrants, in December 1995 under Regulation
D of the Securities Act of 1933. The Company obtained gross proceeds of         
approximately $5,000,000 and net proceeds of approximately $4,300,000. The      
Company anticipates using most of the proceeds to fund sales, marketing and     
distribution of its DocStar product line on a national basis. These expenditures
have and will continue to include staffing, advertising and promotion, travel,  
consulting, office expansion, furniture, equipment and other related costs.     

   The Company completed its second public offering of common stock on
August 18, 1994. The offering produced $5,000,000 in gross proceeds through the 
sale of 1,000,000 shares at an initial offering price of $5.00 per share. Net   
proceeds totaled approximately $3,600,000, after expenses.                      

     In March 1996, the Company completed its acquisition of DJS Marketing
Group, Inc. The Company acquired all of the capital stock of DJS in exchange for
200,000 shares of the Company's restricted common Stock and cash of $80,000,    
resulting in an aggregate purchase price of approximately $1,130,000. The       
principals of DJS have agreed to place 25,000 shares in escrow until September  
1997, in order to secure certain indemnification provisions. Additionally,      
subsequent to the acquisition, the Company made personal loans in the aggregate 
principal amount of $125,000 to certain principals of DJS. These loans are joint
and several and secured by 30,000 shares of Bitwise common stock.               

        Property, plant and equipment expenditures totaled $565,753 for the year
ended June 30, 1996. There were no purchase commitments outstanding or          
contemplated.                                                                   

       The Company anticipates that cash expected to be provided by operations
together with borrowings under its lines-of-credit will                         

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be sufficient to satisfy normal operating obligations through the fiscal year   
ended June 30, 1997. The proceeds from the private equity placement referred to 
above should be sufficient to continue the expansion of the sales and marketing 
efforts for the DocStar product line.                                           

      During the fiscal year ended June 30, 1996, the Company incurred a net
loss of $2,961,039, and cash used by operating activities totaled $5,026,642.   
The Company's available cash balance at June 30, 1996 totaled approximately $3  
million, and it has available approximately $2 million under existing lines of  
credit. To date, the Company has been largely dependent on its ability to sell  
additional shares of its common stock to fund its operating deficits. Under its 
current operating plan to obtain a national acceptance of the DocStar product   
line, the Company's ability to improve operating cash flow is highly dependent  
on the market acceptance of its DocStar document imaging system. If the Company 
is unable to attain projected sales levels for its DocStar systems, it may be   
necessary to raise additional capital to fund operations and meet its           
obligations.                                                                    

EFFECTS OF INFLATION AND CHANGING PRICES                                        

        The impact of general inflation on the Company's operations has not been
significant to date and the Company believes inflation will continue to have an 
insignificant impact on the Company. However, price deflation in the major      
categories of components purchased by the Company has been substantial and is   
anticipated to continue through fiscal 1997. Typically, new components such as  
new generations of microprocessors and new optical disk drive technologies are  
introduced at premium prices, and command high margins and high market prices   
for the initial six to twelve months of their availability. During this period, 
the Company is able to earn premium margins on its products. As the life cycle  
progresses competitive pressures could force prices down and thus lower the     
premium margins that existed. The Company does not believe price deflation will 
have an impact on the Imaging Systems product line because it serves a niche    
market although there can be no assurances that changing prices will not have an
impact in the future on this product line.                                      

NEW ACCOUNTING STANDARDS                                                        

        In March 1995, the Financial Accounting Standards Board issued Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived 
Assets to Be Disposed Of" which is effective for the Company in fiscal 1997.    
Management of the Company believe that adoption of this standard will not have a
material effect on the Company's consolidated financial statements.             

In October 1995, the Financial Accounting Standards Board       
issued SFAS No. 123, "Accounting for Stock-Based Compensation"                  

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which is effective for the Company in fiscal year 1997. As permitted under SFAS 
No. 123, the Company has elected not to adopt the fair value based method of    
accounting for its stock-based compensation plans, but will continue to account 
for such compensation under the provisions of APB Opinion No. 25. The Company   
will comply with the disclosure requirements of SFAS No.                        
123 in fiscal year 1997.                                                        

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                                                                     Exhibit D

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 FORM 10-QSB

/X/      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES     
EXCHANGE ACT OF 1934                                          

For the quarterly period ended:      December 31, 1997                          

/ /      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES    
EXCHANGE ACT OF 1934                                          

For the transition period from ________________ to ________________             

 Commission File No. 0-20190

 BITWISE DESIGNS, INC.
 (Exact name of small business issuer as specified in its charter)

          Delaware                                                    14-1673067
(State or other jurisdiction of                                  (I.R.S.Employer
 incorporation or organization)                              Identification No.)

Technology Center, Rotterdam Industrial Pk, Schenectady,NY,           12306     
 (Address of principal executive offices)                         (Zip Code)

Registrant's telephone number, including area code:(518) 356-9740 

 Former name, former address and former fiscal year,
 if changed since last report.

 Indicate by check mark whether the issuer (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past 
12 months (or for such shorter period that the registrant was required to file  
such reports), and (2) has been subject to such filing requirements for the past
90 days.                                                                        

Yes /X/                No / /           

   7,369,720 shares of Common Stock, par value $.001 per share, were
outstanding at February 9, 1997.                                                

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BITWISE DESIGNS INCORPORATED
 FORM 10-QSB
 INDEX

                                                                        Page No.
                                                                        --------
PART I FINANCIAL INFORMATION                                                    

Item 1 - Financial Statements                                                   

Consolidated Balance Sheets -                                               
  December 31, 1997 and June 30, 1997                                        3-4

Consolidated Statements of Operations -                                     
Three and six months ended December 31, 1997                                
  and December 31, 1996                                                        5

Consolidated Statements of Cash Flows -                                     
Six months ended December 31, 1997                                          
  and December 31, 1996                                                      6-7

  Notes to Consolidated Financial Statements                                 8-9

Item 2 - Management's Discussion and Analysis of                                
  Financial Condition and Results of Operations                            10-13

PART II OTHER INFORMATION                                                       

Item 4 Submission of Matters to a Vote                                          
  of Security Holders                                                      13-14

Item 5 Other Information                                                      14

Item 6 Reports on Form 8-K                                                    14

Safe Harbor Statement                                                      14-15

Signatures                                                                    15

                                                                    Page 2 of 15

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PART I FINANCIAL INFORMATION
BITWISE DESIGNS, INC. AND SUBSIDIARIES
 CONSOLIDATED BALANCE SHEETS

                                                                [Download Table]

ASSETS                                           DECEMBER 31,    JUNE 30, 
                                                     1997          1997   
                                                 (UNAUDITED)              
                                                 -----------   -----------
                                                                          
Current Assets:                                                           
     Cash and cash equivalents                   $ 3,740,628   $ 2,863,847
     Accounts receivable, net of allowance                                
       for doubtful accounts of $328,775 at Dec.                          
       31, 1997 and $189,126 at June 30, 1997      7,637,872     7,219,539
     Due from related parties                        213,835       216,465
     Inventories                                   2,982,237     3,137,332
     Income taxes receivable                                         8,650
     Prepaid expenses and other current assets       486,257       176,338
                                                 -----------   -----------
       Total current assets                       15,060,829    13,622,171

Property and equipment, net                          909,627       998,781
                                                 -----------   -----------
Other assets:                                                             
     Software development costs, net                 102,286        81,059
     Other assets                                     39,666        39,822
     Deferred financing costs                        286,738              
     Excess of cost over net assets of                                    
       acquired companies, net                     4,065,742     4,182,932
                                                 -----------   -----------
Total assets                                     $20,464,888   $18,924,765
                                                 ===========   ===========

See accompanying notes to the consolidated financial statements.

                                                                    Page 3 of 15

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BITWISE DESIGNS, INC. AND SUBSIDIARIES
 CONSOLIDATED BALANCE SHEETS

                                                                [Download Table]

LIABILITIES AND SHAREHOLDERS' EQUITY                DECEMBER 31,     JUNE 30,   
                                                        1997            1997    
                                                    (UNAUDITED)                 
                                                    ------------   ------------ 
                                                                                
Current liabilities:                                                            
     Borrowings under lines of credit               $  3,194,182   $  4,219,877 
     Accounts payable                                  2,325,508      2,956,270 
     Accrued expenses and other liabilities              659,200        542,550 
     Current portion of long-term debt                       549          1,601 
     Current portion of obligations under                                       
       capital leases                                      4,629         10,200 
     Income taxes payable                                  4,251                
                                                    ------------   ------------ 
       Total current liabilities                       6,188,319      7,730,498 
                                                    ------------   ------------ 

Long-term debt, net of current portion                 3,400,292                
Obligations under capital leases, net of                                        
     current portion                                                      1,297 
                                                    ------------   ------------ 
       Total liabilities                               9,588,611      7,731,795 
                                                    ------------   ------------ 
Shareholders' equity:                                                           
     Preferred stock -$.10 par value, 5,000,000                                 
       shares authorized:                                                       
       Series A -200 shares issued and outstanding            20             20 
     Common stock-$.001 par value; 20,000,000                                   
       shares authorized; shares issued:                                        
       7,369,720 at December 31, 1997 and                                       
       7,367,720 at June 30, 1997                          7,370          7,368 
     Additional paid-in capital                       19,718,034     18,996,591 
     Accumulated deficit                              (8,848,724)    (7,810,586)
                                                    ------------   ------------ 
                                                      10,876,700     11,193,393 
     Less cost of common shares in treasury,                                    
       338 shares                                           (423)          (423)
                                                    ------------   ------------ 
              Total shareholders' equity              10,876,277     11,192,970 
                                                    ------------   ------------ 
Total liabilities and shareholders' equity          $ 20,464,888   $ 18,924,765 
                                                    ============   ============ 

See accompanying notes to the consolidated financial statements.

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BITWISE DESIGNS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS 

                                                        [Enlarge/Download Table]

                         FOR THE 3 MONTHS ENDED           FOR THE 6 MONTHS ENDED      
                    DECEMBER 31,      DECEMBER 31,   DECEMBER 31,        DECEMBER 31, 
                        1997              1996           1997                1996     
                    (UNAUDITED)       (UNAUDITED)    (UNAUDITED)         (UNAUDITED)  
                    ------------      ------------   ------------        ------------ 
                                                                                      

Net sales            $9,027,801        $15,198,015    $18,396,656         $26,756,531 

Cost of goods sold    6,448,727         12,656,821     13,266,757          21,784,468 
                    ------------      -------------   ------------        ------------

   Gross profit       2,579,074          2,541,194      5,129,899           4,972,063 

Selling, general                                                                      
 and administrative                                                                   
 expenses             2,832,319          2,814,303      5,744,275           5,666,811 

Product development                                                                   
 costs                   45,325             43,808         88,428              87,770 
                    ------------       ------------   ------------        ------------

   Operating loss      (298,570)          (316,917)      (702,804)           (782,518)

Other income                                                                          
 (expense):                                                                           

Interest expense       (284,139)          (104,939)      (415,553)           (193,616)

Interest and other                                                                    
 income                  63,128             14,457        116,319              57,628 
                    ------------       ------------   ------------        ------------

   Loss before                                                                        
    taxes              (519,581)          (407,399)    (1,002,038)           (918,506)

Income tax expense        6,001             17,593         36,100              32,993 
                    ------------       ------------   ------------        ------------

Net loss            ($  525,582)      ($   424,992)   ($1,038,138)       ($   951,499)
                    ============       ============   ============        ============

Per share amounts:                                                                    

Net loss per                                                                          
 common share       ($     0.07)      ($      0.06)  ($      0.14)        ($     0.13)
                    ============       ============   ============        ============


See accompanying notes to the consolidated financial statements.

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BITWISE DESIGNS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW

                                                        [Enlarge/Download Table]

                                                             FOR THE 6 MONTHS ENDED    
                                                         DECEMBER 31,      DECEMBER 31,
                                                            1997               1996    
                                                        (UNAUDITED)        (UNAUDITED) 
                                                        -----------        ----------- 
                                                                                       
Cash flows from operating activities:                                                  
Net loss                                                ($1,038,138)       ($  951,499)
Adjustments to reconcile net loss to                                                   
     net cash used in operating activities:                                            
       Depreciation and amortization                        377,277            332,202 
       Provision for doubtful accounts                      129,281             30,662 
       Changes in operating assets and liabilities:                                    
              Accts. receivable & from related parties     (544,984)        (2,678,603)
              Inventories                                   155,095           (386,099)
              Prepaid expenses & other assets              (163,893)           (93,948)
              Accounts payable and accrued expenses        (514,112)           953,424 
              Income taxes                                   12,901              8,000 
              Other                                              (1)            (7,184)
                                                        -----------        ----------- 
                     Net cash used in                                                  
                       operating activities              (1,586,574)        (2,793,045)
                                                        -----------        ----------- 
Cash flows from investing activities:                                                  
     Property and equipment expenditures                    (68,609)          (233,984)
     Software development costs                             (45,466)           (49,798)
     Trademarks                                                                (25,000)
     Other                                                   (1,500)                   
                                                        -----------        ----------- 
                     Net cash used in investing                                        
                       activities                          (115,575)          (308,782)
                                                        -----------        ----------- 
Cash flows from financing activities:                                                  
     Incr/(Decr) borrowings on lines of credit, net      (1,025,695)         1,141,130 
     Incr/(Decr) borrowings of long-term debt, net                                     
       of deferred issuance costs                         3,608,368            (16,667)
     Principal payments - capital lease obligations          (6,868)           (19,385)
     Dividends                                                                  (7,610)
     Payment of deferred offering costs                                        (29,940)
     Exercise of common stock warrants                                         654,014 
     Exercise of common stock options                         3,125                    
                                                        -----------        ----------- 
                     Net cash provided by                                              
                       financing activities               2,578,930          1,721,542 
                                                        -----------        ----------- 
Net increase (decrease) in cash & cash equivalents          876,781         (1,380,285)
Cash and cash equivalents, beginning of year              2,863,847          3,377,305 
                                                        -----------        ----------- 
Cash and cash equivalents, end of period                $ 3,740,628        $ 1,997,020 
                                                        ===========        =========== 

            See accompanying notes to the consolidated financial statements.

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BITWISE DESIGNS, INC. AND SUBSIDIARIES
SUPPLEMENTAL CASH FLOW DISCLOSURES
            ----------------------------------

                                                                [Download Table]

OTHER SUPPLEMENTAL INFORMATION:                       FOR THE 6 MONTHS ENDED      
                                                  DECEMBER 31,       DECEMBER 31, 
                                                      1997                1996    
                                                  (UNAUDITED)         (UNAUDITED) 
                                                 -------------       -------------
                                                                                  

       Interest Paid                               $197,187             $182,738  

       Income Taxes Paid                            $26,000              $25,894  

       Additional Paid in Capital Resulting                                       
         from                                                                     

              Issuance of Detachable Warrants                                     
                for Debt                           $650,411                       

              Issuance of Warrants for Services     $67,910                       

See accompanying notes to the consolidated financial statements.

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 BITWISE DESIGNS, INC.

ITEM 1.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                             

1. The consolidated financial statements include the accounts of Bitwise        
Designs, Inc. and its wholly-owned subsidiaries, System Solutions Technology,   
Inc. and DJS Marketing Group, Inc. (the Company). All significant intercompany  
accounts and transactions have been eliminated in consolidation. The management 
of the Company believes the accompanying unaudited consolidated financial       
statements contain all adjustments necessary to fairly present the financial    
position as of December 31, 1997 and June 30, 1997 and results of operations and
cash flows for each of the periods presented.                                   

2. The results of operations for the three and six months ended December 31,    
1997 and 1996 are not necessarily indicative of the results to be expected for  
the full year.                                                                  

3. Certain information and footnote disclosures normally included in the        
consolidated financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested that these
consolidated financial statements be read in conjunction with the annual        
consolidated financial statements and notes thereto included in the Company's   
Form 10-KSB for the fiscal year ended June 30, 1997.                            

4. In April 1997, Bitwise completed the sale of one of its subsidiaries,        
Electrograph Systems, Inc.                                                      

5. In August 1997, the Company concluded an offering with an offshore bank for  
$4,000,000 in gross proceeds ($3,600,000 in net proceeds after expenses) in the 
form of unsecured, convertible, bearer notes, payable in its entirety on August 
11, 2002, with 400,000 detachable Common Stock Purchase Warrants. The $650,411  
value of the warrants has been recorded as discount on the debt and is being    
amortized over the term of the debt. The notes accrue interest at 8%, payable   
semiannually, in arrears. The holder of $50,000 principal amount or more may    
convert the notes into common stock commencing November 1, 1997 until August 11,
2002 at the rate of $3.25 per share. The Warrants are exercisable at $3.25 per  
share of common stock from November 1, 1997 until August 11, 2002.              

6. During the six months ended December 31, 1997, 2,000 common stock options    
were exercised at an aggregate exercise price of $3,125 and no common stock     
warrants were exercised.                                                        

7. The Company adopted Statement of Financial Accounting Standards Board, SFAS  
128, "Earnings per Share" in fiscal year 1998. The following represents the     
reconciliation of the basic and diluted earnings per share amounts for the three
and six months ended December 31, 1997 and 1996. Amounts presented for 1996 as  
originally presented conform with the provisions of SFAS No. 128.               

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                                                        [Enlarge/Download Table]

                                      MONTHS      ENDED     DECEMBER 31,                  
                           ----------------------------------------------------------     
                                    1997                                  1996            
                                    ----                                  ----            
                         THREE               SIX               THREE               SIX    
                         -----               ---               -----               ---    

                                                                                          
Net loss               ($525,582)       ($1,038,138)         ($424,992)         ($951,499)
Weighted average                                                                          
         shares        7,368,024          7,368,301          7,210,674          7,050,788 
Basic and diluted EPS      ($.07)             ($.14)             ($.06)             ($.13)

8. In October 1997, the Company announced the signing of a letter of intent to  
sell two subsidiaries, DJS Marketing Group, Inc. and System Solutions, Inc. to  
MSTC, Inc. The letter of intent contemplates a sale price of $6,000,000 with    
$4,000,000 payable in cash and $2,000,000 payable in a promissory note. The     
transaction as presently contemplated, will be in the form of a stock sale and  
MSTC will be assuming all liabilities of the subsidiaries. Management believes  
the sale of these two subsidiaries will allow the Company to focus all of its   
resources on the Imaging Division. The sale may result in a loss and management 
is unable to determine at this time the amount of any such loss. Consummation of
the transaction is subject to completion of due diligence by MSTC, Inc.,        
negotiation and execution of a definitive agreement, approval of the board of   
directors of each entity and approval of the stockholders of Bitwise Designs,   
Inc. The parties are currently proceeding with due diligence and negotiation of 
the terms of the purchase agreement.                                            

NEW ACCOUNTING STANDARDS                                                        

        In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 requires reporting and      
display of comprehensive income and its components (revenues, expenses, gains   
and losses) in a full set of general purpose financial statements. This         
statement will be effective for annual and interim financial statements         
beginning the fiscal year ending 1999, and will require reclassification of     
prior periods. The adoption of this standard is not expected to have a          
significant impact on the Company's consolidated financial statements.          

        In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures About Segments of an Enterprise and Related Information." SFAS
No. 131 requires expanded reporting of information about operating segments in  
interim and annual financial statements, including certain descriptive          
information about products and services, geographic areas, and major customers. 
This statement will be effective for annual financial statements beginning the  
fiscal year ending 1999, and for interim periods beginning the fiscal year      
ending 1999. The adoption of this standard is not expected to have a significant
impact on the Company's consolidated financial statements.                      

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF                         
ITEM 2. FINANCIAL CONDITION AND RESULTS OF OPERATIONS                           

  The following analysis of the financial condition and results of
operations of the Company should be read in conjunction with the Company's      
consolidated financial statements and notes contained elsewhere in this Form    
10-QSB.                                                                         

RESULTS OF OPERATIONS                                                           
THE THREE AND SIX MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THE THREE AND SIX  
MONTHS ENDED DECEMBER 31, 1996.                                                 

    The Company realized a consolidated net loss of $525,582 ($.07 per
share) and $1,038,138 ($.14 per share) for the three and six months ended       
December 31, 1997, respectively. This compares to a net loss of $424,992 ($.06  
per share) and $951,499 ($.13 per share) for the three and six months ended     
December 31, 1996, respectively. The Company had consolidated net sales of      
$9,027,801 and $18,396,656 for the three and six months ended December 31, 1997,
respectively. During the same periods last year the Company had consolidated net
sales of $15,198,015 and $26,756,531, respectively. The Company's 1998 fiscal   
year ends June 30, 1998.                                                        

        The sales decrease for the six months ended December 31, 1997 compared
to last year is due to the sale of one of the Company's subsidiaries,           
Electrograph Systems, Inc. in April 1997. In the same six month period in fiscal
1997 Electrograph had sales of $5,374,463 and $9,921,120 for the three and six  
months ended December 31, 1996 which were included in the consolidated financial
statements. Offsetting this decrease was an increase in sales from the          
Company's Imaging Division. The Imaging Division experienced a 50% increase in  
sales from $3,632,098 for the six months ended December 31, 1996 to $5,450,369  
for the six months ended December 31, 1997. Imaging sales for the three months  
ended December 31, 1997 and 1996 were $3,230,213 and $1,935,971, respectively.  

   Gross profit for the three and six months ended December 31, 1997
totaled $2,579,074 and $5,129,899, respectively, compared to $2,541,194 and     
$4,972,063 for the same periods last year. The gross profit margin was 28.6% and
27.9% for the three and six months ended December 31, 1997, respectively,       
compared to 16.7% and 18.6% for the same periods last year. The gross profit    
margin (which is defined as gross profit as a percentage of sales) increased    
during the current fiscal year compared to the prior year due to the growth of  
the Company's DocStar product line which has significantly higher margins than  
other product lines of the Company. The increase is also due to the sale of     
Electrograph which historically had a relatively low gross profit margin        
compared to other divisions of the Company.                                     

     Selling, general and administrative expenses (S,G&A) consist of all
other Company expenses except product development costs and interest. S,G&A     
expenses amounted to $2,832,319 and $5,744,275 for the three and six months     
ended December 31, 1997, respectively, compared to $2,814,303 and $5,666,811 for
the same                                                                        

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periods last year. S,G&A expenses increased primarily related to increased      
payroll costs, commissions, travel and living etc. due to sales increases       
especially in the Imaging Division. These increases were partially offset by the
sale of Electrograph.                                                           

      As a percentage of sales, S,G&A costs increased from 18.5% and 21.2%
for the three and six months ended December 31, 1996 to 31.4% and 31.2% for the 
three and six months ended December 31, 1997. The increase reflects the sale of 
Electrograph which historically has had a relatively low S,G&A cost to sales    
percentage.                                                                     

      Interest expense totaled $284,139 and $415,553 for the three and six
months ended December 31, 1997, respectively, compared to $104,939 and $193,616 
for the same periods last year. The increase is due to the issuance of $4       
million of convertible notes in August 1997. The increase is also due to        
increased borrowings by the Company under an existing line of credit caused by  
an increase in sales (especially in the Imaging Division) and related increases 
in average inventory and accounts receivable. Interest rates increased slightly 
during the six months ended December 31, 1997 compared to the same period last  
year.                                                                           

       Product development expenses relate primarily to software development
of the Company's DocStar product line and remained consistent during the six    
months ended December 31, 1997 ($88,428) compared to the prior year ($87,770).  
The Company has a policy of capitalizing software development costs and         
amortizing those costs over three years as product development expense.         

      For the quarter ended December 31, 1997 the consolidated net loss is
due to losses incurred by the Company's subsidiary, System Solutions Technology,
Inc. which experienced a decrease in sales for the quarter as demand for        
computer peripheral equipment declined. Management believes the decline is      
temporary in nature and due to seasonality. The quarterly loss is also due to an
increase in interest expense related to the issuance of convertible notes in    
August 1997 (described more fully in the footnote 5) as well as other increases 
in corporate S,G&A expenses.                                                    

        The loss for the six months ended December 31, 1997 is also due to the
losses incurred by the Imaging Division during the quarter ending September 30, 
1997. This Division realized a small profit for the quarter ended December 31,  
1997. The Imaging Division manufactures the DocStar product line. This product  
line is sold nationally through the office equipment dealer channel. The Company
continues to recruit new dealers across the country which results in significant
personnel, advertising, marketing and travel expenditures. The Company expects  
to incur additional losses during the short-term as a result of the significant 
start-up costs associated with marketing a new product on a national basis.     

      In comparing the loss for the six months ended 12/31/97 to the prior
year period, the prior year loss would have been significantly larger if        
Electrograph's results had not been included in the prior year results.         

                                                                   Page 11 of 15

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   The Company's salable products rely on software applications. The
Company also relies on systems of other parties in regard to its business,      
accounting and operational software. The Company believes that its salable      
products, as well as its significant business, accounting and operations        
software are year 2000 compliant. However, there can be no assurance that the   
Company will not experience difficulties with the conversion of these systems.  
The Company's business, financial condition or results of operations could be   
materially adversely affected by the failure of its systems and application or  
those operated by other parties to properly manage dates beyond 1999.           

LIQUIDITY AND CAPITAL RESOURCES                                                 

       The Company's primary sources of funds to date have been the issuance
of equity and the incurrence of third party debt. The principal balance of      
long-term debt at December 31, 1997 totaled $3,400,841, net of issuance         
discount. The gross amount of $4,000,000 is not due and payable until August    
2002.                                                                           

   The Company also has two working capital lines of credit totaling
$6,500,000 which are collateralized by all accounts receivable, inventory and   
all other assets of the Company and its subsidiaries. At December 31, 1997 the  
total outstanding balance was $3,194,182. One of the credit lines, in the       
principal amount of $3,500,000, may only be utilized by DJS. The other line of  
credit of $3,000,000 may be utilized by Bitwise and System Solutions Technology,
Inc. (SST). Each company's availability under the $3,000,000 line is based on a 
formula of accounts receivable and inventory and may not exceed $3,000,000 in   
total. In the event that the Company completes the sale of the DJS Marketing,   
Inc. and System Solutions Technology, Inc. subsidiaries the credit lines will be
reduced accordingly.                                                            

       The debt accrues interest at rates ranging from the prime rate plus 1.7
5% to 2% per annum. The line of credit agreements include various covenants     
which require the Company and the subsidiaries to maintain a minimum tangible   
net worth, maximum debt to tangible net worth, a certain annual profitability   
level and for DJS a minimum tangible current ratio. They also require delivery  
of periodic financial information and quarterly audits conducted by the lender. 

  At December 31, 1997 Management believes that the Company was in
compliance with all of the above mentioned financial covenants.                 

       In August 1997, the Company received $4,000,000 in gross proceeds for
the issuance of unsecured, convertible debt with Common Stock Purchase Warrants.
Net proceeds totaled approximately $3,600,000 after expenses. The Company used  
these proceeds for working capital expenses, primarily related to the DocStar   
product line.                                                                   

        Property, plant and equipment expenditures totaled $68,609 for the six
months ended December 31, 1997. There were no purchase commitments outstanding  
or contemplated.                                                                

                                                                   Page 12 of 15

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         The Company anticipates that cash expected to be provided by operations
together with the proceeds from the sale of Electrograph, the August 1997       
private offering and borrowings under its lines of credit will be sufficient to 
satisfy normal operating obligations. Assuming the sale of SST and DJS is       
consummated the Company will receive proceeds of approximately $6,000,000, with 
$4,000,000 received at closing and the remainder received over time. The        
proceeds will be used for the Company's working capital needs.                  

        The Company experienced a net loss of $1,038,138 during the six months
ended December 31, 1997. To date, the Company has been largely dependent on its 
ability to sell additional shares of its common stock or other securities to    
fund its operating deficits. Under its current operating plan to obtain a       
national acceptance of the DocStar product line, the Company's ability to       
improve operating cash flow is highly dependent on the market acceptance of     
DocStar. If the Company is unable to attain projected sales levels for its      
DocStar systems, it may be necessary to raise additional capital to fund        
operations and meet its obligations. However, there can be no assurance such    
funds will be available, if and when needed.                                    

PART II OTHER INFORMATION                                                       

Item 4  Submission of Matters to a Vote of Security Holders                     

ANNUAL MEETING OF STOCKHOLDERS                                                  

On December 10, 1997 the Company held its Annual Meeting of   
Stockholders in Albany, New York. Holders of the Company's Common Stock and     
Series A Preferred Stock of record on October 28, 1997 (the "Record Date") were 
entitled to receive notice of, and attend, the Annual Meeting. At the Record    
Date, there were 7,367,720 shares of Common Stock issued and outstanding and    
entitled to vote at the Annual Meeting and 200 shares of Series A Preferred     
Stock issued and outstanding and entitled to vote. Of the total outstanding     
shares of Common Stock, 5,835,465 shares (79%) were represented at the Annual   
Meeting either in person or by proxy.                                           

       At the Annual Meeting, stockholders were asked to (i) elect seven (7)
directors to the Board of Directors for a term of one year and (ii) adopt       
certain proposed changes to the Company's Non-Executive Director Stock Option   
Plan ("Director Plan") which amendments, among other things, removes a          
restriction on the aggregate number of shares eligible for issuance under the   
Director Plan, increases the number of annual grants to directors under the     
Director Plan, removes certain value limitations of options granted under the   
Director Plan, removes vesting requirements for options granted under the       
Director Plan and makes certain other changes to the Director Plan.             

         All of the nominees for director were elected to the Board of Directors
and the proposed changes to the Director Plan adopted.                          

                                                                   Page 13 of 15

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The results of the voting were as follows:                                      
(i) Election of Directors                                                       

      The names of the seven (7) persons elected to the Board of Directors
for a term of one (1) year, and the votes cast for and against each nominee are 
set forth below:                                                                

Nominee                                          Votes For         Votes Against
--------------------------------------------------------------------------------
John T. Botti                                    5,782,679             52,786   
Ira C. Whitman                                   5,782,679             52,786   
Donald J. Payne                                  5,782,679             52,786   
J. Edward Sheridan                               5,786,479             48,986   
Edward N. Patrone                                5,786,479             48,986   
Charles C. Johnston                              5,786,479             48,986   
Stevan A. Kriegsman                              5,786,479             48,986   

(ii)  Proposal to Amend the Non-Executive Director Stock Option Plan            

For                        Against                   Abstain           Not Voted
--------------------------------------------------------------------------------
4,953,800                  314,341                   40,343            526,981  

Item 5 Other Information                                                        

   In October 1997, the Company announced the signing of a letter of
intent to sell two subsidiaries, DJS Marketing Group, Inc. and System Solutions,
Inc. to MSTC, Inc. The letter of intent contemplates a sale price of $6,000,000 
with $4,000,000 payable in cash and $2,000,000 payable in a promissory note. The
transaction as presently contemplated, will be in the form of a stock sale and  
MSTC will be assuming all liabilities of the subsidiaries. Management believes  
the sale of these two subsidiaries will allow the Company to focus all of its   
resources on the Imaging Division. The sale may result in a loss and management 
is unable to determine at this time the amount of any such loss. Consummation of
the transaction is subject to completion of due diligence by MSTC, Inc.,        
negotiation and execution of a definitive agreement, approval of the board of   
directors of each entity and approval of the stockholders of Bitwise Designs,   
Inc. The parties are currently proceeding with due diligence and negotiation of 
the terms of the purchase agreement.                                            

Item 6 Reports on Form 8-K                                                      

        The following Reports on Form 8-K were filed by the Company during the
last quarter:                                                                   
None                                                          

SAFE HARBOR STATEMENT                                                           

         Certain statements in this Form 10-QSB, including information set forth
under Item 2 Management's Discussion and Analysis of Financial Condition and    
Results of Operations constitute "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995 (the Act). The          

                                                                   Page 14 of 15

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Company desires to avail itself of certain "safe harbor" provisions of the Act  
and is therefore including this special note to enable the Company to do so.    
Forward-looking statements in this Form 10-QSB or hereafter included in other   
publicly available documents filed with the Securities and Exchange Commission, 
reports to the Company's stockholders and other publicly available statements   
issued or released by the Company involve known and unknown risks, uncertainties
and other factors which could cause the Company's actual results, performance   
(financial or operating) or achievements to differ from the future results,     
performance (financial or operating) or achievements expressed or implied by    
such forward-looking statements. Such future results are based upon management's
best estimates based upon current conditions and the most recent results of     
operations. These risks include, but are not limited to risks associated with   
the market acceptance of the DocStar product line, competition, pricing and     
technological changes and other risks as discussed in the Company's filings with
the Securities and Exchange Commission, in particular its Annual Report on Form 
10-KSB for the year ended June 30, 1997, and Registration Statement on Form S-3 
declared effective on July 30, 1996 all of which risk factors could adversely   
affect the Company's business and the accuracy of the forward-looking statements
contained herein.                                                               

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the        
registrant has duly caused this report to be signed on its behalf by the        
undersigned thereunto duly authorized.                                          

                    BITWISE DESIGNS INCORPORATED

February 17, 1998                   /s/ John T. Botti                           
-----------------                   -----------------                           
DATE                              JOHN T. BOTTI                             
                           PRESIDENT & CHIEF EXECUTIVE OFFICER

          /s/ Dennis H. Bunt
          ------------------
      DENNIS H. BUNT
               CHIEF FINANCIAL OFFICER

                                                                   Page 15 of 15

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PROXY                                                                           

 BITWISE DESIGNS, INC.
 SPECIAL MEETING OF STOCKHOLDERS
 PROXY SOLICITED BY THE BOARD OF DIRECTORS

    The undersigned hereby appoints John T. Botti and Ira C. Whitman, and each
of them, proxies, with full power of substitution to each, to vote all shares of
Common Stock, and Series A Preferred Stock of BITWISE DESIGNS, INC. owned by the
undersigned at the Special Meeting of Stockholders of BITWISE DESIGNS, INC. to  
be held at 9:30 a.m. on June 11, 1998 at the Holiday Inn Turf, 205 Wolf Road,   
Albany, New York 12205 and at any adjournments thereof, hereby revoking any     
proxy heretofore given. The undersigned instructs such proxies to vote as       
follows:                                                                        

[ ] PLEASE MARK VOTES AS IN THIS EXAMPLE.                                       

I. PROPOSAL TO SELL THE WHOLLY-OWNED SUBSIDIARY, SYSTEM SOLUTIONS     
  TECHNOLOGY, INC., pursuant to the terms of the Stock Purchase and Merger
Agreement, dated April 7, 1998:                                       

[ ] FOR THE PROPOSED SALE  [ ] AGAINST PROPOSED SALE  [ ] ABSTAIN     

     and to vote upon any other business as may properly come before the meeting
   or any adjournment thereof, all as described in the Proxy Statement dated
May 8, 1998 receipt of which is hereby acknowledged.                  

     Either of the proxies or their respective substitutes, who shall be present
and acting shall have and may exercise all the powers hereby granted.           

     THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED FOR THE PROPOSED SALE OF
SYSTEM SOLUTIONS TECHNOLOGY, INC. UNLESS CONTRARY INSTRUCTIONS ARE GIVEN.       

  Said proxies will use their discretion with respect to any other matters
which properly come before the meeting.                                         

(Continued and to be signed and dated on the reverse side)

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(Continued from other side)                                                     

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.                    

PLEASE SIGN AND RETURN THE PROXY IN THE ENCLOSED ENVELOPE.                      

                  Dated: ________________________________________________ , 1998

                  Signature(s)__________________________________________________

                  ______________________________________________________________

              (Please date and sign exactly as name appears at left. For
            joint accounts, each joint owner should sign, Executors,
                administrators, trustees, etc., should also so indicate when
signing.)                                   

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘DEFS14A’ Filing		Date		First		Last			Other Filings
		8/11/02		101		182
		6/30/00		112		163			10KSB,  10KSB/A
		8/22/99		111
		6/30/99		112		163			10KSB,  NT 10-K
		6/30/98		31		184			10-K
		6/15/98		6		76
For Period End:		6/11/98		2		190			PRES14A
Filed on:		5/8/98		3		190
		5/7/98		2		29
		4/7/98		6		190
		3/31/98		94		165			10-Q
		3/8/98		145		164
		2/28/98		10		47
		2/17/98		189					10QSB
		12/31/97		8		187			10QSB,  10QSB/A
		12/10/97		187					DEF 14A
		11/10/97		145					DEF 14A
		11/1/97		101		182
		10/28/97		187
		9/30/97		185					10QSB,  10QSB/A
		9/26/97		122
		9/22/97		81		115
		9/4/97		128
		8/8/97		119		125
		6/30/97		8		189			10KSB,  10KSB/A
		6/27/97		118					8-K
		6/11/97		2
		5/10/97		145		164
		2/9/97		175
		1/1/97		60
		12/31/96		182		185			10QSB
		9/19/96		107
		7/31/96		172
		7/30/96		102		189
		7/1/96		139
		6/30/96		8		173			10KSB
		6/25/96		96
		4/24/96		96
		4/4/96		157
		3/22/96		121		125
		3/8/96		97		165			8-K/A
		3/6/96		121		125
		9/28/95		121		125
		8/25/95		111
		7/20/95		157		158
		7/18/95		121		125
		7/17/95		118		125
		7/1/95		110		163
		6/30/95		14		171
		1/26/95		113
		8/18/94		15		172
		8/11/94		96
		7/1/94		159
		6/30/94		50		171
		4/29/94		119		123
		2/7/94		119		123
		7/1/93		145		165
		5/13/92		96
		5/6/92		142		162
		2/10/92		120		124
		2/6/92		120		124
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