<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended January 31, 1996 Commission File No. 0-7100
BASE TEN SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-1804206
(State of incorporation) (I.R.S. Employer
Identification No.)
ONE ELECTRONICS DRIVE
TRENTON, N.J. 08619
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (609) 586-7010
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. YES /x/ NO /_/
Indicate the number of shares outstanding of each of the issuer's classes
of Common Stock, as of the latest practicable date.
TITLE OF CLASS OUTSTANDING AT MARCH 7, 1996
Class A Common Stock, $1.00 par value 7,247,315
Class B Common Stock, $1.00 par value 458,254
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<PAGE>
BASE TEN SYSTEMS, INC.
AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE
Consolidated Balance Sheets -- January 31, 1996 (unaudited)
and October 31, 1995 (audited). . . . . . . . . . . . . . . . 1
Consolidated Statements of Operations -- Three months ended
January 31, 1996 and 1995 (unaudited) . . . . . . . . . . . . 2
Consolidated Statements of Shareholders' Equity -- Three
months ended January 31, 1996 (unaudited) . . . . . . . . . . 3
Consolidated Statements of Cash Flows -- Three months ended
January 31, 1996 and 1995 (unaudited) . . . . . . . . . . . . 4
Notes to Consolidated Financial Statements. . . . . . . . . . 5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . 8
PART II. OTHER INFORMATION
Item 2: Changes in Securities. . . . . . . . . . . . . . . 12
Item 6: Exhibits and Reports on Form 8-K . . . . . . . . . 12
<PAGE>
BASE TEN SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JANUARY 31, 1996 OCTOBER 31, 1995
(UNAUDITED) (AUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,641,000 $ 7,221,000
Accounts receivable (including unbilled receivables of
$5,785,000 in 1996 and $4,421,000 in 1995). . . . . . . . . 8,428,000 7,184,000
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . 3,261,000 3,151,000
Current Portion of Employee Loan Receivable . . . . . . . . . 131,000 108,000
Other current assets. . . . . . . . . . . . . . . . . . . . . 461,000 536,000
------------ ------------
TOTAL CURRENT ASSETS. . . . . . . . . . . . . . . . . . . . 15,922,000 18,200,000
PROPERTY, PLANT AND EQUIPMENT. . . . . . . . . . . . . . . . . . 4,676,000 4,480,000
Employee Loan Receivable . . . . . . . . . . . . . . . . . . . . 281,000 298,000
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . 5,541,000 5,027,000
------------ ------------
$ 26,420,000 $ 28,005,000
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . $ 751,000 $ 1,246,000
Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . 1,584,000 1,454,000
Income taxes payable. . . . . . . . . . . . . . . . . . . . . 568,000 1,038,000
Current Portion of Capital Lease Obligation . . . . . . . . . 42,000 42,000
------------ ------------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . 2,945,000 3,780,000
LONG TERM LIABILITIES:
Deferred Income Taxes . . . . . . . . . . . . . . . . . . . . 79,000 83,000
Deferred Compensation . . . . . . . . . . . . . . . . . . . . 12,000 90,000
Other Long-Term Liabilities . . . . . . . . . . . . . . . . . 261,000 266,000
Capital Lease Obligation. . . . . . . . . . . . . . . . . . . 3,513,000 3,525,000
------------ ------------
TOTAL LONG-TERM LIABILITIES . . . . . . . . . . . . . . . . 3,865,000 3,964,000
SHAREHOLDERS' EQUITY
Preferred Stock, $1.00 par value, authorized
and unissued-1,000,000 shares . . . . . . . . . . . . . . . . -- --
Class A Common Stock, $1.00 par value,
22,000,000 shares authorized; issued and outstanding
7,247,315 shares in 1996 and 7,216,195 shares in 1995 . . . 7,247,000 7,216,000
Class B Common Stock, $1.00 par value,
2,000,000 shares authorized; issued and outstanding
458,254 shares in 1996 and 458,474 shares in 1995 . . . . . 458,000 458,000
Additional paid-in capital. . . . . . . . . . . . . . . . . . 24,121,000 23,908,000
Deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,049,000) (11,179,000)
------------ ------------
19,777,000 20,403,000
Equity adjustment from foreign currency translation . . . . . (167,000) (142,000)
------------ ------------
19,610,000 20,261,000
------------ ------------
$ 26,420,000 $ 28,005,000
------------ ------------
------------ ------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1
<PAGE>
BASE TEN SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JANUARY 31,
--------------------------------
1996 1995
---- ----
<S> <C> <C>
REVENUES
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,611,000 $ 2,750,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64,000 127,000
------------ ------------
3,675,000 $ 2,877,000
------------ ------------
COSTS AND EXPENSES:
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . 2,458,000 2,344,000
Research and development. . . . . . . . . . . . . . . . . . . 325,000 207,000
Selling, general and administrative . . . . . . . . . . . . . 2,103,000 1,687,000
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . 129,000 143,000
------------ ------------
5,015,000 4,381,000
------------ ------------
LOSS BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . . . . (1,340,000) (1,504,000)
INCOME TAX BENEFIT . . . . . . . . . . . . . . . . . . . . . . . (470,000) (524,000)
------------ ------------
NET LOSS . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (870,000) $ (980,000)
------------ ------------
------------ ------------
NET LOSS PER COMMON SHARE:
Primary . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (.11) $ (.13)
Fully diluted . . . . . . . . . . . . . . . . . . . . . . . . (.11) (.13)
AVERAGE COMMON SHARES
OUTSTANDING:
Primary . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,699,985 7,036,273
Fully diluted . . . . . . . . . . . . . . . . . . . . . . . . 7,699,985 7,040,400
</TABLE>
See Notes to Consolidated Financial Statements
2
<PAGE>
BASE TEN SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THREE MONTHS ENDED JANUARY 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Equity
Common Stock Adjustment
--------------------------------------------- From
Class A Class B Additional Foreign
------- ------- Paid-in Currency Treasury
Shares Amount Shares Amount Capital Deficit Translation Stock
------ ------ ------ ------ ------- ------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance-
October 31, 1995 7,216,195 $7,216,000 458,474 $ 458,000 $23,908,000 $(11,179,000) $ (142,000) --
Conversions of
Class B Common
to Class A Common 220 -- (220) -- -- -- -- --
Exercise of options 30,800 31,000 -- -- 213,000 -- --
Issuance of Common 100 -- -- -- -- -- --
Stock
Foreign currency
translation -- -- -- -- -- -- (25,000) --
Net loss -- -- -- -- -- (870,000) -- --
--------- ---------- ------- --------- ------------ ------------- ------------- -------------
Balance -
January 31, 1996 7,247,315 $7,247,000 458,254 $ 458,000 $ 24,121,000 $(12,049,000) $ (167,000) --
--------- ---------- ------- --------- ------------ ------------- ------------- -------------
--------- ---------- ------- --------- ------------ ------------- ------------- -------------
</TABLE>
See Notes to Consolidated Statements
3
<PAGE>
BASE TEN SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JANUARY 31,
-----------------------------
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (870,000) $ (980,000)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH USED IN OPERATING ACTIVITIES:
Depreciation and amortization 352,000 118,000
Deferred Gain on Sale of Building -- (10,000)
Accounts Receivable (840,000) (134,000)
Inventories (110,000) (214,000)
Employee Loan Receivable - net of current portion (412,000) --
Other current assets 52,000 (97,000)
Accounts payable (509,000) (234,000)
Accrued expenses 141,000 172,000
Deferred compensation (78,000) (66,000)
Other assets (654,000) (504,000)
Income taxes payable (470,000) (524,000)
Other long-term liabilities (5,000) --
------------ ------------
NET CASH USED IN OPERATIONS (3,403,000) (2,473,000)
------------ ------------
CASH FLOWS USED IN INVESTING
ACTIVITIES:
Additions to property, plant and equipment-net (323,000) (82,000)
Decrease in Long-Term Lease Obligation -
net of current portion (12,000) (10,000)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (335,000) (92,000)
------------ ------------
CASH FLOWS PROVIDED FROM FINANCING
ACTIVITIES:
Proceeds from issuance of common stock 244,000 4,281,000
------------ ------------
NET CASH PROVIDED FROM FINANCING ACTIVITIES 244,000 4,281,000
Effect of exchange rate change on cash (83,000) (14,000)
------------ ------------
NET (DECREASE) INCREASE IN CASH (3,577,000) 1,702,000
CASH, beginning of period 7,218,000 1,869,000
------------ ------------
CASH, end of period $ 3,641,000 $ 3,571,000
------------ ------------
------------ ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for interest $ 130,000 $ 132,000
------------ ------------
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Retirement of Treasury Stock $ -- $ 12,000
------------ ------------
</TABLE>
4
<PAGE>
BASE TEN SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JANUARY 31, 1996
(Unaudited)
A. DESCRIPTION OF BUSINESS
Base Ten Systems, Inc. ("Base Ten" or the "Company") is engaged in the
design and manufacture of electronic systems employing safety critical software
for defense markets and the development of commercial applications focused on
manufacturing execution systems, medical screening and image processing
software. The Company also manufactures defense products to specifications for
prime government contractors and designs and builds proprietary electronic
systems for use in secure communications by various U.S. government agencies.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
1. In management's opinion, all adjustments necessary for a fair
presentation of the financial statements are reflected in the
accompanying statements.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The
consolidated interim financial statements should be read in
conjunction with the financial statements and notes thereto included
in the Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1995. The results of operations for the quarter ended
January 31, 1996 are not necessarily indicative of the operating
results for the full year.
2. BASIS OF PRESENTATION - The Company's consolidated financial
statements have been prepared on a historical cost basis.
3. OTHER ASSETS - Included in other non-current assets are software
development costs capitalized in accordance with Statement of
Financial Accounting Standards No. 86. As of January 31, 1996,
capitalized software development costs (net of amortization) were
$4,262,000. Amortization is computed on an individual product basis
and is the greater of (a) the ratio of current gross revenues for a
product to the total current and anticipated future gross revenues for
that product or (b) the straight-line method over the estimated
economic life of the product. For the three months ended January 31,
1996, amortization of software development costs was $226,000.
4. STATEMENT OF CASH FLOWS - For the purposes of the Statements of Cash
Flows, the Company considers all investments with a maturity date of
three months or less at date of acquisition to be cash equivalents.
5. INCOME TAXES - Effective November 1, 1993, the Company adopted
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (SFAS 109), which requires a change from the deferred
method's income statement approach of accounting for income taxes to
an asset and liability approach of accounting for income taxes. Under
the asset and liability approach, 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. This
change has not had any effect on the Company's Consolidated Statement
of Operations.
5
<PAGE>
6. CHANGE IN PRESENTATION - Certain balance sheet items for the interim
period in fiscal 1995 have been reclassified to conform to the fiscal
1996 presentation.
C. INVENTORIES:
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
<TABLE>
<CAPTION>
JANUARY 31, 1996 OCTOBER 31, 1995
---------------- ----------------
<S> <C> <C>
Raw materials . . . . . . . . . . . . . $ 1,495,000 $ 1,557,000
Work in process . . . . . . . . . . . . 1,791,000 1,515,000
Finished goods. . . . . . . . . . . . . 95,000 95,000
------------ ------------
3,381,000 3,167,000
Less advance payments . . . . . . . . . 120,000 16,000
------------ ------------
$ 3,261,000 $ 3,151,000
------------ ------------
------------ ------------
</TABLE>
As provided in several of the Company's contracts, customers advance funds
to Base Ten for the purpose of purchasing inventory. The related advances
have been offset against inventory.
D. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are summarized as follows:
<TABLE>
<CAPTION>
JANUARY 31, 1996 OCTOBER 31, 1995
---------------- ----------------
<S> <C> <C>
Machinery and equipment . . . . . . . . 9,149,000 $ 8,853,000
Furniture and fixtures. . . . . . . . . 630,000 617,000
Leased asset - land and building. . . . 3,600,000 3,600,000
Leasehold improvement 39,000 21,000
------------ ------------
13,418,000 13,091,000
Less accumulated depreciation
and amortization. . . . . . . . . . . . 8,742,000 8,611,000
------------ ------------
$ 4,676,000 $ 4,480,000
------------ ------------
------------ ------------
</TABLE>
6
<PAGE>
E. LONG-TERM CAPITAL LEASE:
LEASES. The Company entered into a sale and leaseback arrangement on
October 28, 1994. Under the arrangement, the Company sold its main
building in Trenton, New Jersey and agreed to lease it back for a period of
15 years under terms that qualify the arrangement as a capital lease. The
buyer/lessor of the building was a partnership, one of the partners of
which is a director of the Company. A non-interest bearing security
deposit of $550,000 was paid at closing and included in other non-current
assets on the balance sheet. Interest is calculated under the effective
interest method and depreciation will be taken using the straight line
method over the term of the lease.
The Company's future minimum lease payments related to the sale-leaseback
arrangement in effect at January 31, 1996 are as follows:
<TABLE>
<CAPTION>
Fiscal
------
<S> <C>
1996 $ 420,000
1997 560,000
1998 560,000
1999 560,000
2000 615,000
2001 and thereafter 5,970,000
-----------
8,685,000
Less: Interest portion (5,130,000)
-----------
Present value of net minimum payments $ 3,555,000
-----------
-----------
</TABLE>
F. NET LOSS PER SHARE:
Primary and fully diluted loss per share for the periods ended January 31,
1996 and 1995 were calculated using the following number of weighted
average common shares outstanding:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Primary . . . . . . . . . . . . . . . . . . . 7,699,985 7,036,273
Fully Diluted . . . . . . . . . . . . . . . . 7,699,985 7,040,400
</TABLE>
Primary and fully diluted loss per common share for the period ended
January 31, 1995 were computed based on the assumption that certain
dilutive stock options and warrants were exercised. The dilutive effect of
the stock options and warrants was determined using the "modified treasury
stock" method in 1995.
The stock options, warrants and rights would have an anti-dilutive effect
on loss per share for the quarter ended January 31, 1996 and therefore were
not included in the calculation of weighted average shares outstanding for
both primary and fully diluted loss per share.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OR OPERATIONS
GENERAL
GENERAL. Base Ten Systems, Inc. ("Base Ten" or the "Company") is engaged
in the design and manufacture of electronic systems employing safety critical
software for defense markets and the development of commercial applications
focused on Manufacturing Execution Systems, medical screening and image
processing software. The Company also manufactures defense products to
specifications for prime government contractors and designs and builds
proprietary electronic systems for use in secure communications by various U.S.
government agencies.
Specialization in extreme reliability defense products has enabled the
Company to develop expertise in the field of safety critical technology
dedicated to the prevention of performance errors. Operations in this
environment during the last two decades have also provided experience in
developing advanced quality control procedures for products meeting stringent
government standards as well as familiarity with complex government regulations
and agency procedures. Over the last several years, Base Ten has redirected
resources to decrease its historical dependence on defense contracting and has
concentrated on commercial products for highly regulated industries, relying on
the same safety critical techniques developed in its traditional businesses.
While the Company's non-defense programs involve major potential markets, the
resulting products are still primarily developmental and may not succeed in
reaching their potential.
RESULTS OF OPERATIONS
DEFENSE OPERATIONS. The Company has historically concentrated on the design
and production of weapons control systems produced for the West German and
Italian versions of the Tornado aircraft. Continuation of a software upgrade
and new product development for the Tornado program commenced in 1993 along with
production orders placed in late 1994 resulted in revenues for the year ended
October 31, 1995 of $6.6 million or 36% of revenues. In the first quarter of
1996, Base Ten received initial funding for a new software upgrade program
scheduled for completion in 1997, with a contract value of $1.8 million, and
continued its production of weapons control products scheduled for delivery
beginning in the second quarter 1996.
In an effort to broaden its product base, the Company initiated development
of certain electronic warfare components during the last quarter of fiscal 1995
under a contract from the U.S. Navy. This effort was substantially completed
during the first quarter of fiscal 1996. Base Ten is pursuing opportunities to
incorporate this product on various Navy aircraft and is negotiating for
additional participation leading to full qualification for flight use.
Base Ten continues to provide manufacturing services to other defense
related firms under build to print arrangements. These services have been
provided primarily to the McDonnell Douglas company on weapons control systems
for the Apache helicopter and on electronic controls for switching assemblies
purchased by SPD Technologies for further supply to the U.S. Navy. During the
first quarter of fiscal 1996, the Company's build to print business generated
revenues of $.7 million compared with $1.4 million for the same quarter last
year.
Despite profit margins limited by strict government procedures and intense
competition, the Company believes that its skills and experience continue to
make its defense operations a viable market. Base Ten has invested its own
funds to develop products for this market despite the lack of assurances that
its investments will result in new business. The Company continues to be
dependent on government contracts for its principal source of income and would
be adversely affected by the loss of defense contracts or customers.
NONDEFENSE OPERATIONS. During 1995, Base Ten concentrated on the
development of manufacturing execution systems for the pharmaceutical industry
marketed as PHARMASYST.-TM-
8
<PAGE>
The potential market for manufacturing execution systems across all industries
has been projected in various industry publications to reach over a billion
dollars by the end of the century. The Company's development effort for this
market resulted in 1995 contracts from companies including Abbott Hospital
Products Division, Novo Nordisk, Pfizer International Products Group and 3M,
with installation planned for 30 sites internationally.
During the first quarter of 1996, the development of an upgraded Version
2.0 for PHARMASYST-TM- occupied a major portion of the Company's development
resources. Planned for introduction during the second quarter of 1996, this
modular software package provides standard specifications, test procedures and
manuals and adds a high degree of flexibility to control the cost, installation
and delivery time to optimize customer return on investment and the Company's
profitability. New contracts for this PHARMASYST-TM- upgrade have been initiated
with SmithKline Beecham in the United Kingdom, Federa in Belgium and
Upjohn/Pharmacia in Puerto Rico. Offices were opened by Base Ten in Copenhagen,
Denmark and expanded in Farnboro, England to accommodate additional sales
activity concentrating on PHARMASYST.-TM- In the first quarter of 1996,
revenues from the sale of PHARMASYST-TM- were $871,000 compared with $48,000 in
the same quarter in 1995.
The Company's contract with J&J Clinical Diagnostics Laboratory for
marketing PRENATA-TM-, a software program intended to aid in the detection of
the risk of fetal abnormalities, continued to generate royalty income from
foreign sales during the first quarter of 1996. The Company has elected to
delay the development of additional medical software for domestic sales until
the regulatory climate is more conducive to the development of these products.
In addition to its development of PHARMASYST-TM- and PRENATA-TM-, Base Ten
has invested in the development of an archiving system for ultrasound images
known as uPACS.-TM- The benefits of uPACS-TM- to hospitals and medical staff
are primarily in the reduced cost per image stored and the convenience of
accessing images from a large database. During the first quarter of 1996,
substantial effort was devoted to the incorporation of advanced features,
including a networking system to allow the sharing of a common archiving device
by multiple ultrasound scanners. This effort led to an agreement with Kings
Hospital in London to develop a hospital imaging system with broad usage
throughout a hospital. During the first quarter, additional marketing efforts
also resulted in an agreement with distributors to carry the product in several
European countries. The Company plans to submit a 510K premarket notification
application in March of 1996 to gain FDA clearance to sell uPACS-TM- in the
United States. The Company anticipates initial uPACS-TM- sales to begin during
the second quarter of 1996.
Unlike many defense programs in which the Company participates, current
development expenses for nondefense products are being funded by Base Ten. A
large portion of the software development effort is capitalized and subjected to
amortization over a four year period. The selling, marketing and management
costs for this effort, devoted primarily to the expansion of the PHARMASYST-TM-
market, have had an adverse effect on the Company's financial performance,
contributing to a net loss of $870,000 for the first quarter of fiscal 1996.
The Company has limited funds for its development efforts and relies on growth
in revenue from the sales of its new products to continue those efforts.
Although Base Ten has achieved substantial success in the initial sale of its
nondefense products, the Company is subject to substantial risks of competition
and changing technology.
SEASONALITY. The Company's revenues and operating results are subject to
quarterly fluctuations due primarily to the timing of contract stage completions
and product deliveries as well as the booking of new business. These factors
are characteristic of Base Ten's business environment and can impact quarterly
performance without necessarily affecting results for the full year or long term
profitability. During the first quarter of 1996, the Company's financial results
were adversely affected by severe weather in New Jersey, resulting in plant
shutdowns and delays in receiving government contracts. These delays resulted
in reduced manufacturing output, with an adverse affect on revenues and
earnings.
9
<PAGE>
QUARTER ENDED JANUARY 31, 1996 COMPARED TO THE QUARTER ENDED JANUARY 31,
1995. Revenues for the current quarter were $3,675,000 compared with $2,877,000
in the first quarter of fiscal 1995. The difference resulted primarily from the
increase in revenues of the Medical Technology Division from $48,000 in 1995 to
$895,000 in 1996.
Cost of sales as a percentage of revenues was 66.9% in the first quarter of
fiscal 1996 compared with 81.4% in 1995. The primary factor was the low cost of
sales of PHARMASYST-TM-. Since the development costs are largely capitalized,
the remaining costs of labor and overhead are small compared with the resulting
revenues.
Research and development expenses aggregating $325,000 in the first three
months of fiscal 1996 and $207,000 in the same quarter last year do not include
the capitalized software development costs of $715,000 and $417,000,
respectively. The Company's investment in new products on a cash flow basis
includes both of these components.
Selling, general and administrative expenses increased by $416,000 in the
first quarter of fiscal 1996, representing 57.2% of revenues compared with 58.6%
in 1995. The increase is primarily attributable to the Company's efforts to
increase market penetration of its manufacturing execution system.
Base Ten recognized a net loss of $870,000 or $.11 per share for the first
quarter of fiscal 1996 compared to a net loss of $980,000 or $.13 per share for
the corresponding quarter last year. The net losses for the interim periods in
1996 and 1995 reflect income tax benefits of $470,000 and $524,000,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY. Significant liquidity factors are as follows:
<TABLE>
<CAPTION>
JANUARY 31, 1996 OCTOBER 31, 1995
---------------- ----------------
<S> <C> <C>
Working capital. . . . . . . . . . . $12,977,000 $14,420,000
Current ratio (1). . . . . . . . . . 5.4 to 1 4.8 to 1
Debt to equity ratio (2) . . . . . . .34 to 1 .38 to 1
</TABLE>
- --------------------------------
(1) The ratio of current assets to current liabilities.
(2) The ratio of total liabilities to shareholders' equity.
10
<PAGE>
These ratios remained constant during the current quarter with the
exception of a decrease of approximately $1 million in working capital. During
the first quarter of fiscal 1996, cash decreased by $3.6 million, reflecting the
loss for the quarter as well as an increase in other assets of approximately
$0.5 million principally comprised of capitalized software development costs and
an increase of $1.2 million in accounts receivable.
CAPITAL RESOURCES. The Company believes that its working capital and funds
generated from operations will be sufficient to support its operations and
planned development activities.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 2: CHANGES IN SECURITIES
None.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS - None.
(b) REPORTS ON FORM 8-K - None.
12
<PAGE>
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.
Date: March 15, 1996
BASE TEN SYSTEMS, INC.
(Registrant)
By: /s/ Myles M. Kranzler
----------------------------------------
Myles M. Kranzler
President and Chairman of the Board
(Principal Executive Officer)
By: /s/ Edward J. Klinsport
----------------------------------------
Edward J. Klinsport
Executive Vice President and Chief
Financial Officer
13
