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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM 10-K

(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, 2001

[ ] 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

AUTHENTIDATE HOLDING CORP.
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(Exact Name of Issuer as Specified in Its Charter)

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

2165 Technology Drive Schenectady, N.Y. 12308
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(Address of principal executive offices) (Zip Code)

Issuer's telephone number, including area code (518) 346-7799

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

Name of Each Exchange on
Title of Each Class Which Registered
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None

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

Common Stock, par value $.001 per share
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(Title of class)

[Cover Page 1 of 2 Pages]
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Check whether 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-K
or any amendment to this Form 10-K. [ ]

The Issuer's revenues for its most recent fiscal ended June
30, 2001 were $17,860,544.

On September 20, 2001, the aggregate market value of the
voting stock of Authentidate Holding Corp. (consisting of Common Stock, $.001
par value) held by non- affiliates of the Registrant (approximately 15,542,246
shares) was approximately $49,735,187 based on the closing price for such Common
Stock ($3.20) on said date as reported by the Nasdaq National Market System.

APPLICABLE ONLY TO CORPORATE REGISTRANTS

On September 20, 2001, there were 16,180,426 shares of Common
Stock, $.001 par value, issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None

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[Cover Page 2 of 2 Pages]
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Table of Contents

PART I

PAGE
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Item 1. Business 1
Item 2. Properties 20
Item 3. Legal Proceedings 20
Item 4. Submission of Matters to a Vote of Security Holders 20

PART II

Item 5. Market For the Company's Common Equity and Related Stockholder Matters 21
Item 6. Selected Financial Data 24
Item 7. Management's Discussion and Analysis of Financial Condition and Results of 25
Operations

Item 7A. Quantitative and Qualitative Disclosures About Market Risk 32
Item 8. Financial Statements and Supplemental Data 32
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial 33
Disclosure

PART III

Item 10. Directors and Executive Officers of the Company 34
Item 11. Executive Compensation 38
Item 12. Security Ownership of Certain Beneficial Owners and Management 45
Item 13. Certain Relationships and Related Transactions 46

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 47

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PART I

THIS ANNUAL REPORT ON FORM 10-K, INCLUDING ITEM 1 ("BUSINESS") AND ITEM 7
("MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS"), CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934. WHEN USED IN THIS REPORT, THE WORDS "BELIEVE,"
"ANTICIPATE," "THINK," "INTEND," "PLAN," "WILL BE," "EXPECT", AND SIMILAR
EXPRESSIONS IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS REGARDING
FUTURE EVENTS AND/OR THE FUTURE FINANCIAL PERFORMANCE OF THE COMPANY ARE SUBJECT
TO CERTAIN RISKS AND UNCERTAINTIES, WHICH COULD CAUSE ACTUAL EVENTS OR THE
ACTUAL FUTURE RESULTS OF THE COMPANY TO DIFFER MATERIALLY FROM ANY
FORWARD-LOOKING STATEMENT. SUCH RISKS AND UNCERTAINTIES INCLUDE AMONG OTHER
THINGS, THE AVAILABILITY OF ANY NEEDED FINANCING, THE COMPANY'S ABILITY TO
IMPLEMENT ITS BUSINESS PLAN FOR VARIOUS APPLICATIONS OF ITS TECHNOLOGIES, THE
IMPACT OF COMPETITION, THE MANAGEMENT OF GROWTH, AND OTHER RISKS AND
UNCERTAINTIES THAT MAY BE DETAILED FROM TIME TO TIME IN THE COMPANY'S REPORTS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. IN LIGHT OF THE SIGNIFICANT
RISKS AND UNCERTAINTIES INHERENT IN THE FORWARD-LOOKING STATEMENTS INCLUDED
HEREIN, THE INCLUSION OF SUCH STATEMENTS SHOULD NOT BE REGARDED AS A
REPRESENTATION BY THE COMPANY OR ANY OTHER PERSON THAT THE OBJECTIVES AND PLANS
OF THE COMPANY WILL BE ACHIEVED.

ITEM 1. DESCRIPTION OF BUSINESS

INTRODUCTION

Authentidate Holding Corp. ("AHC"), its subsidiaries DJS Marketing
Group, Inc. ("DJS"), Authentidate, Inc., and WebCMN, Inc., and through its joint
ventures Authentidate International, AG, and Authentidate Sports Edition, Inc.
(sometimes collectively referred to herein as the "Company"), are engaged in the
manufacture and distribution of document imaging systems, the sale of computer
systems and related peripheral equipment, components, and accessories, network
and internet services and the development and sale of software-based
authentication services. AHC was formerly known as Bitwise Designs, Inc. The
name change was approved by our shareholders at the March 23, 2001 Annual
Meeting.

In March 1996, we acquired DJS (d.b.a Computer Professionals), a system
integrator, and computer reseller in Albany, New York. DJS is an authorized
sales and support provider for Novell, Microsoft Solutions and Lotus Notes.

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AHC established its Authentidate subsidiary during the fiscal year
ended June 30, 2000 to engage in the business of providing end users with a
service providing for the storage, confirmation and authentication of electronic
data and images. Authentidate Sports Edition, Inc., established during the
fiscal year ended June 30, 2001, as a joint venture with an partner experienced
in the sports memorabilia industry, is developing a service that applies the
Authentidate technology to the field of signature authentication as it relates
to sports memorabilia and entertainment collectibles. WebCMN, Inc. is in the
process of developing a business model to apply the Authentidate technology to
the medical supply business relating to the automation and processing of
Certificates of Medical Necessity.

AHC was organized in August 1985 and reincorporated under the laws of
the state of Delaware in May 1992. Our executive offices are located at 2165
Technology Drive, Schenectady, New York 12308, and our telephone number is (518)
346-7799.

GENERAL BUSINESS DEVELOPMENTS DURING THE PREVIOUS FISCAL YEAR

Reorganization

We held our annual meeting of shareholders on March 23, 2001. At the
meeting our shareholders approved a proposal to change our name from Bitwise
Designs, Inc. to Authentidate Holding Corp. This name change was recommended by
our Board of Directors in connection with the Board's decision to focus on
developing our Authentidate business line. The name change became effective
March 23, 2001 and our trading symbol on the Nasdaq National Market was changed
from BTWS to ADAT on March 28, 2001.

At the annual meeting, our shareholders also approved the proposal to
acquire the outstanding minority interests of our Authentidate, Inc. subsidiary
in exchange for securities of our company on a 1.5249:1 basis. This proposal was
also recommended to our shareholders in connection with the decision of our
Board of Directors to focus on our Authentidate business line. As of the date of
this Form 10-K, security holders owning an aggregate of 601,750 shares of Common
Stock and an aggregate of 616,623 options and warrants of Authentidate, Inc.
have accepted the exchange offer and we have issued an aggregate of 917,608
shares of our Common Stock and 940,289 options and warrants to these security
holders.

Regulation S Offerings

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also pays an annual 4% dividend, payable in cash or stock at our election, until
conversion or redemption.

We received approximately an aggregate of $5,200,000 in net proceeds
after payment of commissions and expenses. The proceeds of these transactions
will be used to increase the business development, marketing and sales efforts
for the Authentidate services, along with general working capital needs of the
Company.

The transactions were completed under Regulation S of the Securities
Act of 1933, as amended, and the securities sold in the offering are deemed
restricted securities under Regulation S. Accordingly these securities may not
be sold or transferred in the United States for a period of one year, except
pursuant to registration under the Securities Act or an exemption therefrom. We
have agreed to register for resale the shares of Common Stock which may be:

- issued upon the conversion of the Series C Preferred Stock;

- paid as dividends on the Series C Preferred Stock; and

- issued upon the exercise of the warrants.

WebCMN, Inc.

We recently incorporated WebCMN, Inc., a new majority-owned subsidiary.
Through WebCMN, we intend to develop a service designed to assist users to
accurately and efficiently process Certificates of Medical Necessity, which are
required to be submitted by suppliers of medical devices in order to obtain
Government and private insurance reimbursement for such products. The WebCMN
service will be based on our proprietary Authentidate software and is currently
in the development stage.

INDUSTRY OVERVIEW

The market for our products is highly competitive and rapidly changing.
Our primary focus is the manufacturing and distribution market for document
imaging systems, the sale of personal computers, workstations and portable
personal computers as well as microcomputer peripherals, networks, components
accessories, Internet/Intranet development and Internet services. These markets
have experienced significant growth over the last decade, and we believe such
growth will continue.

.....Document Imaging and Management

In January, 1996, we introduced our document imaging system on a
national level called DocStar ("DocStar"). We design and manufacture DocStar
which enables a user to scan paper documents onto an optical disk, hard disk
drive or other storage medium. Our DocStar product line consists of a personal
computer, proprietary software and may also include a scanner. This system can
be utilized as a "stand-alone" system or as part of a network installation. We
consider our DocStar division to be a software business. While, we sell the
hardware in order provide the

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customer with a "turn-key" system, we believe that it is the software employed
in the DocStar system which differentiates us from our competitors.

We believe that the document imaging market will be one of our primary
businesses and a basis for growth during the next few years. This is an evolving
market which is expected to experience significant growth in the future. We
believe that this market can provide us with significant profits. However, there
can be no assurance that our efforts in this market will result in profits,
income or significant revenues to our business.

.....Authentication Services

We organized our subsidiary, Authentidate, Inc., during the fiscal year
ended June 30, 2000 to develop an authentication software product. Authentidate
has developed and released a software product designed to accept and store
electronic files from around the world and from different operating systems via
the Internet and date and time stamps those files with a secure clock to prove
content, date and time authenticity. The service allows users to also send
notarized E-mail. This service will also be utilized for electronic bill
presentment and payment, human resources, online backup and offsite storage
applications. During the fiscal year ended June 30, 2001, we organized
Authentidate Sports Edition, Inc. (a joint venture) to market the Authentidate
technology and services to the sports memorabilia and collectibles industries
and WebCMN, Inc., to develop a service offering designed to assist users to
accurately and efficiently process Certificates of Medical Necessity. We also
established Authentidate, AG during the fiscal year ended June 30, 2000 to
develop and market authentication services in certain foreign jurisdictions.

.....Computer Products and Integration Services

DJS purchases personal computers and peripheral computer products from
many different suppliers. Peripheral computer products are products that operate
in conjunction with computers, including but not limited to, printers, monitors,
scanners, modems and software. A systems integrator, such as DJS, configures
various computer hardware and peripheral products such as software together, to
satisfy a customer's individual needs. We believe the market for personal
computers and computer integration services will continue to grow the next
several years. However, DJS expects to focus on the services aspect of its
business where it expects the most growth and greater profit margins.

.....Networks

DJS also designs and installs network systems which involves network
software being installed on a fileserver computer with less powerful computers
sharing information from the fileserver. Applications that the network system
provides include E-mail, accounting systems, word processing, communication and
any other applications that require the sharing of information. Although
management believes that designing and installing network systems may be an area
of growth for DJS, there can be no assurance that growth in the network market
will be realized.

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.....Internet/Intranet Development

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

AUTHENTIDATE HOLDING CORP.

PRODUCTS

Document Imaging and Management

In January 1996, AHC, on a national level, introduced its document
imaging management system under the tradename DocStar which enables users to
scan paper documents onto an optical disk, hard drive or other storage medium
from which they can be retrieved in seconds. This system allows users to
eliminate or significantly reduce paper filing systems. We believe that a broad
spectrum of businesses and governmental agencies experience the problem of
storage, management and security of paper documents. The DocStar product line is
intended to provide a cost effective method of reducing the space necessary to
store documents while granting a user the ability to instantly retrieve
documents. We believe that ease of use is a key ingredient of the DocStar
software.

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

The main components of a document management system are a personal
computer, a high speed electronic document scanner, a laser printer capable of
reproducing documents quickly, and a software package which controls scanning,
indexing, storage and reproduction. We purchase scanners, laser printers and
other essential hardware from unaffiliated third parties and assemble the PC's
for the system. The software utilized in DocStar consists of various versions of
existing software from other developers, as well as software we have developed.
We offer the DocStar System in several models. The DS 035 is the base model.
Other models offer faster advanced processors or scanners, and increased storage
capacity. Options and accessories include a raid unit to store data, CPU
upgrades, additional software and hardware upgrades. The DS300 connects DocStar
electronic imaging capabilities with the network scanning and printing functions
of Canon, Inc.'s digital scanners.

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We market the document management system under the tradename DocStar
through a national dealer network. We own one dealership in the Albany, New York
region, which also serves as a test market for new applications and software.

BACKLOG

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

RESEARCH AND DEVELOPMENT

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

Since inception, we have devoted efforts to research and development
activities in an effort to improve our current software and introduce new
products. Current development efforts are directed toward improving ease of use,
adding system enhancements and increasing performance. Product development
expense for document imaging was $256,466, $291,791 and $248,801 for fiscal
years 2001, 2000 and 1999, respectively. We will continue to improve our
document imaging software in an effort to satisfy the needs of a dynamic
marketplace.

QUALITY CONTROL AND SERVICE

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

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

Our dealers provide service to the end users. All dealers receive
service training from the national service staff. We provide the dealer with
replacement parts free of charge for 13 months

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after date of shipment. Our vendors provide a similar warranty for failed
components. We offer telephone support service to our dealers.

MANUFACTURING AND SUPPLIERS

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

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

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

PATENTS AND TRADEMARKS

We have, along with our Authentidate subsidiary, four patents pending
concerning the technology and one patent pending for business processes
underlying the Authentidate product line and have registered the logos "DocStar"
and "Authentidate" as trademarks. No assurance can be given that registration
will be effective to protect our trademarks. We believe our tradenames and
patents are material to our business.

SALES AND MARKETING

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

Our products are usually sold on credit terms or through a floor
planning finance company (to qualified accounts), and are warranted against
defects in materials and workmanship for a period of 13 months from purchase. We
currently employ four regional sales directors to cover the significant markets
of the country in addition to a national sales director. No customer or
distributor

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accounted for more than 10% of our total revenue in the fiscal years ended June
30, 1999, 2000 or 2001.

COMPETITION

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

EMPLOYEES

We employ 39 full-time employees including our executive officers. No
employees are covered by a collective bargaining agreement, and we believe our
employee relations are satisfactory.

GOVERNMENT REGULATION

Compliance with federal, state, local, and foreign laws enacted for the
protection of the environment has to date had no material effect upon our
capital expenditures, earnings, or competitive position. Although we do not
anticipate any material adverse effects in the future based on the nature of our
operations and the thrust of such laws, no assurance can be given such laws, or
any future laws enacted for the protection of the environment, will not have a
material adverse effect on our business.

AUTHENTIDATE BUSINESS LINES

We established our Authentidate, Inc. subsidiary to engage in a new
business line of providing end users with a service which will (a) accept and
store electronic files from networks and personal computers throughout the world
and from different operating systems via the Internet; (b) time and date stamp
those files using a secure clock; (c) allow users to transmit only the "secure
codes" to Authentidate fileservers while maintaining the original within the
customers "firewall"; and (d) allow users to prove authenticity of time, date
and content of stored electronic documents.

We established Authentidate Sports Edition, Inc., a joint venture
between AHC and an investor with experience in the sports memorabilia industry
during the last fiscal year. Authentidate Sports Edition was created to market
Authentidate services to the sports memorabilia and collectibles industries.

In March, 2000, AHC formed Authentidate International, AG, to develop
the Authentidate Software in foreign languages and to market that product
outside the Americas, Japan, Australia,

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New Zealand and India. This entity is operated as a joint venture between AHC
and a German company. AHC owns 39% of the joint venture.

In March, 2001, AHC formed a subsidiary named WebCMN, Inc. which will
use the Authentidate technology for processing Certificates of Medical Necessity
for the medical equipment supplier industry. Through WebCMN, we intend to
develop a service offering designed to enable users to accurately and
efficiently process Certificates of Medical Necessity, which are required to be
submitted by suppliers of medical devices in order to obtain insurance
reimbursement for such products. The WebCMN service will be based on our
proprietary Authentidate software and is currently in the development stage.

PRODUCTS

The Authentidate product, marketed as the Enterprise Edition, was
released for sale in May, 2001. We contemplate that product integration
development work will be necessary for many applications or customers. We are in
the process of selling this product and expect to record revenue during the
first half of the fiscal year ending June 30, 2002.

RESEARCH AND DEVELOPMENT

The Internet market is characterized by rapid technological change
involving software, hardware and communication technologies. Our ability to be
competitive depends upon our ability to anticipate and effectively react to
technological change on the Internet as well as constantly changing market
conditions for the evolving Internet market place. Current development efforts
are directed to enhancing the current product and integrating this product into
customer applications. We have a policy of capitalizing product development
expenses and amortizing those expenses over the anticipated useful life.
However, because of market uncertainty software development costs related to the
Authentidate Retail Version were fully amortized during the fourth quarter of
the year ended June 30, 2000. We have expensed $1,982,129 and $372,200 as
product development expenses related to our Authentidate technology in the years
ended June 30, 2001 and June 30, 2000, respectively.

DEVELOPMENT AND SUPPLIERS

We initially retained an international consulting firm, Cap Gemini
America, Inc., to develop the current product line. During the previous twelve
months, we have assembled our own research and development staff. We have also
retained AT&T, Inc., to maintain all hardware at an AT&T facility in New York,
New York, from where the Authentidate product line will operate. We believe that
there are sufficient alternative suppliers of these services.

PATENT AND TRADEMARKS

Along with AHC, Authentidate has four patents pending concerning the
technology and one patent pending regarding business processes, underlying the
Authentidate product line and has

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registered the trademark "Authentidate" and has filed a motion with the United
States Patent and Trademark Office to permit it to register the trademark
"Authentigraph." No assurances can be given that the registration will be
effective to protect our trademarks.

SALES AND MARKETING

Authentidate markets the service directly to corporate accounts using a
combination of direct sales and indirect sales. Authentidate also plans to
market the product to application software companies to be included as an "added
feature" in their products using the same sales model as corporate accounts.
Authentidate expects to use a combination of terms, usage fees, flat fees and
license fees.

COMPETITION

This product concept is new and competition is currently limited.
Authentidate may, however, experience competition from much larger Internet and
software companies that have greater financial, technological and marketing
resources than it does.

EMPLOYEES

Currently, Authentidate has 24 employees. None of the employees of
Authentidate are represented by a collective bargaining agreement. Authentidate
believes that its employee relations are satisfactory.

DJS MARKETING GROUP, INC.

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

DJS provides network integration, Internet/Intranet development,
accounting solutions, service, consultation, document management and video
conferences. DJS also services the products it sells by employing factory
trained computer technicians and network engineers.

PRODUCTS

Network Integration

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

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

Internet/Intranet Development

DJS offers services related to the Internet, including Internet
connectivity, web page development, and hardware installation. Additionally, DJS
assists its clients through the buying and implementation process with
Internet/Intranet training and ongoing support.

Service and Consultation

DJS's service department is authorized to repair and maintain all major
brand products sold by DJS, including warranty and post-warranty equipment. DJS
generally guarantees a four (4) hour response time for all service calls, with
an average resolution time of next day.

DJS's engineers also provide complete system configuration services,
which includes installation of all hardware, including memory, disk drives,
network or communication adapters, as well as any associated software or driver.
All units are thoroughly tested after configuration and all malfunctioning units
are eliminated.

Document Management

DJS also offers document imaging services which it believes is an
efficient and financially attainable alternative to conventional, costly paper
trails. Management believes digital documents can be stored, searched, retrieved
and edited in a fraction of the time with complete access to the network and
quality control features. Among other product lines, DJS offers customers the
Company's DocStar line.

SALES AND MARKETING

DJS markets its products and services throughout New York State, parts
of Vermont and Massachusetts. DJS intends to expand its national and
international sales and marketing departments. Clients include corporations,
small office/home office owners, schools, government agencies, manufacturers and
distributors.

COMPETITION

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

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Computers Etc., CompUSA, Entex and Ameridata. Some of our competitors may have
significantly greater financial, technical and other resources than us.

EMPLOYEES

DJS has 37 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, we wish to caution stockholders and investors that the following important
factors, among others discussed throughout this Report on Form 10-K, in some
cases have affected and in some cases could affect our actual results of
operations and cause such results to differ materially from those anticipated in
forward looking statements made herein.

IF WE CONTINUE TO FACE UNCERTAINTIES IN MARKETING OUR AUTHENTIDATE PRODUCT AND
THE DOCSTAR SYSTEM, WE MAY CONTINUE TO LOSE MONEY.

We incurred losses of $9,340,103, $5,274,043 and $3,166,488,
respectively, for our fiscal years ended June 30, 2001, 2000 and 1999. We have
incurred significant costs developing our Authentidate services. We will
continue to incur these costs in the future as we attempt to increase market
awareness and sales. Moreover, our prospects should be considered in light of
the difficulties frequently encountered in connection with the establishment of
a new business line and the competitive environment in which we operate. There
can be no assurance that we will be able to achieve profitable operations in
future operating periods.

WE HAVE LIMITED WORKING CAPITAL AND MAY NEED ADDITIONAL FUNDS TO FINANCE FUTURE
OPERATIONS.

Our capital requirements have been and will continue to be significant.
We have been substantially dependent upon public offerings and private
placements of our securities and on short-term and long-term loans from lending
institutions to fund such requirements. We are expending significant amounts of
capital to promote and market the Authentidate product. Due to these
expenditures, we have incurred significant losses to date. In the future, we may
need additional funds from loans and/or the sale of equity securities to fully
implement our business plans. No assurance can be given that such funds will be
available or, if available, will be on commercially reasonable terms
satisfactory to us. In the event such funds are not available, we will be forced
to reduce our current and proposed operations.

IF OUR PRODUCTS ARE NOT COMPETITIVE, OUR BUSINESS WILL SUFFER.

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AHC and its subsidiaries are engaged in the highly competitive
businesses of manufacturing and distributing document imaging systems, the sale
of Internet products, computer hardware and software as well as technical
support services for such businesses. The document imaging business is
competitive and we compete with major manufacturers. Many of these companies
have substantially more experience, greater sales, as well as greater financial
and distribution resources than do we. The most significant aspects of
competition are the quality of products, including advanced capabilities, and
price. There can be no assurance the Company can effectively continue to compete
in the future.

The Authentidate business is a new business line and the level of
competition is unknown at this point in time. There can be no assurances,
however, that Authentidate products will achieve market acceptance.

Our DJS subsidiary is engaged in the highly competitive business of
systems integration, computer services and computer reselling. DJS competes with
many small and local companies which provide similar technical services to those
offered by DJS. Additionally, DJS must compete with other computer resellers,
many of whom have greater financial and technical resources. There can be no
assurance that DJS will be able to compete successfully with these competitors.

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

Although we introduced our DocStar imaging system products on a
national level in January 1996, demand and market acceptance for the DocStar
imaging system remains subject to a high level of uncertainty. Achieving
widespread acceptance of this product line will continue to require substantial
marketing efforts and the expenditure of significant funds to create brand
recognition and customer demand for such products. There can be no assurance
that adequate marketing arrangements will be made for such products. The
Authentidate product line is a new product line and there can be no assurance
that these products will ever achieve widespread market acceptance or increased
sales or that the sale of such products will be profitable.

IF WE CANNOT CONTINUOUSLY ENHANCE OUR PRODUCTS IN RESPONSE TO RAPID CHANGES IN
THE MARKET, OUR BUSINESS WILL BE HARMED.

The software and computer software industries and Internet services
industry are characterized by extensive research and development efforts which
result in the frequent introduction of new products which render existing
products obsolete. Our ability to compete successfully in the future will depend
in large part on our ability to maintain a technically competent research and
development staff and our ability to adapt to technological changes in the
industry and enhance and improve existing products and successfully develop and
market new products that meet the changing needs of our customers. Although we
are dedicated to continued research and development of our products with a view
towards offering products with the most advanced capabilities, there can be no
assurance that we will be able to continue to develop new products on a regular
basis which will be

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competitive with products offered by other manufacturers. At the present time,
we do not have a targeted level of expenditures for research and development. We
will evaluate all opportunities but believe the majority of our research and
development will be devoted to enhancements of our existing products.

Technological improvements in new products that we and our competitors
offer, which, among other things, results in the rapid decline of the value of
inventories, as well as the general decline in the economy and other factors,
have resulted in recent declines in retail prices for computer products. As
competitive pressures have increased, many companies have ceased operation and
liquidated inventories, further increasing downward pricing pressure. Such
declines have, in the past, and may in the future, reduce our profit margins.

WE DO NOT HAVE PATENTS ON ALL THE TECHNOLOGY WE USE WHICH COULD HARM OUR
COMPETITIVE POSITION.

We do not currently hold any patents and the technology embodied in
some of our current products cannot be patented. We have four patents pending
for the innovative technology underlying the Authentidate business plan that can
verify the authenticity of digital images by employing a secure clock to stamp
the date and time on each image captured and have one patent pending concerning
the associated business process. We have also registered as trademarks the logos
"DocStar" and "Authentidate". We rely on confidentiality agreements with our key
employees to the extent we deem it to be necessary. We further intend to file a
patent application for any new products we may develop, to the extent any
technology included in such products is patentable, if any. There can be no
assurance that any patents in fact, will be issued or that such patents will be
effective to protect our products from duplication by other manufacturers. In
addition, there can be no assurance that any patents that may be issued will be
effective to protect our products from duplication by other developers.

Other companies operating within our business segment may independently
develop substantially equivalent proprietary information or otherwise obtain
access to our know-how. In addition, there can be no assurance that we will be
able to afford the expense of any litigation which may be necessary to enforce
our rights under any patent. Although we believe that the products we sell do
not and will not infringe upon the patents or violate the proprietary rights of
others, it is possible that such infringement or violation has or may occur. In
the event that products we sell are deemed to infringe upon the patents or
proprietary rights of others, we could be required to modify our products or
obtain a license for the manufacture and/or sale of such products. There can be
no assurance that, in such an event, we would be able to do so in a timely
manner, upon acceptable terms and conditions, or at all, and the failure to do
any of the foregoing could have a material adverse effect upon our business.
Moreover, there can be no assurance that we will have the financial or other
resources necessary to enforce or defend a patent infringement or proprietary
rights violation action. In addition, if our products or proposed products are
deemed to infringe upon the patents or proprietary rights of others, we could,
under certain circumstances, become liable for damages, which could also have a
material adverse effect on our business.

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WE DEPEND ON OTHERS FOR COMPONENTS OF OUR PRODUCTS, WHICH MAY RESULT IN DELAYS
AND QUALITY-CONTROL ISSUES.

We do not own or lease any manufacturing facilities and do not
manufacture any of the component parts for our products. Rather, we purchase all
of these components from unaffiliated suppliers. All of our products are
assembled at our facilities. We believe that at the present time we have
sufficient sources of supply of component parts, and that in the event any
existing supplier ceases to furnish component parts to us, alternative sources
are available. However, there can be no assurance that the future production
capacity of our current suppliers and manufacturers will be sufficient to
satisfy our requirements or that alternate suppliers and manufacturers will be
available on commercially reasonable terms, or at all. Further, there can be no
assurance that the availability of such supplies will continue in the future.

IF WE LOSE OUR PRESIDENT, OUR BUSINESS WILL BE HARMED.

Our success is largely dependent upon the services of our Chairman of
the Board and President, John T. Botti. The loss of his services would have a
material adverse affect on our business and prospects. We have entered into a
three-year employment agreement with Mr. Botti expiring in January, 2003. We
have obtained, for our benefit, "key man" life insurance in the amount of
$1,000,000 on Mr. Botti's life.

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

We have not paid any dividends on our Common Stock since our inception
and do not contemplate or anticipate paying any dividends on our Common Stock in
the foreseeable future. Earnings, if any, will be used to finance the
development and expansion of our business.

IF OUR COMMON STOCK IS DELISTED FROM NASDAQ, LIQUIDITY IN OUR COMMON STOCK MAY
BE AFFECTED.

Our Common Stock is listed for trading on the Nasdaq National Market.
In order to continue to be listed on Nasdaq, however, we must meet certain
criteria, including one of the following:

- maintaining $4,000,000 in net tangible assets, a minimum bid
price of $1.00 per share and a market value of its public
float of $5,000,000; or

- having a market capitalization of at least $50,000,000, a
minimum bid price of $5.00 per share and a market value of its
public float of $15,000,000.

On June 29, 2001, our closing bid price was $4.43. The dilution to our
shareholders which could be caused by the widespread conversion of the Series B
Preferred Stock could cause the per share value of our common stock to drop
below the minimum bid of $1.00 required for continued

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listing. As of March 31, 2001, we had net tangible assets of approximately
$11,800,000 and as of June 29, 2001 the market value of our public float was
approximately $68,270,677.

If in the future should we fail to meet Nasdaq maintenance criteria,
our Common Stock may be delisted from Nasdaq, and trading, if any, in our
securities would thereafter be conducted in the non-Nasdaq over-the-counter
market. As a result of such delisting, an investor could find it more difficult
to dispose of, or to obtain accurate quotations as to the market value of, our
securities.

Although we anticipate that our Common Stock will continue to be listed
for trading on Nasdaq, if the Common Stock were to become delisted from trading
on Nasdaq and the trading price of the Common Stock were to fall below $5.00 per
share on the date the Common Stock was delisted, trading in such securities
would also be subject to the requirements of certain rules promulgated under the
Exchange Act, which require additional disclosure by broker-dealers in
connection with any trades involving a stock defined as a penny stock
(generally, any non-Nasdaq equity security that has a market price of less than
$5.00 per share, subject to certain exceptions). Such rules require the
delivery, prior to any penny stock transaction, of a disclosure schedule
explaining the penny stock market and the risks associated therewith, and impose
various sales practice requirements on broker-dealers who sell penny stocks to
persons other than established customers and accredited investors (generally
institutions). For these types of transactions, the broker-dealer must make a
special suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to sale. The additional
burdens imposed upon broker-dealers by such requirements may discourage
broker-dealers from effecting transactions in our securities, which could
severely limit the market price and liquidity of such securities and the ability
of purchasers to sell their securities in the secondary market.

OUR SERIES B PREFERRED STOCK FINANCING MAY RESULT IN DILUTION TO OUR COMMON
SHAREHOLDERS.

Dilution of the per share value of our common shares could result from
the conversion of most or all of the Series B Preferred Stock we sold in a
private placement in October 1999. Holders of our Series B Preferred Stock may
convert these shares into shares of our common stock at a conversion price of
$1.875 beginning one year after the issuance of the Series B Preferred Stock.
However, after three years from the closing, the conversion price is subject to
a floating rate equal to the lower of $1.875 or the average of the closing bid
and asked prices of our common stock for the immediately preceding ten
consecutive trading days ending one day prior to the notice of conversion. As of
the date of this Report on Form 10-K, there are 44,000 shares of Series B
Preferred Stock outstanding.

The following chart presents the maximum number of common shares
issuable on conversion of the currently outstanding shares of Series B Preferred
Stock based on different conversion rates. On March 5, 2001, the holder of 2,000
shares of Series B Preferred Stock elected to convert those shares into 26,667
shares of our Common Stock. In August, 2001, the holders of an aggregate of
4,000 shares of the Series B Preferred Stock converted those shares into 53,334
shares of our Common Stock. While we expect to issue a maximum of an additional
586,666 shares of common

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stock upon conversion of the Series B Preferred Stock until October 5, 2002, we
could issue a significantly greater number of common shares upon conversion of
the Series B Preferred Stock after October 5, 2002, when the floating conversion
rate is triggered.

Percentage of Total
Conversion Conversion Maximum Number of Shares of Common Stock
Period Rate Shares of Common Stock Issuable Outstanding
------ ---- ------------------------------- -----------

10/6/2000 - $1.875 586,666 3.6%
10/5/2002
10/6/2002 - $1.875 586,666 3.6%
10/6/2002 - $1.50 733,333 4.5%
10/6/2002 - $1.00 1,100,000 6.8%
10/6/2002 - $0.75 1,466,666 9.1%

Regardless of the date of exercise, dilution could occur from the
widespread conversion of the Series B Preferred Stock. The following scenarios
could result in dilution to our common shareholders:

- In either period, the conversion price could be lower than the
actual trading price on the day of conversion. This could
result in the holder immediately selling all of its converted
common shares, which would have a dilutive effect on the value
of the outstanding common shares.

- After three years, if the average trading price falls below
$1.875, the lower the average trading price, the greater the
number of common shares that a holder of our Series B
Preferred Stock will receive upon conversion. This might
further encourage the holders of the Series B Preferred Stock
to convert their shares into common shares. The increased
number of common shares would further depress the average
trading price of our common stock.

- The significant downward pressure on the trading price of our
common stock as Series B Preferred Stock holders converted
these securities and sell the common shares received on
conversion could encourage short sales by the holders of
Series B Preferred Stock or other shareholders. This would
place further downward pressure on the trading price of our
common stock. Even the mere perception of eventual sales of
common shares issued on the conversion of the Series B
Preferred Stock could lead to a decline in the trading price
of our common stock.

OUR SERIES C PREFERRED STOCK FINANCINGS MAY RESULT IN DILUTION TO OUR COMMON
SHAREHOLDERS.

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Dilution of the per share value of our common shares could result from
the conversion of most or all of the Series C Preferred Stock we sold in two
transactions pursuant to Regulation S to non-U.S. entities in May, 2001. Holders
of our Series C Preferred Stock may convert these shares into shares of our
common stock at a fixed conversion price of $4.845 beginning at the earlier of
one year after the issuance of the Series C Preferred Stock or upon the
effectiveness of a registration statement covering such shares. In addition, the
purchasers in these transactions received warrants to purchase such number of
shares of our common stock as equals 10% of the number of shares issuable upon
conversion of the Series C Preferred Stock, rounded up to the nearest 1,000
shares. The warrants may not be exercised until the earlier of one year from the
date of issuance or upon the effectiveness of a registration statement covering
the Common Stock underlying the warrants. As of the date of this Report on Form
10-K, we issued 5,500 shares of Series C Preferred Stock which are convertible
into an aggregate of 1,135,191 shares of Common Stock and 114,000 warrants.

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

Our Certificate of Incorporation authorizes our Board of Directors to
issue up to 5,000,000 shares of Preferred Stock, from time to time, in one or
more series. The Board of Directors is authorized, without further approval of
the stockholders, to fix the dividend rights and terms, conversion rights,
voting rights, redemption rights and terms, liquidation preferences, and any
other rights, preferences, privileges and restrictions applicable to each new
series of Preferred Stock. We previously established 200 shares of Series A
Preferred Stock which are owned by John Botti and Ira Whitman, our founders and
officers. Currently there are only 100 shares of Series A Preferred Stock
outstanding, all of which are owned by Mr. Botti. The Series A Preferred Stock
entitles the holders to elect a majority of the Board of Directors. The
existence of such stock could adversely affect the voting power of the holders
of Common Stock and, under certain circumstances, make it more difficult for a
third party to gain control of us, discourage bids for the Common Stock at a
premium, or otherwise adversely affect the market price of the Common Stock. In
connection with our recent sale of Series C Preferred Stock, the holder of the
Series A Preferred Stock agreed not to exercise these rights unless we are
current in meeting our dividend obligations and the shares of Common Stock
issuable upon conversion or payable as dividends are not restricted from public
distribution in the United States. There are currently outstanding 5,500 shares
of our Series C Preferred Stock. In addition, we issued 50,000 shares of our
Series B Preferred Stock in our October, 1999 private offering, of which 44,000
shares are currently outstanding.

WE HAVE SOLD RESTRICTED SHARES WHICH MAY DEPRESS OUR STOCK PRICE WHEN IT IS
SELLABLE UNDER RULE 144.

Approximately 2,524,818 shares of Common Stock currently outstanding
may be deemed "restricted securities" as that term is defined under the
Securities Act of 1933 (the "Act"), and in the future, may be sold pursuant to a
registration under the Act, in compliance with Rule 144 under the Act, or
pursuant to another exemption therefrom. Rule 144 provides, that, in general, a
person holding restricted securities for a period of one year may, every three
months thereafter, sell in

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brokerage transactions an amount of shares which does not exceed the greater of
one percent of our then outstanding Common Stock or the average weekly trading
volume of the Common Stock during the four calendar weeks prior to such sale.
Rule 144 also permits, under certain circumstances, the sale of shares without
any quantity limitations by a person who is not an affiliate of ours and was not
an affiliate at any time during the 90 day period prior to sale and who has
satisfied a two year holding period. Sales of our Common Stock by certain
present stockholders under Rule 144 may, in the future, have a depressive effect
on the market price of our securities. In addition, the sale of shares by
officers and directors and other affiliated shareholders, may also have a
depressive effect on the market for our securities.

OUR OUTSTANDING OPTIONS AND WARRANTS MAY DEPRESS OUR STOCK PRICE.

As of June 30, 2001, there were outstanding stock options to purchase
an aggregate of 4,324,705 shares of Common Stock at exercise prices ranging from
$0.84 to $11.25 per share, not all of which are immediately exercisable. As of
June 30, 2001, there were outstanding immediately exercisable warrants to
purchase an aggregate of 2,908,450 shares of Common Stock at exercise prices
ranging from $1.37 to $13.04 per share. In addition, there are currently
outstanding 44,000 shares of our Series B Preferred Stock, which are currently
convertible into an aggregate of 586,666 Shares of Common Stock and 5,500 shares
of our Series C Preferred Stock, which is convertible into an aggregate of
1,135,191 shares of Common Stock. To the extent that outstanding stock options
and warrants are exercised or the Series B and Series C Preferred Stock is
converted, dilution to our shareholders will occur. Moreover, the terms upon
which we will be able to obtain additional equity capital may be adversely
affected, since the holders of the outstanding options and warrants can be
expected to exercise or convert them at a time when we would, in all likelihood,
be able to obtain any needed capital on terms more favorable to us than the
exercise and conversion terms provided by the outstanding options, warrants and
preferred stock.

IF WE CANNOT OFFSET FUTURE TAXABLE INCOME OUR TAX LIABILITIES WILL INCREASE.

At June 30, 2001, the date of our most recent fiscal year end, we had
net operating loss carryforwards ("NOLS") for federal income tax purposes of
approximately $28,100,000 available to offset future taxable income. Under
Section 382 of the Internal Revenue Code of 1986, as amended, utilization of
prior NOLS is limited after an ownership change, as defined in Section 382, to
an annual amount equal to the value of the corporation's outstanding stock
immediately before the date of the ownership change multiplied by the federal
long-term exempt tax rate. Use of our NOLS could also be limited as a result of
grants of stock options under stock option plans and other events. In the event
we achieve profitable operations, any significant limitation on the utilization
of NOLS would have the effect of increasing our current tax liability.

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ITEM 2. DESCRIPTION OF PROPERTIES

Our executive offices and production facilities are located at 2165
Technology Drive, Schenectady, New York 12308. We own the 26,000 square foot
building, subject to a mortgage in the amount of $1,350,000.

A New York State agency awarded us a $1,000,000 grant to build this
facility. The grant includes several requirements concerning our business and
the number of individuals employed. If these requirements are not fulfilled, we
will be required to repay all or a portion of the grant to New York State.

The executive offices of our Authentidate subsidiary are located at 2
World Financial Center, 43rd Floor, New York, New York 10281. Authentidate
leases approximately 5,870 square feet pursuant to an underlease entered into in
October, 2000. The lease term expires on March 29, 2006. Authentidate pays an
annual rent of $278,825 for the first 33 months of the lease term and will pay
an annual rent of $308,175 for the balance of the lease term. Due to the events
of September 11, 2001, the office space is not currently tenantable.
Authentidate is in the process of relocating to alternative offices. The
Authentidate Web hosting site is maintained by AT&T and was not affected by
these events and remains fully operational and generating revenue.

ITEM 3. LEGAL PROCEEDINGS

We are the defendant in a third party complaint filed by Shore Venture
Group, LLC in Federal District Court in Pennsylvania. Shore Venture is the
defendant in an action commenced by Berwyn Capital. The third party complaint
alleges a claim for breach of contract and seeks indemnification. We moved to
dismiss the third party complaint and the motion is currently pending before the
Court. Management believes that the claim will not have a material adverse
impact on our financial condition, results of operations, or cash flows.

We have also been advised of a claim by Shore Venture Group concerning
additional shares of the Common Stock of our subsidiary, Authentidate, Inc. We
are conducting settlement negotiations with Shore Venture and believe that the
claim will not have a material adverse impact on our financial condition,
results of operations, or cash flows.

We are engaged in no other litigation the effect of which would be
anticipated to have a material adverse impact on our financial condition,
results of operations or cash flows.

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 our public offering on May 13, 1992, our
Common Stock commenced trading in the over-the-counter market and was listed on
the SmallCap Market of the Nasdaq Stock Market ("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, we withdrew our listing
on the Boston Stock Exchange. On April 24, 1996, our Common Stock commenced
trading on the Pacific Stock Exchange. In April, 2000 we commenced trading on
the National Market of the NASDAQ. On February 2, 2001, we withdrew our listing
on the Pacific Stock Exchange. Our Common Stock currently trades under the
symbol "ADAT."

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

High Low
---- ---

Common Stock

Fiscal Year 2001
1st Quarter....................................................................... $6.688 $3.875
2nd Quarter....................................................................... $6.0625 $3.25
3rd Quarter....................................................................... $5.375 $2.938
4th Quarter....................................................................... $6.31 $3.93

Fiscal Year 2000
1st Quarter....................................................................... $1.46875 $.875
2nd Quarter....................................................................... $19.875 $1.125
3rd Quarter....................................................................... $18.25 $11.25
4th Quarter....................................................................... $13.6875 $5.875

Fiscal Year 1999
1st Quarter....................................................................... $1.50 $0.875
2nd Quarter....................................................................... $1.875 $0.4941
3rd Quarter....................................................................... $1.625 $0.875
4th Quarter....................................................................... $1.50 $0.9375

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

As of September 20, 2001, there were approximately 409 holders of
record of our Common Stock. We believe there are more than 500 beneficial
holders of our Common Stock.

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DIVIDEND POLICY

We have not paid any dividends upon our Common Stock since our
inception. We do not expect to pay any dividends upon our Common Stock in the
foreseeable future and plan to retain earnings, if any, to finance the
development and expansion of our business. Further, our Certificate of
Incorporation authorizes our Board of Directors to issue Preferred Stock with a
preferential right to dividends. We are obligated to pay dividends on certain of
our outstanding shares of preferred stock as follows:

- 44,000 shares of our Series B Preferred Stock which have the right to
receive dividends equal to an annual rate of 10% of the issue price
payable on a semi-annual basis; and

- 5,500 shares of our Series C Preferred Stock which have the right to
receive dividends equal to 4% of the issue price on an annual basis
payable in either cash or shares of our Common Stock, at our
discretion.

SALES OF UNREGISTERED SECURITIES

At the annual meeting of shareholders held on March 23, 2001, our
shareholders approved our proposal to acquire the outstanding minority interests
of our Authentidate, Inc. subsidiary in exchange for securities of our company
on a 1.5249:1 basis. This proposal was also recommended to our shareholders in
connection with the decision of our Board of Directors to focus on our
Authentidate business line. As of the date of this Form 10-K, security holders
owning an aggregate of 601,750 shares of Common Stock and an aggregate of
616,623 options and warrants of Authentidate, Inc. have accepted the exchange
offer and we have issued an aggregate of 917,608 shares of our Common Stock and
940,289 options and warrants to these security holders. The transactions
pursuant to which the securities were issued were exempt from registration under
the Section 4(2) of the Securities Act of 1933, as amended.

In May, 2001 we consummated two financings under Regulation S, which
resulted in our receipt of an aggregate of $5,500,000 in gross proceeds. In
these transactions we sold a total of 5,500 shares of our newly created Series C
Convertible Preferred Stock and warrants to purchase 114,000 shares of our
Common Stock. The Series C Preferred Stock is convertible into Common Stock at a
conversion price of $4.845 per share and the warrants are exercisable at $4.845
per share for a period of five years from the date of issuance. The conversion
price is not subject to any resets or adjustment for changes in the market price
of our Common Stock. The Series C Preferred Stock also pays an annual 4%
dividend, payable in cash or stock at our election, until conversion or
redemption. We initially reported these financings on our Form 10-Q for the
quarter ended March 31, 2001 and additional information regarding these
transactions is located elsewhere in this Form 10-K under the headings
"Description of Business - General Business Developments During the Previous
Fiscal Year" and "Management's Discussion and Analysis - Liquidity and Capital
Resources."

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We received approximately an aggregate of $5,200,000 in net proceeds
after payment of commissions and expenses. The proceeds of these transactions
will be used to increase the business development, marketing and sales efforts
for the Authentidate services, along with general working capital needs of the
Company.

- issued upon the conversion of the Series C Preferred Stock;

- paid as dividends on the Series C Preferred Stock; and

- issued upon the exercise of the warrants.

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ITEM 6. SELECTED FINANCIAL DATA

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

YEAR ENDED JUNE 30,
----------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
------------ ------------ ------------ ------------ ------------

STATEMENT OF OPERATIONS
DATA:

Net Sales $ 17,860,544 $ 15,289,738 $ 17,094,765 $ 33,755,625 $ 53,109,469
Gross Profit 4,710,743 3,365,157 5,615,468 8,092,566 10,006,736
Net (Loss)/Net Income (9,340,103) (5,274,043) (3,166,488) (5,464,059) (2,143,159)
Basic and Diluted
Net(Loss)/Net Income
Per Common Share (0.63) (0.49) (0.43) (0.74) (0.30)

BALANCE SHEET DATA:

Current Assets 13,524,429 15,232,894 9,857,681 12,138,995 13,622,171
Current Liabilities 4,004,905 1,809,264 6,225,966 4,789,896 7,730,498
Working Capital 9,519,524 13,423,630 3,631,715 7,349,099 5,891,673
Total Assets 25,867,905 21,128,335 14,484,984 14,708,454 18,924,765
Total Long Term Liabilities 2,325,168 2,351,253 5,327,901(1) 3,975,000(2) 1,297
Stockholders' Equity 19,537,832 16,967,818 3,335,705 6,478,226 11,192,970

--------------------
(1) Long-term liabilities excluding discount of $404,588.
(2) Long-term liabilities excluding discount of $534,668.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION

OVERVIEW

We are involved in the development of security software technology,
document imaging products and systems integration services and products. Our
products include DocStar document imaging products, the Authentidate Enterprise
Edition and system integration services and products through our DJS subsidiary.
Revenues during the current fiscal have been primarily derived from systems
integration services and products and sales of our document imaging products.

In March 1996, we acquired DJS, a system integrator, and computer
reseller in Albany, New York. DJS is an authorized sales and support provider
for Novell, Microsoft Solutions and Lotus Notes. We established our Authentidate
subsidiary during the fiscal year ended June 30, 2000 to engage in the business
of providing end users with a service providing for the storage, confirmation
and authentication of electronic data and images. The Authentidate product was
released for sale in May, 2001. We contemplate that product integration
development work will be necessary for each application or customer. We are in
the process of selling this product and expect to record revenue during the
first half of the fiscal year ending June 30, 2002.

During our most recent fiscal year, we established Authentidate Sports
Edition, Inc., to develop an application of our Authentidate technology to the
field of signature authentication relating to sports memorabilia and
entertainment collectibles. We also organized WebCMN, Inc. during the fiscal
year ended June 30, 2001 in order to develop a business model to apply the
Authentidate technology to the medical supply business relating to the
automation and processing of Certificates of Medical Necessity.

We held our annual meeting of shareholders on March 23, 2001. At the
meeting our shareholders approved the proposal to change our name from Bitwise
Designs, Inc. to Authentidate Holding Corp. This name change was recommended by
our Board of Directors in connection with the Board's decision to focus on
developing our Authentidate business line. The name change became effective
March 23, 2001 and our trading symbol on the Nasdaq National Market was changed
from BTWS to ADAT on March 28, 2001.

The following analysis of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and notes contained elsewhere in this Form 10-K.

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RESULTS OF OPERATIONS

Fiscal Year 2001 Compared to Fiscal Year 2000

We realized a consolidated net loss of $9,340,103 ($.63 per share) and
$5,274,043 ($.49 per share) for the fiscal years ended June 30, 2001 and 2000,
respectively. Consolidated net sales totaled $17,860,544 and $15,289,738 for the
fiscal years ended June 30, 2001 and 2000, respectively.

The sales increase is due to an increase in sales from our DJS
Marketing, Inc. (DJS) subsidiary where sales increased by 20% from $9,699,764 to
$11,620,407. The sales increase is also due to improved sales in the DocStar
Division where sales increased 12% from $5,589,830 to $6,239,579. The
Authentidate subsidiary has not recognized significant sales through June 2001.

The consolidated net loss increase is mainly attributable to losses
incurred by our Authentidate subsidiary. Please see footnote 16, "Segment
Reporting" in the consolidated financial statements. The segment profit for DJS
improved from $231,357 to $385,283 and the segment loss for DocStar decreased
significantly from $1,177,239 to $295,680. The Authentidate subsidiary incurred
significant selling, general and administrative expenses in the process of
building a team of experienced managers and professionals. Major expenses
include compensation and benefits, professional fees, public relations,
amortization, rent, advertising and marketing. Authentidate expects to start
generating revenue during the first half of the fiscal year ending June 30,
2002. Corporate expenses also increased mainly due to non cash compensation
expenses resulting from the conversion of Authentidate, Inc. common shares into
Authentidate Holding Corp. common shares.

Consolidated gross profit for the fiscal years ending June 30 ,2001 and
2000 was $4,710,743 and $3,365,157, respectively. This increase is due to the
sales increase of DocStar and DJS discussed above. The consolidated profit
margin was 26% and 22% for the years ending June 30, 2001 and 2000,
respectively. Gross profit margin is defined as gross profit as a percentage of
sales. The increase in gross profit margin is due to DocStar which realized a
gross profit margin of 39% for the current fiscal year compared to 26% last
year. The increase is due to sales volume increases, cost reductions and fewer
sales discounts compared to 2000.

Selling, general and administrative expenses (S,G&A) consist of all
other of our expenses except product development expenses and interest. S,G&A
expenses amounted to $11,950,719 and $8,016,192 for the twelve months ended June
30, 2001 and 2000, respectively. The increase is mainly due to Authentidate
which has been building a staff for several months and incurred significant
payroll, consulting, selling and advertising expenses. DJS S,G&A expenses
increased during the same period as selling expenses increased as a result of an
increase in sales. DocStar S,G&A expenses remained about the same. The parent
company also incurred a corporate non-cash expense of $862,934 for stock
compensation expense as a result of the stock conversion to Authentidate Holding
Corp. As a percentage of sales, S,G&A costs were 67% and 52% for the years ended
June 30, 2001 and 2000, respectively.

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Interest expense was $124,816 and $299,994 for the years ended June 30,
2001 and 2000, respectively. The decrease is due to the conversion of
convertible debt to common stock and the payoff of our line of credit during the
prior fiscal year.

Product development expenses, excluding capitalized costs and including
amortization of capitalized costs, relate to software development for
Authentidate and for DocStar. These costs totaled $2,255,284 and $665,533 for
the years ended June 30, 2001 and 2000, respectively. The increase is due to
product development of the Authentidate software product. We have a policy of
capitalizing qualified software development costs after technical feasibility
has been established and amortizing those costs over three years as product
development expense.

Fiscal Year 2000 Compared to Fiscal Year 1999

We realized a consolidated net loss of $5,274,043 ($.49 per share)
compared to a consolidated net loss of $3,166,488 ($.43 per share) for the
fiscal years ended June 30, 2000 and 1999, respectively. Consolidated net sales
totaled $15,289,738 and $17,094,765 for the fiscal years ended June 30, 2000 and
1999, respectively.

The consolidated sales decrease is due to a decrease in sales of the
DocStar product line for the year ended June 30, 2000 to $5,589,830, compared to
$7,674,451 for the year ended June 30, 1999. Sales for DJS increased from
$9,536,994 for the fiscal year ended June 30, 1999 to $9,949,707 for the fiscal
year ended June 30, 2000.

Our net loss increase is due to losses incurred by our new subsidiary,
Authentidate, Inc., which incurred significant development, marketing and
start-up costs. Even though the sales of the DocStar product line decreased, our
operating loss decreased substantially, as we instituted cost cutting measures
in an effort to reduce the breakeven point. DJS operating profits decreased
slightly due to competitive pressures.

Consolidated gross profit for the fiscal years ended June 30, 2000 and
1999 was $3,365,157 and $5,615,468 respectively. This reduction is due to the
reduction in DocStar sales. The consolidated profit margin was 22.0% and 32.8%
for the fiscal years ended June 30, 2000 and 1999, respectively. Gross profit
margin is defined as gross profit as a percentage of sales. The decrease in
gross profit margin is due to decreases in DocStar sales and competitive
pressures.

Selling, general and administrative expenses (S,G&A) consist of all
other of our expenses except product development costs and interest. S,G&A
expenses amounted to $8,016,192 and $7,765,234 for the fiscal years ended June
30, 2000 and 1999, respectively. S,G&A expenses increased as a result of
Authentidate marketing and general start-up costs.

As a percentage of sales, S,G&A costs increased from 45.4% in 1999 to
52.4% in 2000 as a result of Authentidate's S,G&A expenditures.

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Interest expense totaled $299,994 and $630,396 for fiscal years ended
June 30, 2000 and 1999, respectively. The decrease is due to the conversion of
long-term debt to equity and the payoff of our line of credit. Interest rates
increased during the fiscal year ended June 30, 2000 compared to the prior year.

Product development expenses, excluding capitalized costs and including
amortization of capitalized costs relate to software development for the
DocStar, Authentidate and Authentigraph product lines. These costs increased
from $248,801 to $665,533 for the fiscal years ended June 30, 1999 and 2000,
respectively. We have a policy of capitalizing qualified software development
costs and amortizing those costs over three years as product development
expense.

Fourth Quarter Adjustments

During the fourth quarter of 1999, we recorded an adjustment increasing
our net loss for sales made with the right of return by approximately $1,350,000
for which income will not be recognized until sale of the product by the
customer. Additionally, a reserve of approximately $186,000 was recorded for
claims arising from the sale of SST.

Fiscal Year 1999 Compared to Fiscal Year 1998

We realized a consolidated net loss of $3,166,488 ($.43 per share)
compared to a consolidated net loss of $5,464,059 ($.74 per share) for the
fiscal years ended June 30, 1999 and 1998, respectively. Consolidated net sales
totaled $17,094,765 and $33,755,625 for the fiscal years ended June 30, 1999 and
1998, respectively.

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

Our net loss improvement was due to a combination of a reduction in our
operating costs and increase in profits from DJS. DJS realized a reduction in
sales, however profits increased due to an increase in gross profit margins as
DJS shifted its business from hardware sales to a business model that produced
more service revenue such as network and Internet services in addition to
hardware sales. DJS was also able to reduce operating costs.

Consolidated gross profit for the fiscal years ended June 30, 1999 and
1998 was $5,615,468 and $8,092,566, respectively. This reduction is mainly due
to the sale of SST in June 1998. The consolidated profit margin was 32.8% and
24.0% for the fiscal years ended June 30, 1999 and 1998, respectively. Gross
profit margin is defined as gross profit as a percentage of sales. The increase
in

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gross profit margin is due to the sale of SST. AHC and our DocStar product have
significantly higher gross profit margins than products and services provided by
both SST and DJS.

Selling, general and administrative expenses (S,G&A) consist of all
other of our expenses except product development costs and interest. S,G&A
expenses amounted to $7,765,234 and $12,251,515 for the fiscal years ended June
30, 1999 and 1998, respectively. S,G&A expenses decreased as a result of the
sale of SST, which incurred S,G&A expenses of $2,891,409 for the fiscal year
ended June 30, 1998. The remainder of the decrease is due to cost cutting by AHC
and DJS.

As a percentage of sales, S,G&A costs increased from 36.3% in 1998 to
45.4% in 1999. This increase is due to the sale of SST. We historically have had
higher S,G&A expenses than any of the subsidiary companies because of our
organization structure which includes sales, training and service personnel
stationed around the country to serve the national dealer network. This has
resulted in high payroll and travel and living expenses. In addition, we incur
significant advertising and marketing costs to market DocStar nationally. The
subsidiaries typically sell in a localized area and only employ personnel in
their local region and incur minimal advertising and marketing costs.

Interest expense totaled $630,396 and $939,595 for fiscal years ended
June 30, 1999 and 1998, respectively. The decrease is due to the sale of SST
which incurred $202,198 of interest expense during the fiscal year ended June
30, 1998. The decrease was also due to lower borrowing levels for DJS offset by
higher borrowing levels for AHC. Interest rates decreased during the fiscal year
ended June 30, 1999 compared to the prior year.

Product development expenses, excluding capitalized costs and including
amortization of capitalized costs relate to software development for the DocStar
product line incurred by AHC. These costs increased from $230,652 to $248,801
for the fiscal years ended June 30, 1998 and 1999, respectively. We have a
policy of capitalizing qualified software development costs and amortizing those
costs over three years as product development expense.

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of funds to date have been the issuance of equity
and the incurrence of third party debt. The principal balance of all long-term
debt at June 30, 2001 totaled $1,350,441 all of which relates to a mortgage loan
on our principle office located in Schenectady, New York.

Our DJS subsidiary used a wholesale inventory line of credit during the
year to fund inventory purchases. This line was terminated by the lender and DJS
paid it off in full prior to June 30, 2001. DJS has secured additional credit
limits from its vendors and is not expected to be affected by the elimination of
this wholesale inventory facility which had a limit of $625,000.

Property, plant and equipment expenditures totaled $893,181 and
capitalized software development expenditures totaled $2,764,678 for the twelve
months ended June 30, 2001. There are no significant purchase commitments
outstanding.

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We previously disclosed in our Supplement to the Proxy Statement dated
March 13, 2001, that we received notice of a potential claim from a minority
shareholder of Authentidate, Inc. relative to the conversion of Authentidate,
Inc. stock into Authentidate Holding Corp. stock. We dispute these claims and
will vigorously oppose them and we will assert various counter-claims in any
such action. However, in the event that we are unsuccessful in any proceeding
commenced to adjudicate this issue, then we may be required to issue additional
shares of our common stock and may record a non-cash expense, the amount of
which cannot be presently estimated.

Our cash balance at June 30, 2001 was $9,040,466 and total assets were
$25,867,905. We believe existing cash and short-term investments should be
sufficient to meet our operating requirements for the next twelve months.
However, we intend to spend significant effort and resources (monetary and
otherwise) to expand the Authentidate business and may seek to obtain additional
equity financing to accelerate that expansion.

At our annual meeting of shareholders, held on March 23, 2001, our
shareholders approved a proposal to acquire the outstanding minority interests
of our Authentidate, Inc. subsidiary in exchange for securities of our company
on a 1.5249:1 basis. This proposal was also recommended to our shareholders in
connection with the decision of our Board of Directors to focus on our
Authentidate business line. Security holders owning an aggregate of 601,750
shares of Common Stock and an aggregate of 616,623 options and warrants of
Authentidate, Inc. have accepted the exchange offer and we have issued an
aggregate of 917,608 shares of our Common Stock and 940,289 options and warrants
to these security holders.

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- issued upon the conversion of the Series C Preferred Stock;
- paid as dividends on the Series C Preferred Stock; and
- issued upon the exercise of the warrants.

In October and November 1999, we Company completed three private equity
offerings for approximately $2,100,000 (approximately $1,900,000 after
expenses). The investment was structured as follows. In the first offering we
sold 740,000 units for $740,000, each unit consisting of two shares of common
stock and two Series B Common Stock Purchase Warrants. Each warrant entitles the
holder to purchase one share of common stock at an exercise price of $1.375 for
five years.

In the second offering we sold 50,000 shares of Series B Convertible
Cumulative Preferred Stock for $1,250,000. Dividends on the Series B Preferred
Shares are payable at the rate of 10% per annum, semi-annually. Each of the
shares of the Series B Preferred Stock is convertible into such number of shares
of our common stock as shall equal $25 divided by the conversion price of $1.875
per shares, subject to adjustment in certain circumstances.

In November 1999, we completed the third offering by selling a 20%
interest for $100,000 in its new subsidiary, Authentidate, Inc. In addition, we
issued to the purchasers 999,999 Series C Common Stock Purchase Warrants. The
Series C Warrants are divided into three classes of 333,333 warrants per class
which have varying exercise prices, starting at $1.50 per common share and
increasing over time to $3.75 after the effectiveness of a registration
statement covering the underlying shares, subject to adjustment for stock splits
and corporate reorganizations. The registration statement was declared effective
by the Commission on February 14, 2000.

In March 2000, Authentidate formed a joint venture known as
Authentidate International Holdings, AG, with a German company, Windhorst New
Technologies, Agi.G.,to market Authentidate in countries outside of the
Americas, Japan, Australia, New Zealand and India. Authentidate retained the
rights to market the service in these territories. We invested DM 250,000, which
is equal to approximately $124,000 and also granted a license of the
Authentidate technology to the joint venture vehicle. Additionally, we issued
250,000 Common Stock Purchase Warrants to Windhorst in connection with the joint
venture. Windhorst contributed DM 3,000,000 to the joint venture. Authentidate,
Inc. owns 39% of the joint venture and Windhorst owns 60% of the joint venture.
The joint venture will be accounted for under the equity method of accounting by
Authentidate.

EFFECTS OF INFLATION AND CHANGING PRICES

The impact of general inflation on our operations has not been
significant to date and we believe inflation will continue to have an
insignificant impact on us. However, price deflation in the major categories of
components we purchase has been substantial and is anticipated to continue
through fiscal 2001. Typically, new components such as new generations of
microprocessors and new optical disk drive technologies etc. are introduced at
premium prices, by its vendors. During this period, we earn lower margins on our
products. As the life cycle progresses competitive

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pressures could force vendor prices down and thus improve our profit margins. We
do not believe that competitive pressures will require us to lower our DocStar
selling price. Because much of DJS's business is service-related, price
deflation has less of an impact on DJS's profits.

NEW ACCOUNTING STANDARDS

In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions Involving
Stock Compensation - an Interpretation of APB Opinion No. 25." FIN 44 clarifies
the application of APB Opinion No. 25 and, among other issues clarifies the
definition of an employee for purposes of applying APB Opinion No. 25; the
criteria for determining whether a plan qualifies as a non-compensatory plan;
the accounting consequence of various modifications to the terms of previously
fixed stock options or awards; and the accounting for an exchange of stock
compensation awards in a business combination. FIN 44 was effective July 1,
2000, but certain conclusions in FIN 44 cover specific events that occurred
after either December 15, 1998 or January 12, 2000. We have applied the
applicable provisions of FIN 44, which did not have a material effect on our
financial condition, results of operations or cash flows.

On June 29, 2001, Statement of Financial Accounting Standards (SFAS)
No. 141, "Business Combinations," was approved by the Financial Accounting
Standards Board (FASB). SFAS No. 141 requires the purchase method of accounting
to be used for all business combinations initiated after June 30, 2001. We do
not expect the adoption of this Standard to have a material effect on our
financial condition, results of operations or cash flows.

One June 29, 2001, SFAS No. 142, "Goodwill and Other Intangible Assets"
was approved by the FASB. SFAS No. 142 changes the accounting for goodwill from
an amortization method to an impairment-only approach. Amortization of goodwill,
including goodwill recorded in past business combinations, will cease upon
adoption of this statement. We plan to adopt SFAS No. 142 effective July 1,
2001. We are currently assessing, but have not yet determined the entire impact
of SFAS 142 on our financial position, results of operations or cash flows.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We do not believe that any of our financial instruments have
significant risk associated with market sensitivity. We are not exposed to
financial market risks from changes in foreign currency exchange rates and are
only minimally impacted by changes in interest rates. However, in the future, we
may enter into transactions denominated in non-U.S. currencies or increase the
level of our borrowings, which could increase our exposure to these market
risks. We have not used, and currently do not contemplate using, any derivative
financial instruments.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

The Financial Statements and Supplementary Data Schedule are annexed
hereto.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE

None

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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

MANAGEMENT

Our executive officers and directors are as follows:

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

John T. Botti 38 President, Chief Executive Officer and Chairman of
the Board

Robert Van Naarden 54 Director and Chief Executive Officer of Authentidate,
Inc.

Ira C. Whitman 38 Senior Vice-President--Research and Development,
Secretary and Director

Steven A. Kriegsman 58 Director

J. Edward Sheridan 64 Director

Charles C. Johnston 65 Director

Dennis H. Bunt 47 Chief Financial Officer

Thomas Franceski 37 Vice President, Technology Products Group and
President, DJS Marketing and DocStar division.

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

In connection with our private placement through Whale Securities Co.,
L.P. ("Whale"), completed in December 1995, we granted Whale the right to
nominate one person to our Board of Directors, or in the alternative, a person
to attend meetings of the Board of Directors. Whale has selected Steven
Kriegsman as its representative on the Board.

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

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Robert Van Naarden joined AHC in July 2000. Mr. Van Naarden has more
than 34 years experience in general management, marketing, sales and engineering
with computer related companies. Most recently he was Vice President of Sales,
Marketing, Business Development and Professional Services with Sensar, Inc. He
has also held senior positions with Netframe, Firepower Systems, Supermac
Technology and Digital. Mr. Van Naarden was also a founder of Stardent and
Convergent Technologies. He has a M.S. in Electrical Engineering from
Northeastern University and a B.S. in Physics from the University of Pittsburgh.

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

J. Edward Sheridan joined the Board of Directors in June, 1992. From
1985 to the present, Mr. Sheridan served as the President of Sheridan Management
Corp. From 1975 to 1985, Mr. Sheridan served as the Vice President of Finance
and Chief Financial Officer of AMF. From 1973 to 1975, he was Vice President and
Chief Financial Officer of Fairchild Industries. From 1970 to 1973 he was the
Vice President, Corporate Finance of F.S. Smithers. From 1967 to 1970 Mr.
Sheridan was the Director of Acquisitions of Westinghouse Electric. From 1964 to
1967 he was employed by Corporate Equities, Inc., a venture capital firm, Mr.
Sheridan holds an M.B.A. from Harvard University and a B.A. from Dartmouth
College.

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

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

Dennis H. Bunt has been our Chief Financial Officer since September
1992. Mr. Bunt has more than 25 years of financial management experience,
primarily with high-technology companies, including Mechanical Technology, Inc.
and General Electric. Mr. Bunt is a certified public accountant and worked for
the Boston office of KPMG Peat Marwick from 1976 to 1979. Mr. Bunt received his
M.B.A. from Babson College in 1979 and received his B.S. in Accounting from
Bentley College in 1976.

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Thomas Franceski was a founder of DJS Marketing Group in 1993 and has
served as President and Chief Financial Officer since its acquisition by
Authentidate Holding Corp. in 1996. Prior to joining DJS, Mr. Franceski served
as Chief Financial Officer of Automated Dynamics Corp., a technology based
company focused on materials science technologies where his responsibilities
were capital acquisition and operations. Mr. Franceski holds a B.S. degree from
LeMoyne College and began his career with KPMG Peat Marwick.

COMMITTEES OF THE BOARD OF DIRECTORS

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

Audit Committee. The members of the Audit Committee are J. Edward
Sheridan, Steven Kriegsman and Charles Johnston. The Audit Committee acts to:
(i) acquire a complete understanding of our audit functions; (ii) review with
management the finances, financial condition and our interim financial
statements; (iii) review with our independent auditors the year-end financial
statements; and (iv) review implementation with the independent auditors and
management any action recommended by the independent auditors. During the fiscal
year ended June 30, 2001, the Audit Committee met on one occasion.

Executive Committee. The members of the Executive Committee are John
Botti and Ira C. Whitman. The Executive Committee has all of the powers of the
Board of Directors except it may not; (i) amend the Certificate of Incorporation
or Bylaws; (ii) enter into agreements to borrow money in excess of $250,000;
(iii) to grant security interests to secure obligations of more than $250,000;
(iv) authorize private placements or public offerings of our securities; (v)
authorize the acquisition of any major assets or business or change our
business; or (vi) authorize any employment agreements in excess of $75,000. The
Executive Committee meets when actions must be approved in an expedient manner
and a meeting of the Board of Directors cannot be convened. During Fiscal 2001,
the Executive Committee did not deem it necessary to meet but voted by unanimous
written consent on two occasions.

Compensation Committee. The members of the Compensation Committee are
Steven Kriegsman, J. Edward Sheridan and Charles C. Johnston. The Compensation
Committee functions include administration of our 2000 Employee Stock Option
Plan, 1992 Employee Stock Option Plan and Non-Executive Director Stock Option
Plan and negotiation and review of all employment agreements of our executive
officers. During the fiscal year ended June 30, 2001, the Compensation Committee
held no meetings and voted by unanimous written consent on one occasion.

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

The Compensation Committee and the Board of Directors have established
the following ongoing principles and objectives for determining the compensation
of our executive officers:

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- provide compensation opportunities that will help attract, motivate and
retain highly motivated qualified managers and executives.

- link executive total compensation to our performance and individual job
performance.

- provide a balance between incentives based upon annual business
achievements and longer term incentives linked to increases in
shareholder value.

During the last fiscal year, the compensation of the Chief Executive
Officer of Authentidate, Inc. was reviewed and approved by the Compensation
Committee in connection with the Compensation Committee's approval of the terms
of the employment agreement entered into with Mr. Van Naarden in July, 2000.
Similarly, the Compensation Committee reviewed and approved the approved the
compensation terms offered to our Chief Financial Officer in connection with the
employment agreement entered into between AHC and Mr. Bunt in October, 2000.
Compensation paid to our Chief Executive Officer and Chief Technology Officer
during the fiscal year ended June 30, 2001 was pursuant to the employment
agreements entered into by such officers during the fiscal year ended June 30,
2000 and was reviewed and approved by the Compensation Committee at that time.

The Compensation Committee authorized the grant of stock options to our
Chief Executive Officer and Chief Technology Officer and to the Chief Executive
Officer of our Authentidate subsidiary in connection with the acquisition by AHC
of the outstanding securities of Authentidate, Inc. The options held by these
officers to purchase shares of Authentidate common stock were exchanged for
options to purchase shares of AHC common stock. For more information about this
transaction, see "Description of Business - General Business Developments During
the Previous Fiscal Year." The Compensation Committee also authorized the grant
of stock options to our Chief Financial Officer and to our Vice President,
Technology Products Group, during the last fiscal year as appearing in the
Option Grants Table appearing in this Report on Form 10-K. The Compensation
Committee determined that the options awarded to theses officers were warranted
due to the efforts of these officers in connection with our internal management
and the performance of our DJS subsidiary.

No cash bonuses were awarded to these executives during the last fiscal
year.

The Compensation Committee
J. Edward Sheridan Steven Kriegsman Charles C. Johnston

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

There are no compensation committee interlocks between the members of
our compensation committee and any other entity. At present, J. Edward Sheridan,
Steven Kriegsman and Charles C. Johnston are the members of the compensation
committee. None of the members of the Board's compensation committee (a) was an
officer or employee of AHC during the last fiscal year; (b) was

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formerly an officer of AHC or any of its subsidiaries; or (c) had any
relationship with AHC requiring disclosure under Item 404 of Regulation S-K.

MEETINGS OF THE BOARD OF DIRECTORS

During the fiscal year ended June 30, 2001, our Board of Directors met
on seven occasions and voted by unanimous written consent on three occasions. No
member of the Board of Directors attended less than 50% of the aggregate number
of (i) the total number of meetings of the Board of Directors or (ii) the total
number of meetings held by all Committees of the Board of Directors.

CERTAIN REPORTS

Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires our Directors and officers, and persons who own, directly or
indirectly, more than 10% of a registered class of our equity securities, to
file with the Securities and Exchange Commission ("SEC") reports of ownership
and reports of changes in ownership of common stock and other equity securities
we issue. Officers, directors and greater than 10% shareholders are required by
SEC regulations to furnish us with copies of all Section 16(a) forms that they
file. Based solely on review of the copies of such reports received by us, we
believe that all Section 16(a) filing requirements applicable to officers,
directors and 10% shareholders were complied with during the 2001 fiscal year
except that Ira C. Whitman, our Executive Vice President and a director,
inadvertently failed to report a sale of an aggregate of 495 shares during the
fiscal quarter ended December 31, 2000. This failure was inadvertent, and the
sales were subsequently reported on a Form 4 filed on January 8, 2001.

ITEM 11. EXECUTIVE COMPENSATION

The following table provides certain information concerning all Plan
and Non-Plan (as defined in Item 402 (a)(ii) of Regulation S-K) compensation
awarded to, earned by, we paid during the years ended June 30, 2001, 2000 and
1999 to each of the named executive officers.

SUMMARY COMPENSATION TABLE

ANNUAL COMPENSATION

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

John Botti 2001 $265,005 $0 $3,187(1) 0 (2) 444,668(6)
Chairman, President and 2000 $203,665 $60,000 $1,702 0 890,000
Chief Executive Officer 1999 $132,794 $0 $1,702 0 0

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Nicholas Themelis (3) 2001 $204,519 $ 0 $ 533(4) 0(8) 109,868(6)
Vice-President, Chief 2000 $ 71,923(3) $ 0 $ 5,000(3) 0 220,000
Technology Officer
and Director
Robert Van Naarden 2001 $317,733 $ 0 $ 426(4) 0 547,397(7)
Director and Chief
Executive Officer of
Authentidate, Inc.
Dennis H. Bunt, 2001 $105,605 $ 0 $ 798(5) 0(9) 86,849(10)
Chief Financial
Officer
Thomas Franceski, 2001 $ 98,125 $ 30,000 $ 0 0 105,000(10)
Vice President,

(1) Includes: (i) for 2001, an automobile and expenses of $2,985 and
payment of premiums on term life insurance of $202; (ii) for 2000, an
automobile and expenses of $1,500 and the payment of premiums on term
life insurance policy of $202; and (iii) for 1999, an automobile and
expenses of $1,500 and the payment of premiums on a term life insurance
policy of $202.
(2) No restricted stock awards were granted to Mr. Botti in fiscal 2001.
Mr. Botti, however, owned 409,391 restricted shares of our Common Stock
on June 30, 2001, the market value of which was $4.50 per share on such
date, without giving effect to the diminution in value attributed to
the restriction on such shares.
(3) Represents salary earned by the employee and paid by the Company during
the fiscal year ended June 30, 2001. Mr. Themelis terminated his
employment with the Company on May 31, 2001and resigned as a Director
of the Company on August 8, 2001. The Company also contributed $5,000
towards a life insurance policy for Mr. Themelis during the fiscal year
ended June 30, 2000.
(4) Represents commuting expenses.
(5) Represents automobile expenses.
(6) Represents options we granted pursuant to the employee's acceptance of
our offer to exchange securities of Authentidate, Inc. held by such
person for like securities of AHC.

(7) Represents 200,000 options granted pursuant to the terms of the
employment agreement entered into between us and Mr. Van Naarden and
347,397 options granted pursuant to the employee's acceptance of our
offer to exchange securities of Authentidate, Inc. held by such person
for like securities of AHC.

(8) No restricted stock awards were granted to Mr. Themelis in fiscal 2001.
Mr. Themelis, however, owned 7,500 restricted shares of our Common
Stock on June 30, 2001, the market value of which was $4.50 per share
on such date, without giving effect to the diminution in value
attributed to the restriction on such shares.
(9) No restricted stock awards were granted to Mr. Bunt in fiscal 2001. Mr.
Bunt, however, owned 883 restricted shares of our Common Stock on June
30, 2001, the market value of which was $4.50per share on such date,
without giving effect to the diminution in value attributed to the
restriction on such shares.
(10) Represents options granted during the fiscal year ended June 30, 2001.

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OPTION/SAR GRANTS IN LAST FISCAL YEAR

POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK
PRICE APPRECIATION FOR ALTERNATIVE TO
OPTION (f) AND (g)
INDIVIDUAL GRANTS TERM GRANT DATE VALUE
-------------------------------------------------------------------------------------- -------------------------- ----------------
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTION/EXERCISE OF
UNDERLYING SARS GRANTED GRANT DATE
OPTION/SARS TO EMPLOYEES BASE PRICE EXPIRATION PRESENT
NAME GRANTED (#) IN FISCAL YEAR (S/SH) DATE 5% ($) 10% ($) VALUE $
(a) (b) (c) (d) (e) (f) (g) (h)
----------------- --------- ------------ ------- ------- --------- --------- ----------

John T. Botti 444,668(2) 19.3% $ 1.52 3/23/06 1,948,892 2,636,263
Robert Van 347,397(2) 15.1% $ 4.625 3/23/06 443,905 980,913
Naarden
Robert Van 200,000(3) 8.7% $6.3125 7/10/05 348,805 770,769
Naarden
Nicholas Themelis 109,868(2) 4.8% $ 4.625 3/23/06 140,390 310,224
Dennis H. Bunt 86,849 3.3% $ 4.625 3/23/06 110,976 245,228
Thomas Franceski 105,000 4.5% $ 4.625 3/23/06 134,196 296,479

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

(1) No Stock Appreciation Rights were granted to any of the named executive
officers during the last fiscal year.
(2) Represents options granted pursuant to the employee's acceptance of our
offer to exchange securities of Authentidate, Inc. held by such person
for like securities of AHC.
(3) Represents 200,000 options granted pursuant to the terms of the
employment agreement entered into between us and Mr. Van Naarden.

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

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

The following table contains information with respect to the named
executive officers concerning options held as of the year ended June 30, 2001.

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

VALUE OF UNEXERCISED IN-THE- MONEY
SHARES NUMBER OF UNEXERCISED OPTIONS
ACQUIRED VALUE OPTIONS AS OF JUNE 30, 2001 AT JUNE 29, 2001(1)
NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- -------- ------------------------- -------------------------

John T. Botti 0 $0 1,287,334/222,334 633,375/324,608
Nicholas Themelis 0 $0 132,401/177,467 0/0
Robert Van Naarden 0 $0 0/547,597 0/0
Dennis H. Bunt 0 $0 119,425/43,424 0/0
Thomas Franceski 0 $0 55,000/50,000 0/0

------------------------
(1) Based upon the closing bid price ($4.50 per share) of our Common Stock on
June 29, 2001 less the exercise price for the aggregate number of shares subject
to the options.

EMPLOYMENT AGREEMENTS

In January, 2000, we entered into a new three year employment agreement
with our Chief Executive Officer, expiring on January 1, 2003. The agreement
provides for (i) a base salary of $250,000 in the first year of the agreement,
increasing by 10% in each year thereafter; (ii)a bonus equal to 3% of our
pre-tax net income, with such additional bonuses as may be awarded in the
discretion of the Board of Directors; (iii)certain insurance and severance
benefits; and (iv) automobile and expenses.

In July 2000, Authentidate entered into an employment agreement with
its new Chief Executive Officer for a three year term. The employment agreement
provides for (i) annual salary of $250,000; (ii) an annual bonus of up to
$200,000, with a minimum bonus of $80,000 during the first year; (iii) a
severance agreement equal to twelve months salary in the event employment
agreement is terminated without cause; (iv) the award of such number of shares
of common stock of Authentidate as shall equal 5% of the shares outstanding on
the date of the employment agreement, vesting in equal amounts over a four year
period, commencing one year from the date of the agreement; and (v) the award of
employee stock options to purchase 200,000 shares of common stock of AHC,
vesting in equal amounts over a four year period, at an exercise price of
$6.3125 per share.

In October 2000, we entered into an employment agreement with our Chief
Financial Officer which provides (i) an annual salary of $100,000 increasing to
$110,000 on January 1, 2001; (ii) annual increases every October to be
determined by the Compensation Committee of the Board of

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Directors; (iii) eligibility for annual bonuses at the discretion of the
Compensation Committee of the Board of Directors; (iv) a severance agreement
equal to twelve months salary; (v) the award of Authentidate, Inc. stock options
equal to 1.25% of the outstanding stock, convertible into AHC stock options upon
the approval of such conversion by our shareholders.

COMPENSATION OF DIRECTORS

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

STOCK OPTION PLANS

In March 2001, our shareholders approved the 2000 Employees Stock
Option Plan (the "2000 Plan") which provides for the grant of options to
purchase up to 5,000,000 shares of our Common Stock. In July 2001, we filed a
registration statement with the SEC to register the shares issuable upon
conversion of the options granted or which may be granted under the 2000 Plan.
Our shareholders were asked to adopt the 2000 Plan since there were no
additional shares available for issuance under the 1992 Plan and the 1992 Plan
is to expire in April 2002 and shareholder approval would have been required to
increase the number of shares subject to the 1992 Plan.

In April 1992, we adopted the 1992 Employees Stock Option Plan (the
"1992 Plan") which provided for the grant of options to purchase up to 600,000
shares of the Company's Common Stock. On January 26, 1995, our stockholders
approved an amendment to the 1992 Plan to increase the number of shares of
Common Stock available under the 1992 Plan to 3,000,000 shares.

Under the terms of the 2000 Plan and the 1992 Plan, options granted
thereunder may be designated as options which qualify for incentive stock option
treatment ("ISOs") under Section 422 of the Code, or options which do not so
qualify ("Non-ISOs"). As of June 30, 2001, there were outstanding an aggregate
of 4,184,705 options under the 2000 Plan and 1992 Plan combined, with exercise
prices ranging from $1.25 to $11.25.

The 2000 Plan and the 1992 Plan are administered by the 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 both the 2000 Plan and 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

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46
granted. However, in the event an option designated as an ISO is granted to a
ten percent stockholder (as defined in the 2000 Plan and the 1992 Plan) such
exercise price shall be at least 110% of such fair market value. Exercise prices
of Non-ISOs options may be less than such fair market value. The aggregate fair
market value of shares subject to options granted to a participant which are
designated as ISOs which become exercisable in any calendar year shall not
exceed $100,000. The "fair market value" will be the closing NASDAQ bid price,
or if our Common Stock is not quoted by NASDAQ, as reported by the National
Quotation Bureau, Inc., or a market maker of our Common Stock, or if the Common
Stock is not quoted by any of the above, by the Board of Directors acting in
good faith.

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

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

As of June 30, 2001, there are outstanding 140,000 options under the
Director Plan with exercise prices from $0.84 to $4.81.

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

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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.

SHAREHOLDER RETURN PERFORMANCE PRESENTATION

Set forth below is a line graph comparing the total cumulative return
on our common stock and the Nasdaq Composite Index and a Software Index
(assuming reinvestment of dividends). Our common stock is listed for trading in
the Nasdaq National Market under the trading symbol ADAT.

Cumulative Total Shareholder Return

[LINE GRAPH]

Listed below is the value of a $10,000 investment at each of our last 5 year
ends:

CUMULATIVE TOTAL SHAREHOLDER RETURN

Date AHC NASDAQ Composite Index NASDAQ Software Index
---- --- ---------------------- ---------------------

6/30/97 $10,000 $10,000 $10,000
6/30/98 $ 5,979 $13,139 $14,306
6/30/99 $ 3,197 $18,627 $23,353
6/30/00 $19,381 $27,503 $39,484
6/30/01 $14,845 $14,982 $18,255

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

Footnotes:

(1) Assumes $10,000 was invested at June 30, 1997 in AHC and each Index
presented.

(2) The comparison indices were chosen in good faith by management. Most of
our peers are divisions of large multi-national companies therefore a
comparison is not meaningful. In addition, we are involved in three
distinct businesses: document imaging software, authentication/security
software and computer systems integration, for which there is no peer
comparison. Therefore we have chosen the NASDAQ Computer and Data
Processing Index, which is primarily comprised of software companies.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information as of September 20,
2001 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 our Common Stock and Series A Preferred Stock.

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

Common John T. Botti 1,696,725 (2) 9.71%
c/o Authentidate Holding Corp.
2165 Technology Drive
Schenectady, NY 12308
Common Ira C. Whitman 404,386 (3) 2.46%
c/o Authentidate Holding Corp.
2165 Technology Drive
Schenectady, NY 12308
Common Steven Kriegsman 40,000 (4) 0.25%
c/o Authentidate Holding Corp.
2165 Technology Drive
Schenectady, NY 12308
Common Dennis Bunt 103,591 (5) 0.64%
c/o Authentidate Holding Corp.
2165 Technology Drive
Schenectady, NY 12308
Common J. Edward Sheridan 50,000 (8) 0.31%
c/o Authentidate Holding Corp.
2165 Technology Drive
Schenectady, NY 12308
Common Charles Johnston 118,570 (6) 0.73%
c/o Authentidate Holding Corp.
2165 Technology Drive
Schenectady, NY 12308
Common Robert Van Naarden 50,000(7) 0.31%
c/o Authentidate, Inc.
2 World Financial Center
225 Liberty St., 43rd Floor
New York, NY 10281
Common Thomas Franceski 55,000(9) 0.34%
c/o Authentidate Holding Corp.
2165 Technology Drive
Schenectady, NY 12308

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49

Common Gateway Network, LLC 840,600(11) 5.1%
and Affiliates
165 EAB Plaza
Uniondale, NY 11556
Series A John T. Botti 100 (10) 100%
Preferred c/o Authentidate Holding Corp.
Stock Designs
2165 Technology Drive
Schenectady, NY 12308
Directors/Officers as a group 2,518,272 13.99%
(2)(3)(4)(5)(6)(7)(8)(9)

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

(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 1,287,334 shares of Common
Stock and excludes non-vested option to purchase 222,334 shares of
Common Stock.

(3) Includes vested stock options to purchase 225,000 shares of Common
Stock.

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

(5) Includes vested options to purchase 102,758 shares of Common Stock and
excludes nonvested options to purchase 60,091 shares of Common Stock.

(6) Includes vested options to purchase 70,000 shares of Common Stock.

(7) Includes vested options to purchase 50,000 shares of Common Stock and
excludes 497,397 non-vested options.

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

(9) Includes vested options to purchase 55,000 shares of Common Stock and
excludes 50,000 non-vested options. Also excludes non-vested options to
purchase 100,000 shares of Common Stock granted subsequent to the
fiscal year end covered by this Report on Form 10-K.

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

(11) As of August 31, 2001. Includes 300,000 shares of common stock issuable
upon exercise of Series B Warrants and 106,665 shares of common stock
issuable upon the conversion of shares of Series B Preferred Stock.

* Based on 16,180,426 shares of Common Stock outstanding as of September
20, 2001.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

On October 10, 2000, we entered into a Letter of Intent with the
Company and Internet Venture Capital, LLC, to enter into a Joint Venture
Agreement and License Agreement providing for the development of a business plan
and to market a service to authenticate and record signatures on sports and
entertainment memorabilia. One of the members of Internet Venture Capital is
affiliated with the "groups" (as defined in Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended) listed in this Report on Form 10-K as owning
more that 5% of our outstanding common stock, see "Voting Securities and
Security Ownership of Certain Beneficial Owners and Management." Although the
transaction contemplated by the Letter of Intent was terminated by the mutual
consent of the parties, on May 24, 2001, AHC, Internet Venture Capital, LLC
and Nicholas Themelis a former director and executive officer of AHC entered
into an agreement to

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50
govern the operation of Authentidate Sports Edition, Inc. and to develop the
service offering of this new company, which is to apply the Authentidate
technology to the field of sports and entertainment memorabilia.

On January 5, 2001, we agreed to loan John T. Botti, our Chief
Executive Officer, the amount of $317,000 and entered into a Pledge and Security
Agreement of the same date, which grants us a second-priority security interest
in the shares of our Common Stock held by Mr. Botti to secure the loan.

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

ITEM 14. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES AND REPORTS ON FORM 8-K

(a)(1) Financial Statements

The following Financial Statements of AHC are included in Part II, Item
8 of this report:

- Report of Independent Accountants
- Consolidated Balance Sheets as of June 30, 2001 and
2000
- Consolidated Statements of Operations for the years
ended June 30, 2001, 2000 and 1999
- Consolidated Statements of Shareholders' Equity for
the years ended June 30, 2001, 2000 and 1999
- Consolidated Statements of Cash Flows for the years
ended June 30, 2001, 2000 and 1999
- Notes to Consolidated Financial Statements

(a)(2) Financial Statement Schedules

The following consolidated financial statement schedule for each of the
three years in the period ended June 30, 2001 is included pursuant to item 14
(d):

Schedule II, Valuation and Qualifying Accounts

(b) Reports on Form 8-K

During the quarter ended June 30, 2001 we filed the following reports:

None

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The exhibits designated with an asterisk (*) are filed herewith. All
other exhibits 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. Certain
portions of exhibits marked with the symbol (++) have been granted confidential
treatment by the Securities and Exchange Commission. Such portions were omitted
and filed separately with the Securities and Exchange Commission.

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

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
(Exhibit 3.2.1 to Form 10- KSB dated October 4, 1999)

3.1.2 Certificate of Amendment to Certificate of Incorporation
(filed as Exhibit 3 to Definitive Proxy Statement dated
February 16, 2001 as filed with the Securities and Exchange
Commission).

3.1.3 Certificate of Designations, Preferences and Rights and Number
of Shares of Series C Convertible Preferred Stock (Exhibit 4.1
to Form 10-Q dated May 14, 2001).

3.1.4* Certificate of Amendment of Certificate of Designations,
Preferences and Rights and Number of Shares of Series C
Convertible 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 Series B Preferred Stock Certificates (Exhibit 4.5 to
the Registration Statement on form SB-2, File No. 33-76494)

4.4 Form of Note and Warrant Purchase, Paying and
Conversion/Exercise agency agreement dated as of August 8,
1997 between the Company and Banca del Gottardo (Exhibit 4.7
to the Company's Form 10-KSB dated June 30, 1997).

4.5 Terms of Warrants and Global Warrant expiring August 11, 2002
(Exhibit 4.9 to the Company's Form 10-KSB dated June 30,
1997).

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52
4.6 Form of Warrant issued to Windhorst New Technologies, Agi.G
and PFK Development Group I, LLC (Exhibit 4.10 to the
Company's Form 10-KSB dated June 30, 2000)

4.7* Form of Warrant issued to certain individuals in fiscal year
ended June 30, 2001 (S-3 2001).

4.8* Form of Warrant issued in connection with Series C Preferred
Stock Offering (Exhibit 4.2 to Form 10-Q dated May 14, 2001).

4.9* Form of Series C Preferred Stock Certificate.

10.1 1992 Employee stock option plan (Exhibit 10.10 to Registration
Statement on Form S-18, File No. 33-46246-NY)

10.2 1992 Nonexecutive Directors stock option plan (Exhibit 10.11
to Registration Statement on Form S-18, File No. 33-46246-NY)

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

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

10.5 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)

10.6 Form of Warrant Agency Agreement between the Company and Banca
del Gottardo dated as of August 8, 1997 (Exhibit to Form
10-KSB dated June 30, 1997).

10.7 Employment Agreement between John Botti and the Company dated
January 1, 2000 (Exhibit 10.27 to the Company's Form 10-KSB
dated June 30, 2000).

10.8 Employment Agreement between Nicholas Themelis and the Company
dated February 28, 2000 (Exhibit 10.28 to the Company's Form
10-KSB dated June 30, 2000)

10.9 Employment Agreement between Robert Van Naarden and
Authentidate.com, Inc. dated July 5, 2000 (Exhibit 10.29 to
the Company's Form 10-KSB dated June 30, 2000).

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53
10.10++ Joint Venture Agreement between The Company, Authentidate,
Inc. and Windhorst New Technologies, Agi.G (Exhibit 10.30 to
the Company's Form 10-KSB dated June 30, 2000)

10.11++ Technology License Agreement between The Company,
Authentidate, Inc. and Windhorst New Technologies, Agi.G
(Exhibit 10.31 to the Company's Form 10- KSB dated June 30,
2000)

10.12 Series C Preferred Stock and Warrant Purchase Agreement
between Authentidate Holding Corp. and purchasers of Series C
Preferred Stock (Exhibit 10.1 to Form 10- Q dated May 14,
2001).

10.13 Registration Rights Agreement between Authentidate Holding
Corp. and purchasers of Series C Preferred Stock (Exhibit 10.2
to Form 10-Q dated May 14, 2001).

10.14 2000 Employee Stock Option Plan (filed as Exhibit 2 to
Definitive Proxy Statement dated February 16, 2001 as filed
with the Securities and Exchange Commission).

10.15* Form of Security Exchange Agreement entered into between
Authentidate Holding Corp., Authentidate, Inc. and certain
security holders of Authentidate, Inc.

10.16** Agreement dated May 24, 2001 between Authentidate Holding
Corp., Authentidate, Inc., Internet Venture Capital, LLC and
Nicholas Themelis.

10.17* Underlease Agreement of Authentidate, Inc. for a portion of
the 43rd Floor at 2 World Financial Center.

21* Subsidiaries of Registrant

23* Consent of Pricewaterhouse Coopers, LLP

** Portions of exhibit omitted and request for confidential treatment filed with
the Commission.

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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.

AUTHENTIDATE HOLDING CORP.

By: /s/John T. Botti
John T. Botti
President, Chairman of the Board
and Chief Executive Officer
Dated: September 26, 2001

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:

Signature Capacity Date
--------- -------- ----

/s/John T. Botti President, Chairman September 26, 2001
John T. Botti of the Board and Chief
Executive Officer

/s/Ira C. Whitman Senior Vice President September 26, 2001
Ira C. Whitman and Director

/s/Robert Van Naarden Director and September 26, 2001
Robert Van Naarden Chief Executive Officer
Of Authentidate, Inc.

/s/Steven A. Kriegsman Director September 26, 2001
Steven A. Kriegsman

/s/J. Edward Sheridan Director September 26, 2001
J. Edward Sheridan

/s/Charles C. Johnston Director September 26, 2001
Charles C. Johnston

/s/Dennis H. Bunt Chief Financial September 26, 2001
Dennis H. Bunt Officer and Principal
Accounting Officer

/s/ Thomas Franceski Vice President- September 26, 2001
Thomas Franceski Technology Products Group

51
55
EXHIBIT INDEX

Item No. Description
-------- -----------

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
(Exhibit 3.2.1 to Form 10-KSB dated October 4, 1999)

3.1.2 Certificate of Amendment to Certificate of Incorporation
(filed as Exhibit 3 to Definitive Proxy Statement dated
February 16, 2001 as filed with the Securities and Exchange
Commission).

3.1.3 Certificate of Designations, Preferences and Rights and Number
of Shares of Series C Convertible Preferred Stock (Exhibit 4.1
to Form 10-Q dated May 14, 2001).

3.1.4* Certificate of Amendment of Certificate of Designations,
Preferences and Rights and Number of Shares of Series C
Convertible 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 Series B Preferred Stock Certificates (Exhibit 4.5 to
the Registration Statement on form SB-2, File No. 33-76494)

4.5 Terms of Warrants and Global Warrant expiring August 11, 2002
(Exhibit 4.9 to the Company's Form 10-KSB dated June 30,
1997).

4.6 Form of Warrant issued to Windhorst New Technologies, Agi.G
and PFK Development Group I, LLC (Exhibit 4.10 to the
Company's Form 10-KSB dated June 30, 2000)

4.7* Form of Warrant issued to certain individuals in fiscal year
ended June 30, 2001 (S-3 2001).

4.8* Form of Warrant issued in connection with Series C Preferred
Stock Offering (Exhibit 4.2 to Form 10-Q dated May 14, 2001).

4.9* Form of Series C Preferred Stock Certificate.

10.1 1992 Employee stock option plan (Exhibit 10.10 to Registration
Statement on Form S-18, File No. 33-46246-NY)

10.2 1992 Nonexecutive Directors stock option plan (Exhibit 10.11
to Registration Statement on Form S-18, File No. 33-46246-NY)

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

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

10.6 Form of Warrant Agency Agreement between the Company and Banca
del Gottardo dated as of August 8, 1997 (Exhibit to Form
10-KSB dated June 30, 1997).

10.7 Employment Agreement between John Botti and the Company dated
January 1, 2000 (Exhibit 10.27 to the Company's Form 10- KSB
dated June 30, 2000).

10.8 Employment Agreement between Nicholas Themelis and the Company
dated February 28, 2000 (Exhibit 10.28 to the Company's Form
10-KSB dated June 30, 2000)

52
56

10.9 Employment Agreement between Robert Van Naarden and
Authentidate.com, Inc. dated July 5, 2000 (Exhibit 10.29 to
the Company's Form 10-KSB dated June 30, 2000).

10.10++ Joint Venture Agreement between The Company, Authentidate,
Inc. and Windhorst New Technologies, Agi.G (Exhibit 10.30 to
the Company's Form 10-KSB dated June 30, 2000)

10.11++ Technology License Agreement between The Company,
Authentidate, Inc. and Windhorst New Technologies, Agi.G
(Exhibit 10.31 to the Company's Form 10-KSB dated June 30,
2000)

10.12 Series C Preferred Stock and Warrant Purchase Agreement
between Authentidate Holding Corp. and purchasers of Series C
Preferred Stock (Exhibit 10.1 to Form 10-Q dated May 14,
2001).

10.13 Registration Rights Agreement between Authentidate Holding
Corp. and purchasers of Series C Preferred Stock (Exhibit 10.2
to Form 10-Q dated May 14, 2001).

10.14 2000 Employee Stock Option Plan (filed as Exhibit 2 to
Definitive Proxy Statement dated February 16, 2001 as filed
with the Securities and Exchange Commission).

10.15* Form of Security Exchange Agreement entered into between
Authentidate Holding Corp., Authentidate, Inc. and certain
security holders of Authentidate, Inc.

10.16** Agreement dated May 24, 2001 between Authentidate Holding
Corp., Authentidate, Inc., Internet Venture Capital, LLC and
Nicholas Themelis.

10.17* Underlease Agreement of Authentidate, Inc. for a portion of
the 43rd Floor at 2 World Financial Center.

21* Subsidiaries of Registrant

23* Consent of PricewaterhouseCoopers, LLP

** Portions of exhibit omitted and request for confidential treatment filed with
the Commission.

53
57

AUTHENTIDATE HOLDING CORP. AND SUBSIDIARIES
VALUATIONS AND QUALIFYING ACCOUNTS SCHEDULE II

Column A Column B Column C Column D Column E

Balance at Additions Additions Charged
Beginning Charged To to Other Accounts Balance At End
Description of Period Expense (a) Deductions (b) Of Period

Allowance for doubtful accounts
Year ended June 30:
2001 . . . . . . . 410,761 152,711 (31,231) 532,241

2000 . . . . . . . 421,018 175,799 (186,056) 410,761
1999 . . . . . . . 480,229 145,983 (205,194) 421,018

Reserve for slow moving or
obsolete inventory

Year ended June 30:
2001 . . . . . . . 736,926 314,937 (263,712) 788,151
2000 . . . . . . . 275,634 593,001 (131,709) 736,926
1999 . . . . . . . 714,385 258,854 (697,605) 275,634

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

(a) Additions related to acquisition of subsidiaries
(b) Deductions due to writedowns and sales of subsidiaries

58
AUTHENTIDATE HOLDING CORP. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS (AND REPORT OF INDEPENDENT ACCOUNTANTS)

FOR THE YEARS ENDED JUNE 30, 2001, 2000 AND 1999
59
AUTHENTIDATE HOLDING CORP. AND SUBSIDIARIES
CONTENTS
--------------------------------------------------------------------------------

PAGE(S)
-------

REPORT OF INDEPENDENT ACCOUNTANTS ..................................... 1

CONSOLIDATED FINANCIAL STATEMENTS

Balance sheets ................................................. 2

Statements of operations ....................................... 3

Statements of shareholders' equity ............................. 4

Statements of cash flows ....................................... 5

Notes to consolidated financial statements ..................... 6-28

60
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of Authentidate Holding Corp.:

In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) present fairly, in all material respects, the
financial position of Authentidate Holding Corp. and its subsidiaries at June
30, 2001 and 2000, and the results of their operations and their cash flows for
each of the three years in the period ended June 30, 2001 in conformity with
accounting principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedule listed in the index
appearing under Item 14(a)(2) presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

Albany, New York
September 7, 2001, except for Note 19, as to
which the date is September 11, 2001

61
AUTHENTIDATE HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2001 AND 2000
--------------------------------------------------------------------------------

ASSETS 2001 2000

Current assets
Cash and cash equivalents $ 9,040,466 $ 7,965,496
Accounts receivable, net of allowance for doubtful accounts of
$532,241 and $410,761 at June 30, 2001 and 2000 3,574,728 4,274,148
Due from related parties 14,825 7,866
Inventories 800,404 2,352,387
Income taxes receivable -- 15,471
Prepaid expenses and other current assets 94,006 617,526
------------ ------------
Total current assets 13,524,429 15,232,894

Property and equipment, net 3,562,372 3,033,864

Other assets
Software development costs, net of accumulated amortization of
$1,469,531 and $435,885 on June 30, 2001 and 2000 1,905,613 167,059
Excess of cost over net assets of companies acquired, net 5,276,136 1,254,952
Investment in affiliated companies 1,440,854 1,350,775
Patent costs, net 86,422 44,077
Other assets 72,079 44,714
------------ ------------
Total assets $ 25,867,905 $ 21,128,335
============ ============

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable $ 2,765,606 $ 1,228,618
Current portion of long-term debt 32,926 29,515
Accrued expenses and other current liabilities 1,200,770 448,091
Due to related parties -- 103,040
Current portion of obligations under capital leases 4,970 --
Income taxes payable 633 --
------------ ------------
Total current liabilities 4,004,905 1,809,264

Long-term debt, net 1,317,515 1,351,253
Deferred grant 1,000,000 1,000,000
Obligations under capital leases, net of current portion 7,653 --
------------ ------------
Total liabilities 6,330,073 4,160,517
------------ ------------

Commitments and contingencies

Shareholders' equity
Preferred stock $.10 par value, 5,000,000 shares authorized:
Series A - 100 shares issued and outstanding at June 30, 2001
and 200 shares issued and outstanding at June 30, 2000 10 20
Series B - 48,000 shares issued and outstanding at June 30, 2001
and 50,000 shares issued and outstanding at June 30, 2000 4,800 5,000
Series C - 5,500 shares issued and outstanding at June 30, 2001 550 --
Common stock, $.001 par value; 40,000,000 shares authorized; 16,114,093
shares issued at June 30, 2001 and 14,421,758 shares issued at
June 30, 2000 16,114 14,422
Additional paid-in capital 51,634,783 38,740,271
Accumulated deficit (31,283,665) (21,715,176)
------------ ------------
20,372,592 17,044,537
Less cost of 28,082 shares of common stock in treasury at June 30, 2000 -- (76,719)
Other equity (834,760) --
------------ ------------

Total shareholders' equity 19,537,832 16,967,818
------------ ------------
Total liabilities and shareholders' equity $ 25,867,905 $ 21,128,335
============ ============

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

2
62
AUTHENTIDATE HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 2001, 2000 AND 1999
--------------------------------------------------------------------------------

2001 2000 1999

Net sales $ 17,860,544 $ 15,289,738 $ 17,094,765
Cost of goods sold 13,149,801 11,924,581 11,479,297
------------ ------------ ------------

Gross profit 4,710,743 3,365,157 5,615,468
------------ ------------ ------------

Selling, general and administrative expenses 11,950,719 8,016,192 7,765,234
Product development expenses 2,255,284 665,533 248,801
------------ ------------ ------------

Total operating expenses 14,206,003 8,681,725 8,014,035
------------ ------------ ------------
Loss from operations (9,495,260) (5,316,568) (2,398,567)
------------ ------------ ------------

Other income (expense):
Interest and other income 399,996 311,493 107,208
Interest expense (124,816) (299,994) (630,396)
Loss on sale of subsidiary -- -- (249,568)
Equity in net loss of affiliated companies (104,023) (5,715) --
------------ ------------ ------------
171,157 5,784 (772,756)
------------ ------------ ------------
Loss before income taxes (9,324,103) (5,310,784) (3,171,323)

Income tax expense (benefit) 16,000 (102) (4,835)
------------ ------------ ------------

Loss before minority interest (9,340,103) (5,310,682) (3,166,488)

Minority interest -- 36,639 --
------------ ------------ ------------

Net loss $ (9,340,103) $ (5,274,043) $ (3,166,488)
============ ============ ============

Per share amounts:
Basic and diluted loss per common share $ (.63) $ (.49) $ (.43)
============ ============ ============

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

63
AUTHENTIDATE HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED JUNE 30, 2001, 2000 AND 1999
--------------------------------------------------------------------------------

Preferred Stock Common Stock
---------------------- ------------------------
Number of $.10 Par Number of $.001 Par Paid-in
Shares Value Shares Value Capital
--------- -------- ---------- --------- ------------

Balance, June 30, 1998 200 $ 20 7,410,745 $ 7,411 $ 19,822,159
Warrants issued for non-employee services 23,967
Net loss
--------- -------- ---------- --------- ------------
Balance, June 30, 1999 200 20 7,410,745 7,411 19,846,126
Warrants issued for non-employee services 390,221
Private equity offering 50,000 5,000 1,480,000 1,480 1,890,466
Conversion of debt to equity 1,223,075 1,223 3,384,484
Exercise of stock warrants 3,753,922 3,754 10,780,447
Warrants issued for interest in Authentidate
International AG 1,119,814
Stock issued for non-employee services 72,750 73 105,641
Exercise of stock options 481,266 481 1,297,559
Investment in Authentidate, Inc. 98,861
Costs of registration (79,945)
Dividends (93,403)
Net loss
--------- -------- ---------- --------- ------------
Balance, June 30, 2000 50,200 5,020 14,421,758 14,422 38,740,271

Exercise of stock warrants 459,516 459 1,584,087
Exercise of stock options 316,626 317 198,775
Retire treasury shares (28,082) (28) 28
Convert preferred stock to common (2,000) (200) 26,667 26 174
Purchase of an equity interest in
Authentidate Inc. 917,608 918 4,243,019
Private equity offerings 5,500 550 5,204,308
Retire preferred shares (100) (10) 10
Warrants for non-employee services 204,042
Costs of registration (32,474)
Stock option compensation 1,380,694
Warrants issued to JV partner 111,849
Dividends
Loan to shareholder
Net loss
--------- -------- ---------- --------- ------------

Balance June 30, 2001 53,600 $ 5,360 16,114,093 $ 16,114 $ 51,634,783
========= ======== ========== ========= ============

Accumulated Other Treasury
Deficit Equity Stock Total Shareholders Equity
------------- ---------- ---------- -------------------------

Balance, June 30, 1998 $ (13,274,645) $ $ (76,719) $6,478,226
Warrants issued for non-employee services 23,967
Net loss (3,166,488) (3,166,488)
------------- ---------- ---------- -----------
Balance, June 30, 1999 (16,441,133) (76,719) 3,335,705
Warrants issued for non-employee services 390,221
Private equity offering 1,896,946
Conversion of debt to equity 3,385,707
Exercise of stock warrants 10,784,201
Warrants issued for interest in Authentidate
International AG 1,119,814
Stock issued for non-employee services 105,714
Exercise of stock options 1,298,040
Investment in Authentidate, Inc. 98,861
Costs of registration (79,945)
Dividends (93,403)
Net loss (5,274,043) (5,274,043)
------------- ---------- ---------- -----------
Balance, June 30, 2000 (21,715,176) (76,719) 16,967,818

Exercise of stock warrants 1,584,546
Exercise of stock options 199,092
Retire treasury shares (76,719) 76,719 --
Convert preferred stock to common --
Purchase of an equity interest in
Authentidate Inc. 4,243,937
Private equity offerings 5,204,858
Retire preferred shares --
Warrants for non-employee services 204,042
Costs of registration (32,474)

Stock option compensation (517,760) 862,934
Warrants issued to JV partner 111,849
Dividends (151,667) (151,667)
Loan to shareholder (317,000) (317,000)
Net loss (9,340,103) (9,340,103)
------------- ---------- ---------- -----------

Balance June 30, 2001 $ (31,283,665) $ (834,760) $ -- $19,537,832
============= ========== ========== ===========

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

4
64
AUTHENTIDATE HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2001, 2000 AND 1999
--------------------------------------------------------------------------------

2001 2000 1999
------------ ------------ ------------

Cash flows from operating activities
Net loss $ (9,340,103) $ (5,274,043) $ (3,166,488)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 1,814,278 916,532 637,186
Provision for doubtful accounts receivable 152,711 175,799 (60,694)
Equity in net loss of affiliated companies 104,023 -- --
Loss on sale of subsidiary -- -- 249,568
Non-cash compensation and consulting expenses 1,066,976 173,405 --
Changes in operating assets and liabilities
Accounts receivable and due from related parties 539,750 731,458 (470,349)
Inventories 1,551,983 1,472,000 (613,519)
Prepaid expenses and other current assets 516,000 (122,928) 7,409
Accounts payable, accrued expenses
and other current liabilities 2,186,627 (3,147,656) 1,561,217
Income taxes 16,104 (3,341) (8,839)
Other -- 100 --
------------ ------------ ------------
Net cash used in operating activities (1,391,651) (5,078,674) (1,864,509)
------------ ------------ ------------

Cash flows from investing activities
Purchases of property and equipment (893,181) (358,554) (2,402,661)
Trademarks acquired (27,114) (23,331) (2,500)
Patent costs (47,985) (30,796) (17,105)
Software development costs (2,764,678) (485,293) (156,293)
Investment in affiliated companies (250,000) (230,961) --
Other (4,149) -- 13,609
------------ ------------ ------------
Net cash used in investing activities (3,987,107) (1,128,935) (2,564,950)
------------ ------------ ------------

Cash flows from financing activities
Proceeds from private equity offering 5,204,858 1,896,946 --
Stock warrants exercised 1,584,546 10,784,201 --
Stock options exercised 199,092 1,298,040 --
Dividends (151,667) (93,403) --
Outside investment in Authentidate, Inc. -- 98,861 --
Costs of conversion of debt to equity -- (10,000) --
Principal payments on obligations under capital leases (3,300) -- --
Loan to shareholder (317,000) -- --
Payment of registration costs (32,474) (79,945) --
Net payments under line of credit -- (1,274,779) (398,496)
Proceeds from borrowings on long-term debt -- 165,152 1,234,493
Principal payments on long-term debt (30,327) (18,876) --
Receipt of deferred revenue from economic development grant -- 857,811 142,189
------------ ------------ ------------
Net cash provided by financing activities 6,453,728 13,624,008 978,186
------------ ------------ ------------

Net increase in cash and cash equivalents 1,074,970 7,416,399 (3,451,273)

Cash and cash equivalents, beginning of period 7,965,496 549,097 4,000,370
------------ ------------ ------------

Cash and cash equivalents, end of period $ 9,040,466 $ 7,965,496 $ 549,097
============ ============ ============

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

5
65
AUTHENTIDATE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS AND BUSINESS CONTINUITY

Authentidate Holding Corp. (AHC) and its subsidiaries Authentidate, Inc.,
Authentigraph.com, Inc., DJS Marketing Group, Inc. (DJS), and WebCMN,
Inc., collectively referred to as the "Company", are engaged in the
manufacture and distribution of document imaging systems, as well as
providing authentication software services. The Company, through DJS also
markets network integration services, internet services and related
computer hardware. AHC was formerly known as Bitwise Designs, Inc. The
name change was approved by the shareholders in March 2001.

In June 1999, AHC established a majority owned subsidiary Authentidate,
Inc. (Authentidate), to engage in a new business line of providing end
users with a service which will (a) provide a technology that can verify
the authenticity of digital images by employing a secure clock that will
date stamp the images when received providing proof of time, date and
content, (b) accept and store e-mail from networks and personal computers
throughout the world and from different operating systems via the
internet, (c) allow for confirmation of acceptance of all e-mails sent to
the system, (d) produce confirmation of receipt of e-mail. To date,
Authentidate's operations have been primarily limited to developing the
technology for its services and to develop a Retail Version and a
Business to Business Version (B to B). The Retail Version, which may be
accessed over the Internet, was in large part developed to generate
interest and to publicize the B to B version. Sales of the Retail Version
were not significant in fiscal 2001. The B to B Version is being marketed
directly to business customers and is currently available. In January
2000, Bitwise established another subsidiary, Authentigraph.com, Inc.
(Authentigraph) to provide similar authentication services to the
collectibles and sports memorabilia industries.

In 2001, the Company formed a subsidiary named WebCMN, Inc., to develop
and provide authentication software services in the medical supply
industry, for the processing of Certificates of Medical Need.

In March 2000, Authentidate, Inc. formed a joint venture known as
Authentidate International Holdings, AG, with a German company, Windhorst
New Technologies, Agi.G., to market Authentidate in countries outside of
the Americas, Japan, Australia, New Zealand and India. Authentidate
retained the rights to market the service in these territories. The
Company invested DM 250,000, which is equal to approximately $124,000 and
also granted a license to the Authentidate technology to the joint
venture vehicle. Additionally, the Company issued 250,000 Common Stock
Purchase Warrants to Windhorst in connection with the joint venture.
Windhorst contributed DM 3,000,000 to the joint venture. Authentidate,
Inc. owns 39% of the joint venture and Windhorst owns 60% of the joint
venture. The joint venture is being accounted for under the equity method
of accounting by Authentidate. In connection with this investment,
Authentidate recorded an excess of cost over the underlying equity in the
net assets which is included in investments in affiliated companies on
the balance sheet in the amount of approximately $727,000, which is being
amortized over a period of five years. In fiscal year ended 2001,
warrants issued to Windhorst with a value of $111,849 resulted in
additional excess of cost over the underlying equity in net assets.
Amortization expense for the year ended June 30, 2001 and 2000
approximated $167,000 and $-0-, respectively. The Company's share of net
losses in this joint venture approximated $99,000 and $6,000 in 2001 and
2000, respectively.

6
66
AUTHENTIDATE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS AND BUSINESS CONTINUITY

In May 2001, the Company became a 50% owner in a joint venture known as
Authentidate SE (SE) with outside partners to provide the same services
as Authentigraph was intended to provide. As a result, Authentigraph, a
nominally capitalized wholly-owned subsidiary, will be phased out. The
Company contributed $250,000, while the outside partners contributed in
the aggregate $250,000 of equipment and other consideration to SE. The
Company is required to contribute an additional $750,000 subject to
certain conditions being met as defined in the joint venture agreement.
The Company is accounting for the activities of the joint venture under
the equity method of accounting. The Company's share of net losses in
this joint venture in 2001 approximated $5,000.

During the fiscal year ended June 30, 2001 the Company incurred a net
loss of $9,340,103, and cash used in operating activities totaled
$1,396,219. The Company's available cash balance at June 30, 2001 totaled
approximately $9,000,000. To date, the Company has been largely dependent
on its ability to sell additional shares of its common stock or other
financing to fund its operating deficits. Under its current operating
plan to obtain a national acceptance of the DocStar product line and to
introduce the new Authentidate technology, the Company's ability to
improve operating cash flow is highly dependent on the market acceptance
of its products and the Company's ability to reduce overhead costs. If
the Company is unable to attain projected sales levels for Authentidate,
DocStar and other products, or is unable to implement cost reduction
strategies, it may be necessary to raise additional capital to fund
operations and meet its obligations. There is no assurance that such
funding will be available, if needed.

PURCHASE MINORITY INTEREST OF AUTHENTIDATE, INC.

In fiscal year ended June 30, 2001, the Company issued 917,608 shares of
Authentidate Holding Corp. common stock (valued at approximately
$4,200,000) to acquire approximately 25% of the outstanding shares not
owned by AHC of Authentidate, Inc. As of June 30, 2001, the Company owns
approximately 98% of Authentidate, Inc. The acquisition of the minority
interest has been accounted under the purchase method of accounting. The
excess purchase price which approximates $4,200,000 was being amortized
over a 5-year period. Beginning July 1, 2001, the Company will no longer
be amortizing goodwill (see "New accounting pronouncements").

In connection with the aforementioned transaction, the Company's CEO was
granted options to acquire 444,668 shares of Company common stock with an
intrinsic value of approximately $1,380,000. The intrinsic value is being
amortized over the 12 month vesting period. At June 30, 2001, the
unearned compensation balance, which approximated $518,000, is classified
as a reduction to shareholders' equity under the caption "Other equity"
in the consolidating balance sheet.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of AHC and its
subsidiaries. The accounts of the subsidiaries have been consolidated
since the acquisition date. All material intercompany balances and
transactions have been eliminated in consolidation.

7
67
AUTHENTIDATE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

CASH EQUIVALENTS

The Company considers all highly liquid debt instruments with original
maturities not exceeding three months to be cash equivalents. At June 30,
2001 and 2000, cash equivalents were composed primarily of investments in
commercial paper and overnight interest bearing deposits.

INVENTORIES

Inventories are stated at the lower of average cost or market. In the
prior fiscal year, the Company increased its reserve for obsolescence by
$405,817 in the fourth quarter of the year ended June 30, 2000 due to
DocStar model upgrades and improvements which raised the uncertainty of
marketability of certain outdated DocStar components.

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). However,
because of market uncertainty the software development costs related to
the Authentidate Retail Version were fully amortized during the fourth
quarter of the fiscal year ended June 30, 2000. Software development
costs capitalized during 2001 and 2000 amounted to $2,772,200 and
$522,903, respectively. Amortization expense related to software
development costs for the years ended June 30, 2001, 2000 and 1999 was
$1,033,646, $485,837 and $114,692, respectively. These expenses are
included in product development expenses.

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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

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 periods ranging from 5 to 20
years through June 30, 2001. However, beginning in the fiscal year ending
June 30, 2002, the Company will apply SFAS No. 142 (see new accounting
pronouncements under footnote 1).

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 2001, 2000 and 1999 was $222,753, $86,287 and $81,287,
respectively. Accumulated amortization at June 30, 2001 and 2000 was
$758,789 and $368,289, 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 persuasive evidence
of an arrangement exists, delivery has occurred, the selling price is
fixed and collectibility is reasonably assured. Service revenue is
recognized as it is earned. The Company provides a one year warranty on
products it manufactures. On products distributed for other
manufacturers, the original manufacturer warranties the product. Warranty
expense was not significant to any of the years presented.

NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," as
amended, which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded
in other contracts, and for hedging activities. The Company adopted SFAS
No. 133 on July 1, 2001. Since the Company has not yet entered into any
derivative instruments, the adoption of this standard is not expected to
have a material effect on the Company's financial condition, results of
operations or cash flows.

In December 1999, the SEC issued Staff Accounting Bulletin No. 101 (SAB
101), "Revenue Recognition in Financial Statements." SAB 101 summarizes
certain of the SEC's views in applying generally accepted accounting
principles to revenue recognition in financial statements. The Company
adopted SAB 101 in the quarter ended June 30, 2001, such adoption did not
have a material effect on the Company's financial condition, results of
operations or cash flows.

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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

NEW ACCOUNTING PRONOUNCEMENTS, CONTINUED

In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions
Involving Stock Compensation - an interpretation of APB Opinion No. 25."
FIN 44 clarifies the application of APB Opinion No. 25 and, among other
issues clarifies the definition of an employee for purposes of applying
APB Opinion No. 25, the criteria for determining whether a plan qualifies
as a non-compensatory plan; the accounting consequence of various
modifications to the terms of previously fixed stock options or awards,
and the accounting for an exchange of stock compensation awards in a
business combination. FIN 44 is effective July 1, 2000, but certain
conclusions in FIN 44 cover specific events that occurred after either
December 15, 1998 or January 12, 2000. The Company has applied the
applicable provisions of FIN 44 which did not have a material effect on
the Company's financial condition, results of operations or cash flows.

On June 29, 2001, Statement of Financial Accounting Standards (SFAS) No.
141, "Business Combinations," was approved by the Financial Accounting
Standards Board (FASB). SFAS No. 141 requires the purchase method of
accounting to be used for all business combinations initiated after June
30, 2001. The Company does not expect the adoption of this Standard to
have a material effect on its financial condition, results of operations
or cash flows.

On June 29, 2001, SFAS No. 142, "Goodwill and Other Intangible Assets"
was approved by the FASB. SFAS No. 142 changes the accounting for
goodwill from an amortization method to an impairment-only approach.
Amortization of goodwill, including goodwill recorded in past business
combinations, will cease upon adoption of this statement. The Company
plans to adopt SFAS No. 142 effective July 1, 2001. The Company is
currently assessing, but has not yet determined the entire impact of SFAS
142 on its financial position, results of operations or cash flows.

ADVERTISING EXPENSES

The Company recognizes advertising expenses as incurred. Advertising and
promotion expense for 2001, 2000 and 1999 was approximately $835,000,
$1,363,000 and $331,000, respectively. Included in prepaid expenses and
other current assets are approximately $250,000 at June 30, 2000, related
to prepaid advertising costs.

USE OF ESTIMATES

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

RECLASSIFICATIONS

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

FOURTH QUARTER ADJUSTMENTS DURING FISCAL YEAR ENDED JUNE 30, 1999

During the fourth quarter of 1999, the Company recorded an adjustment
increasing its net loss for sales made with the right of return by
approximately $1,350,000 for which income will not be recognized until
sale of the product by the customer. Additionally, a reserve of
approximately $186,000 was recorded for claims arising from the sale of
SST.

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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

COMPREHENSIVE INCOME

No statement of comprehensive income has been included in the
accompanying financial statements since the Company does not have any
comprehensive income to report.

2. LOSS PER SHARE

The following is basic and diluted loss per common share information:

2001 2000 1999

Net loss $ (9,340,103) $ (5,274,043) $ (3,166,488)
Preferred stock dividends (151,667) (93,403) --
------------ ------------ ------------

Net loss applicable to common
shareholders $ (9,491,770) $ (5,367,446) $ (3,166,488)
============ ============ ============

Weighted average shares 15,013,135 10,953,284 7,410,745
Basic and diluted loss per
common share (.63) (.49) (.43)

Options, warrants and convertible preferred stock were antidilutive to
the calculation of dilutive loss per share, and were accordingly excluded
from the calculation.

3. INVENTORIES

Inventories at June 30, 2001 and 2000 consist of:

2001 2000

Purchased components and raw materials $ 520,915 $1,608,034
Finished goods 279,489 744,353
---------- ----------
$ 800,404 $2,352,387
========== ==========

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4. PROPERTY AND EQUIPMENT

Property and equipment at June 30, 2001 and 2000 consist of the
following:

ESTIMATED
USEFUL LIFE
2001 2000 IN YEARS

Building $ 1,614,611 $ 1,611,325 40
Land 698,281 698,281 N/A
Machinery and equipment 2,478,377 1,682,716 3-6
Demonstration and rental computers 125,732 188,792 5-6
Furniture and fixtures 229,882 262,599 5-7
Leasehold improvements 17,613 11,198 5
Vehicles 15,090 15,090 5
----------- ------------
5,179,586 4,470,001
Less accumulated depreciation and
Amortization (1,617,214) (1,436,137)
----------- ------------

$ 3,562,372 $ 3,033,864
=========== ============

In June 1999, the Company completed construction of a new
office/production facility in Schenectady, New York for approximately
$2,300,000. The Company was awarded a grant totaling $1,000,000 from the
Empire State Development Corporation (an agency of New York State) to be
used towards the construction of the facility. The funding was received
in stages as costs are incurred and submitted for reimbursement. The
grant stipulates that the Company is obligated to achieve certain annual
employment levels at the new site between January 1, 2002 and January 1,
2005 or some or all of the grant will have to be repaid. As of June 30,
2000, $1,000,000 had been received and is recorded as deferred revenue.
The remainder of the financing for the new facility, totaling
approximately $1,400,000, was provided by a local financial institution
in the form of a mortgage loan (See Note 6).

Depreciation and amortization expense on property and equipment for the
years ended June 30, 2001, 2000 and 1999 was $377,832, $274,148 and
$230,127, respectively.

5. LINE OF CREDIT

The Company's subsidiary DJS had a line of credit in the amount of
$625,000, of which $-0- and $602,293 was outstanding at June 30, 2001 and
2000. This facility which was a wholesale inventory credit facility was
cancelled during the year ended June 30, 2001. DJS secured additional
credit limits from its vendors and is not expected to be affected by this
cancellation. The line was non-interest bearing and payment terms were
net 40. The line was collateralized by all assets of DJS. This facility
is included with accounts payable on the balance sheet on June 30, 2000.

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6. LONG-TERM DEBT

Long-term debt at June 30, 2001 and 2000 consists of the following:

2001 2000

Mortgage payable with Central National Bank in the
original amount of $1,400,000 with interest,
adjusted every five years, equal to the five-year
Treasury Bill rate plus 2.5%, not to be less than
8.25% (8.25% at June 30, 2001), payable in monthly
installments through October 2019. The mortgage is
collateralized by a first mortgage lien on the
Company's headquarters. $ 1,350,441 $ 1,380,768

Less current portion (32,926) (29,515)
----------- -----------
Long-term debt, net of current portion $ 1,317,515 $ 1,351,253
=========== ===========

The aggregate principle maturities of long-term debt for each of the
subsequent five years and thereafter are as follows:

2002 $ 32,926
2003 35,747
2004 38,810
2005 42,136
2006 45,747
Thereafter 1,155,075
--------------

$ 1,350,441
==============

7. INCOME TAXES

Income tax expense (benefit) for the years ended June 30, 2001 and 2000
consists of currently payable state and local income taxes.

At June 30, 2001, the Company has federal net operating loss
carryforwards for tax purposes approximating $28,085,000. The years in
which the net operating loss carryforwards expire are as follows:
2002-$48,000; 2003-$3,000; 2004-$6,000; 2008-$1,568,000; 2009-$867,000;
2011-$2,762,000; 2012-$686,000, 2013-$3,197,000, 2019-$1,350,000,
2020-$7,698,000, and 2021 - $9,900,000.

Because of significant changes in ownership during the year, the use of
net operating loss carryforwards may be subject to limitation.

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7. INCOME TAXES, CONTINUED

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

2001 2000 1999

Computed expected tax benefit $(3,170,195) $(1,805,666) $(1,078,250)
Increase in valuation allowance 3,008,814 1,550,443 1,198,438
Nondeductible goodwill amortization 136,770 27,638 27,638
Adjustment to prior years' taxes 24,871 220,104 (167,436)
State income taxes, net of federal benefit 10,560 (67) (3,191)
Other nondeductible expenses 9,180 7,446 17,966
----------- ----------- -----------

$ 16,000 $ (102) $ (4,835)
=========== =========== ===========

The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities as of June 30, 2001, 2000 and 1999
are presented below:

2001 2000

Deferred income tax asset:
Allowance for doubtful accounts $ 180,162 $ 139,659
Inventories, principally due to additional costs
inventoried for tax purposes pursuant to the
Tax Reform Act of 1986 and inventory reserves 363,784 202,715
Other liabilities 214,235 165,802
Deferred revenue 15,786 53,607
Net operating loss carryforward 9,548,781 6,182,781
------------ ------------
Total gross deferred tax assets 10,323,548 6,744,564
Less valuation allowance (9,654,531) (6,645,717)
------------ ------------
Net deferred tax asset 669,017 98,847
Deferred income tax liability:
Software development costs (647,908) (79,438)
Equipment, principally due to differences in
depreciation methods (21,109) (19,409)
------------ ------------

Net deferred income taxes $-0- $-0-
============ ============

The Company has recorded a full valuation allowance against its deferred
tax asset since it believes it is more likely than not that such deferred
tax asset will not be realized.

The valuation allowance for deferred tax assets as of July 1, 2001 and
2000 was $9,654,531 and $6,645,717, respectively. The net change in the
total valuation allowance for the years ended June 30, 2001 and 2000 was
an increase of $3,008,814 and $1,550,443, respectively.

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8. LEASE COMMITMENTS

The Company is obligated under operating leases and capital leases for
certain equipment and facilities expiring at various dates through the
year 2006.

As of June 30, 2001, future minimum payments by year, and in the
aggregate, noncancelable operating leases with initial terms of one year
or more consist of the following:

CAPITAL OPERATING
LEASES LEASES

Fiscal year ending June 30:

2002 $ 6,242 $ 351,073
2003 6,242 301,834
2004 2,081 315,766
2005 -- 308,175
2006 -- 229,474
----------- -----------
14,565 $ 1,506,322
===========

Amounts representing interest (1,942)
-----------

Present value of net minimum lease payments 12,623
Less current portion (4,970)
-----------

Long-term portion $ 7,653
===========

Rental expense was approximately $272,000, $69,000 and $216,000 for the
years ended June 30, 2001, 2000 and 1999, respectively.

9. PREFERRED STOCK

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

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9. PREFERRED STOCK, CONTINUED

The Board of Directors has designated 200 shares of preferred stock as
Series A Preferred stock, of which 100 shares have been issued to the
chairman/chief executive officer of the Company. The holder of the Series
A Preferred Stock have the right to elect a majority of the Board of
Directors as long as the holder remains, subject to certain conditions,
an officer, director and at least 5% shareholder of the Company. To date,
the holder of the Series A Preferred Stock has not exercised such right.
The holder of the Series A Preferred Stock has a preference on
liquidation of $1.00 per share and no dividend or conversion rights. See
Footnote 17.

10. STOCK OPTION PLANS AND STOCK WARRANTS

A) 2000 AND 1992 EMPLOYEES STOCK OPTION PLANS

In March 2001, the shareholders approved the 2000 Employees Stock Option
Plan ("the 2000 Plan") which provided for the grant of options to
purchase up to 5,000,000 shares of the Company's Common Stock. The
Company's shareholders were asked to adopt the 2000 Plan since there were
no additional shares available for issuance under the 1992 Plan and the
1992 will expire in 2002 and shareholder approval would have been
required to increase the number of shares subject to the 1992 Plan. In
2001, the Company filed a registration statement with the SEC to register
the shares issued under the 2000 Plan.

The 1992 Employees Stock Option Plan (the "1992 Plan") provided for the
grant of options to purchase 3,000,000 shares of the Company's common
stock.

Under the terms of the two Plans, options granted thereunder may be
designated as options which qualify for incentive stock option treatment
("ISO") under Section 422 of the Internal Revenue Code, or options which
do not so qualify ("non-ISOs").

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

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10. STOCK OPTION PLANS AND STOCK WARRANTS, CONTINUED

A) 2000 AND 1992 EMPLOYEES STOCK OPTION PLANS, CONTINUED

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 May 2002 and the
2000 Plan will expire in the year 2010.

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

Outstanding at July 1, 1998 2,338,870 $2.99
Options granted equal to market price 50,500 1.39
Options canceled or surrendered (404,500) 3.48
----------

Outstanding at July 1, 1999 1,984,870 2.99
Options granted equal to market price 1,337,000 1.39
Options exercised (801,529) 2.93
Options canceled or surrendered (334,168) 3.48
----------

Outstanding at June 30, 2000 2,186,173 5.67
Options granted equal to market price 1,863,532 4.93
Options granted lower than market price 444,668 1.52
Options exercised (61,733) 2.93
Options canceled or surrendered (247,935) 5.86
----------

Outstanding at June 30, 2001 4,184,705 4.93
==========

The following is a summary of the status of employee stock options at
June 30, 2001:

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

$1.25 - $5.00 2,724,705 4.0 $3.76 1,029,664 $2.95
$5.01 - $11.25 1,460,000 3.9 7.11 1,083,333 6.82

As of June 30, 2001 and 2000, 2,112,997 shares and 1,726,817 shares,
respectively, were exercisable under the 2000 and 1992 Employees Stock
Option Plan.

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

The exercise price for options granted under the Director Plan is 100% of
the fair market value of the common stock on the date of grant. The "fair
market value" is the closing NASDAQ bid price, or if the Company's common
stock is not quoted by NASDAQ, as reported by the National Quotation
Bureau, Inc., or a market maker of the Company's common stock. If the
common stock is not quoted by any of the above the Board of Directors
acting in good faith will determine fair market value. Until otherwise
provided in the Stock Option Plan, the exercise price of options granted
under the Director Plan must be paid at the time of exercise, either in
cash, by delivery of shares of common stock of the Company (owned at
least 6 months) 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.

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10. STOCK OPTION PLANS AND STOCK WARRANTS, CONTINUED

B) NON-EXECUTIVE DIRECTOR STOCK OPTION PLAN, CONTINUED A schedule of
director stock option activity is as follows:

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

Outstanding June 30, 1998 140,000 3.67
Options granted equal to market price 50,000 1.00
Options cancelled or surrendered (60,000) 3.70
--------

Outstanding June 30, 1999 130,000 2.54
Options granted equal to market price 50,000 0.89
Options cancelled or surrendered (10,000) 5.13
Options exercised (40,000) 1.83
--------

Outstanding June 30, 2000 130,000 1.92
Options granted equal to market price 30,000 .84
Options exercised (20,000) .92
--------

Outstanding June 30, 2001 140,000 2.68
========

The options range in exercise price from $.84 to $4.81 per share and have
a weighted average remaining contractual life of 2.4 years.

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10. STOCK OPTION PLANS AND STOCK WARRANTS, CONTINUED

C) COMMON STOCK WARRANTS

A schedule of common stock warrant activity is as follows:

NUMBER WARRANT
OF PRICE
SHARES PER SHARE

Outstanding July 1, 1998 2,766,995 $4.07
Warrants granted equal to market price 232,000 3.02
Warrants cancelled or surrendered (100,000) 7.50
----------
Outstanding June 30, 1999 2,898,995 3.88
Warrants granted equal to market price 970,000 4.67
Warrants granted greater than market price 2,949,999 2.44
Warrants granted lower than market price 25,000 3.00
Warrants cancelled or surrendered (30,000) 5.00
Warrants exercised (3,788,517) 3.11
----------

Outstanding June 30, 2000 3,025,477 3.87

Warrants granted equal to market price 106,667 2.33
Warrants granted greater than market price 184,780 5.57
Warrants granted lower than market price 314,000 5.19
Warrants cancelled or surrendered (258,806) 4.60
Warrants exercised (463,668) 3.47
----------

Outstanding June 30, 2001 2,908,450 4.14
==========

In May 2001 the Company issued 114,000 common stock purchase warrants to
two foreign institutions and 150,000 common stock purchase warrants to
investment bankers as professional fees related to two private equity
financings further described in Footnote 17.

In October 1999, the Company issued 2,479,999 detachable common stock
purchase warrants in connection with a private equity financing further
described in Footnote 17. Other warrants issued during the years ended
June 30, 2001, 2000 and 1999 were generally to various firms and
individuals providing services to the Company.

The following is a summary of the status of common stock warrants at June
30, 2001:

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

$1.37 - $4.00 1,648,003 3.2 $1.56 1,648,003 $1.50
$4.01 - $13.04 1,260,447 12.2 7.50 1,260,447 7.50

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10. STOCK OPTION PLANS AND STOCK WARRANTS, CONTINUED

D) OPTION VALUATION

The weighted average fair value of each option granted under the
Company's option plans during fiscal 2001, 2000 and 1999 was $2.90, $5.21
and $2.79, respectively. These amounts were determined using the Black
Scholes option-pricing model, which values options based on the stock
price at the grant date, the expected life of the option, the estimated
volatility of the stock, expected dividend payments and the risk-free
interest rate over the expected life of the option. The dividend yield
was zero in 2001 and 2000. The expected volatility was based on the stock
prices for the period beginning in May 1992 when the Company completed
its first public offering. The expected volatility was 91.6% and 94.2%
for 2001 and 2000, respectively. The risk-free interest rate was the rate
available on zero coupon U.S. government issues with a term equal to the
remaining term for each grant. The risk free rate was 5.1% in 2001,
ranged from 6.3% to 6.5% in 2000 and ranged from 4.3% to 5.4% in 1999,
respectively. The expected life of the option was estimated based on the
exercise history from previous grants and is estimated to be five years.

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

2001 2000 1999

Net loss
As reported $ (9,340,103) $ (5,274,043) $ (3,166,488)
Pro forma (12,869,273) (5,599,269) (3,372,745)

Basic and diluted loss per share
As reported $ (.63) $ (.49) (.43)
Pro forma (.86) (.51) (.46)

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

11. COMMITMENTS - EMPLOYMENT AGREEMENTS AND CONTINGENCIES

In January, 2000, the Company entered into a new three year employment
agreement with its Chief Executive Officer, expiring on January 1, 2003.
The agreement provides for (i) a base salary of $250,000 in the first
year of the agreement increasing by 10% in each year thereafter; (ii) a
bonus equal to 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) certain insurance and severance benefits; and (iv)
automobile and expenses.

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11. COMMITMENTS - EMPLOYMENT AGREEMENTS AND CONTINGENCIES, CONTINUED

In July 2000, Authentidate, Inc. entered into an employment agreement
with its new Chief Executive Officer for a three year term. The
employment agreement provides for (i) annual salary of $250,000, (ii)
annual bonus up to $200,000 with a minimum bonus of $80,000 paid with the
regular payroll during the first year, (iii) a severance agreement equal
to 12 months salary in the event the Company terminates this agreement
without cause, (iv) the award of Authentidate common shares equal to 5%
of the shares outstanding on the date of the employment agreement,
vesting in equal amounts over a four-year period commencing one year from
the date of the agreement, and (v) the award of employee stock options to
purchase 200,000 Authentidate Holding Corp. common shares vesting in
equal amounts over a four-year period, at an exercise price of $6.3125
per share.

In October 2000, the Company entered into an employment agreement with
its Chief Financial Officer which provides for (i) annual salary of
$100,000 increasing to $110,000 on January 1, 2001 (ii) annual increases
every October to be determined by the Compensation Committee (iii)
eligible for annual bonuses at the discretion of Compensation Committee
(iv) a severance agreement equal to 12 months' salary and (v) the award
of Authentidate Inc. stock options equal to 1.25% of the stock
outstanding convertible in AHC stock options at such time that the
shareholders approve such conversion.

The Company is in a contractual dispute with a former service provider
who is also a shareholder. Included in accrued expenses and other current
liabilities is management's estimate of the approximate cost to settle
the contractual dispute.

The Company is the defendant in a third party complaint filed by Shore
Venture Group, LLC, a shareholder, in federal District Court in
Pennsylvania. Shore Venture is the defendant in an action commenced by
Berwyn Capital. The third party complaint alleges a claim for breach of
contract and seeks indemnification. The Company moved to dismiss the
third party complaint and the motion is currently pending before the
Court. The Company believes that the claim will not have a material
adverse impact on its, financial condition, results of operations or
cash flows.

12. CASH FLOWS - SUPPLEMENTAL INFORMATION

CASH FLOWS

The Company paid interest in the amounts of $115,323, $364,954 and
$451,387 for the years ended June 30, 2001, 2000 and 1999, respectively.
Income taxes paid aggregated $230, $133 and $4,304 for the years ended
June 30, 2001, 2000 and 1999, respectively.

NONCASH INVESTING AND FINANCING ACTIVITIES

During the fiscal year ended June 30, 2000, the Company issued 1,223,075
common shares of the Company's stock pursuant to the conversion of
$3,975,000 of convertible debt into common stock.

During the fiscal year ended June 30, 2001, the Company issued 917,608
shares of its common stock with a value approximating $4,200,000, to
acquire a portion of the remaining minority interest of Authentidate,
Inc. In addition, the Company entered into capital lease obligations
totaling $15,923. Furthermore, the Company issued 28,082 shares of common
stock out of treasury (totaling $76,719) in connection with preferred
stock being converted into common stock.

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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 can make contributions in percentages of compensation, or amounts
as determined by the Company. The Company contributed $111,869, $25,878
and $0 to the plan during the years ended June 30, 2001, 2000 and 1999,
respectively.

14. SALE OF BUSINESS

In June 1999, the Company sold SST in a stock sale. The Company received
approximately $3.6 million in cash and approximately $400,000 in accounts
receivable and inventory. In 2000, the Company received certain claims
from the buyer of SST for indemnification under the agreements governing
its sale. A settlement was negotiated and the Company agreed to pay the
buyer $341,000 to be paid monthly over fifteen months accruing interest
at 6%. This required an additional reserve of approximately $250,000
which was recorded in 1999 related to these claims. The Company realized
a loss of approximately $505,000 on the sale. In March 2000, the Company
agreed to pay off the settlement in full for a $10,000 discount off the
original settlement of $341,000.

15. 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.

At June 30, 2001, accounts receivable from one customer approximated 31%
of total accounts receivable.

FAIR VALUE

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

CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLE, ACCOUNTS PAYABLE AND
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

The carrying amount of cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses and other current liabilities
approximates fair value because of the short maturity of these
instruments.

LONG-TERM DEBT

The remaining balance of long-term debt approximates fair value based on
its discounted face amount. Consequently, the carrying value of the
borrowings under long-term debt approximates fair value.

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16. SEGMENT REPORTING

SFAS 131 establishes standards for reporting financial and descriptive
information about an enterprise's operating segments in its annual
financial statements and selected segment information in interim
financial reports.

The Company has four reportable segments: Bitwise, a document imaging
company, DJS Marketing Group, Inc. (DJS), a computer systems integrator,
Authentidate, Inc., an Internet authentication company, and
Authentigraph.com, Inc., a collectibles authentication company. Bitwise
produces a product called DocStar which is a document storage and
retrieval business and DJS markets computer services including network
services, internet services and software installation and integration. In
addition, DJS sells a complete line of personal computers and peripheral
equipment. Authentidate and Authentigraph market digital authentication
services over the Internet.

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

The Company's reportable segments are separate divisions which are
managed separately. Included in the All Other column in the year ended
June 30, 2001 are the Company's other three subsidiaries, Authentidate,
Authentigraph, and WebCMN. Included in the All Other column for the year
ended June 30, 2000 are Authentidate and Authentigraph. The corporate
expenses are non-operating expenses which include all public company type
expenses and applies to all of the Company's operating segments and
therefore should be segregated.

Segment Information: DOCSTAR DJS ALL OTHER TOTALS
------------ ------------ ------------ ------------

2001
Revenues from external customers $ 6,239,579 $ 11,620,407 $ 558 $ 17,860,544
Intersegment revenues 428,488 428,488
Interest and other revenue 397,644 2,352 399,996
Interest expense 112,784 12,032 124,816
Depreciation and amortization 412,217 58,468 1,120,840 1,591,525
Segment profit/(loss) (295,680) 385,283 (4,954,729) (4,865,126)
Segment assets 18,777,015 3,372,212 3,746,305 25,895,532

2000
Revenues from external customers $ 5,589,830 $ 9,699,764 $ 144 $ 15,289,738
Intersegment revenues 249,943 249,943
Interest and other revenue 313,084 87 313,171
Interest expense 292,600 7,394 299,994
Depreciation and amortization 358,478 48,858 124,867 532,203
Segment profit/(loss) (1,177,239) 231,357 (2,342,198) (3,288,080)
Segment assets 16,675,343 2,637,368 1,827,971 21,140,682

1999
Revenues from external customers $ 7,674,451 $ 9,420,314 $ $ 17,094,765
Intersegment revenues 116,680 116,680
Interest and other revenue 107,208 107,208
Interest expense 595,345 35,051 630,396
Depreciation and amortization 586,591 50,595 637,186
Segment profit/(loss) (2,178,372) 392,854 (1,785,518)
Segment assets 11,831,310 2,667,161 14,498,471

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16. SEGMENT REPORTING, CONTINUED

RECONCILIATIONS 2001 2000 1999
---- ---- ----

Revenues

Total revenues for reportable segments $ 18,289,032 $ 15,539,681 $ 17,211,445
Elimination of intersegment revenues (428,488) (249,943) (116,680)
------------ ------------ ------------

Total consolidated revenues $ 17,860,544 $ 15,289,738 $ 17,094,765
============ ============ ============

Profit or (loss)
Total profit or loss for reportable segments $ (4,865,126) $ (3,288,080) $ (1,785,518)
Product development expenses (2,255,284) (665,533) (248,801)
Corporate expenses (2,188,413) (1,358,311) (903,356)
Loss on sale of subsidiary -- -- (249,568)
Elimination of intersegment profits (15,280) 1,140 15,920
------------ ------------ ------------

Loss before income taxes $ (9,220,080) $ (5,305,069) $ 3,171,323
============ ============ ============

Assets

Total assets for reportable segments $ 25,895,532 $ 21,140,682 $ 14,498,471
Elimination of intersegment profit (27,627) (12,347) (13,487)
------------ ------------ ------------

Consolidated total assets $ 25,867,905 $ 21,128,335 $ 14,484,984
============ ============ ============

17. PRIVATE EQUITY OFFERINGS

In 2001, the Company, in two separate transactions closed on the sale of
$5,500,000 of its securities to two foreign institutions pursuant to
Regulation S, promulgated under the Securities Act of 1933, as amended.
In the transactions, the Company sold 5,500 of its Series C Convertible
Preferred Stock, with a dividend rate of 4%, payable in either cash or
Company Common Stock to the foreign institutions convertible at $4.845
per share and five year warrants to purchase 114,000 shares of Common
Stock exercisable at $4.845 per share. The conversion price is not
subject to resets or adjustments for changes in the market price of the
Company's common stock. The right of conversion incorporated into the
Series C Preferred Stock constitutes a beneficial conversion feature
which was determined to have a value of approximately $1,465,000. The
beneficial conversion feature is being amortized as a preferred stock
dividend over a one year period commencing July 1, 2001 using the
effective interest method. The Company received net proceeds of
approximately $5,200,000 from the transaction after paying commissions
and expenses. The securities sold in this offering are restricted
securities under the terms of Regulation S and may not be transferred or
resold in the United States for a period of one year, except pursuant to
registration under the Securities Act or an exemption thereunder. The
Company has agreed to register the shares underlying the Series C
Preferred Stock and Warrants for public distribution in the United States
within 180 days from the closing. The Company intends to continue to seek
additional funds which may be raised through public or private financing
and may include debt or equity securities.

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17. PRIVATE EQUITY OFFERINGS, CONTINUED

During fiscal 2000, the Company closed three concurrent private
offerings. In the first offering, the Company sold 740,000 units at an
aggregate offering price of $740,000, each unit consisting of two shares
of common stock and two Series B common stock purchase warrants (the
"Series B Warrants"). The Series B Warrants entitle the holder to
purchase one share of common stock at an exercise price of $1.375 per
share during the offering period commencing on the date of issuance and
terminating five years thereafter. The Series B warrants are redeemable
at any time commencing one year after issuance at the option of the
Company with not less than 30 nor more than 60 days written notice to the
registered holders at a redemption price of $.05 per warrant provided;
(i) The public sale of the shares of common stock issuable upon exercise
of the Series B warrants are covered by a tentative registration
statement; and (ii) During each of the immediately preceding 20
consecutive trading days ending within 10 days of the date of the notice
of redemption, the closing bid price of the Company's common stock is at
least $3.25 per share.

In the second offering, the Company sold 50,000 shares of a newly created
class of Series B convertible cumulative preferred stock (the "Series B
Preferred Stock"). The Series B preferred stock was sold at $25.00 per
share for an aggregate offering price of $1,250,000. Dividends on the
Series B Preferred Stock are payable at the rate of 10% per annum,
semi-annually in cash. Each share of Series B Preferred Stock is
convertible into shares of the Company's common stock or is converted
into such number of shares of the common stock as shall equal $25.00
divided by the conversion price of $1.875 per share subject to adjustment
under certain circumstances. Commencing three years after the closing,
the conversion price shall be the lower of $1.875 per share or the
average of the closing bid and asked price of the Company's common stock
for the 10 consecutive trading days immediately ending one trading day
prior to the notice of the date of conversion; provided, however, that
the holders are not entitled to convert more than 20% of the Series B
preferred shares held by such holder on the third anniversary of the date
of issuance per month. The Series B Preferred Stock is redeemable at the
option of the Company at any time commencing one year after issuance or
not less than 30 nor more than 60 days written notice at a redemption
price of $25 per share plus accrued and unpaid dividends provided; (i)
the public sale of the shares of common stock issuable upon conversion of
the Series B preferred Stock (the "Conversion Shares") are covered by an
effective registration statement or are otherwise exempt from
registration; and (ii) during the immediately preceding 20 consecutive
trading days ending within 10 days of the date of the notice of
redemption, the closing bid price of the Company's Common Stock is not
less than $3.75 per share.

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

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17. PRIVATE EQUITY OFFERING, CONTINUED

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

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

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

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

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

The Company received gross proceeds of approximately $2,100,000,
approximately $1,900,000 after expenses. The Company utilized the
proceeds of the three offerings as follows: approximately $600,000 was
utilized to repay a portion of the Company's line of credit;
approximately $160,000 was utilized to make a past due interest payment
on the Company's outstanding 8% convertible notes, and the remainder was
reserved for working capital.

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18. LOAN - RELATED PARTY

During fiscal 2001, the Company loaned its CEO/shareholder $317,000 at 9%
per annum. The loan, which is due January 5, 2003, has been classified as
a reduction to shareholders' equity under the caption "Other equity" in
the consolidated balance sheet.

19. SUBSEQUENT EVENTS

On September 11, 2001 the World Trade Center (WTC) was attacked by
terrorists and destroyed. The Company's Authentidate subsidiary was
located in the World Financial Center which is located near the WTC. All
our employees safely exited the building the day of the crash. The
Company currently can not enter its offices in New York City and does not
know when the World Financial Center will be repaired and reopened. The
Company is currently searching for alternative space in the New York
Metropolitan area. The Authentidate Web hosting site is maintained by
AT&T and was not affected by these events and remained fully operational
and generating revenue the day of the disaster and its aftermath. The
Company believes it has sufficient insurance to cover all extra expenses
incurred as a result of this temporary relocation of personnel and does
not expect these events to materially affect its operations.

20. QUARTERLY DATA FINANCIAL (UNAUDITED)

FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------

Fiscal year ended June 30, 2001
Net sales $ 4,483,479 $ 4,034,523 $ 4,383,397 $ 4,959,145
Gross profit 1,307,177 1,168,192 1,046,232 1,189,142
Net loss (1,575,896) (1,623,016) (2,976,080) (3,165,111)
Loss per share (0.11) (0.11) (0.20) (0.21)

Fiscal year ended June 30, 2000
Net sales $ 3,071,766 $ 4,720,317 $ 3,731,227 $ 3,766,428
Gross profit 589,443 1,372,433 1,004,797 1,046,232
Net loss (1,107,490) (126,619) (1,141,412) (2,898,522)
Loss per share (0.15) (0.01) (0.09) (0.24)