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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: SEPTEMBER 30, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-20190
AUTHENTIDATE HOLDING CORP.
(Exact name of small business issuer as specified in its charter)
Delaware 14-1673067
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
2165 Technology Dr., Schenectady, NY, 12308
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (518) 346-7799
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the issuer (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes [X] No [ ]
19,972,480 shares of Common Stock, par value $.001 per share, were
outstanding at November 8, 2002.
Page 1
AUTHENTIDATE HOLDING CORP.
FORM 10-Q
INDEX
PAGE NO.
--------
PART I FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheets -
September 30, 2002 and June 30, 2002 3
Consolidated Statements of Operations -
Three months ended September 30, 2002
and September 30, 2001 5
Consolidated Statements of Cash Flows -
Three months ended September 30 2002
and September 30, 2001 6
Notes to Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Item 3 - Quantitative and Qualitative Disclosures About
Market Risk 15
Item 4 - Controls and Procedures 15
PART II OTHER INFORMATION
Item 1 - Legal Proceedings 15
Item 2 - Changes in Securities 15
Item 5 - Other Information 17
Item 6 - Exhibits and Reports on Form 8-K 17
Safe Harbor Statement 17
Signatures 18
Certifications 19
Page 2
PART I FINANCIAL INFORMATION
AUTHENTIDATE HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited except for the June 30, 2002 balance sheet)
ASSETS September 30, June 30,
2002 2002
----------- -----------
Current Assets:
Cash and cash equivalents $ 2,912,820 $ 2,269,353
Accounts receivable, net of allowance
for doubtful accounts of $512,720 at Sept.
30, 2002 and $609,185 at June 30, 2002 2,535,422 4,222,472
Due from related parties 33,925 27,444
Inventories:
Finished goods 199,594 161,930
Purchased components & raw material 434,800 317,772
Prepaid expenses and other current assets 174,054 123,766
Note receivable 197,287
----------- -----------
Total current assets 6,290,615 7,320,024
Property and equipment, net 3,958,699 4,008,925
Other assets:
Software development costs, net 987,622 1,161,650
Goodwill 12,439,145 12,439,145
Investment in affiliated companies 317,049 294,427
Patent costs, net 278,491 235,789
Other intangible assets 258,070 258,766
Note receivable 302,713
Other assets 40,932 30,547
----------- -----------
Total assets $24,570,623 $26,051,986
=========== ===========
See accompanying notes to the consolidated financial statements.
Page 3
AUTHENTIDATE HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited except for the June 30, 2002 balance sheet)
LIABILITIES AND SHAREHOLDERS' EQUITY September 30, June 30,
2002 2002
------------ ------------
Current liabilities:
Accounts payable $ 1,562,757 $ 1,899,786
Accrued expenses and other liabilities 2,026,056 1,932,034
Line of credit 665,110 1,753,394
Current portion of long-term debt 35,747 35,747
Current portion of obligations under capital leases 88,827 88,827
Income taxes payable 20,222 17,800
------------ ------------
Total current liabilities 4,398,719 5,727,588
Long-term debt, net of current portion 1,273,105 1,281,768
Deferred grant 1,000,000 1,000,000
Obligations under capital leases, net of current portion 94,613 97,296
------------ ------------
Total liabilities 6,766,437 8,106,652
------------ ------------
Commitments and contingencies
Shareholders' equity:
Preferred stock - $.10 par value, 5,000,000 shares authorized:
Series A - 100 shares issued and outstanding 10 10
Series B - 28,000 shares issued and outstanding 2,800 2,800
Series C - 4,000 shares issued and outstanding 400 400
Common stock - $.001 par value; 40,000,000
shares authorized; shares issued and outstanding:
19,972,480 at September 30, 2002 and
19,308,594 at June 30, 2002 19,972 19,309
Additional paid-in capital 63,324,709 61,376,632
Accumulated deficit (45,051,621) (42,999,497)
------------ ------------
18,296,270 18,399,654
Other equity (474,744) (507,431)
Currency translation adjustment (17,340) 53,111
------------ ------------
Total shareholders' equity 17,804,186 17,945,334
------------ ------------
Total liabilities and shareholders' equity $ 24,570,623 $ 26,051,986
============ ============
See accompanying notes to the consolidated financial statements.
Page 4
AUTHENTIDATE HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the 3 months ended
September 30, September 30,
2002 2001
----------- -----------
Net sales $ 5,464,576 $ 3,263,503
Cost of goods sold 4,164,643 2,291,361
----------- -----------
Gross profit 1,299,933 972,142
Selling, general and administrative expenses 2,916,838 2,713,719
Product development costs 580,585 650,274
----------- -----------
Operating loss (2,197,490) (2,391,851)
Other income (expense):
Interest expense (44,164) (28,184)
Interest and other income 331,248 64,618
Equity in net loss of affiliated companies (82,378) (253,553)
----------- -----------
Loss before income taxes (1,992,784) (2,608,970)
Income tax (expense)/benefit (2,082)
----------- -----------
Net loss (1,994,866) (2,608,970)
=========== ===========
Per share amounts basic and diluted:
Net loss per common share ($ 0.10) ($ 0.19)
=========== ===========
See accompanying notes to the consolidated financial statements.
Page 5
AUTHENTIDATE HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
For the 3 months ended
September 30, September 30,
2002 2001
----------- -----------
Cash flows from operating activities:
Net loss ($1,994,866) ($2,608,970)
Adjustments to reconcile net loss to
net cash provided by/(used in) operating activities:
Depreciation and amortization 432,382 375,983
Provision for doubtful accounts 13,529 31,345
Non-cash foreign currency translation adjustment (70,451)
Non-cash compensation expense 172,587
Equity in net loss of affiliates 82,378 253,553
Changes in operating assets and liabilities, net of
business acquired:
Accounts receivable and other receivables 1,717,040 1,015,667
Inventories (154,692) 153,577
Prepaid expenses and other current assets (50,288) (58,675)
Accounts payable and other current liabilities (200,266) (1,714,064)
Income taxes 2,422 (225)
----------- -----------
Net cash provided by/(used in) operating activities (222,812) (2,379,222)
----------- -----------
Cash flows from investing activities:
Property, plant and equipment expenditures (85,821) (152,004)
Software development costs (92,964) (31,419)
Other intangible assets (71,349) (11,728)
Note receivable 350,000
Other long term assets (10,385)
Investment in affiliates (105,000)
----------- -----------
Net cash used in investing activities (15,519) (195,151)
----------- -----------
Cash flows from financing activities:
Net proceeds from sale of common stock 1,946,953
Net payments under line of credit (1,088,284)
Principle payments on long-term debt (8,663) (7,980)
Capital leases, net (2,683) (1,174)
Payment of registration costs (1,512) (8,679)
Exercise of warrants and options 3,300 43,875
Payback of loan by Company officer 32,687
----------- -----------
Net cash provided by/(used in) financing activities 881,798 26,042
----------- -----------
Net increase/(decrease) in cash and cash equivalents 643,467 (2,548,331)
Cash and cash equivalents, beginning of year 2,269,353 9,040,466
----------- -----------
Cash and cash equivalents, end of period $ 2,912,820 $ 6,492,135
=========== ===========
See accompanying notes to the consolidated financial statements.
Page 6
AUTHENTIDATE HOLDING CORP.
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of management the accompanying unaudited consolidated
financial statements containing all adjustments, consisting of only normal,
recurring adjustments, necessary for fair presentation have been included. The
consolidated financial statements include the accounts of Authentidate Holding
Corp. (AHC) and its subsidiaries DJS Marketing Group, Inc. (DJS), Authentidate,
Inc., Authentidate International AG (AG) and Trac Medical Systems, Inc. (Trac
Med) and its DocStar Division and are referred to as the Company.
The Company also is a 50% co-owner in a non-consolidated joint venture called
Authentidate Sports, Inc. (Sports).
2. The results of operations for the three months ended September 30, 2002 are
not necessarily indicative of the results to be expected for the full year.
3. Certain information and footnote disclosures normally included in the
consolidated financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted. It is suggested that these consolidated financial
statements be read in conjunction with the annual consolidated financial
statements and notes thereto included in the Company's Form 10-K for the fiscal
year ended June 30, 2002.
4. During the three months ended September 30, 2002; 809 common stock options
and 3,000 common stock warrants were exercised.
5. The following represents the reconciliation of the basic and diluted loss per
share amounts for the three months ended September 30, 2002 and 2001,
respectively.
SEPTEMBER 30
THREE MONTHS ENDED
2002 2001
------------ ------------
Net income/(loss) ($ 1,994,866) ($ 2,608,970)
Preferred stock dividends (57,259) (449,625)
------------ ------------
Loss applicable to common shareholders (2,052,125) ($ 3,058,595)
Weighted average shares 19,640,641 16,143,078
Net loss per share ($.10) ($.19)
The impact of options, warrants and convertible notes was antidilutive
to the calculation of basic and dilutive loss per share and were accordingly
excluded from the calculation. The preferred stock dividends for the three
months ended September 30, 2001 includes amortization of the beneficial
conversion feature of Series C Preferred Stock approximating $365,000.
6. The Company's reportable segments are separate divisions and distinct
businesses which are managed separately. Included in the Authentidate Related
column are operations of Authentidate, Trac Med, AG and Sports which are all in
the authentication software services business and have not had significant sales
to date. DocStar is in the document imaging software business and DJS is in the
systems integration business. DocStar sells through a national network of
dealers (approximately 100 dealers) and anticipates the addition of a couple of
new dealers each quarter to expand into markets not currently served. DocStar
also expects to terminate a couple of non-performing dealers each quarter in
order to achieve its sales goals. DJS's market is primarily in the Albany, New
York region. Authentidate, Trac Med and AG sell their products and services on a
national basis using a direct sales model. The Corporate expenses are
non-operating expenses which include all public company type activities and
apply to all of the Company's operating divisions and therefore should be
segregated. The Company's segment information follows:
Page 7
SEGMENT INFORMATION
FOR THE THREE MONTHS ENDED:
SEPTEMBER 30, 2002: DocStar DJS Authentidate Related Totals
------- --- -------------------- ------
Revenues from external customers $1,503,760 $3,760,559 $200,257 $5,464,576
Intersegment revenues 6,875 25,082 31,957
Segment profit/(loss) 96,130 41,589 (1,380,897) (1,243,178)
SEPTEMBER 30, 2001:
Revenues from external customers $1,448,985 $1,789,518 $25,000 $3,263,503
Intersegment revenues 35,449 35,449
Segment profit/(loss) (122,086) 44,390 (1,479,720) (1,557,416)
RECONCILIATION: September 30, 2002 September 30, 2001
------------------ ------------------
Total revenues from segments $ 5,496,533 $ 3,298,952
Elimination of intersegment revenues (31,957) (35,449)
----------- -----------
Total consolidated revenues $ 5,464,576 $ 3,263,503
=========== ===========
Total pre-tax loss of segments ($1,243,178) ($1,557,416)
Product development expenses (580,585) (650,274)
Corporate expenses (166,795) (414,707)
Elimination of intersegment profits (2,226) 13,427
----------- -----------
Loss before income taxes ($1,992,784) ($2,608,970)
=========== ===========
7. Other Equity represents a collateralized loan to the Chief Executive Officer.
8. In July and August 2002 the Company sold 660,077 shares of its common stock
at $3.03 per share in a private transaction. The Company received gross proceeds
of approximately $2.0 million. The Company issued 132,015 common stock purchase
warrants to the buyers which have an exercise price of $3.26 per share and have
a five year life. The proceeds will be used for business development, sales and
marketing of the Authentidate businesses along with general working capital of
the Company.
9. During the three months ended September 30, 2002 the Company incurred a net
loss of $1,994,866. Cash used in operating activities totaled $222,812 for the
three months ended September 30, 2002 compared to $6,003,316 used in operating
activities for the year ended June 30, 2002. The Company's cash balance
increased from $2,269,353 to $2,912,820 from June 30, 2002 to September 30, 2002
mainly due to a private sale of common stock of $1,946,953. Further, the
Company's accumulated deficit has increased from $42,999,497 at June 30, 2002 to
$45,051,621 at September 30, 2002. To date the Company has been largely
dependent on its ability to sell additional shares of its common stock to obtain
financing to fund its operating deficits. Under its current operating plan 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. Authentidate and it's
related businesses, Trac Med, AG and Sports are currently cash flow negative and
along with Corporate operations were responsible for the negative cash flow from
operations for the three months ended September 30, 2002. If the Company is
unable to attain projected sales levels for Authentidate and related products 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. If the Company is unable to raise additional capital necessary to fund
operations and is unable to attain projected sales levels for Authentidate and
related products then it will implement cost reduction strategies including the
possible shutdown or reduction of operations at Authentidate, AG, Trac Med or
Sports.
10. As described in our report on Form 10-K for the fiscal year ended June 30,
2002, we are involved in the following pending and threatened legal proceedings.
We are the defendant in a third party complaint filed by Shore Venture Group,
LLC in the Federal District Court for the Eastern District of Pennsylvania. The
third party complaint was filed on May 7, 2001. Shore Venture is the defendant
to an action commenced by Berwyn Capital. The third party complaint alleges a
claim of breach of contract and seeks indemnification. A trial was held in
October 2002 and we are awaiting the judge's verdict. Management believes that
the claim will not have a material adverse impact on our financial condition,
Page 8
results of operations or cash flow. We have also been advised of a claim by
Shore Venture Group concerning additional shares of Common Stock of our
subsidiary, Authentidate, Inc. This claim is not before the court in the
third-party litigation previously discussed. We are conducting settlement
negotiations with Shore Venture and believe that a settlement will not have a
material adverse impact on our financial condition, results of operations or
cash flow. No formal action has been commenced in connection with this claim and
the settlement negotiations are being held at this juncture in an effort to
avoid resorting to litigation on this issue.
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.
11. Total comprehensive income/(loss) consists of:
SEPTEMBER 30,
-------------
2002 2001
----------- -----------
Net loss ($1,994,866) ($2,608,970)
Currency translation adjustment (70,451)
----------- ----------
Total comprehensive loss ($2,065,317) ($2,608,970)
12. Effective July 1, 2001, the Company adopted FAS 141 and FAS 142. FAS 141
requires business combinations initiated after June 30, 2001 to be accounted for
using the purchase method of accounting. It also specifies the types of acquired
intangible assets that are required to be recognized and reported separate from
goodwill. FAS 142 requires that goodwill and certain intangibles no longer be
amortized, but instead tested for impairment at least annually. The Company
adopted FAS No. 142 effective July 1, 2001. To date the adoption of FAS 142 has
not had a material effect on its financial position, results of operations or
cash flows.
The changes in the carrying amount of goodwill for the quarter ended
September 30, 2002, are as follows:
DJS AUTHENTIDATE AG TOTAL
Balance June 30, 2002 $ 1,173,665 $ 3,982,471 $ 7,283,009 $12,439,145
Changes in carrying amount of goodwill
----------- ----------- ----------- -----------
Balance September 30, 2002 $ 1,173,665 $ 3,982,471 $ 7,283,009 $12,439,145
The DJS segment has achieved operating results which are consistent
with prior periods. The Authentidate segment is a new segment with a limited
operating history. The Company retained a third party valuation firm to value
the Authentidate and AG goodwill as of June 30, 2002 and based on management's
assessment the Company does not believe there is an impairment issue at this
point in time with regard to Authentidate or AG based upon the valuation
performed and will continue to review this issue each quarter.
Intangible asset amortization expense for the three months ended
September 30, 2002 was $29,343. Below is a chart of intangible assets:
JUNE 30, 2002 SEPTEMBER 30, 2002
------------- ------------------
Gross Carrying Accumulated Gross Carrying Accumulated
Amount Amortization Amount Amortization
Patents $260,581 $ 24,792 $308,317 $ 29,826
Trademarks 106,803 15,654 130,417 17,314
Completed technologies 59,400 7,425 59,400 14,850
Accreditation 121,800 15,225 121,800 30,450
Licenses 13,600 4,533 13,600 4,533
-------- -------- -------- --------
Total $562,184 $ 67,629 $633,534 $ 96,973
======== ======== ======== ========
Page 9
No significant residual value is estimated for these intangible assets.
Patent, trademark and other amortization expense is expected to be immaterial
the remainder of fiscal 2002 as well as 2003, 2004, 2005 and 2006.
In August 2001, the FASB issued FAS No. 143, Accounting for Asset
Retirement Obligations. FAS No. 143 requires the fair value of a liability for
an asset retirement obligation to be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. The associated
asset retirement costs are capitalized as part of the carrying amount of the
long-lived asset. FAS No. 143 is effective for fiscal years beginning after
June 15, 2002. The adoption of this Statement has not had a material impact on
the Company's financial statements
In August 2001, the FASB issued FAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which supercedes FAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for the Long-Lived Assets
to be Disposed of, and the accounting and reporting provisions of APB No. 30.
FAS No. 144 addresses financial accounting and reporting for the impairment or
disposals of long-lived assets and is effective for fiscal years beginning after
December 15, 2001, and interim periods within those fiscal years. The adoption
of this Statement has not had a material impact on the Company's financial
statements.
In April 2002, the FASB issued FAS No. 145, "Rescission of FASB
Statements No. 4, 44 and 64," Amendment of FASB Statement No. 13, and Technical
Corrections as of April 2002. This Statement addresses a number of items related
to leases and other matters. The adoption of this Statement has not had a
material impact on the Company's financial statements.
13. Present Accounting Standard Not Yet Adopted:
In June 2002, the FASB issued FAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This Standard addresses the
recognition, measurement and reporting of costs that are associated with exit or
disposal activities. FAS No. 146 is effective for exit or disposal activities
that are initiated after December 31, 2002. The Company does not expect the
adoption of FAS No. 146 to have a material effect on its financial statements.
14. Included in net sales and cost of goods sold are service sales of
$397,725 and cost of service sales of $156,389 for the three months ended
September 30, 2002.
15. Subsequent to the end of the quarter, in October 2002 the Company
completed the sale of $3.7 million of convertible debentures to certain
accredited investors pursuant to Section 4(2) of the Securities Act of 1933 and
warrants to purchase 444,000 shares of its common stock. The Company received
net proceeds of approximately $3.4 million after paying finders fees and
expenses. The Company intends to use the proceeds for working capital and
general corporate purposes. The debentures are convertible into the Company's
common stock at an initial conversion price of $2.50 per share. The debentures
are due in three years from date of issuance and accrue interest at the rate of
7% per annum payable quarterly either in stock or cash at the Company's option.
The warrants are exercisable for a period of four years from date of issuance
and are initially exercisable at $2.50 per share. The conversion price for the
debentures and the exercise price for the warrants are subject to adjustment in
the event the Company issues common stock or securities convertible into common
stock at a price per share of common stock less than the conversion price or
exercise price on the basis of a weighted average formula. The Company has the
option to force conversion of the debenture holders in the event the volume
weighted average market price of the Company's stock is $3.75 or more per share
for 15 consecutive trading days. The Company has the option but not the
obligation to issue another $2.5 million in debentures if the volume weighted
average market price of the Company's stock is $3.00 per share or more for 15
consecutive trading days.
On October 30, 2002, the Company filed a Certificate of Amendment of
the Certificate of Designations, Preferences and Rights and Number of Shares of
Series B Preferred Stock with the Secretary of State of the State of Delaware.
The Amendment provides that the conversion rate applicable to the outstanding
shares of Series B Preferred Stock will be fixed at $1.40. Presently, the
conversion rate was equal to the lower of $1.875 and 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;
provided, however, that the conversion rate would not be below $0.875.
Accordingly, the outstanding 28,000 shares of Series B Preferred Stock are
presently convertible into an aggregate of 500,000 shares of the Company's
common stock. Prior to the amendment, the outstanding shares of Series B
Preferred Stock were convertible into a maximum of 800,000 shares of the
Company's common stock. In consideration of obtaining the consent of the holder
of the outstanding Series By Preferred Stock, the Company agreed to defer its
ability to redeem those shares for a period of two years.
Page 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
ITEM 2. FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company is involved in the sales and marketing of document imaging
software products (DocStar), systems integration services and products (DJS) and
security software services (Authentidate, Trac Med, AG and Sports). Revenues
during the current fiscal year have been derived primarily from DocStar and DJS.
Our DocStar document imaging system enables users to scan paper documents and
retrieve those documents electronically. Our computer integration services are
carried out by DJS. As a systems integrator, DJS configures various computer
hardware and software to meet the needs of business/organization customers. The
Authentidate security software service is designed to accept and store a digital
code used to prove authenticity of content, date and time via the Internet of
any electronic document or image. Trac Med uses the Authentidate service in the
medical supply industry to assist in the processing of Certificates of Medical
Necessity. AG is the Company's European subsidiary which sells essentially the
same product that Authentidate sells in the U.S. market. Sports is the Company's
joint venture to develop a service using the Authentidate software in the sports
collectibles market. The following analysis of the financial condition and
results of operations of the Company should be read in conjunction with the
Company's consolidated financial statements and notes contained elsewhere in
this Form 10-Q as well as the Company's Form 10-K.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's discussion and analysis of its financial condition and
results of operations are based on its consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of these financial statements
requires the Company to make estimates and judgments that affect reported
amounts of assets, liabilities, revenues and expenses, and related disclosures
of contingent assets and liabilities. On an ongoing basis, the Company evaluates
its estimates, including those related to new product launches, bad debts,
inventory obsolescence, recoverability of equity investments, intangible assets,
software capitalization and deferred tax assets and contingencies and
litigation. The Company bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results for which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results could differ from these estimates under different
assumptions.
The Company believes the following critical accounting policies require
more significant judgments and estimates used in the preparation of its
consolidated financial statements. The Company maintains allowances for doubtful
accounts for estimated losses resulting from the inability of its customers to
make required payments. If the financial condition of the Company's customers
were to deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required.
The Company writes down its inventory for estimated obsolescence or
unmarketable inventory equal to the difference between the cost of the inventory
and the estimated market value based upon assumptions about future demand and
market conditions. If actual market conditions are less favorable than those
projected by management, additional inventory write downs may be required.
The Company holds an interest in a joint venture company having
operations or technology in areas within its strategic focus, which is not
publicly traded. The Company monitors the financial condition and results of
such company; however, future adverse changes in market conditions or poor
operating results of the underlying investments could result in losses or an
inability to recover the carrying value, thereby possibly requiring an
impairment charge in the future.
The Company has capitalized software development costs related to the
Authentidate product and significant goodwill related to acquisitions, for which
the recoverability of such capitalized costs and goodwill is highly dependent on
the future success of the marketing and sales of such product. If the product is
not well received by the market place and the future revenue generated from such
product launch is less than anticipated, the carrying value of the software
development costs and goodwill may be impaired and require an impairment charge
in the future.
Page 11
RESULTS OF OPERATIONS
THE THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 2001.
The Company realized a consolidated net loss of $1,994,866 ($.10 per
share) and $2,608,970 ($.19 per share) for the quarters ended September 30, 2002
and 2001, respectively. The Company realized sales of $5,464,576 and $3,263,503
for the quarters ended September 30, 2002 and 2001, respectively.
As reported under Footnote 6 (Segment Information), the loss is
primarily the result of losses incurred primarily by the Company's Authentidate
segment. Authentidate has incurred significant sales, marketing, development and
general administrative expenses this year in an effort to generate sales.
The consolidated net loss is approximately $614,000 lower than it was
for the same quarter last year. Contributing to this improvement is an increase
in segment profit by the DocStar Division of $218,216. This increase in profit
is due an increase in sales and a decrease in cost of sales as a result of
reduced component costs.
Also contributing to the reduction in the consolidated loss is the
Authentidate segment whose segment loss was $98,823 lower than the previous year
primarily as a result of an increase of sales from $25,000 to $200,257.
The DJS segment income was virtually unchanged from a year ago. Further
contributing to the improvement was a reduction in corporate expenses and
product development expenses.
Consolidated sales increased by $2,201,073 over the same quarter last
year. Most of the increase is due to DJS as a result of a shift in its product
mix of sales. DJS had more direct hardware sales this year compared to last
year. In the quarter ended September 2001, DJS had a significant amount of
indirect sales. In an indirect sale DJS passes the hardware sale to a national
distributor or manufacturer and realizes a fee from the distributor which DJS
records as a sale. The fee is generally a percentage of the total sale. In a
direct sale DJS would buy the hardware from the distributor or manufacturer and
resell it to its customer and would record the entire hardware sale. In a direct
sale the sales revenue is much higher than an indirect sale but so is the cost
of sale. In either scenario the gross profit is about the same. The sales mix of
direct sales versus indirect sales is dictated by market conditions and are
determined by the customer and/or vendor. Sales also increased in the DocStar
Segment/Division by $54,775 and in the Authentidate Segment by $175,257.
Consolidated gross profit for the three months ended September 30, 2002
and 2001 was $1,299,933 and $972,142, respectively. The increase is due to the
DocStar Division as a result of an increase in sales and also a decrease in cost
of sales. The consolidated gross profit margin was 23.8% and 29.8% for the three
months ended September 30, 2002 and 2001, respectively. DJS realized a decrease
in profit margins compared to last year due to the change in product mix
discussed above, direct sales have a lower gross profit margin than indirect
sales. Offsetting the reduced profit margins of DJS was an increase in gross
profit margins for DocStar. DocStar's gross profit margin increased from 47.6%
to 64.0% from September 30, 2001 to September 30, 2002. This increase is due to
reduced direct material costs due to better purchasing and a general reduction
in component parts throughout the computer industry. Gross profit margin is
defined as gross profit as a percentage of sales.
Selling, general and administrative expenses (S,G&A) consist of all
other Company expenses except product development costs and interest. S,G&A
expenses amounted to $2,916,838 and $2,713,719 for the three months ended
September 30, 2002 and 2001, respectively. This is a 7.4% increase over the
prior year. This increase in S,G&A expenses is due to an increase in S,G&A
expenses in the DocStar Division primarily in the area of sales and marketing
and in the Authentidate Segment mainly due to the addition of AG as a
consolidated subsidiary. In the same quarter last year AG was an unconsolidated
affiliate company.
As a percentage of sales, S,G&A costs were 53.4% and 83.2% for the
three months ended September 30, 2002 and 2001, respectively. This percentage
decline is due to the increase in consolidated sales as discussed above.
Interest expense was $44,164 and $28,184 for the three months ended
September 30, 2002 and 2001, respectively. The increase is due to new equipment
and software leases entered into by the Authentidate Segment and by DJS from
borrowings on its line of credit which did not exist a year ago this time.
Product development expenses, excluding capitalized costs, relate to
software development for Authentidate Segment, primarily. These costs were
roughly the same this year $580,585 compared to the same quarter last year
$650,274. The Company has a policy of capitalizing qualified software
development costs after technical feasibility has been established and
amortizing those costs over three years as cost of goods sold The amortization
expense of software development costs amounted to $266,992.
Page 12
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds to date have been the issuance
of equity and the incurrence of third party debt. The principal balance of all
long-term debt at September 30, 2002 totaled $1,308,852 all of which relates to
a mortgage loan on the Company's principle office located in Schenectady, NY.
In May 2002, the Company's DJS subsidiary closed on a $2 Million
revolving line of credit with a financial institution collateralized by all
assets of DJS and guaranteed by the Company. The interest rate is prime plus
1.75% with a minimum rate of 7%. DJS may borrow on this line based on a formula
of qualified accounts receivable and inventory. The outstanding balance on this
line of credit is $665,110 at September 30, 2002.
Property, plant and equipment expenditures totaled $85,821 and
capitalized software development expenditures totaled $92,964 for the three
months ended September 30, 2002, respectively. There are no significant purchase
commitments outstanding.
In June 1999, the Company completed construction of a new office and
production facility in Schenectady, New York for approximately $2,300,000 which
was financed with a $1,000,000 grant from the Empire State Development
Corporation (an agency of New York state) and a mortgage loan from a local
financial institution. The grant stipulates that the Company is obligated to
achieve certain annual employment levels between January 1, 2002 and January 1,
2005 or some or all of the grant will have to be repaid. The Company has not
achieved the agreed upon employment levels to date but expects to achieve such
levels by 2005. No assurances can be given that such employment levels will be
achieved by 2005 so the grant has been classified as a long term liability on
the balance sheet. In the event some or all of the grant will be required to be
repaid the Company will either seek refinancing from a financial institution,
sell the building or pay the grant off out of cash reserves.
The Company's cash balance at September 30, 2002 was $2,912,820 and
total assets were $24,570,623 and the Company received approximately $3.4
million in October in a financing described more fully below. Management
believes existing cash and short-term investments should be sufficient to meet
the Company's operating requirements for the next twelve months provided the
Authentidate Segment generates material sales. In the event the Authentidate
Segment does not increase its sales materially then the Company will either need
to obtain outside financing or reduce expenses or a combination of both.
During the three months ended September 30, 2002 the Company incurred a
net loss of $1,994,866. Cash used in operating activities totaled $222,812 for
the three months ended September 30, 2002 compared to $6,003,316 used in
operating activities for the year ended June 30, 2002. The Company's cash
balance increased from $2,269,353 to $2,912,820 from June 30, 2002 to September
30, 2002 mainly due to a private sale of common stock of $1,946,953. Further,
the Company's accumulated deficit has increased from $42,999,497 at June 30,
2002 to $45,051,621 at September 30, 2002. To date the Company has been largely
dependent on its ability to sell additional shares of its common stock to obtain
financing to fund its operating deficits. Under its current operating plan 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. Authentidate and it's
related businesses, Trac Med, AG and Sports are currently cash flow negative and
along with Corporate operations were responsible for the negative cash flow from
operations for the three months ended September 30, 2002. If the Company is
unable to attain projected sales levels for Authentidate and related products 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. If the Company is unable to raise additional capital to fund operations
the Company will be required to implement cost reduction strategies, including
ceasing or reducing the operations of Authentidate, AG, Trac Med or Sports.
The Company has engaged an investment banking firm to assist the
Company in arranging private financing as well as providing general advisory
services to the Company. If the Company is successful in raising additional
capital it intends to use the capital to further develop the Authentidate
technology and to fund the sales and marketing efforts of this product and
related products such as Trac Med and AG as well as general working capital
purposes. The agreement is not a commitment to provide financing and there can
be no assurances that the Company will be successful in securing any equity or
debt investments in the future.
During the fiscal quarter ended September 30, 2002, we consummated a
private placement of our securities pursuant to Rule 4(2) of the Securities Act
of 1933, as amended, and/or Rule 506 promulgated thereunder. The securities
offered have a purchase price of $3.03 per unit. We sold an aggregate of 660,077
units of our securities, each unit comprised of one share of common stock and
one warrant to purchase .20 shares of common stock. The warrants are exercisable
at $3.26 per share for a period of five years from the date of issuance. We
received approximately an aggregate of $1,950,000 in net
Page 13
proceeds after payment of expenses. The proceeds raised will be used to increase
the business development, marketing and sales efforts for the Authentidate
services, along with our general working capital needs. We agreed to file a
registration statement with the Securities and Exchange Commission to register
for resale the shares of common stock contained in the units, including the
shares underlying the warrants. In the event that we do not timely file the
registration statement, or it is not timely declared effective, the investors
will be entitled to liquidated damages equal to 2% of the purchase price for
each month that the relevant event is delayed.
On January 9, 2002, we announced that we had entered into a letter of
intent to acquire the assets of Zylab International, Inc., a privately owned
company based in Germantown, Maryland for shares of AHC common stock. The letter
of intent contemplated that the purchase price will range between a minimum of
725,000 and a maximum of 1,000,000 shares of AHC common stock. Pursuant to the
letter of intent, we loaned to Zylab an aggregate principle amount of $500,000,
which loan was collateralized by all of the assets of Zylab, including its
intellectual property. As of June 30, 2002, Zylab had defaulted on the notes. On
September 23, 2002, we closed on a transaction pursuant to which our loan was
repaid on the following terms. Zylab made payment to us of $350,000 in cash,
$50,000 in prepaid license fees for a product DocStar licenses from Zylab, and
agreed to pay to us 18% of the future net income of Zylab or a successor company
up to $100,000, after a $75,000 threshold. Accordingly, our planned acquisition
of Zylab has been cancelled.
Subsequent to the end of the quarter, in October 2002 the Company
completed the sale of $3.7 million of convertible debentures to certain
accredited investors pursuant to Section 4(2) of the Securities Act of 1933 and
warrants to purchase 444,000 shares of its common stock. The Company received
net proceeds of approximately $3.4 million after paying finders fees and
expenses. The Company intends to use the proceeds for working capital and
general corporate purposes. The debentures are convertible into the Company's
common stock at an initial conversion price of $2.50 per share. The debentures
are due in three years from date of issuance and accrue interest at the rate of
7% per annum payable quarterly either in stock or cash at the Company's option.
The warrants are exercisable for a period of four years from date of issuance
and are initially exercisable at $2.50 per share. The sale of the $3.7 million
of securities constitutes the first tranche of a sale of such securities to the
investors. The second tranche is expected to result in the sale of an additional
$2,467,000 of securities. The second tranche, however, will only be consummated
if the Company's common stock maintains a trading price at or above $3.00 per
share for 15 consecutive trading days over the 12 months following the closing
of the first tranche. Consummation of the second tranche is at the Company's
option. The Company also issued to two consultants for services rendered in
connection with this transaction five year warrants to purchase an aggregate of
86,863 shares of our common stock and a total cash fee of $222,000. The warrants
issued to the consultants are exercisable at $2.50 per share and are on terms
substantially similar to the warrants issued to the investors.
The securities sold in this offering are restricted securities under
the terms of Regulation D and may not be transferred or resold for a period of
one year, except pursuant to registration under the Securities Act or an
exemption hereunder. The Company is obligated to file a registration statement
with the Securities and Exchange Commission to register the shares of common
stock underlying the debentures and the warrants within thirty days of the
closing date. If the registration statement is not timely filed or is not
declared effective within sixty days (or within 120 days in the event of a
Commission review) following the closing date, then the Company shall pay to the
investors penalties equal to 2% of the proceeds per each month that we are not
in compliance with these registration covenants. For additional information
regarding this transaction, see Part II, Item 2, "Sale of Debentures and
Warrants."
Below is a chart disclosing future minimum operating lease payments and
aggregate principle maturities of long-term debt as of September 30, 2002, for
the next five years.
LONG-TERM DEBT OPERATING LEASES
-------------- ----------------
For fiscal year ending June 30,
2003 $ 27,084 $ 369,064
2004 38,810 561,301
2005 42,136 525,057
2006 45,747 426,545
2007 49,668 153,543
Thereafter 1,105,407 55,800
Page 14
PRESENT ACCOUNTING STANDARDS NOT YET ADOPTED
In June 2002, the FASB issued FAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This Standard addresses the
recognition, measurement and reporting of costs that are associated with exit or
disposal activities. FAS No. 146 is effective for exit or disposal activities
that are initiated after December 31, 2002. The Company does not expect the
adoption of FAS No. 146 to have a material effect on its financial statements.
ITEM 3. 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
significant 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 4. CONTROLS AND PROCEDURES.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Our management, under the supervision and with the participation of our
chief executive officer and chief financial officer, conducted an evaluation of
our "disclosure controls and procedures" (as defined in the Securities Exchange
Act of 1934 (the "Exchange Act") Rules 13a-14(c)) within 90 days of the filing
date of this Quarterly Report on Form 10-Q (the "Evaluation Date"). Based on
their evaluation, our chief executive officer and chief financial officer have
concluded that as of the Evaluation Date, our disclosure controls and procedures
are effective to ensure that all material information required to be filed in
this Quarterly Report on Form 10-Q has been made known to them in a timely
fashion.
CHANGES IN INTERNAL CONTROLS
There have been no significant changes (including corrective actions
with regard to significant deficiencies or material weaknesses) in our internal
controls or in other factors that could significantly affect these controls
subsequent to the Evaluation Date set forth above.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS:
As described in our report on Form 10-K for the fiscal year ended June
30, 2002, we are involved in the following pending and threatened legal
proceedings.
We are the defendant in a third party complaint filed by Shore Venture
Group, LLC in the Federal District Court for the Eastern District of
Pennsylvania. The third party complaint was filed on May 7, 2001. Shore Venture
is the defendant to an action commenced by Berwyn Capital. The third party
complaint alleges a claim of breach of contract and seeks indemnification. There
was a trial in October 2002 and we are awaiting the judge's decision. Management
believes that the claim will not have a material adverse impact on our financial
condition, results of operations or cash flow.
We have also been advised of a claim by Shore Venture Group concerning
additional shares of Common Stock of our subsidiary, Authentidate, Inc. This
claim is not before the court in the third-party litigation previously
discussed. We are conducting settlement negotiations with Shore Venture and
believe that a settlement will not have a material adverse impact on our
financial condition, results of operations or cash flow. No formal action has
been commenced in connection with this claim and the settlement negotiations are
being held at this juncture in an effort to avoid resorting to litigation on
this issue.
We are engaged in no other litigation the effect of which would be
anticipated to have a material adverse impact on our financial condition or
results of operations.
ITEM 2. CHANGES IN SECURITIES
SALE OF UNITS IN A PRIVATE PLACEMENT
In July and August 2002 we consummated a private placement of our
securities pursuant to Rule 4(2) of the Securities Act of 1933, as amended, and
/or Rule 506 promulgated there under. We offered a maximum of 1,584,158 units in
the private placement, each unit comprised of one share of common stock and one
warrant to purchase .20 shares of common stock. The per unit purchase price was
$3.03 per unit and the offering expired on August 31, 2002. The warrants are
exercisable at $3.26 per share for a period of five years from the date of
issuance. In these transactions we sold a total of 660,077 units of our
securities and received an aggregate of $2,000,035 in gross proceeds and
approximately $1,950,000 in net proceeds after the payment of expenses. The
proceeds of these transactions will be used for business development, sales and
marketing of the Authentidate businesses along with general working
Page 15
capital of the Company. The securities issued in this offering are restricted
securities and may not be sold or transferred except pursuant to registration
under the Securities Act or an exemption there from. In the event that we do not
timely file the registration statement, or it is not timely declared effective,
the investors will be entitled to liquidated damages equal to 2% of the purchase
price for each month that the relevant event is delayed.
SUBSEQUENT EVENTS
SALE OF DEBENTURES AND WARRANTS
On October 25, 2002, we completed the sale of $3,700,000 of our
securities to certain accredited investors pursuant to Section 4(2) of the
Securities Act of 1933, as amended and Regulation D, promulgated thereunder. We
received net proceeds of approximately $3,400,000, after paying fees and
expenses. We intend to use the proceeds for working capital and general
corporate purposes. In the transaction, we sold $3,700,000 of convertible
debentures to three institutional investors and warrants to purchase an
aggregate of 444,000 shares of our common stock. The debentures are convertible
into shares of our common stock at an initial conversion price of $2.50 per
share. The debentures are due three years from the date of issuance and accrue
interest at the rate of 7% per annum, payable quarterly in arrears. At our
option, the interest may be paid in either cash or additional shares of common
stock. The warrants are exercisable for a period of four years from the date of
issuance and are initially exercisable at $2.50 per share. The conversion price
of the debentures and exercise price of the warrants are subject to adjustment
in the event we issue common stock or securities convertible into common stock
at a price per share of common stock less than the conversion price or exercise
price on the basis of a weighted average formula. In addition, the conversion
price of the debentures and exercise price of the warrants are subject to
adjustment at any time as the result of any subdivision, stock split,
combination of shares or recapitalization.
The sale of the $3,700,000 of the securities constitutes the first
tranche of a sale of such securities to the investors. The second tranche is
expected to result in the sale of an additional $2,467,000 of the securities.
The second tranche, however, will only be consummated if our common stock
maintains a trading price at or above $3.00 per share for 15 consecutive trading
days over the 12 months following the closing of the first tranche. Consummation
of the second tranche is at our option. If there is a closing of the second
tranche, the conversion price and exercise price of the Securities will be equal
to $3.00 per share.
We also issued to two consultants for services rendered in connection
with this transaction five year warrants to purchase an aggregate of 86,863
shares of our common stock and a total cash fee of $222,000. The warrants issued
to the consultants are exercisable at $2.50 per share and are on terms
substantially similar to the warrants issued to the investors.
The securities sold in this offering are restricted securities under
the terms of Regulation D and may not be transferred or resold for a period of
one year, except pursuant to registration under the Securities Act or an
exemption thereunder. We are obligated to file a registration statement with the
Securities and Exchange Commission to register the shares of common stock
underlying the debentures and the warrants within thirty days of the closing
date. If the registration statement is not timely filed or is not declared
effective within sixty days (or within 120 days in the event of a Commission
review) following the closing date, then we shall pay to the investors penalties
equal to 2% of the proceeds per each month that we are not in compliance with
these registration covenants.
AMENDMENT OF THE CERTIFICATE OF DESIGNATION OF SERIES B PREFERRED STOCK
On October 30, 2002, the Company filed a Certificate of Amendment of
the Certificate of Designations, Preferences and Rights and Number of Shares of
Series B Preferred Stock with the Secretary of State of the State of Delaware.
The Amendment provides that the conversion rate applicable to the outstanding
shares of Series B Preferred Stock will be fixed at $1.40. Presently, the
conversion rate was equal to the lower of $1.875 and 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;
provided, however, that the conversion rate would not be below $0.875.
Accordingly, the outstanding 28,000 shares of Series B Preferred Stock are
presently convertible into an aggregate of 500,000 shares of the Company's
common stock. Prior to the amendment, the outstanding shares of Series B
Preferred Stock were convertible into a maximum of 800,000 shares of the
Company's common stock. In consideration of obtaining the consent of the holder
of the outstanding Series By Preferred Stock, the Company agreed to defer its
ability to redeem those shares for a period of two years.
Page 16
ISSUANCE OF WARRANTS TO CONSULTANT
Subsequent to the end of the quarter we issued an aggregate of 10,000
warrants to a consultant in connection with a consulting agreement entered into
between the Company and the consultant. The warrants are exercisable for a
period of three years from the issue date at an exercise price of $3.77 per
share
ITEM 5 OTHER INFORMATION:
None
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits
99.1 Certificate of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
99.2 Certificate of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
(b) Reports on Form 8-K
(1) Date of Report - October 11, 2002
Item(s) Reported - Item 2 - Acquisition of disposal of assets
Item 7 - Pro forma financial statements
(2) Date of Report - October 25, 2002
Item(s) Reported - Item 5 - Other events, Regulation FD Disclosure
(3) Date of Report - August 6, 2002
Item(s) Reported - Item 5/Item 9 - Other Events/Regulation FD
Disclosure
(4) Date of Report - August 12, 2002
Item(s) Reported - Item 5 - Other Events
SAFE HARBOR STATEMENT
Certain statements in this Form 10-Q, including information set forth
under Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations constitute "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995 (the Act). The Company
desires to avail itself of certain "safe harbor" provisions of the Act and is
therefore including this special note to enable the Company to do so.
Forward-looking statements in this Form 10-Q or hereafter included in
other publicly available documents filed with the Securities and Exchange
Commission, reports to the Company's stockholders and other publicly available
statements issued or released by the Company involve known and unknown risks,
uncertainties and other factors which could cause the Company's actual results,
performance (financial or operating) or achievements to differ from the future
results, performance (financial or operating) or achievements expressed or
implied by such forward-looking statements. Such future results are based upon
management's best estimates based upon current conditions and the most recent
results of operations. These risks include, but are not limited to risks
associated with the market acceptance of the DocStar, Authentidate and related
product lines, competition, pricing, technological changes, technological
implementation of the Authentidate business plan and other risks as discussed in
the Company's filings with the Securities and Exchange Commission, in particular
its Annual Report on Form 10-K for the year ended June 30, 2002. the
Registration Statement on Form S-3 declared effective on July 8, 2002 all of
which risk factors could adversely affect the Company's business and the
accuracy of the forward-looking statements contained herein.
Page 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AUTHENTIDATE HOLDING CORP.
November 12, 2002 /s/ John T. Botti
- ---------------------- ------------------------------------
DATE JOHN T. BOTTI
PRESIDENT & CHIEF EXECUTIVE OFFICER
/s/ Dennis H. Bunt
------------------------------------
DENNIS H. BUNT
CHIEF FINANCIAL OFFICER
Page 18
CERTIFICATIONS
I, John T. Botti, Chief Executive Officer of Authentidate Holding Corp.
certify that:
1. I have reviewed this quarterly report on Form 10-Q of Authentidate
Holding Corp.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d- 14) for the registrant
and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and (b) any fraud, whether or not material, that
involves management or other employees who have a significant role in
the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 12, 2002
/s/ John T. Botti
- -------------------------------------
John T. Botti
Chief Executive Officer
Authentidate Holding Corp.
Page 19
CERTIFICATIONS
I, Dennis H. Bunt, Chief Financial Officer of Authentidate Holding
Corp. certify that:
1. I have reviewed this quarterly report on Form 10-Q of Authentidate
Holding Corp.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d- 14) for the registrant
and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and (b) any fraud, whether or not material, that
involves management or other employees who have a significant role in
the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 12, 2002
/s/ Dennis H. Bunt
- -------------------------------------
Dennis H. Bunt
Chief Financial Officer
Authentidate Holding Corp.
Page 20