BASE TEN SYSTEMS INC, S-3, 1996-06-19

BASE TEN SYSTEMS INC
S-3, 1996-06-19
SEARCH, DETECTION, NAVAGATION, GUIDANCE, AERONAUTICAL SYS

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<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 19, 1996

REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
BASE TEN SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)

<TABLE>
<S> <C>
NEW JERSEY 22-1804206
(State or other jurisdiction (I.R.S. employer
of identification no.)
incorporation or organization)
</TABLE>

ONE ELECTRONICS DRIVE
TRENTON, NJ 08619
(609) 586-7010
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)

MYLES M. KRANZLER, BASE TEN SYSTEMS, INC.
ONE ELECTRONICS DRIVE
TRENTON, NJ 08619
(609) 586-7010
(Name, address, including zip code, and telephone number
including area code, of agent for service)
------------------------

WITH COPIES TO

<TABLE>
<S> <C>
JOSEPH LUNIN MARK D. WHATLEY
Pitney, Hardin, Kipp & Szuch Howard, Rice, Nemerovski, Canady,
200 Campus Drive Falk & Rabkin
P.O. Box 1945 Three Embarcadero Center, Suite 700
Morristown, NJ 07962-1945 San Francisco, CA 94111
</TABLE>

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE FOLLOWING THE EFFECTIVE DATE OF THIS REGISTRATION
STATEMENT

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, check the following box.
/ /

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with a dividend or
interest reinvestment plan check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 426(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 426(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
------------------------

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH AMOUNT TO MAXIMUM AGGREGATE AMOUNT OF
CLASS OF SECURITIES BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED (1) PER UNIT (2) PRICE (2) FEE
<S> <C> <C> <C> <C>
Class A Common Stock, $1.00 par value
per share.............................. 2,300,000 $12.31 $28,318,750 $9,765
</TABLE>

(1) Includes 300,000 shares of Common Stock to cover the 30-day over-allotment
option granted by the Registrant to the Underwriter.

(2) Pursuant to Rule 457(f), the proposed maximum offering price is based on the
average of the high and low sales prices of the Common Stock, as reported by
the Nasdaq National Market on June 17, 1996.
------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.

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<PAGE>
CROSS REFERENCE SHEET PURSUANT TO ITEM 501(B) OF
REGULATION S-K

<TABLE>
<C> <S> <C>
1. Forepart of the Registration Statement and Forepart of the Registration Statement;
Outside Front Cover of Prospectus Outside Front Cover Page

2. Inside Front and Outside Back Cover Pages Inside Front Cover Page; Available
of Prospectus Information; Outside Back Cover Page

3. Summary Information, Risk Factors and Prospectus Summary; Risk Factors
Ratio of Earnings to Fixed Charges

4. Use of Proceeds Capitalization, Use of Proceeds

5. Determination of Offering Price Outside Front Cover Page; Underwriting

6. Dilution Not applicable

7. Selling Security Holders Not applicable

8. Plan of Distribution Outside Front Cover Page of the
Prospectus; Prospectus Summary;
Underwriting

9. Description of Securities to be Registered Outside Front Cover Page of Prospectus;
Prospectus Summary; Description of
Capital Stock

10. Interests of Named Experts and Counsel Not applicable

11. Material Changes Not applicable

12. Incorporation of Certain Information by Incorporation of Certain Information by
Reference Reference
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 19, 1996

PROSPECTUS

2,000,000 SHARES

BASE TEN SYSTEMS, INC.

CLASS A COMMON STOCK
------------------

All of the shares of Class A Common Stock ("Common Stock") offered hereby
are being offered by Base Ten Systems, Inc. (the "Company"). On June 17, 1996,
the last reported sale price of the Common Stock on the Nasdaq National Market
was $12 7/16. See "Price Range of Common Stock and Dividends." The Common Stock
is traded under the Nasdaq National Market symbol "BASEA."

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 4.
---------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

<TABLE>
<CAPTION>
UNDERWRITING
PRICE DISCOUNTS AND PROCEEDS TO
TO PUBLIC COMMISSIONS (1) COMPANY (2)
<S> <C> <C> <C>
Per Share................................ $ $ $
Total (3)................................ $ $ $
</TABLE>

(1) The Company has agreed to (i) reimburse the Underwriter for accountable
costs and expenses up to $50,000, (ii) grant warrants to the Underwriter to
purchase up to 115,000 shares of Common Stock at 120% of the per share Price
to Public and (iii) indemnify the Underwriter against certain liabilities,
including liabilities arising under the Securities Act of 1933, as amended.
See "Underwriting."

(2) Before deducting estimated expenses of $1,300,000 payable by the Company,
including certain consulting fees payable to two directors of the Company.
See "Certain Transactions."

(3) The Company has granted to the Underwriter a 30-day option to purchase up to
an additional 300,000 shares of Common Stock on the same terms as set forth
above to cover over-allotments, if any. If the over-allotment option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
------------------------

The shares of Common Stock are offered by the Underwriter, subject to prior
sale, withdrawal, cancellation or modification of the offer without notice,
delivery to and acceptance by the Underwriter and certain other conditions. It
is expected that the Common Stock offered hereby will be delivered in New York,
New York on or about , 1996.
------------------------

PACIFIC GROWTH EQUITIES, INC.

THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE>
------------------------

FORWARD LOOKING STATEMENTS

THE FORWARD LOOKING STATEMENTS CONTAINED IN THIS PROSPECTUS CONCERNING,
AMONG OTHER THINGS, FUTURE RESULTS OF OPERATIONS, SHIPMENTS AND DELIVERIES,
TRENDS, CASH FLOWS, MARKETS, PROGRAMS, AND PRODUCTS ARE PROJECTIONS AND ARE
NECESSARILY SUBJECT TO VARIOUS RISKS AND UNCERTAINTIES. ACTUAL OUTCOMES ARE
DEPENDENT UPON THE COMPANY'S SUCCESSFUL PERFORMANCE OF INTERNAL PLANS,
GOVERNMENT CUSTOMERS' BUDGETARY RESTRAINTS, SUCCESSFUL DEVELOPMENT AND MARKET
ACCEPTANCE OF THE COMPANY'S PHARMASYST PRODUCTS, CHANGES IN CUSTOMERS' PLANS,
DOMESTIC AND INTERNATIONAL COMPETITION IN DEFENSE-RELATED AND COMMERCIAL PRODUCT
MARKETS, PRODUCT PERFORMANCE AND ACCEPTANCE, DEVELOPMENT AND ACCEPTANCE OF NEW
PRODUCTS, GOVERNMENT IMPORT AND EXPORT POLICIES, TERMINATION OF GOVERNMENT
CONTRACTS, POLITICAL PROCESSES, LEGAL, FINANCIAL AND GOVERNMENTAL RISKS RELATED
TO INTERNATIONAL TRANSACTIONS AND GLOBAL NEEDS FOR MILITARY AND AIRCRAFT AND
ELECTRONIC SYSTEMS, AS WELL AS OTHER ECONOMIC, POLITICAL AND TECHNOLOGICAL RISKS
AND UNCERTAINTIES. SEE "RISK FACTORS."
------------------------

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT LEVELS ABOVE THOSE THAT MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. STABILIZING TRANSACTIONS MAY BE EFFECTED IN THE OVER THE COUNTER MARKET
OR OTHERWISE. STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
------------------------

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER AND CERTAIN SELLING GROUP
MEMBERS OR THEIR AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN
THE COMPANY'S COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE
10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
------------------------

PHARMASYST-Registered Trademark- is a registered trademark of the Company.
PHARM2, uPACS, PRENVAL and MED-DOS are trademarks of the Company. This
prospectus also includes tradenames and trademarks of other companies.

i
<PAGE>
TWO PAGE PULLOUT

PICTURE DIAGRAM

EXAMPLE OF PHARMASYST WORKFLOW
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY SHOULD BE READ IN CONNECTION WITH AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE MORE DETAILED INFORMATION AND THE CONSOLIDATED
FINANCIAL STATEMENTS AND THE NOTES THERETO APPEARING ELSEWHERE IN THIS
PROSPECTUS. EXCEPT AS OTHERWISE SPECIFIED, ALL INFORMATION IN THIS PROSPECTUS
ASSUMES NO EXERCISE OF THE UNDERWRITER'S OVER-ALLOTMENT OPTION. REFERENCES TO
THE COMPANY INCLUDE BASE TEN SYSTEMS, INC. AND ITS WHOLLY-OWNED SUBSIDIARIES.
FOR A DISCUSSION OF CERTAIN RISK FACTORS AFFECTING THE COMPANY AND THE COMMON
STOCK, SEE "RISK FACTORS."

THE COMPANY

Base Ten Systems, Inc. (the "Company") designs, develops, manufactures and
markets complex, precision electronic systems for the defense industry and
comprehensive software solutions for the pharmaceutical industry. The Company's
products are used in safety critical applications requiring consistent, highly
reliable outcomes where any out-of-specification event could have a catastrophic
result. The Company developed a core competency in safety critical applications
from its historical focus on designing electronic systems used primarily in
weapons management systems for military aircraft. The Company has applied this
expertise to develop PHARMASYST, a computerized manufacturing execution system
("MES") used to automate, monitor, control and document highly regulated
manufacturing processes.

PHARMASYST operates on a PC-based system in an open client/server
environment and can be readily integrated with industry standard server database
engines. PHARMASYST is designed and marketed as a standard application, not a
custom solution or toolkit, for implementation into a customer's existing
manufacturing facility. PHARMASYST acts as an electronic monitor ensuring that
the production process complies with a predefined set of specifications in order
to produce a consistent product. The Company believes that PHARMASYST is the
only commercially available PC-based standardized MES solution.

The Company believes that PHARMASYST is applicable to the highly regulated
pharmaceutical manufacturing industry. The production of pharmaceuticals is
subject to the FDA's cGMP guidelines, which require that the production process
consistently execute the methodology previously submitted to the FDA by the
manufacturer along with verification of the clinical viability of its product.
PHARMASYST supports the manufacturer's verification of a compliant production
process in a manner which the Company believes is acceptable to the FDA.

PHARMASYST provides four manufacturing applications, consisting of
dispensing, electronic batch recording, inventory control, and document
management, which collectively encompass a production process. The Company is
currently developing PHARM2, an MES product integrating all of the PHARMASYST
applications. PHARM2 will integrate the four applications into a customer's
manufacturing environment, with only the purchased applications activated. The
Company believes this installation approach provides the customer with easy
access to additional applications and positions the Company as the preferred
solution provider. The Company expects to complete development of the initial
version of PHARM2 in the fourth quarter of 1996. Currently, the Company is
installing PHARMASYST applications in facilities of Abbott Hospital Products
Division, Bayer Inc., Instrument Laboratories, and Pfizer Inc. International
Pharmaceuticals Group and has received orders for PHARM2 from nine
pharmaceutical manufacturers for an additional 25 installations.

The Company is entering into collaborative relationships with computer
system integrators and others that can integrate PHARMASYST with the products
and services they provide. The Company has established a relationship with
STG-Coopers and Lybrand Consulting AG, Walsh Automation, a Canadian systems
integrator, Toyo Engineering Co., a Japanese developer of turnkey manufacturing
facilities, Bailey Controls Company, a provider of distributed control systems
and Intellution, Inc., a supplier of manufacturing systems for the
pharmaceutical industry.

1
<PAGE>
The Company continues to focus on developing and manufacturing weapons
management systems and other defense-related products. Currently, the Company
has ongoing development contracts with McDonnell Douglas Helicopter Systems,
Daimler-Benz AG, Aerospace, and Northrop Grumman Corporation, among others. Most
of these contracts relate to upgrading weapons systems for existing aircraft
fleets. In 1996 the Company entered into a program with McDonnell Douglas
Helicopter Systems to develop helicopter maintenance data recorders. The Company
has also designed secure communications devices used by the United States Navy
and the National Security Agency. During fiscal 1995 and the first six months of
fiscal 1996, approximately 85.2% and 84.1%, respectively, of the Company's
revenues were defense-related. The Company expects that its defense business
will continue to remain a significant component of its operations.

The Company seeks to continually increase the standardization and
functionality of PHARM2, develop strategic marketing relationships to improve
product distribution, target additional industries that the Company believes
would benefit from PHARM2's capabilities, and increase revenues from
defense-related business.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered.............. 2,000,000 shares (Class A Common Stock)

Common Stock outstanding after
the offering..................... 9,298,112 shares(1)

To fund continuing development of PHARMASYST and PHARM2,
develop a new image archiving system, increase sales and
marketing efforts and fund a portion of the purchase
price of its headquarters and manufacturing facility.
The balance of the proceeds will be used for working
capital and other general corporate purposes. See "Use
of Proceeds," "Business -- Properties" and "Certain
Transactions."
Use of proceeds...................

Nasdaq National Market symbol..... BASEA
</TABLE>

- --------------------------
(1) Excludes (i) the 450,177 shares of Common Stock issuable upon conversion of
the 450,177 shares of outstanding Class B Common Stock, (ii) 2,523,227
shares of Common Stock issuable upon exercise of outstanding stock options
and warrants and (iii) up to 115,000 shares of Common Stock issuable upon
exercise of warrants to be issued to the Underwriter. See "Risk Factors --
Control by Holders of Class B Common Stock," "Management -- Executive
Compensation," "Description of Capital Stock" and "Underwriting."

2
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED OCTOBER 31, APRIL 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Defense sales......................................... $ 21,829 $ 18,698 $ 15,597 $ 7,734 $ 6,280
Commercial sales...................................... -- -- 2,244 187 1,099
Other................................................. 433 584 466 213 91
--------- --------- --------- --------- ---------
Total revenues.......................................... 22,262 19,282 18,307 8,134 7,470
Cost of sales........................................... 14,958 12,996 11,813 5,530 5,193
--------- --------- --------- --------- ---------
Gross profit............................................ 7,304 6,286 6,494 2,604 2,277
Total operating expenses................................ 5,839 6,227 7,843 4,097 5,279
Write-off of software development costs................. -- -- -- -- 2,429
--------- --------- --------- --------- ---------
Earnings (loss) from operations......................... 1,465 59 (1,349) (1,493) (5,431)
Net earnings (loss)..................................... $ 958 $ 35 $ (875) $ (973) $ (5,431)

Net earnings (loss) per share........................... $ 0.18 $ 0.03 $ (0.13) $ (0.12) $ (0.70)
Weighted average shares................................. 7,131 7,569 6,926 7,170 7,708
</TABLE>

<TABLE>
<CAPTION>
APRIL 30, 1996
-------------------------
ACTUAL AS ADJUSTED(1)
--------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and equivalents............................................................... $ 1,994 $ 24,144
Working capital.................................................................... 9,375 31,525
Total assets....................................................................... 22,934 45,084
Total long-term liabilities........................................................ 3,847 3,847
Shareholders' equity............................................................... 15,172 37,322
</TABLE>

- --------------------------
(1) Adjusted to reflect the sale by the Company of 2,000,000 shares of Common
Stock offered hereby (at an assumed public offering price of $12.50 per
share) and the application of the net proceeds therefrom. See "Use of
Proceeds."

3
<PAGE>
RISK FACTORS

IN ADDITION TO THE OTHER INFORMATION INCLUDED AND INCORPORATED BY REFERENCE
IN THIS PROSPECTUS, THE FOLLOWING FACTORS SHOULD BE CAREFULLY CONSIDERED IN
EVALUATING THE COMPANY AND AN INVESTMENT IN THE COMMON STOCK.

RECURRING LOSSES

The Company experienced operating losses of $1.3 million in the year ended
October 31, 1995 and $5.4 million in the six months ended April 30, 1996. These
losses resulted primarily from reductions of defense-related revenues,
write-offs and amortization of software development expenditures incurred in
prior periods and expenses relating to marketing and sales of commercial
products. The Company anticipates incurring an additional loss in the third
fiscal quarter of 1996 and could continue to incur losses in subsequent periods.
The Company's ability to achieve profitable operations is dependent upon, among
other things, successful marketing of its manufacturing execution system
products and defense-related design and manufacturing services, cost-effective
development and manufacture of defense-related products, and successful
competition in the markets in which the Company participates. There can be no
assurance that the Company will be able to attain or maintain profitability. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

The Company's revenues and operating results are subject to significant
quarterly fluctuations. If, as a result of such fluctuations, the Company's
operating results in a quarter are below the expectations of public market
analysts and investors, the price of the Company's Common Stock could be
materially and adversely affected. Factors that could cause such fluctuations
include the time of revenue recognition; changes in customer capital and
resource commitment; changes in product mix; the introduction of new products or
product improvements by the Company or its competitors; and changes in operating
expenses. The timing of revenues from defense-related programs can be
significantly affected by government procurement processes and disruptions due
to political and other events over which the Company has no control. The timing
of revenues from manufacturing execution systems can be affected by such factors
as long sales cycles and delays in customer authorization procedures. In the
second quarter of fiscal 1996, the Company determined that its PHARM2 product
had recently become standardized. Since most orders for this product did not
meet the criteria for long-term contract accounting, the Company determined that
it should recognize revenues from product orders on delivery. As a result,
revenues from certain orders for PHARM2 that would have been recognized in the
second and third quarters of fiscal 1996 had the percentage-of-completion method
of revenue recognition been appropriate will not be recognized until a
subsequent period. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

DEPENDENCE ON PHARMASYST PRODUCTS

The Company believes its potential for long-term growth will depend
significantly on the success of its PHARMASYST products. The Company has devoted
substantial resources to the development of PHARMASYST products, including $3.2
million that was capitalized and will be amortized over four years commencing in
fiscal 1995. The Company has delivered only a limited number of PHARMASYST
applications. The installation of an MES in a manufacturing facility is a
complex process involving integration with existing hardware platforms,
operating systems and other existing systems. Once a system is installed, it
must undergo testing to ensure it operates and performs as defined and required.
The manufacturing process, of which the MES is a component, must undergo further
testing for validation in accordance with defined procedures. Currently, none of
the Company's installed PHARMASYST system is operating as a primary
manufacturing execution system; each requires additional system integration and
completion of procedures to "validate" that the system adequately documents
compliance with cGMP. The success of PHARMASYST products will depend on the
Company's ability to integrate PHARMASYST into existing manufacturing facilities
systems and the customer's ability to validate its manufacturing process. The
Company's success will also depend on its ability to establish strategic
relationships with leading systems integrators and

4
<PAGE>
other marketing efforts. There can be no assurance that PHARMASYST will achieve
market acceptance. Failure of PHARMASYST to achieve market acceptance would have
a material adverse effect on the Company's business, results of operations and
financial condition.

The Company is focusing its PHARMASYST-related efforts on developing and
marketing PHARM2. However, the development of PHARM2 has not been completed, and
the Company is late on several installation contracts, and, with the passage of
time, may become late on additional contracts. The Company's customers have the
right to cancel contracts in the event the Company fails to perform. Should the
Company be unable to complete development of PHARM2, or if existing or future
customers cancel outstanding contracts, the Company's business, results of
operations and financial condition would be adversely affected. See "Business --
Commercial Products -- PHARMASYST."

DEPENDENCE ON DEFENSE CONTRACTING; CONCENTRATION OF CUSTOMERS

The Company is highly dependent upon its defense-related business. In fiscal
1995, and in the first six months of fiscal 1996, 85.2% and 84.1%, respectively,
of the Company's total revenues was derived from such business. Defense-related
contracts are subject to inherent risks relating to governmental procurement
processes and political developments, including reductions in defense spending
of both the U.S. or foreign governments to which the Company sells, reductions
in funds for particular projects, and the ability of government agencies to
terminate contracts or funding. Most of the Company's defense-related activities
are conducted pursuant to subcontracts with prime defense contractors to
government agencies. Profit margins on contracts involving the U.S. government
are subject to restrictions. The termination or modification of any project in
which the Company participates could have an adverse effect on the Company. A
substantial portion of the Company's defense business has been with two
customers, Daimler-Benz AG, Aerospace ("DASA") and McDonnell Douglas Helicopter
Systems. For the year ended October 31, 1995 and the six months ended April 30,
1996, these two customers collectively accounted for 34.1% and 40.6%,
respectively, of the Company's total revenues. Reductions in defense spending,
adverse developments in the Company's relationship with one or more significant
prime contractors, or loss of one or more significant contracts would have a
material adverse effect on the Company's results of operations and financial
condition. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- Defense-Related Products."

LIMITED COMMERCIAL MARKETING EXPERIENCE; RELIANCE ON THIRD-PARTY DISTRIBUTION
ASSISTANCE

The Company has limited experience selling products in commercial markets
and intends to rely on an internal sales force and strategic marketing
relationships. The Company has a limited number of sales people and is in the
process of expanding its sales force. There can be no assurance that the Company
will be able to identify and hire additional qualified sales people. The Company
also intends to rely substantially on strategic relationships with system
integrators and suppliers of manufacturing automation systems and equipment. The
Company has entered into a limited number of such relationships. To date, no
revenues have been generated from these relationships. Many of these strategic
partners have similar relationships with certain competitors of the Company or
may offer competing products. There can be no assurance that the Company will be
successful in establishing an internal sales force or such relationships, that
any of these third parties will not give higher priority to competing products
or that any such third parties will be successful in selling the Company's
products. See "Business -- Sales and Marketing."

TECHNOLOGICAL OBSOLESCENCE; CHANGING REQUIREMENTS FOR MANUFACTURING EXECUTION
SOFTWARE

The markets in which the Company competes are characterized by rapid
technological change. Competitors may develop and market products embodying new
technologies that can render the Company's existing products obsolete and
unmarketable. The market for manufacturing execution software is subject to
changes in customer requirements arising out of, among other things, changes in
manufacturing processes, management information systems, manufacturing resource
planning systems and regulatory requirements. The Company's ability to market
PHARMASYST and any similar

5
<PAGE>
future products successfully will depend in part on its ability to update and
improve those products to address technological and regulatory developments. Any
failure by the Company to anticipate or respond adequately to such developments,
or any significant delays in product improvements or introductions could result
in a loss of competitiveness and could have a material adverse effect on the
Company's business results of operations and financial condition. There can be
no assurance that the Company will be successful in developing such
improvements. See "Business -- Manufacturing Industry Background" and "--
Research and Development."

COMPETITION

The markets in which the Company competes are intensely competitive. The
Company believes competition in the manufacturing execution software market is
likely to increase substantially for a number of reasons. A number of companies
offering products for discrete manufacturers have announced plans to introduce
products designed for process manufacturers. Some companies that offer
host-based systems have begun to offer or have announced plans to introduce
client/server-based systems for process manufacturers and to increase the number
of hardware platforms on which their software operates. Companies addressing
complementary customer needs may develop or acquire technology to compete.
Competitors may merge or establish cooperative relationships with each other or
with third parties to increase their ability to address the needs of the
Company's prospective customers. In the market for defense-related products, the
Company competes with many well-established U.S. and foreign manufacturers of
weapons control and similar equipment, many of whom offer a broader product line
to government customers and who have established extensive relationships with
contracting agencies. Many of the Company's competitors are larger and more
established and may be able to respond more quickly than the Company to new or
emerging technologies, changes in customer requirements, or regulatory changes,
or to devote greater resources to developing, promoting and marketing their
products than can the Company. Increased competition could result in price
reductions, reductions in gross margins and loss of market share, any of which
could materially and adversely affect the Company's business, results of
operations and financial condition. There can be no assurance that the Company
will compete successfully with existing or new competitors or that competitive
pressures will not materially and adversely affect the Company's business,
results of operations, and financial condition. See "Business -- Competition."

MANAGEMENT OF CHANGING BUSINESS

The Company has recently experienced significant changes in its business,
including increased emphasis on developing, producing, marketing and selling
commercial software products. This shift involves the establishment of strategic
marketing relationships and the addition of marketing and technological
personnel for its commercial software products. These changes have placed and
may continue to place a significant strain on the Company's management and
operations. If the Company experiences significant growth, it may be required to
hire, train and manage additional, qualified personnel in areas in which the
Company does not have significant experience and may be required to implement
improvements to its operations, financial and management information systems. If
the Company is unable to attract and manage such additional personnel or to
implement such improvements, its business, results of operations and financial
condition could be adversely affected. See "The Company," "Management's
Discussion and Analysis of Results of Operations and Financial Condition" and
"Business -- Strategy."

PRODUCT DEFECTS; PRODUCT LIABILITY

The Company's products are designed for use in applications in which errors
or failures could have catastrophic results. The Company's defense-related
products include weapons control systems intended, among other things, to
prevent unintended deployment of weapons and disruption of combat aircraft
performance during weapons deployment. Pharmaceutical manufacturing customers
will rely on PHARMASYST products for, among other things, quality control and
compliance with cGMP and other regulatory requirements. A claim may be made that
a defect in a PHARMASYST product failed to prevent defects in pharmaceutical
products, which injured consumers. Certain other products of the Company are
involved in critical healthcare decision making processes. The Company

6
<PAGE>
maintains product liability insurance of $5.0 million for commercial products
and $16.0 million for defense-related products, subject to certain deductibles
and exclusions. There can be no assurance that the Company's existing insurance
would be adequate to cover any claims arising out of alleged defects or that the
Company will be able to obtain and maintain adequate insurance coverage in the
future.

RELIANCE ON SINGLE SOURCE OF SUPPLY

The Company's manufacturing operations involve the assembly of final
products from components and subassemblies supplied by other manufacturers. The
Company relies on single sources of supply for certain components and
subassemblies that are manufactured to its specifications. There can be no
assurance that the Company would be able to locate acceptable alternative
sources of supply on favorable terms or on a timely basis, if any of such single
sources were to become unable to support the Company's requirements. The Company
could experience production delays and increased costs if any such single
sources were to fail to satisfy the Company's requirements and the Company were
unable to make acceptable alternative arrangements on a timely basis. Such
delays could have a material adverse effect on the Company's business, results
of operations and financial condition. See "Business -- Manufacturing."

PROPRIETARY RIGHTS

The Company attempts to protect its proprietary technology with a
combination of copyrights, trademarks, patents, and reliance on trade secret law
and contractual arrangements. Existing copyright and trade secret laws afford
only limited practical protection and customer access to source codes may
increase the possibility of misappropriation or other misuse of the Company's
software. The laws of some foreign countries do not protect proprietary rights
to the same extent as do the laws of the U.S. There can be no assurance that the
Company's precautions will be adequate to prevent others from obtaining
information the Company considers proprietary and important to its competitive
position or that others will not independently develop similar technologies.
While the Company does not believe any of its products infringe the rights of
any third parties, there can be no assurance that third parties will not assert
claims of infringement against the Company, that any such assertion will not
result in costly litigation or require the Company to obtain licenses to
intellectual property rights, or that such licenses will be available on
reasonable terms, if at all. See "Business -- Proprietary Rights."

DEPENDENCE ON KEY PERSONNEL

The Company believes its success will depend in large part upon its ability
to attract and retain highly skilled technical, managerial and sales and
marketing personnel, and to retain its personnel with process manufacturing
expertise. Competition for such personnel is intense, and the services of
qualified personnel are difficult to obtain or replace. The Company has from
time to time experienced difficulty in locating candidates with appropriate
qualifications. In particular, the Company has encountered difficulties in
hiring sufficient numbers of technical service personnel. There can be no
assurance that the Company will be successful in attracting and retaining the
personnel required to develop, market, service and support its products and
conduct its operations successfully. See "Business -- Employees" and "Management
- -- Directors and Executive Officers."

FOREIGN TRADE AND CURRENCY EXCHANGE RELATED RISKS

A portion of the Company's revenues is derived from foreign customers and is
subject to disruption by political and economic conditions abroad. Currency
exchange fluctuations could increase the price of the Company's products to
foreign customers or decrease the price of competing foreign products to U.S.
customers.

7
<PAGE>
DEPENDENCE ON CONTINUATION OF SECURITY CLEARANCES

The Company relies on the continuance of its security clearances and
clearances of certain of its employees from agencies of the United States and
NATO member governments for its defense products. Loss of security clearances by
the Company or certain key personnel could have an immediate and adverse affect
on the Company's business.

DEPENDENCE ON APPROVAL OF PRODUCT EXPORT

The export of certain technology included in the Company's software products
requires advance approval by the Department of Defense. Although the Company has
secured the approvals necessary to export its current products, a change in
government policy or a change in applicable law could prevent marketing of the
Company's products outside of the United States. Similarly, exportation of
certain medical devices the Company may develop could require prior FDA
clearance. Any failure to obtain required FDA approvals or a change in the law
preventing foreign sales could limit the ability of the Company to market its
products outside the United States.

CONTROL BY HOLDERS OF CLASS B COMMON STOCK

Holders of the Company's Class B common stock ("Class B Common Stock"), of
which 52.7% on a fully diluted basis is owned by officers and directors of the
Company, are entitled to elect 75% of the members of the Company's Board of
Directors. In addition, holders of Class B Common Stock are entitled to cast one
vote per share of such stock, compared to one-tenth of one vote per share of
Common Stock, on all matters submitted to the Company's stockholders other than
the election of directors. Prior to this offering, this would entitle holders of
Class B Common Stock to 38.1% of the Company's combined voting power on those
matters and, following this offering, they will hold to 32.6% of such voting
power. Holders of Class B Common Stock will continue to be entitled to elect 75%
of the members of the Board. See "Description of Capital Stock."

DISCRETION IN USE OF PROCEEDS

The Company currently has no specific plans for the use of a significant
portion of the net proceeds of this offering and Company management will have
broad discretion as to the application of such proceeds. The net proceeds will
be available for working capital and general corporate purposes, including
potential acquisitions. See "Use of Proceeds."

ABSENCE OF DIVIDENDS

The Company has not paid dividends on its Common Stock or its Class B Common
Stock since 1985 and presently intends to retain any future earnings for
reinvestment in its businesses. Accordingly, the Company does not anticipate
paying any dividends in the foreseeable future.

8
<PAGE>
THE COMPANY

The Company was incorporated in the State of New Jersey in 1966. The
Company's principal offices are located at One Electronics Drive, Trenton, New
Jersey 08619, telephone number (609) 586-7010. The Company has two operating
divisions, the Medical Technology Division, which develops, produces and sells
commercial products, and the Government Technology Division, which develops,
produces and sells defense-related and secure communications products.

The Company initially developed and manufactured flight test instrumentation
for missile, space and fighter aircraft programs for the U.S. and NATO-member
governments. In 1976, the Company began to develop and manufacture the Stores
Management System ("SMS"), a weapons control system incorporated into the German
and Italian versions of the Tornado fighter aircraft. The SMS is used for
complex weapons systems in high performance military aircraft. The SMS
communicates the status of all on-board weapons systems and allows the operator
to select, activate and deploy specific weapons. Since its initial deployment in
1978, the SMS has operated without any reported flight safety deficiencies.

Weapons control systems used in high-performance fighter aircraft are known
as "safety critical." The term "safety critical" generally refers to
circumstances and activities in which the consequences of an
out-of-specification or unexpected occurrence or event, such as the unintended
firing of a weapon, would have catastrophic end results. A safety critical
system provides real-time monitoring of individual steps of a process, comparing
results to defined operating parameters. If the results of a step fall outside
of specified parameters, the system is designed to intervene in order to prevent
a catastrophic outcome. Through its development of the SMS and other weapons
system, the Company has developed expertise in the design and implementation of
technology for safety critical applications.

The Company applies its safety critical expertise to developing commercial
applications for highly regulated industries, such as pharmaceutical
manufacturing, and certain medical diagnostic and analytical products. PRENVAL,
a software package used to aid in the detection of birth defects, was submitted
to the FDA in 1992 and received FDA clearance to be marketed as a database
management tool for calculations and reports used in the assessment of prenatal
abnormalities. The Company is not now marketing PRENVAL. PRENATA, a software
system to aid in risk estimation of fetal abnormalities using multiple markers
was developed by Base Ten Systems, Ltd., the Company's United Kingdom
subsidiary, and is currently marketed in Europe by Johnson & Johnson Clinical
Diagnostic Division ("Johnson & Johnson") in conjunction with its
radioimunoassay business. The Company developed PHARMASYST, a management
execution system, and uPACS for archiving medical images. The Company has
patented concepts for certain "regulatory implementation" software that has not
been developed. See "Business -- Commercial Products."

PHARMASYST represents the most significant commercial application of the
Company's safety critical expertise. PHARMASYST is a manufacturing execution
system designed to monitor, control and document individual steps in a
manufacturing process and to facilitate and document a manufacturer's compliance
with cGMP regulations. The Company is installing PHARMASYST products in four
sites and has orders for 25 additional installations from nine other customers.

The Company continues to develop and manufacture weapons management systems
and other safety critical defense-related products. Most of the contracts for
these products relate to upgrading of weapons systems for existing aircraft
fleets. During 1995 and the first six months of 1996, the Company derived
approximately 85.2% and 84.1% of total revenues, respectively, from its defense-
related business. In April 1996 the Company was selected by McDonnell Douglas
Helicopter Systems to develop maintenance data recorders (black boxes) for the
U.S. Army's Apache helicopter. The Company expects to derive a significant
percentage of its revenues from the sale of defense-related products for the
near future.

9
<PAGE>
USE OF PROCEEDS

The net proceeds to the Company from the sale of Common Stock offered hereby
are estimated to be $22.2 million ($25.7 million if the Underwriter's
over-allotment option is exercised in full), assuming a public offering price of
$12.50 per share, after deduction of estimated underwriting discounts and
commissions and offering expenses payable by the Company. The Company intends to
use approximately $6.0 million for continued development of PHARMASYST and
PHARM2, and new versions and upgrades of its manufacturing execution systems;
approximately $1.5 million for development of a new image archiving system to be
marketed under the uPACS name, and approximately $2.0 million for additional
sales, marketing and support activities. In addition, the Company may apply
approximately $1.5 million towards the purchase of its Trenton, New Jersey
headquarters and manufacturing facility. The balance of the proceeds will be
used for general corporate purposes, including working capital, and may be used
to acquire complementary businesses, products or technologies. The Company has
no present understandings, commitments or agreements for any material
acquisitions, nor is it engaged in any negotiations for any such acquisition. No
portion of the proceeds has been allocated to any specific acquisition.

The amounts actually expended for each of the foregoing uses of the net
proceeds of this offering may vary significantly depending on numerous factors,
including market acceptance of new products, marketing alliances or licensing
arrangements that may be developed, and regulatory approval requirements.
Pending their application, the net proceeds of this offering will be invested in
investment grade, short term, interest bearing securities. The Company's
management will have discretion as to the use of a substantial portion of the
funds raised in this offering.

10
<PAGE>
CAPITALIZATION

The following table sets forth as of April 30, 1996, the actual
capitalization of the Company and as adjusted to give effect to the sale of the
Common Stock offered hereby at an assumed offering price of $12.50 per share and
the application of the estimated net proceeds therefrom.

<TABLE>
<CAPTION>
APRIL 30, 1996
-----------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS EXCEPT
FOR SHARES DATA)
<S> <C> <C>
Long-term liabilities:
Capital lease obligations......................................................... $ 3,502 $ 3,502
Other long-term liabilities....................................................... 345 345
---------- -----------
Total long-term liabilities..................................................... 3,847 3,847
Shareholders' equity:
Preferred stock, $1.00 par value; 1,000,000 shares authorized, none issued........ -- --
Class A Common Stock, $1.00 par value; 22,000,000 shares authorized; 7,298,112
shares outstanding; and 9,298,112 shares outstanding as adjusted (1)............. 7,298 9,298
Class B Common Stock, $1.00 par value; 2,000,000 shares authorized; 450,177 shares
outstanding actual and as adjusted............................................... 450 450
Additional paid-in capital........................................................ 24,218 44,368
Accumulated deficit............................................................... (16,610) (16,610)
Equity adjustment from foreign currency translation............................... (184) (184)
---------- -----------
Total shareholders' equity...................................................... 15,172 37,322
---------- -----------
Total capitalization................................................................ $ 19,019 $ 41,169
---------- -----------
---------- -----------
</TABLE>

- ------------------------------
(1) Excludes (i) 450,177 shares of Common Stock issuable upon conversion of the
outstanding Class B Common Stock, (ii) 2,523,227 shares of Common Stock
issuable upon exercise of outstanding stock options and warrants and (iii)
up to 115,000 shares of Common Stock issuable upon exercise of a warrant to
be issued to the Underwriter. See "Risk Factors -- Control by Holders of
Class B Common Stock," "Management -- Executive Compensation," "Description
of Capital Stock" and "Underwriting."

11
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDENDS

The Common Stock is quoted on the Nasdaq National Market under the symbol
"BASEA," and the Class B Common Stock is quoted in the Nasdaq Small Cap market
on its Supplemental List under the symbol "BASEB." The price ranges presented
below represent high and low sale prices for each quarter, as reported by the
Nasdaq.

<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK
----------------- -----------------
HIGH LOW HIGH LOW
------- ------- ------- -------
<S> <C> <C> <C> <C>
Fiscal Year 1994:
November 1993 - January 1994.......... $ 9 3/4 $ 7 3/4 $ 9 1/2 $ 7 3/4
February - April 1994................. 9 1/4 7 1/8 9 1/8 7 1/4
May - July 1994....................... 9 1/2 6 5/8 9 1/4 6 5/8
August - October 1994................. 9 5/8 7 3/8 9 1/2 7 1/2
Fiscal Year 1995:
November 1994 - January 1995.......... $ 8 1/4 $ 6 1/4 $ 8 $ 6 5/8
February - April 1995................. 9 6 3/4 9 1/8 7 1/2
May - July 1995....................... 10 1/8 6 3/4 10 3/4 7
August - October 1995................. 11 5/8 9 1/8 12 3/8 10 1/8
Fiscal Year 1996:
November 1995 - January 1996.......... $13 1/4 $10 1/8 $12 5/8 $10 1/2
February - April 1996................. 11 1/8 8 7/8 11 1/4 9 1/2
May 1 through June 17, 1996........... 13 1/2 9 15/16 14 1/2 11 3/8
</TABLE>

As of May 31, 1996, there were approximately 718 record holders of the
Common Stock and 169 record holders of the Class B Common Stock.

The Company has not paid dividends on its Common Stock or Class B Common
Stock since 1985 and presently intends to retain any future earnings for
reinvestment in the business. Accordingly, the Company does not anticipate
paying any dividends in the foreseeable future. The payment of future dividends,
if any, will be at the discretion of the Board and will be dependent on future
earnings, financial condition, capital requirements and other relevant factors.
See "Risk Factors -- Absence of Dividends."

12
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA

The following tables present selected financial data for the Company as of
the dates and for the periods indicated. The financial information at and for
the fiscal year ended October 31 in each of the five years presented is derived
from the audited consolidated financial statements of the Company. The financial
information at April 30, 1996, and for the six months ended April 30, 1995 and
1996 is derived from the Company's unaudited financial statements and, in the
opinion of the Company, includes all adjustments (consisting only of normal
recurring accruals and adjustments) necessary for the fair presentation of the
financial information for those periods. The results of operations for the six
months ended April 30, 1995 and 1996 are not necessarily indicative of results
to be expected for any future period. The financial information should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements of the
Company for the fiscal years ended October 31, 1993, 1994 and 1995 and for the
six months ended April 30, 1995 and 1996, and related Notes, included elsewhere
in this Prospectus.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED OCTOBER 31, APRIL 30,
------------------------------------------------------ --------------------
1991 1992 1993 1994 1995 1995 1996
---------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Defense sales............................. $ 26,327 $ 18,595 $ 21,829 $ 18,698 $ 15,597 $ 7,734 $ 6,280
Commercial sales.......................... -- -- -- -- 2,244 187 1,099
Other..................................... 732 473 433 584 466 213 91
---------- --------- --------- --------- --------- --------- ---------
Total revenues.............................. 27,059 19,068 22,262 19,282 18,307 8,134 7,470
Cost of sales............................... 21,108 13,693 14,958 12,996 11,813 5,530 5,193
---------- --------- --------- --------- --------- --------- ---------
Gross profit................................ 5,951 5,375 7,304 6,286 6,494 2,604 2,277
Operating expenses:
Selling, general and administrative....... 11,415 3,531 5,147 5,131 5,796 3,242 3,895
Research and development.................. 2,637 1,168 403 887 863 386 562
Amortization.............................. -- -- -- -- 630 187 561
Write-off of software development costs... -- -- -- -- -- -- 2,429
Restructuring............................. 5,436 (496) -- -- -- -- --
Interest.................................. 905 477 289 209 554 282 261
---------- --------- --------- --------- --------- --------- ---------
Total operating expenses.................... 20,393 4,680 5,839 6,227 7,843 4,097 7,708
---------- --------- --------- --------- --------- --------- ---------
Earnings (loss) before income taxes
(benefit).................................. (14,442) 695 1,465 59 (1,349) (1,493) (5,431)
Income tax benefit (provision) (1).......... 1,600 -- (507) (24) 474 520 --
---------- --------- --------- --------- --------- --------- ---------
Net earnings (loss)......................... $ (12,842) $ 695 $ 958 $ 35 $ (875) $ (973) $ (5,431)
---------- --------- --------- --------- --------- --------- ---------
---------- --------- --------- --------- --------- --------- ---------
Net earnings (loss) per share............... $ (3.65) $ 0.19 $ 0.18 $ 0.03 $ (0.13) $ (0.12) $ (0.70)
Weighted average shares outstanding:........ 3,516 3,697 7,131 7,569 6,926 7,170 7,708
</TABLE>

<TABLE>
<CAPTION>
OCTOBER 31, APRIL 30,
----------------------------------------------------- -----------
1991 1992 1993 1994 1995 1996
--------- --------- --------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and equivalents..................... $ 2,917 $ 736 $ 3,803 $ 1,868 $ 7,221 $ 1,994
Working capital.......................... 2,602 1,858 6,365 5,860 14,420 9,375
Total assets............................. 20,835 13,054 17,255 17,609 28,005 22,934
Long-term liabilities.................... 6,000 4,675 3,212 4,274 3,964 3,847
Total shareholders' equity............... 1,176 1,974 7,957 9,431 20,261 15,172
</TABLE>

- --------------------------
(1) For the year ended October 31, 1992 the income tax provision of $198 was
offset by the utilization of loss carryforwards.

13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

GENERAL

The Company designs, develops, manufactures and markets complex precision
electronic systems for the defense industry and comprehensive software solutions
for the pharmaceutical manufacturing industry. The Company's products are used
in safety critical applications requiring consistent, highly reliable outcomes
where any deviation from the defined outcome could have catastrophic
end-results. The Company developed a core competency in safety critical
applications from its historical focus, the development of electronic systems
used primarily in weapons management systems. The Company is now applying this
expertise to develop PHARMASYST, a manufacturing execution system targeted at
the pharmaceutical industry. The defense business generated 85.2% and 84.1% of
total revenues for the year ended October 31, 1995 and the six months ended
April 30, 1996, respectively. The Company expects that the defense business will
remain a significant component of operations.

The Company has generally accounted for substantially all its revenues using
the percentage-of-completion method. Under this method, revenues are recognized
for each period based upon the portion of a contract completed during such
period, with customer invoicing and payments often occurring on a different
cycle. As a result, accounts receivable include work that has been completed,
but that has not been billed. This approach is applicable for custom development
or manufacturing projects. In the second quarter of fiscal 1996, the Company
determined that its PHARM2 product had recently become standardized. Since most
orders for this product did not meet the criteria for long-term contract
accounting, the Company determined that it should recognize revenues from
product orders, generally on delivery. As a result, revenues from certain orders
for PHARM2 that would have been recognized in the second and third quarters of
fiscal 1996 had the percentage-of-completion method of revenue recognition been
appropriate will not be recognized until subsequent periods.

Research and development for defense-related projects is performed under
development contracts with prime contractors under which the Company generally
receives full or partial funding. Funding under these contracts are accounted
for as revenues.

Software development expenditures are expensed as research and development
until a product attains technological feasability. Thereafter, expenditures are
capitalized until products attain commercial viability. The Company established
technological feasability for PHARMASYST in 1993 and subsequently capitalized
$3.2 million in expenditures. In addition, an aggregate of $1.7 million and $1.1
million related to the development of its medical screening software and
ultrasound image archiving software, respectively, has been capitalized.
Development expenditures for PHARMASYST and other commercial products have
consisted primarily of salaries of software engineers and quality assurance
staff plus applicable overhead. The amortization period for PHARMASYST is four
years.

In the second quarter of fiscal 1996 the Company conducted its regular
quarterly review of the recoverability of its capitalized software costs and
determined that neither PRENVAL nor uPACS would achieve sufficient revenues in
future periods to justify retention of the related capitalized costs.
Accordingly the Company wrote off the $2.4 million balance of such capitalized
costs. With respect to PRENVAL, it became apparent to the Company in late
February 1996, after a discussion with the licensee, that market acceptance of
the product was less than anticipated. Thereafter, in May 1996, the Company
determined that the licensee had no current plans to market the product in the
U.S. as was originally anticipated by the Company and that, as a result, sales
would not exceed the amount necessary to generate royalties in excess of the
minimum provided under the license. Effective as of the end of the second
quarter of fiscal 1996, management resolved to suspend further development of
PRENVAL. However, the Company will provide marketing support for the remainder
of the license term. With respect to uPACS, the Company had implemented sales
efforts in late 1995 and displayed the product at certain trade shows in Europe.
In December 1995, sales were anticipated for early 1996. However, by early April
1996 it became clear that the anticipated sales would not materialize. The

14
<PAGE>
Company concluded that the product, as it existed, would not generate sufficient
sales to recover the capitalized costs, and that only a new product with
networking, communications and off-line measurement capabilities would be
capable of producing acceptable sales volume.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, certain items
expressed as a percentage of total revenues.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED OCTOBER 31, APRIL 30,
------------------------------ --------------------
1993 1994 1995 1995 1996
-------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Defense sales.................... 98.0% 97.0% 85.2% 95.1% 84.1%
Commercial sales................. -- -- 12.3 2.3 14.7
Other............................ 2.0 3.0 2.5 2.6 1.2
-------- -------- -------- --------- --------
Total revenues..................... 100.0 100.0 100.0 100.0 100.0
Cost of sales...................... 67.2 67.4 64.5 68.0 69.5
-------- -------- -------- --------- --------
Gross margin....................... 32.8 32.6 35.5 32.0 30.5
Operating expenses:
Selling, general and
administrative.................. 23.1 26.6 31.7 39.9 52.1
Research and development......... 1.8 4.6 4.7 4.7 7.5
Amortization..................... -- -- 3.5 2.3 7.5
Write-off of software development
costs........................... -- -- -- -- 32.5
Interest......................... 1.3 1.1 3.0 3.5 3.5
-------- -------- -------- --------- --------
Total operating expenses........... 26.2 32.3 42.9 50.4 103.1
-------- -------- -------- --------- --------
Earnings (loss) before income taxes
(benefit)......................... 6.6 0.3 (7.4) (18.4) (72.6)
Income tax benefit (provision)..... (2.3) (0.1) 2.6 6.4 --
-------- -------- -------- --------- --------
Net earnings (loss)................ 4.3% 0.2% (4.8)% (12.0)% (72.6)%
-------- -------- -------- --------- --------
-------- -------- -------- --------- --------
</TABLE>

SIX MONTHS ENDED APRIL 30, 1996 AND 1995

Total revenues decreased by $664,000, or 8.2%, from $8.1 million for the six
months ended April 30, 1995 to $7.5 million for the same period in 1996.
Revenues from defense operations declined by $1.4 million or 18.2% from $7.7
million for the six months ended April 30, 1995 to $6.3 million for the same
period of 1996. Revenues from commercial operations increased by $912,000, or
488%, from $187,000 during the six months ended April 30, 1995 to $1.1 million
for the same period in 1996.

The decline in defense revenues resulted from a reduction of $1.9 million,
or 63.3%, in the amount of contract manufacturing business from $3.0 million to
$1.1 million. The reduction was partially offset by an increase in revenues from
contracts with a single customer amounting to approximately $400,000, or 17.4%,
from $2.3 million to $2.7 million.

The increase in commercial revenues resulted from sales of PHARMASYST
products in the six months ended April 30, 1996. Commercial product revenues
amounted to 2.3% and 14.7% of total revenues during the six months ended April
30, 1995 and 1996, respectively.

Cost of sales declined by $337,000, or 6.1%, from $5.5 million in the six
months ended April 30, 1995 to $5.2 million in the same period in 1996. The
reduction resulted from a decline in total defense sales. Gross margin decreased
from 32.0% to 30.5%. The fixed nature of certain expenses, together with a
reduction in sales, caused a reduction in gross margin, partially offset by an
increased proportion of higher margin PHARMASYST sales in the Company's product
mix during 1996.

Selling, general and administrative expenses increased by approximately
$653,000, or 20.1%, from $3.2 million in the six months ended April 30, 1995 to
$3.9 million in the same period in 1996 and increased as a percentage of
revenues from 39.9% for the six months ended April 30, 1995 to 52.1% for

15
<PAGE>
the same period in 1996. The increase consisted of (i) $100,000 in salaries
relating to the addition of new sales personnel and $160,000 for salary
increases to existing personnel, (ii) $75,000 in advertising and travel relating
to the Company's commercial products, (iii) $180,000 in professional fees and
(iv) $138,000 in various other costs.

Research and development expense increased by $176,000 or 45.6% from
$386,000 in the six months ended April 30, 1995 to $562,000 for the same period
in 1996 and increased as a percentage of revenues from 4.7% to 7.5%.
Capitalization of software development costs increased by approximately $1.0
million or 90.1% from $1.1 million in 1995 to $2.2 million in 1996. The increase
consists primarily of an increase of $940,000 relating to the development of
PHARMASYST and $270,000 relating to a weapons control project initiated in 1996,
partially offset by a decrease of $360,000 relating to the development of
PRENVAL. The Company reviews the commercial feasibility of its capitalized
assets on a quarterly basis to determine their projected useful life.

Amortization expense increased by $374,000 or 200.0% from $187,000 in the
six months ended 1995 to $561,000 for the same period in 1996. The increase
primarily reflects initiation of amortization of capitalized software costs of
PHARMASYST products in 1996.

Interest expense decreased by $21,000 due to the reduction of the
capitalized lease obligation through amortization.

FISCAL 1995 COMPARED TO FISCAL 1994

Total revenues declined by $975,000, or 5.1%, from $19.3 million in fiscal
1994 to $18.3 million in fiscal 1995. Revenues from defense-related operations
declined by $3.1 million, or 16.6%, from $18.7 million to $15.6 million.
Revenues from commercial operations were $2.2 million in 1995. There were no
commercial revenues in 1994.

The decline in defense revenues reflects reduced defense budgets in the U.S.
and Western Europe and was partially offset by a $2.3 million increase in
contract manufacturing revenues related to the commencement of a manufacturing
contract. Defense revenues accounted for 97.0% and 85.2% of total revenues
during 1994 and 1995, respectively.

Revenues from commercial operations consisted of royalties generated from
sales of PRENATA and $500,000 of initial sales of PHARMASYST. During 1995, the
Company licensed certain medical screening technology to Johnson & Johnson
Clinical Diagnostic Division for use in its PRENATA medical screening kit and
entered into a corresponding five year royalty agreement. Using the
percentage-of-completion method, the Company recognized revenues of $1.8
million, representing the aggregate minimum royalty payments due under the
agreement. Commercial product revenues accounted for 12.3% of total revenues
during 1995.

Cost of sales declined by approximately $1.2 million, or 9.1%, from $13.0
million in 1994 to $11.8 million in 1995. The decline was attributable to the
decline in total revenues. Gross margin increased from 32.6% to 35.5%. This
increase is attributable to approximately $2.2 million of sales of relatively
high margin PRENATA and PHARMASYST products during 1995.

Selling, general and administrative expenses increased by approximately
$665,000, or 13.0%, from $5.1 million in 1994 to $5.8 million in 1995 and
increased as a percentage of revenues from 26.6% to 31.7%. This increase
consisted primarily of (i) $450,000 in salaries relating to the addition of new
sales personnel, (ii) $115,000 in advertising of commercial products and (iii)
$268,000 in travel expenses relating to the addition of new sales people and
increased participation in trade shows. The increase was partially offset by a
$289,000 decrease in officers' salary expense relating to a cost reduction
program implemented in fiscal 1995 and a $230,000 decrease in employee group
insurance expenses relating to the adoption of a new plan.

Research and development expenses declined by $24,000, or 2.7%, from
$887,000 in 1994 to $863,000 in 1995 and remained relatively constant as a
percentage of revenues. Capitalization of software development costs increased
by approximately $1.3 million, or 81.3%, from $1.6 million in

16
<PAGE>
1994 to $2.9 million in 1995. This increase consisted primarily of $570,000,
$460,000 and $410,000 in increased capitalization of development costs relating
to PHARMASYST, uPACS and a weapons control system, respectively, partially
offset by lower development costs related to PRENVAL.

Interest expense increased by $345,000, or 165.1%, from $209,000 in 1994 to
$554,000 in 1995 and increased as a percentage of revenues from 1.1% to 3.0%.
The 1994 mortgage interest was replaced in 1995 by capital lease amortization
pursuant to the October 1994 sale and leaseback of the Company's principal
facility.

FISCAL 1994 COMPARED TO FISCAL 1993

Total revenues decreased by $3.0 million, or 13.4%, from $22.3 million in
fiscal 1993 to $19.3 million in fiscal 1994. The decrease resulted primarily
from the decline in the defense-related business, as the Company did not have
any revenues from commercial operations during either fiscal 1993 or fiscal
1994.

Defense-related revenues declined $4.1 million, or 62.3%, from $6.6 million
in 1993 to $2.5 million in 1994, resulting from a decline in the Company's
contract manufacturing business, partially offset by an increase in revenues
from participation in the Tornado aircraft program of $3.1 million, or 79.5%,
from $3.9 million in 1993 to $7.0 million in 1994.

Cost of sales decreased by $2.0 million, or 13.1%, from $15.0 million in
1993 to $13.0 million in 1994. The reduction is principally attributable to the
decline in total defense-related sales. Gross margin remained relatively
constant.

Selling, general and administrative expenses remained relatively stable at
$5.1 million in fiscal 1993 and 1994, and increased as a percentage of revenues
from 23.1% to 26.6%.

Research and development expenses increased by $484,000 or 120% from
$403,000 in 1993 to $887,000 in 1994 and increased as a percentage of revenues
from 1.8% to 4.6%. Capitalization of software development costs increased by
approximately $1.3 million, from $327,000 in 1993 to $1.6 million in 1994. The
increase represents development costs related to PRENVAL and PHARMASYST.

Interest expense decreased by $80,000 from $289,000 for 1993 to $209,000 for
1994 as a result of reduced borrowings and remained relatively constant as a
percentage of revenues.

17
<PAGE>
SELECTED QUARTERLY OPERATING RESULTS

The following table presents certain unaudited quarterly operating results
for the seven fiscal quarters ended April 30, 1996. This information has been
prepared on the same basis of the Company's audited financial statements and, in
the opinion of the Company, includes all adjustments (consisting only of normal
recurring accruals and adjustments) necessary for the fair presentation of the
financial information for those periods.

<TABLE>
<CAPTION>
QUARTERS ENDED,
---------------------------------------------------------------------------
OCT. 31 JAN. 31, APR. 30, JULY 31, OCT. 31, JAN. 31, APR. 30,
1994 1995 1995 1995 1995 1996 1996
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Revenues:
Defense sales.............................. $ 4,094 $ 2,702 $ 5,032 $ 3,627 $ 4,236 $ 2,716 $ 3,564
Commercial sales........................... -- 48 139 1,242 815 895 204
Other...................................... 216 127 86 132 121 64 27
--------- --------- --------- --------- --------- --------- ---------
Total revenues............................... 4,310 2,877 5,257 5,001 5,172 3,675 3,795
Cost of sales................................ 2,862 2,344 3,186 3,519 2,764 2,458 2,735
--------- --------- --------- --------- --------- --------- ---------
Gross profit................................. 1,448 533 2,071 1,482 2,408 1,217 1,060
Operating expenses:
Selling, general and administrative........ 1,290 1,640 1,602 1,127 1,427 1,876 2,019
Research and development................... 209 207 179 165 312 325 237
Write-off of software development costs.... -- -- -- -- -- -- 2,429
Amortization............................... -- 47 140 (56) 499 227 334
Interest................................... 51 143 139 135 137 129 132
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses..................... 1,550 2,037 2,060 1,371 2,375 2,557 5,151
--------- --------- --------- --------- --------- --------- ---------
Earnings (loss) before income taxes
(benefit)................................... (102) (1,504) 11 111 33 (1,340) (4,091)
Income tax benefit (provision)............... 29 524 (4) (36) (10) 470 (470)
--------- --------- --------- --------- --------- --------- ---------
Net earnings (loss).......................... $ (73) $ (980) $ 7 $ 75 $ 23 $ (870) $ (4,561)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>

The Company's revenues and operating results are subject to significant
quarterly fluctuations. Factors that could cause such fluctuations include the
time of revenue recognition; changes in customer capital and resource
commitment; changes in product mix; the introduction of new products or product
improvements by the Company or its competitors; and changes in operating
expenses. The timing of revenues from defense-related programs can be
significantly affected by government procurement processes and disruptions due
to political and other events over which the Company has no control. The timing
of revenues from manufacturing execution systems can be affected by factors
outside the Company's control, including long sales cycles and delays in
customer authorization procedures.

LIQUIDITY AND CAPITAL RESOURCES

During fiscal 1995, the Company used $5.9 million of cash in its operations.
The use of cash was due primarily to an increase of $2.1 million in accounts
receivable, the Company's expenditure of approximately $1.1 million for the
development of its PHARMASYST products, an increase of $740,000 in inventories,
and the Company's net loss for the period. Of the development expenditures in
1995, $2.9 million was capitalized and is being amortized over four years. The
increase in accounts receivable resulted primarily from revenues from the
Johnson & Johnson PRENATA contract in excess of the Company's receipt of related
guaranteed minimum royalty payments in the period. The increase in inventories
resulted primarily from increased manufacturing operations. These amounts were
offset somewhat by a $162,000 increase in accounts payable.

18
<PAGE>
During fiscal 1995, the Company raised approximately $6.9 million from the
exercise of Class A Common Purchase Warrants, $4.3 million from the exercise of
Series B Rights and $500,000 from the exercise of outstanding options.

During fiscal 1995, the Company's cash and equivalents increased $5.4
million from $1.9 million at October 31, 1994 to $7.2 million at October 31,
1995, primarily due to $11.7 million of cash generated by financing activities,
partially offset by $5.9 million of cash used in operations.

During the first six months of fiscal 1996, the Company used $4.9 million of
cash in operations. The use of cash arose primarily from the Company's net loss
for the period, an increase of $1.7 million in accounts receivable, and
expenditures of approximately $1.3 million for the development of PHARMASYST.
The Company's net loss of $5.4 million for the six months ended April 30, 1996
included noncash expense consisting of a write-off of capitalized software
development costs aggregating approximately $2.4 million and additional
write-offs of $350,000 relating to other costs and capitalized items, as well as
depreciation and amortization expense of $799,000 for the period, including
$561,000 in amortization of capitalized software development costs. The increase
in accounts receivable resulted primarily from increased sales during the last
month of the second fiscal quarter.

In the six months ended April 30, 1996, the Company's cash equivalents
decreased $5.2 million from $7.2 million at October 31, 1995 to $2.0 million at
April 30, 1996 due to $4.9 million of cash used in operations and $508,000 of
cash used in investing activities, partially offset by $390,000 of cash
generated by financing activities.

The Company believes that the net proceeds from this offering, cash
generated by operations and existing capital resources will be sufficient to
fund its operations at least through fiscal 1997.

19
<PAGE>
BUSINESS

OVERVIEW

PHARMASYST provides four manufacturing applications, consisting of
dispensing, electronic batch recording, inventory control, and document
management, which collectively encompass a production process. The Company is
currently developing PHARM2, an MES product integrating all of the PHARMASYST
applications. PHARM2 will integrate the four applications into a customer's
manufacturing environment, with only the purchased applications activated. The
Company believes this installation approach provides the customer with easy
access to additional applications and positions the Company as the preferred
solution provider. The Company expects to complete development of the initial
version PHARM2 in the fourth quarter of 1996. Currently, the Company is
installing PHARMASYST applications in facilities of Abbott Hospital Products
Division, Bayer Inc., Instrument Laboratories, and Pfizer Inc. International
Pharmaceuticals Group and has received orders for PHARM2 from nine
pharmaceutical manufacturers for an additional 25 installations.

The Company continues to focus on developing and manufacturing weapons
management systems and other defense-related products. Currently, the Company
has ongoing development contracts with McDonnell Douglas Helicopter Systems,
Daimler-Benz AG, Aerospace, and Northrop Grumman Corporation, among others. Most
of these contracts relate to upgrading weapons systems for existing aircraft
fleets. In 1996 the Company entered into a program with McDonnell Douglas
Helicopter Systems to develop helicopter maintenance data recorders. The Company
has also designed secure communications devices used by the United States Navy
and the National Security Agency. During

20
<PAGE>
fiscal 1995 and the first six months of fiscal 1996, approximately 85.2% and
84.1%, respectively, of the Company's revenues were defense-related. The Company
expects that its defense business will continue to remain a significant
component of its operations.

MANUFACTURING INDUSTRY BACKGROUND

Manufacturers can be generally classified as either process manufacturers or
discrete manufacturers. Process manufacturers produce bulk solids, liquids or
gases, including medicines and consumables, by processing volumes or masses of
materials, while discrete manufacturers, such as medical device, appliance and
aerospace companies, produce products by assembling individual components.
Process manufacturers face the challenge of producing consistent quality batches
of products from variable raw materials. Process manufacturers must manage and
control numerous complex processes such as chemical reactions, blending,
combustion, separation, refining, heating and cooling, as well as different
grades of raw materials, multiple units of measure, lots and sublots, shelf
life, by-products and co-products, formula-based production, integrated quality
control, and lab testing. The documentation and detail involved in such
management and control are particularly demanding in certain industries such as
pharmaceuticals, cosmetics, food and medical devices, where errors in the
production process can lead to significant adverse implications. To manage their
processes and information requirements and to improve overall efficiency,
process manufacturers implement various computer-based information systems,
including manufacturing resource planning ("MRP") systems, supervisory control
and data acquisition ("SCADA") systems and manufacturing execution systems
("MES").

MRP. Manufacturers use MRP information systems to link customer orders,
production scheduling and inventory scheduling. MRP systems are designed to
minimize raw material inventories, coordinate the timing of deliveries from
suppliers to meet production schedules, reduce manufacturing cycle times,
minimize finished goods inventories, and maximize the efficiency of warehousing,
while providing superior response times to customers. MRP systems are designed
to provide information for use in forecasting, production scheduling and
financial planning, but do not provide control over the manufacturing process.
MRP generally do not focus on details such as production planning, task
assignment and execution, incremental material flow, sampling, testing, or
record keeping.

SCADA. Manufacturers use SCADA systems to provide certain types of control
over individual steps in a process production facility. SCADA systems are
designed to provide real-time control over a continuous production process
maintaining specified process production parameters by managing physical
elements such as temperature, pressure, time, and viscosity. SCADA systems
acquire and interpret data from a variety of control and measurement devices and
provide adjustments that can be instrumental in restoring production operations
to specification. Current SCADA systems are capable of operating sensors, ovens,
mixers, and robotics and are often an integral component in plant design. SCADA
systems generally are not designed to define alternative workflows in order to
maintain compliance. Generally, SCADA systems do not provide an audit trail.

MES. Manufacturing execution systems are designed to create uniformity in a
production sequence by defining the elements of each production step. MES
essentially institute a checklist to be followed, defining the raw material
inputs, equipment operating instructions, and procedures to be followed in order
to maintain consistency in an end product. Historically, manufacturers have
implemented MES using paper forms that follow a batch through the production
sequence, requiring signatures to verify procedures were followed according to
defined procedures. Paper based systems are generally inadequate in enforcing
strict manufacturing procedures, rendering such systems susceptible to human
errors, leading to an increased possibility of corrupted batches. The production
of certain products effecting health and safety, such as pharmaceuticals and
consumer products, require greater production process control to decrease the
possibility of a corrupted end product. To obtain greater control and increase
efficiency, manufacturers have incorporated custom computer solutions into their
MES. These solutions are expensive, time consuming to implement, address only
limited procedures and generally do not possess the flexibility for expansion or
the addition of new technologies.

21
<PAGE>
According to the 1995 FDA annual report, the FDA has inspection
responsibilities over 106,000 establishments including food, medical device,
biological and pharmaceutical manufacturers. Pharmaceutical manufacturers in
particular are under increasing pressure to implement a high level of control of
their production processes. The FDA has implemented a set of current good
manufacturing guidelines ("cGMP") covering the manufacture of pharmaceutical
products and medical devices. cGMP require pharmaceutical manufacturers to
provide detailed documentation for each production batch, demonstrating
adherence to defined parameters under various circumstances. It therefore
becomes imperative that pharmaceutical manufacturers implement systems capable
of demonstrating compliance to FDA cGMP guidelines.

The Company believes there is a compelling need for the pharmaceutical
industry to implement MES that facilitate the demonstration of compliance with
FDA cGMP guidelines. In addition, the Company believes pharmaceutical
manufacturers are subject to pressures to improve manufacturing controls,
including the expiration of U.S. patents and emergence of competing generic
drugs and pricing pressures imposed by large retail organizations and healthcare
providers who seek bulk purchases at favorable prices.

THE COMPANY'S MES SOLUTION

PHARMASYST is a comprehensive MES software solution used to automate,
manage, control and document each step in manufacturing processes. PHARMASYST
enables the customer to specify the individual steps of the production process.
PHARMASYST interfaces with MRP and SCADA systems, information databases and
stand-alone production machinery such as scales, blenders and ovens, directing
the execution of the production process and continuously monitoring the
compliance of each step with the manufacturer's defined specifications. Should
PHARMASYST recognize an out-of-specification event, it can adapt to the
out-of-specification event by selecting a previously defined and approved
alternative procedure in order to allow the process to continue in a compliant
manner. If a remedial alternative is not available, PHARMASYST will not
authorize commencement of the next production step and can issue a problem
notification to supervisory or quality control personnel. In addition,
PHARMASYST chronologically tracks and electronically records each input,
procedure and output, which provides a powerful tool for the customer to
demonstrate ongoing cGMP compliance.

PHARMASYST's safety critical approach is based on the Company's twenty-year
involvement in the development of integrated software and hardware controls of
complex, precision electronic weapons control systems deployed on military
aircraft. Safety critical systems continuously monitor individual process steps
in order to be able intervene to prevent a catastrophic event, such as the
unintentional release of a weapon. Similarly, PHARMASYST uses safety critical
technology to prevent production of incorrectly formulated product with
potentially significant risk implications for both manufacturers and consumers.

STRATEGY

The Company seeks to be the leading provider of MES software to the
pharmaceutical and other selected industries, to increase revenues from its
defense-related products, and to develop new products incorporating its safety
critical expertise. The key elements of the Company's business strategy include:

-PROVIDE A STANDARDIZED MES SOLUTION. PHARMASYST is designed to be a more
standardized application that can be integrated into existing manufacturing
environments; PHARMASYST is not a custom solution or design tool. The
Company believes that PHARMASYST applications can be implemented more
rapidly and less expensively than alternative MES solutions. Having
standardized applications allows the Company to demonstrate the system's
capabilities, and to provide definitive installation schedules and pricing
quotes. Consequently, the Company believes these factors provide the
Company with a competitive marketing advantage.

-PROVIDE EASY ACCESS TO ADDITIONAL FUNCTIONALITY. The Company is
incorporating all of its PHARMASYST applications into a comprehensive,
integrated, and modular product to be

22
<PAGE>
marketed as PHARM2. PHARM2 will be installed as a complete system on a
customer's network, with only the purchased applications activated. The
Company believes this installation strategy provides the customer with easy
access to additional applications and positions the Company as a preferred
provider of a comprehensive MES solution.

-DEVELOP STRATEGIC MARKETING RELATIONSHIPS. The Company seeks to enter into
collaborative relationships with computer system integrators and others who
can incorporate PHARMASYST applications into the services or products they
provide. The Company has established relationships with Toyo Engineering
Co., a Japanese turnkey developer of manufacturing facilities, STG-Coopers
and Lybrand Consulting AG, Walsh Automation, a Canadian manufacturing
automation company, Intellution, Inc. a supplier of SCADA systems for the
pharmaceutical industry, and Bailey Controls, a supplier of distributed
manufacturing control systems.

-TARGET ADDITIONAL INDUSTRIES. The Company believes that the process design,
control and documentation capabilities provided by PHARMASYST applications
are applicable to industries characterized by complex production processes,
high yield requirements, intense pricing competition and varying degrees of
regulatory control. The Company intends to market PHARM2 to manufacturers
of chemicals, medical devices, biological medical products, cosmetics and
foods.

-INCREASE REVENUES FROM DEFENSE-RELATED PRODUCTS. The Company has
established relationships with key defense contractors that recognize the
value of the Company's safety critical design expertise. The Company
intends to identify new opportunities and expand existing relationships
with major defense industry contractors for programs likely to result in
production subcontracts.

COMMERCIAL PRODUCTS

PHARMASYST

PHARMASYST is a comprehensive MES software solution used to automate,
manage, control and document production processes. PHARMASYST interfaces with
MRP and SCADA systems, information databases and production machinery such as
scales, blenders and ovens, creating a computerized set of workflow instructions
and specifications that encompass the entire production process. PHARMASYST
performs the following functions:

- Executes workflow instructions, including recipes and equipment operating
instructions

- Confirms proper execution of procedures

- Monitors material flow throughout the entire manufacturing process

- Verifies testing of intermediate and final products and monitors adherence
to quality standards

- Authorizes progression to the next production step if all events were
completed to specification, and

- Provides comprehensive real time documentation for each event.

PHARMASYST performs real-time analysis on inputs, procedures and outputs of
the production process to ensure that each of these components comply with
defined specifications. Should an out of specification event occur, PHARMASYST
is capable of modifying the current workflow using previously approved
alternative methods to adapt to the event and continue the production process in
a compliant manner. If an alternative, compliant workflow is unavailable,
PHARMASYST will not proceed to the next step of its production sequence and
initiates designated notification procedures.

PHARMASYST provides a standard set of MES applications, not custom systems
or system design services. The Company believes that PHARMASYST is the only
commercially available PC-

23
<PAGE>
based standardized MES solution and can be implemented more rapidly and at a
substantially lower cost than alternative solutions. The Company is able to
provide customers with a fixed price quotation and specified delivery schedule
based upon an extensive evaluation of user requirements. The Company believes
such specificity provides a significant advantage over custom MES solutions that
have been characterized by long development and installation schedules and
unpredicable costs.

The Company commenced sales of PHARMASYST in fiscal 1995 and is installing
applications at facilities operated by Abbott Laboratories Hospital Products
Division, Bayer Inc., Instrument Laboratories and Pfizer Inc. International
Pharmaceuticals Group. In three of these sites these applications are undergoing
tests for system performance and functional operation in an operating
environment. The Company has received orders for installations in 25 additional
sites from nine pharmaceutical manufacturers including Pfizer Inc. International
Pharmaceuticals Group, Minnesota Mining & Manufacturing, Berlex, SmithKline
Beecham, Federa and Upjohn/Pharmacia. The Company, in conjunction with each of
these customers, is developing a "software requirement specification," which
defines detailed customer requirements and how the application will interact
with the customer's existing hardware and software. PHARMASYST normally requires
only limited customization for incorporation into existing systems. Based upon
orders to date, the Company estimates that a typical PHARMASYST site
installation costs between $150,000 and $300,000 and requires six to nine months
to install.

The Company is in the process of integrating the PHARMASYST applications
into a single MES product, referred to as PHARM2. PHARM2 will be installed and
integrated on the customer's network, with only the purchased applications
activated for customer use. This allows additional applications to be easily
activated upon the customer's request. PHARM2 will also interface with more
database engines and operating systems than earlier PHARMASYST applications,
providing increased flexibility and limiting the customization required for an
installation. The Company began marketing PHARM2 in April 1996 and expects to
begin installation in the fourth fiscal quarter of 1996.

Key features of PHARMASYST and PHARM2 include:

OPEN CLIENT/SERVER SYSTEM. PHARMASYST and PHARM2 are based on an open
client/server system architecture, enabling the use of various operating
systems, hardware platforms, and third-party software applications and providing
independence from the server and LAN/WAN protocols. This open system allows
continued use of existing computing resources and a wide variety of emerging
technologies. PHARMASYST operates on PC hardware platforms on Microsoft Windows
3.11, can operate on Microsoft Windows 95, and is being developed to operate on
Windows NT.

EASE OF WORKFLOW DESIGN. Certain PHARMASYST applications include an
intelligent forms designer ("IFD") to create computer interpretable operating
procedures which control manufacturing processes. The IFD uses a
point-and-click, object oriented, menu driven system, to link a series of
computer directives which specify performance by the computer and by the
operator and monitor and chronologically record adherence to the defined
performance. The IFD allows a user to import existing documents from standard
word processing programs, to specify recipes, materials requirements, and other
aspects of a manufacturing process, eliminating the need for re-entry of
existing data. The IFD permits the imposition of specified performance
requirements onto the existing documents.

EXTENSIVE DOCUMENTATION CAPABILITIES. PHARMASYST chronologically tracks and
electronically documents events and activities in the production process, at the
level of detail specified by the customer. PHARMASYST provides electronic
recording, documentation, and archiving of quality control procedures of all
ancilliary activities such as equipment calibration, facility equipment
maintenance and cleaning, employee qualifications, specified sequence of events,
and proper utilization of materials. These capabilities provide a powerful tool
for the user to demonstrate cGMP compliance on an ongoing basis.

24
<PAGE>
DESIGNED TO MEET FDA CRITERIA. The Company's software development
methodology is intended to comply with criteria defined in the FDA cGMP
guidelines and current industry accepted validation standards. The Company
believes that validation of an MES will require that the software is in
compliance with the existing industry accepted standards. The Company provides
availability to a detailed description of the PHARMASYST architecture,
development process, and developed code to facilitate customers' demonstration
of its compliant design to the FDA.

MODULARITY EXPANSION CAPABILITY. PHARMASYST applications are designed to
operate independently of each other, providing customers with flexibility to
select and purchase those functions they need for a particular facility or
production line. This "modular" approach allows a customer to use applications
from other vendors, whether currently in use or subsequently installed, and to
readily interface them with PHARMASYST. PHARM2 will integrate all the PHARMASYST
functions into a single software package, with customers having access to only
those functions they purchase. This approach will allow rapid, easy
implementation of additional PHARM2 functions. In addition, through the use of
Application Programming Interfaces ("APIs") provided with PHARM2, the customer's
information technology staff or the customer's third-party integrator can
connect PHARMASYST to customer- or integrator-developed, software-driven
functions specific to the customer's application, such as cost and efficiency
analysis, operator performance, and scheduling requirements.

The following PHARMASYST applications have been individually purchased and
are being installed in certain pharmaceutical manufacturing facilities. PHARM2
will incorporate all of those applications in a single integrated product.

<TABLE>
<CAPTION>
APPLICATION DESCRIPTION
- ------------------------------------ ----------------------------------------------------------------------------
<S> <C>
DISPENSING.......................... Schedules materials, equipment, and personnel required for preparing
ingredients for each batch and implements various weighing strategies.
ELECTRONIC BATCH RECORDING.......... Defines the production work flow process and the information required to
control and define that process, controls the activity on the production
floor by scheduling and assigning work, controls and audits the performance
of specific production operations. These operations ensure the step-by-step
operations defined are followed and materials and equipment are used
properly.
INVENTORY CONTROL................... Performs receiving, identification, tracking, requisitioning, lot al-
location and lot review functions for raw materials, work in process, and
finished products. Creates bar-coded labels and uses bar-code readers to
track materials as they are received and moved through the facility.
DOCUMENT MANAGEMENT................. Provides a "vault" for electronic documents used and generated in a
manufacturing process, controls access and approval routing procedures, and
maintains records of access and revisions to documents. Assists in ensuring
that documents used within a process are the currently approved versions.
</TABLE>

The Company currently provides customers with a range of services including
system training, validation support and system installation. The Company will
also provide help desk services to assist customers with application and
operation-related questions.

OTHER PRODUCTS

ULTRASOUND IMAGING PRODUCTS. In 1994, the Company introduced uPACS, a
system for archiving ultrasound images. That system digitizes, records and
stores ultrasound images on CD-ROMs as an

25
<PAGE>
alternative to existing film and video storage systems. The Company has shipped
approximately $95,000 of uPACS to distributors outside of the United States. In
April 1996, the Company determined that uPACS was not a commercially viable
product, despite an anticipated 510(k) premarket approval that was subsequently
granted in June 1996. The Company intends to spend up to $1.5 million of the
proceeds of this offering to develop a new system for archiving ultrasound
images with networking, communication, and off-line measurement capabilities.
The Company intends to market this new system under the uPACS name.

MEDICAL SCREENING SOFTWARE. The Company has created three software programs
to aid in the prenatal detection of risk for certain birth defects. The first
two programs are designed to accelerate the computation of risk detection for
neural tube defects (PRENVAL I) and Down's syndrome (PRENVAL IA) in pregnant
women. Both programs evaluate the levels of alpha-feto protein in maternal serum
against normal reference ranges while making laboratory directed adjustments for
factors including the patient's age, weight, race, diabetic status and state of
pregnancy. The third program employs additional markers and advanced statistical
methods to increase the accuracy of risk estimation for both of these birth
defects. A portion of the third program was sold and the remainder licensed to
the Johnson & Johnson Clinical Diagnostic Division ("Johnson & Johnson"),
located in Amersham, England. Johnson & Johnson offers this software as PRENATA,
a trademark of Johnson & Johnson, in connection with the sale of its products
used in the detection of fetal abnormalities throughout the world except, for
the United States. The Company's agreement with Johnson & Johnson provides for
guaranteed minimum royalties for a period of five years beginning October 1994.
The aggregate minimum royalties of $1.8 million collectable for 1995 through
1999 were earned in fiscal year 1995. The Company has terminated further
self-funded development efforts of these products because the Company believes
that the market potential of the products does not justify the cost of further
development. The Company would consider further development and submission to
the FDA only with the financial sponsorship of a marketing partner.

DEFENSE-RELATED PRODUCTS

GENERAL. The Company develops and manufactures electronic systems for
defense applications and provides contract manufacturing services for prime
defense contractors. These products primarily relate to weapons management in
high performance military aircraft and employ the Company's safety critical
technology and software. The Company designs products internally, in conjunction
with defense contractors, and under U.S. government contracts.

TORNADO PROGRAM. Since 1976, the Company has been involved in the design
and production of weapons control systems for the German and Italian versions of
the Tornado aircraft. These systems are designed to aid the operator of a
sophisticated combat aircraft in deploying highly complex weapons. The Tornado
program is a joint program of the German, United Kingdom, and Italian
governments for a multi-role combat aircraft meeting the requirements of the
particular environmental conditions in western Europe. The Company's
participation in Tornado programs has also included contracts to supply certain
elements of the system to British Aerospace for sale to the United Kingdom and
Saudi Arabia.

The most important and complex weapons control system manufactured by the
Company for the Tornado program is the Stores Management System ("SMS"). The SMS
employs a visual display to communicate the current status of weapons on board
the aircraft to the operator. It permits the operator to select appropriate
weapons, to confirm or change the selection of weapons, and to execute other
functions such as weapon jettison and fault detection. All of these actions are
regulated by a weapons programming unit containing multiple microprocessors and
their memories. The SMS has up to seven electronic units, remotely located from
the weapons programming unit, to receive and decode release instructions and
activate switches connected to weapon release mechanisms.

The Company manufactures the SMS for the Tornado program under a contract
with DASA. In fiscal 1993, 1994, 1995, and the first half of fiscal 1996, sales
under the Tornado program accounted

26
<PAGE>
for approximately 18%, 22%, 26% and 37%, respectively, of the Company's total
revenues. In 1995, the Company received full funding for additional production
of weapons control products for the Tornado program under contracts valued at
approximately $6.3 million. This contract is expected to be completed in 1996.
In the first quarter of fiscal 1996, initial funding was received for Tornado
software upgrades under a contract valued at $1.8 million extending into 1997.

OTHER PROGRAMS. The Company has designed and manufactured Sidewinder
control systems for the U.S. Air Force A-10 aircraft, the A-4 modernization
programs for the Royal Air Force of New Zealand and certain aircraft flown by
the Greek Air Force, and the F-5 aircraft for delivery to the Taiwanese Air
Force.

Since 1980, the Company as a contract manufacturer has supplied electronic
systems to McDonnell Douglas Helicopter Systems for use aboard the U.S. Army's
Apache helicopter. The Company is also a contract manufacturer for SPD
Technologies, Inc., a circuit breaker manufacturer, and for certain agencies of
the U.S. government.

The Company was recently notified by McDonnell Douglas Helicopter Systems
that it has been selected to provide the design, development, and initial
production of a maintenance data recorder (black box) for the U.S. Army's Apache
helicopter. The Company has funded research and development of technology used
for the control of air-to-air and air-to-ground missiles such as Sidearm,
Stinger and Mistral and has provided a missile control system for the Stinger
missile for experimental use aboard the U.S. Army's Apache helicopter. The
Company recently received $250,000 towards the development of a component of an
electronic warfare system deployed on a fighter aircraft for the predetermined
release of chaff and flare to avoid hostile fire.

SECURE COMMUNICATIONS PRODUCTS. The Company has engaged in the development
and sale of products for secure communications systems to the National Security
Agency and the U.S. Navy. The Company's initial product was a telecommunications
interface known as a TCIA for the transmission of encrypted data over a
conventional T1 telephone line. The TCIA was endorsed by the National Security
Agency in 1991 but has been restricted to government users. The Company has also
developed proprietary encryption devices endorsed by the National Security
Agency in 1992, has been designated as the sole authorized supplier, and has
supplied related test equipment on a contract manufacturing basis. The Company
won these test equipment contracts in competitive bids and is now recognized as
an independent source for these products.

In 1991, the Company was awarded a contract to manufacture Bus Interface
Units for the U.S. Navy's communication system using the Navy's design. The
Company subsequently created a proprietary device, known as the Bus Interface
Card ("BIC") to substitute for the Bus Interface Unit, and has since sold over
9,500 of these devices. The BIC connects external signals to a signal bus
through software driven control circuits. The software, programmed to prioritize
signals for processing, was designed by the Navy but includes BIC software which
was designed by the Company. The Company anticipates further contracts for this
product over the next several years. The Company also developed a proprietary
device known as the Sychrononous Line Interface Card ("SLIC"). The SLIC is
suitable for laptop computers and performs the same functions as the BIC. The
Company has received a small quantity of orders for this device but believes
that SLIC may eventually replace the BIC as the device of choice.

To date sales of secure communications products have been limited to
government users. The Company cannot predict if its secure communications
products will be cleared for sale to nongovernment users or, if cleared, the
potential for any commercial sales. Sales of these products amounted to $1.2
million in fiscal 1995 and $410,000 in the first half of fiscal 1996.

SALES AND MARKETING

The Company currently markets PHARMASYST and PHARM2 through a direct sales
force in North America, consisting of four sales people, one of whom serves as
North American sales manager.

27
<PAGE>
Outside of North America, the Company has a sales person in both England and
Denmark. The Company's European sales manager and marketing director is assigned
to the Trenton, New Jersey headquarters. The Company intends to add additional
direct sales people assigned to PHARMASYST and PHARM2 and to support its
collaborative relationships.

The Company's marketing efforts for PHARMASYST and PHARM2 consist primarily
of advertising in industry periodicals, attending trade shows, and participating
in industry symposiums sponsored by the International Society for Pharmaceutical
Engineering and the Manufacturing Execution Systems Association. In addition,
certain of the Company's customers have agreed to allow their PHARMASYST
installations to be used as reference accounts for potential customers. The
Company believes the ability to demonstrate existing installations will serve as
a powerful marketing tool.

The Company is entering into collaborative relationships with computer
system integrators and others that can integrate PHARMASYST with the products
and services they provide. The Company has established a relationship with
STG-Coopers and Lybrand Consulting AG, Walsh Automation, a Canadian systems
integrator, Toyo Engineering Co., a Japanese developer of turnkey manufacturing
facilities and Bailey Controls Company, a provider of distributed control
systems. In addition, the Company and Intellution, Inc. can each market the
other's products to provide a complete manufacturing solution.

The Company currently markets its defense products through two sales people,
one of whom focuses exclusively on McDonnell Douglas, with the other addressing
the remaining significant U.S. defense contractors. In addition, certain
officers of the Company are responsible for maintaining relationships with
specific U.S. and foreign defense contractors.

RESEARCH AND DEVELOPMENT

The Company's commercial product development efforts are directed at the
development of PHARM2 and a new image archiving system to be marketed under the
uPACS name. The Company believes that commercial success in the MES and other
markets will depend on its ability to provide product improvements or version
upgrades. Consequently, the Company intends to continue to devote significant
resources to developing product upgrades.

The Company's defense-related product development efforts consist of
designing new weapon control systems and upgrades for existing aircraft fleets
based upon specifications provided by defense contractors. Generally, such
development projects are undertaken pursuant to contractual arrangements with
defense contractors, under which the Company receives full or partial funding.
The Company believes its participation in development contracts provides an
advantage in bidding for subsequent production contracts.

The Company has developed concepts for certain "regulatory implementation"
software intended to verify in real-time that a computer involved in critical
applications is functioning as intended and that certain critical tasks are
being performed within specified parameters. It has also developed certain
concepts to provide software authors and programmers an environment for
developing safety critical software.

During fiscal 1994, and 1995 and the first six months of fiscal 1996, the
Company capitalized $1.6 million, $2.9 million and $2.2 million and expensed
approximately $900,000, $900,000, and $500,000, in research and development
expenditures, respectively. The Company believes that a majority of future
commercial software development will be expensed. The Company's research and
development staff consists of approximately 41 engineers and designers equally
divided between defense and commercial product development.

28
<PAGE>
COMPETITION

The MES software market is intensely competitive and subject to rapid
change. The principal competitive factors in this market include product
functionality and quality, ease and speed of implementation and use, total cost,
process manufacturing expertise, customer service and satisfaction, supported
hardware and software platforms, the underlying technology and architecture of
the product and vendor reputation. The Company believes that it competes
effectively with respect to these factors, although it may be at a disadvantage
against companies with greater financial, marketing, and technical resources.

The Company's competitors for MES software include Consilium, SAP, AG,
Intellution, Inc. and Wonderware. While the Company believes that PHARMASYST is
the only commercially available, comprehensive standardized PC-based MES
solution, many of these competitors offer products that provide specific MES
applications, or toolkits that can be used for internal system development.
Consilium offers FlowStream, an MES developed for the highly regulated
pharmaceutical and bulk chemical manufacturing industries. In addition, the
Company competes with system integrators and internal corporate MIS departments.
The Company believes that internal MIS departments, which are responsible for
developing and operating a manufacturer's management information systems and who
are instrumental in the approval process for PHARMASYST, provide a significant
source of competition.

Competition among providers of software for manufacturers is likely to
increase substantially for many reasons. A number of companies offering products
developed for discrete manufacturers have announced plans to introduce products
designed more specifically for process manufacturers. Some companies offering
host-based systems for process manufacturers have begun to offer or have
announced plans to introduce products for client/server computing and to
increase the number of hardware platforms on which their software operates. The
Company also expects that competition will increase as a result of software
industry consolidations. In addition, current and potential competitors have
established or may establish cooperative relationships among themselves or with
third parties to increase the ability of their products to address the needs of
the Company's prospective customers. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share.

The Company believes its ability to compete depends on many factors within
and outside its control, including the timing and success of new products and
enhancements developed by the Company and its competitors, product performance,
price, distribution and customer support. Many of the Company's competitors and
potential competitors have significantly greater financial, technical and
marketing resources, and a larger installed customer base than the Company. As a
result, they may be able to respond more quickly to new or emerging technologies
or changes in customer requirements, or to devote greater resources to the
development, promotion and sale of their products than the Company can.
Increased competition could result in price reductions, reduced gross margins
and loss of market share, any of which could materially and adversely affect the
Company's business, results of operations and financial condition. There can be
no assurance that the Company will compete successfully with new or existing
competitors or that competitive pressures faced by the Company will not
materially and adversely affect its business, results of operations and
financial condition.

The defense business is also highly competitive and subject to rapid change.
The Company competes primarily on its expertise in designing safety critical
applications. The Company competes with large defense contractors and specific
departments of large electronic companies. The Company's competitiors include
McDonnell Douglas, Lockheed Martin, Hamilton Standard Company, a division of
United Technologies Corporation, GEC Marconi, Elbit and Smiths Industries. Many
of the Company's competitors are larger and have more resources to devote to,
among other things, internally-funded development efforts that could provide
advantages in competitive bidding.

29
<PAGE>
MANUFACTURING

The Company's defense-related operations involve assembling and testing
final products from components and subassemblies purchased from third parties.
The Company also designs software used in the products manufactured pursuant to
third-party requirements. All of the Company's defense-related development and
production activities take place in its Trenton, New Jersey facility.

Electronic components, such as transistors, resistors, integrated circuits
and diodes, and subassemblies used in the Company's products, are purchased by
the Company from a large number of suppliers and are generally available from
alternative sources. However, for some components and subassemblies, the Company
relies on a single source of supply. For such components and subassemblies, the
Company attempts to maintain inventory levels sufficient to cover forseeable
production requirements for a period the Company believes will be sufficient to
locate alternative sources of supply or to develop alternative designs that
avoid reliance on those components or subassemblies.

As part of its contract manufacturing services, the Company offers
supporting engineering services to develop a prime contractor's design and solve
technical and manufacturing problems.

BACKLOG

A majority of the Company's sales and unbilled orders are with
defense-related customers. Commercial software backlog is related to PHARMASYST
products. Backlog as of October 31, 1995 was approximately $6.6 million, with
$6.1 million scheduled for delivery in the current fiscal year. At fiscal 1995
year end, $2.0 million, or nearly 30%, of the backlog was related to PHARMASYST
product orders with the remainder associated with the defense business. As of
April 30, 1996, backlog was approximately $7.7 million, with $5.1 million
scheduled for delivery during the second six months of fiscal 1996. Of the $7.7
million in backlog as of April 30, 1996, 71% was related to defense products and
29% was related to PHARMASYST.

PHARMASYST customers are provided the right to cancel at no cost early in
the contract cycle if the parties do not agree on the applicable specifications
for the PHARMASYST software to be installed. Some deliveries of PHARMASYST
products are overdue, and other deliveries may become overdue, but the Company
does not anticipate the loss of orders as a result thereof. Substantially all of
the Company's orders for defense-related products may be canceled at any time,
subject to various payment obligations for prior deliveries.

PROPRIETARY RIGHTS

The Company regards its software as proprietary and attempts to protect it
with copyrights, trademarks, trade secret law, and contractual arrangements.
However, existing copyright laws offer only limited practical protection for
software. Futhermore, the laws of some foreign countries do not protect the
Company's proprietary rights to the same extent as do the laws of the United
States. Under certain circumstances, customers of the Company may be entitled to
limited access of the PHARMASYST source code. Customer access to source code may
increase the possibility of misappropriation or other misuse of the Company's
software. Accordingly, it may be possible for unauthorized third parties to copy
certain portions of the Company's software or to obtain and use information that
the Company regards as proprietary. There can be no assurance that the Company's
means of protecting its proprietary software will be adequate or that
competitors will not independently develop technologies similar to the
Company's.

The Company has obtained a patent for a portable memory device that may be
integrated into future PHARMASYST products, a patent for technology relating to
its PRENVAL software, three patents covering elements of its regulatory
implementation software technology, and a patent for a device relating to the
fuzing of rockets. In addition, the Company has filed applications for a patent
covering certain aspects of the safety critical technology in PHARMASYST and for
several patents covering elements of its imaging technology.

30
<PAGE>
In addition, the Company funded a patent application covering technology for
the detection of various brain abnormalities and, in April 1996, the patent was
granted. Pursuant to certain rights stemming from its funding of the patent
application, the Company plans to negotiate with the owners of the technology
regarding the Company's participation in the commercialization of the
technology.

While the Company has received certain patent protection, there can be no
assurances that any additional patents will be issued, that the scope of any
patent protection will be adequate, or that any current or future issued patents
will be held valid if challenged.

The Company believes that its products and technology do not infringe any
existing proprietary rights of others, although there can be no assurance that
third parties will not assert infringement claims in the future.

REGULATION

COMMERCIAL PRODUCTS. The Company's PHARMASYST software products do not
require FDA clearance or approval at this time. However, those products are
intended to facilitate compliance by pharmaceutical manufacturers with the FDA's
cGMP regulations and are designed to be integrated into a manufacturer's
production systems. A pharmaceutical manufacturer's systems, including any
PHARMASYST applications used, must be capable of sufficiently documenting the
production of each batch of product to be in compliance with cGMP. Further, the
manufacturer must be able to demonstrate to the FDA that its systems have that
capability under a variety of circumstances.

Other products the Company has developed are considered, and the archiving
software for ultrasound images that the Company intends to develop will be
considered, "medical devices" under FDA regulations. Before such products may be
marketed in the U.S., they must receive FDA clearance of a premarket
notification ("510(k) clearance") or premarket approval ("PMA"). Obtaining such
clearance or approval can take substantial time and can require substantial
expenditures. Many other countries regulate the manufacture, marketing and use
of medical devices in ways similar to the U.S. In addition, while devices with
510(k) clearance or PMA generally may be exported without further FDA
authorization, certain types of devices may require FDA clearance for export.
There can be no assurance that the Company will be able to obtain required
approvals or clearances for any products it develops on a timely or
cost-effective basis, if at all.

DEFENSE-RELATED PRODUCTS. The Company's United States military contracts
are subject to pricing restrictions and audit procedures. After being selected
as the successful bidder for a government contract, profits for most products
and systems developed for domestic defense programs are subject to fact finding,
with negotiated profits limited to approximately 10% of costs, some of which
costs are not recognized for this purpose. The Company has undergone routine
government audits of its defense contracts from time to time and these audits
have upheld the Company's pricing. Most of the Company's foreign sales involve
defense-related products that are subject to export control through the
Department of State's Office of Munitions Control under the International
Traffic in Arms Regulations ("ITAR") adopted under the Arms Export Control Act.
All articles and services listed on the United States Munitions list, which may
be amended from time to time, fall under these regulations. In order to export
products or services subject to these regulations, the Company must first
acquire licenses from the Department of State for each individual contract.
State Department policies, as supplemented or modified by the Department of
Defense or other applicable government agencies, identify products that cannot
be exported and certain countries to which export is prohibited or limited. ITAR
also imposes certain restraints on foreign customer contracts and defense
product development. Since the Company intends to continue its pursuit of
foreign military sales as a source of revenues, ongoing compliance with ITAR is
necessary.

Should government policy dictate that some of the Company's products are of
a sensitive technological character in which the best interests of the United
States will be served by prohibiting their export, the Company could suffer a
serious and immediate loss of business. The Company's principal foreign markets
for defense-related products are located in the NATO countries and other nations

31
<PAGE>
friendly to the United States. To date, the United States government has not
denied requests by the Company for licenses to export any of its products or
technical data to these countries except in instances where all United States
manufacturers of similar products would be equally denied.

EMPLOYEES

The Company currently employs a total work force of 172 persons, including
41 engineers and designers, plus additional contract labor. None of the
Company's employees are covered by collective bargaining agreements. The Company
has never experienced any labor disruptions or work stoppages and considers its
employee relations to be good.

SECURITY CLEARANCE

The Company relies on the continuance of its security clearances and
clearances of its employees from agencies of the United States government and
from NATO for its defense products. Loss of these clearances could have an
immediate and adverse effect on the Company's business. The Company has never
experienced any material deficiencies in the manner and method of complying with
prescribed security regulations and expects to continue as an approved facility.

FOREIGN OPERATIONS

Information on the Company's operations in different geographic areas is
provided in Note G of the Notes to the Consolidated Financial Statements
included elsewhere in this Prospectus.

PROPERTIES

The Company's principal facility in the United States is in Trenton, New
Jersey. The Company occupies 82,000 square feet in Trenton for its corporate
headquarters and engineering, manufacturing and support activities. The lease
for such space expires in October 2009. The Company leases 1,000 square feet of
space in Farnborough, England for use as administrative offices and software
development facilities. The lease for the office space in the Farnborough
facility expires in March 2003. The Company also leases 390 square feet of space
in Dublin, Ireland for use as administrative offices and software development
facilities on a month to month lease.

The Company's headquarters and manufacturing facility in Trenton, New Jersey
was subject to a sale and leaseback transaction completed in October 1994. The
Company's fifteen year lease on the facility includes a repurchase option
exercisable at $4.3 million during 1996, declining to $3.5 million during the
last five years of the lease. The Company may apply up to $1.5 million of the
net proceeds from this offering to fund part of the purchase price for the
facility if it elects to exercise its repurchase option. The Company anticipates
that the balance of the purchase price, the amount of which is dependent on the
date of exercise of the option to purchase, will be paid from operating revenues
of the Company or from mortgage debt incurred for the purpose of completing the
payment of the purchase price. See "Use of Proceeds" and "Certain Transactions."

32
<PAGE>
MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The directors, executive officers and other members of the Company's senior
management as of May 31, 1996 are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION OFFICER OR DIRECTOR
- -------------------------- --- ------------------------------------------------------ -------------------
<S> <C> <C> <C>
Myles M. Kranzler 67 Chairman of the Board, President, Chief 1966 to present
Executive Officer and Director
Bruce D. Cowen 43 Vice Chairman of the Board and Director 1996 to present
Edward J. Klinsport 48 President -- Government Technology Division 1994 to present
Executive Vice President 1992 to present
Chief Financial Officer 1978 to present
Group Vice President 1985 to 1992
Director 1985 to present
Alan J. Eisenberg 54 President -- Medical Technology Division 1994 to present
Vice President 1983 to present
Director 1992 to present
Richard J. Farrelly 64 Vice President 1992 to present
Frank W. Newdeck 50 Vice President 1991 to present
Richard G. Kandrac 54 Vice President 1983 to present
Alexander M. Adelson 61 Director 1992 to present
Alan S. Poole 68 Director 1994 to present
</TABLE>

A summary of the business experience and background of the Company's
directors, executive officers and other members of senior management is set
forth below.

Mr. Kranzler has been the Chairman of the Board, President and Chief
Executive Officer of the Company since the Company's inception in 1966. He has
also served as a director of the Company since its inception.

Mr. Cowen has served as a director of the Company and Vice Chairman of the
Board since May 1996 and is Chairman of the Finance Committee. Mr. Cowen does
not participate in management policy decisions other than as a director. He has
been employed by TRC Companies, Inc., a publicly held environmental engineering
and consulting firm, since 1979 and has been its President since 1991 and a
director on its board since 1987. From 1974 through 1979, he was employed by
Price Waterhouse & Co. as an Audit Manager, and from 1982 through 1985, Mr.
Cowen was a member of the Information Committee of the Board of Governors of the
National Association of Securities Dealers, Inc. Since 1992, he has also served
as a director of the U.S. Chamber of Commerce. Since 1992, Mr. Cowen has been
providing consulting services to the Company under a consulting agreement. See
"Certain Transactions."

Mr. Klinsport has been the Chief Financial Officer of the Company since
1978. He has served as Executive Vice President of the Company since October
1992 and was appointed President of the Government Technology Division in
November 1994. He has also served as a director of the Company since 1985.

Mr. Eisenberg has been employed by the Company since 1980. He has been a
Vice President of the Company since 1983 and is responsible for its software
development activities. Mr. Eisenberg was appointed President of the Medical
Technology Division in November 1994. He has also served as a director of the
Company since 1992.

33
<PAGE>
Mr. Farrelly has been employed by the Company since June 1988 and became a
Vice President, responsible for corporate development, in June 1992. Mr.
Farrelly was formerly General Manager of the Reentry Systems Division of General
Electric Aerospace Company.

Mr. Newdeck has been employed by the Company since 1990 and became a Vice
President in 1991, with responsibilities in the Government Technology Division.
Prior to joining the Company, Mr. Newdeck was General Manager of the Network and
Information Security Division of Unisys Corporation.

Mr. Kandrac has been employed by the Company since 1969 and became a Vice
President in 1983, responsible for manufacturing and purchasing.

Mr. Adelson has served as a director of the Company since 1992. Since 1974,
he has been the Chief Executive Officer of RTS Research Labs Inc., a consulting
company concentrating in high technology fields. From 1977 to 1989, Mr. Adelson
was Chief Technical Consultant with Symbol Technologies, Inc. Since 1992, Mr.
Adelson has been providing consulting services to the Company under a consulting
agreement. See "Certain Transactions."

Mr. Poole has served as a director of the Company since March 1994. Since
1960, he held executive positions with Johnson & Johnson, including Vice
President of Ortho Diagnostics, Inc. from 1975 through 1982 and International
Vice President of Johnson & Johnson Pharmaceutica in Belgium for the past ten
years, where he was responsible for the Janssen Companies in various countries.
Mr. Poole, now retired, is a member of the California Bar.

COMMITTEES OF THE BOARD

The Company has an advisory Audit Committee comprised of Messrs. Adelson and
Poole and Owen B. Freeman, Chairman of the Board of Commonwealth State Bank and
Penncore Financial Services Corp. This Committee had one meeting in fiscal 1995.
The Committee's purpose is to confer with the Company's independent auditor,
Deloitte & Touche LLP, and its Chief Financial Officer to evaluate the financial
controls and practices of the Company and the plans for and results of the audit
engagement.

The Company has a Compensation Committee presently consisting of all the
members of the Board except Mr. Kranzler. This Committee had two meetings in the
past fiscal year. The function of the Compensation Committee is to establish the
compensation and benefits of all employees of the Company, including its
officers.

The Company's Stock Option Committee comprised of Mr. Poole and, through May
1996, Donald Daniels, a former director. This Committee met three times in the
past fiscal year. The Committee's purpose is to administer the Company's
employee benefit plans.

The Company has a Finance Committee consisting of Messrs. Adelson, Cowen,
Kranzler and Klinsport. The purpose of the Committee is to explore various
financial alternatives relating to improving fiscal performance. The Committee
met four times during the last fiscal year.

MEETINGS OF THE BOARD

The Board held five meetings during the last fiscal year. During the fiscal
year, each member of the Board and each committee member participated in at
least 80% of all Board and applicable committee meetings held during the period
for which he was a director or committee member.

COMPENSATION OF DIRECTORS

Directors who are not also officers, with the exception of Mr. Adelson, are
paid a per meeting fee for services as a member of the Board. Mr. Poole received
$500 per meeting during fiscal 1995 and received options to purchase 10,000
shares of Common Stock in April 1995 at the prevailing market price of $7.8125.
Mr. Adelson is not paid for his services as a director but receives compensation
for

34
<PAGE>
separate consulting services. Mr. Cowen receives an annual retainer of $25,000
and separate compensation for consulting services. Directors who are also
officers, except Mr. Cowen, do not receive separate remuneration for their
services as directors. See "Certain Transactions."

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE. The Summary Compensation Table set forth below
shows certain compensation information for the Company's chief executive officer
and the four other most highly compensated executive officers (collectively, the
"Named Executive Officers") during the fiscal years ended October 31, 1993, 1994
and 1995. This information includes base salaries, bonus awards and long-term
incentive plan payouts, the number of stock options and stock appreciation
rights ("SARs") granted, and certain other compensation, if any, whether paid or
deferred.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
--------------------------------- ----------------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OTHER OPTION/SAR AWARDS (#) COMPENSATION
- -------------------------------- --------- ----------- --------- --------- ----------------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Myles M. Kranzler............... 1995 $ 123,310 -- -- 25,000 $ 42,308(1)
President and Chief 1994 52,000 $ 9,000 -- 21,000 --
Executive Officer 1993 139,800 31,700 -- 140,000 --
James A. Eby (2)................ 1995 108,751 1,584 -- -- 36,044(1)
Sr. Vice President, 1994 161,000 4,376 -- 29,460 4,201(1)
Engineering 1993 161,000 13,739 -- -- 5,329(1)
Edward J. Klinsport............. 1995 105,002 -- -- 30,000 39,363(1)
Executive Vice 1994 164,000 3,310 -- 44,740 4,523(1)
President 1993 164,000 17,431 -- -- 4,149(1)
Alan J. Eisenberg............... 1995 103,386 -- -- 30,000 33,183(1)
Vice President 1994 148,000 6,670 -- 43,280 --
1993 148,000 10,000 -- -- --
Frank W. Newdeck................ 1995 101,993 4,620 -- 15,000 --
Vice President 1994 128,000 7,120 -- 19,480 --
1993 128,000 10,000 -- -- --
</TABLE>

- ------------------------
(1) Includes interest paid on balance of individual's deferred compensation,
vacation entitlement payout and commissions.

(2) Mr. Eby resigned as an executive officer in March 1996. He remains an
employee of the Company.

OPTION/SAR GRANTS IN LAST FISCAL YEAR. The following table shows
information regarding grants of stock options and SARs, if any, made to each of
the Named Executive Officers during the fiscal year ended October 31, 1995.
Grants were made under the Company's Discretionary Deferred Compensation Plan
and 1995 Incentive Stock Option Plan. The amounts shown as potential realizable
values are based on assumed annualized rates of stock price appreciation of five
percent and ten percent over the full five-year or ten-year term of the options,
as applicable. These potential realizable values are based solely on arbitrarily
assumed rates of appreciation required by applicable SEC regulations. Actual
gains, if any, on option or SAR exercises and common stockholdings are dependent
on the future performance of the Company's Common Stock and overall stock market
conditions.

35
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
POTENTIAL
REALIZATION VALUE
------------------
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL
--------------------------------------------------- RATE OF STOCK
NUMBER OF % OF TOTAL PRICE
SECURITIES OPTIONS/SAR EXERCISE APPRECIATION FOR
UNDERLYING GRANTED TO OR BASE OPTION TERM
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION ------------------
NAME GRANTED(1) FISCAL YEAR ($/ SH) DATE 5% 10%
- ------------------------- ------------ ------------ -------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
Myles M. Kranzler........ 25,000 4.74 % 11.963 October 27, $381,768 $481,744
2000
James A. Eby............. -- -- -- -- -- --
Edward J. Klinsport...... 5,000 5.70 8.500 February 27, 69,228 110,234
25,000 10.875 2005 442,856 705,174
October 15,
2005
Alan J. Eisenberg........ 5,000 5.70 8.500 February 27, 69,228 110,234
25,000 10.875 2005 442,856 705,174
October 15,
2005
Frank W. Newdeck......... 5,000 2.85 8.500 February 27, 69,228 110,234
10,000 10.875 2005 177,142 282,069
October 15,
2005
</TABLE>

- ------------------------
(1) Common Stock.

Since October 31, 1995, options to purchase 50,000 shares of Common Stock
were granted to each of Messrs. Kranzler, Klinsport and Eisenberg. These stock
options were not granted pursuant to any stock option plan.

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES. The following table summarizes for each of the Named
Executive Officers the number of stock options and SARs, if any, exercised
during the fiscal year ended October 31, 1995, the aggregate dollar value
realized upon exercise, the total number of securities underlying unexercised
options and SARs, if any, held at October 31, 1995 and the aggregate dollar
value of in-the-money, unexercised options and SARs, if any, held at October 31,
1995. Value realized upon exercise is the difference between the fair market
value of the underlying stock on the exercise date and the exercise or base
price of the option or SAR. Value of unexercised, in-the-money options or SARs
at fiscal year end is the difference between the exercise or base price and the
fair market value of the underlying stock on October 31, 1995. On that date, the
last sale prices of the Common Stock and Class B Common Stock were $11 5/8 and
$11 1/2, respectively. The values in the column captioned "Value of Unexercised
In-The-Money Options/SARs at Fiscal Year End" have not been, and may never be,
realized. The underlying options or SARs have not been exercised, and actual
gains, if any, on exercise will depend upon the value of the underlying stock on
the date of exercise.

36
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS AT FY-END OPTIONS/SARS AT FY-END
ACQUIRED ON VALUE -------------------------- --------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Myles M. Kranzler..............
Common 35,000 $ 229,125 189,623 32,200 $ 770,081 $ 52,020
Class B Common -- -- -- -- -- --
James A. Eby...................
Common 23,911 73,530 50,549 -- 256,445 --
Class B Common -- -- -- -- -- --
Edward J. Klinsport............
Common -- -- 129,686 25,000 729,120 18,750
Class B Common 5,000 31,875 4,946 -- 42,041 --
Alan J. Eisenberg..............
Common 5,000 33,125 108,663 25,000 633,940 18,750
Class B Common -- -- -- -- -- --
Frank W. Newdeck...............
Common 3,000 16,125 24,480 10,000 78,834 7,500
Class B Common -- -- -- -- -- --
</TABLE>

EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS. Under their respective 1992 employment agreements, Messrs.
Kranzler, Klinsport, Eby and Eisenberg (the "Key Employees") are entitled to
their respective salaries and benefits to the date of their termination if they
are terminated for cause or if they voluntarily terminate their employment prior
to the expiration of the term of their agreement, which is twelve months,
automatically extended one month at the end of each month thereafter and
terminable (unless otherwise terminated) by either party on twelve months
notice. If terminated without cause, the Key Employee is entitled to his salary
and benefits to the date of termination and a termination payment equal to the
highest annual combination of his base salary plus any bonus paid to the Key
Employee during the five fiscal years ending before the date of termination. Mr.
Eby's employment agreement has been amended as of September 1995 to provide that
if he retires subsequent to November 1, 1996, he will receive a lump sum
retirement benefit of $150,000 in lieu of any other compensation arrangement
with the Company. If a Key Employee is also entitled to payment upon termination
pursuant to the Change in Control Agreement described below, the termination
provisions of the Change in Control Agreement prevail.

The Company has entered into change in control agreements with the Key
Employees. The agreements provide that if, within three years after certain
"changes of control" of the Company, the executive's employment with the Company
is terminated by the Company other than for "cause," "death" or "disability" or
by the executive for "good reason" (as defined therein), the executive will be
entitled to receive, subject to certain limitations, a lump sum cash payment and
hospital, medical and dental insurance benefits for three years following
termination of employment, having an aggregate value equal to 2.99 times the
total of average annual compensation and cost of employee benefits for the
executive during the five years prior to the "change of control," subject to a
maximum equal to the amount of the Company's permitted deduction under Section
280G of the Internal Revenue Code. Each agreement is extended automatically from
year to year unless the Company gives at least fifteen months' prior notice of
its election not to extend the term. In September 1995, the Company gave notice
of termination of his change in control agreement to Mr. Eby.

37
<PAGE>
PRINCIPAL STOCKHOLDERS

The following table sets forth information on the beneficial ownership of
the Common Stock as of May 31, 1996 by (i) the Named Executive Officers (ii)
each director of the Company, (iii) all directors and executive officers of the
Company as a group and (iv) each person known by the Company to own beneficially
more than 5% of the outstanding Common Stock or Class B Common Stock. Except as
indicated in the footnotes to the table, the named beneficial owners have sole
voting and investment power for the reported shares.

<TABLE>
<CAPTION>
COMMON STOCK CLASS B COMMON STOCK
---------------------------- ----------------------------
BENEFICIALLY PERCENTAGE BENEFICIALLY PERCENTAGE
NAMED EXECUTIVE OFFICERS AND DIRECTORS OWNED (1) OF CLASS OWNED (1) OF CLASS
- ----------------------------------------- -------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Myles M. Kranzler (2)(3)................. 524,603 6.78% 160,144 35.57%
Bruce D. Cowen (3)....................... 806,050 10.32 69,800 15.51
Edward J. Klinsport (2)(3)............... 217,486 2.89 7,136 1.57
Alan J. Eisenberg (2)(3)................. 185,146 2.47 283 *
Frank W. Newdeck (3)..................... 34,480 * -- --
Alexander M. Adelson (3)................. 345,416 4.56 -- --
Alan S. Poole............................ 10,000 * -- --

All directors and executive officers as a
group (9 persons) (2)(3)................ 2,259,096 24.67 239,758 52.68
5% STOCKHOLDERS
- -----------------------------------------
Jesse L. Upchurch (4) ................... 1,186,000 15.40 53,900 11.76
c/o Upchurch Corporation
500 Main Street
Fort Worth, Texas 76102
Mildred Kranzler (5) .................... 50,100 * 62,823 13.70
173 Rolling Hill Road
Skillman, NJ 08558
</TABLE>

*Less than 1%.
- ------------------------
(1) Ownership of Common Stock reflected in the table includes for directors and
for all directors and executive officers as a group, but not for 5%
shareholders, shares issuable upon (i) conversion of Class B Common Stock,
(ii) exercise of outstanding options and warrants to purchase Common Stock
and (iii) conversion of Class B Common Stock issuable upon exercise of
outstanding options to purchase Class B Common Stock. Ownership of Class B
Common Stock reflected in the table includes shares issuable upon exercise
of outstanding options to purchase Class B Common Stock.

(2) Includes as to (i) Mr. Kranzler, 50,100 shares of Common Stock and 62,823
shares of Class B Common Stock owned by his wife, (ii) Mr. Klinsport, 10
shares of Common Stock owned by his wife and 10,600 shares of Common Stock
issuable upon exercise of options owned by his wife, (iii) Mr. Eisenberg,
1,700 shares of Common Stock and 283 shares of Class B Common Stock owned by
his wife and children and (iv) all directors and executive officers as a
group, 62,410 shares of Common Stock and 63,106 shares of Class B Common
Stock owned or subject to options owned by their spouses and children.

(3) Includes as to (i) Mr. Kranzler, 221,823 shares, (ii) Mr. Cowen, 525,000
shares and (iii) Mr. Klinsport, 160,340 shares, (iv) Mr. Eisenberg, 133,163
shares, (v) Mr. Newdeck, 34,480

38
<PAGE>
shares, (vi) Mr. Adelson, 297,000 shares and (vii) all directors and
executive officers as a group, 1,566,345 shares and 4,946 shares, of Common
Stock and Class B Common Stock, respectively, issuable upon exercise of
outstanding options and warrants.

(4) Based on a Statement on Schedule 13D and a Statement of Changes in
Beneficial Ownership on Form 4 filed with the SEC, represents (i) 968,200
shares of Common Stock held directly by the Estate of Constance Upchurch, of
which Mr. Upchurch is the executor and beneficiary (the "Estate"), (ii)
209,900 shares of Common Stock held by a corporation of which Mr. Upchurch
is the sole stockholder, (iii) 18,400 shares of Common Stock held directly
by Mr. Upchurch and (iv) 53,900 shares of Common Stock issuable upon
conversion of the same number of shares of Class B Common Stock held
directly by the Estate.

(5) Mrs. Kranzler is the wife of Myles M. Kranzler, Chairman, President and CEO
of the Company, and her reported beneficial ownership excludes shares owned
directly by Mr. Kranzler.

CERTAIN TRANSACTIONS

In October 1994, the Company completed a sale and leaseback of its
headquarters and related real estate in Trenton, New Jersey with CKR Partners,
L.L.C., an investment concern ("CKR"). The principals of CKR include Myles M.
Kranzler, the Chairman of the Board and Chief Executive Officer of the Company,
and Bruce D. Cowen, Vice Chairman of the Board of the Company. The Company
received $3.6 million for the property, of which $550,000 was retained by CKR as
a security deposit due to the Company at the end of the 15-year lease term. The
lease provides for annual rent of $560,000 for the first five years, $615,000
for the second five years and $684,000 for the last five years, with the Company
retaining a repurchase option which may be exercised at any time at amounts
declining to $3.5 million during the last five years of the lease. The Company
received an opinion from The Talman Realty Group, independent financial
advisors, that the terms of the transaction were fair to the Company and its
stockholders from a financial point of view. Proceeds from the transaction were
applied by the Company primarily to prepay its mortgage debt of approximately
$2.8 million on the property.

The Company has a consulting arrangement with Alexander M. Adelson, a
director of the Company, providing for Mr. Adelson's transfer to the Company of
intellectual property relating to radio tag technology and for various advisory
services, including consulting on the Company's business, technical, marketing
and related strategies, preparation of business plans and other specialized
services that the Company may request. For his services under the agreement, Mr.
Adelson has received specified fees, expense reimbursements and a five-year
nontransferable option to purchase 36,000 shares of Common Stock at $4.00 per
share, representing the market price on the date of grant. In April 1995, the
agreement was renewed for three years. In connection with the renewal, the
Company granted Mr. Adelson an additional five-year nontransferable option to
purchase 36,000 shares of Common Stock at $7 5/8 per share, representing the
market price on the date of grant, and agreed to pay annual consulting fees of
$50,000 plus monthly consulting fees of $10,000 in August 1995 and $15,000 from
September 1995 through May 1997. Mr. Adelson is also entitled to 2 1/2% of the
Company's net proceeds from sales of radio tag devices incorporating technology
supplied by him. The total fees paid to Mr. Adelson under his consulting
agreement in fiscal 1995 and 1994 were $207,000 and $174,000, respectively.

The Company has a consulting agreement with Bruce D. Cowen, Vice Chairman of
the Board, for a one-year term through March 1996, providing for financial
consulting and other specialized services. Mr. Cowen received payments under the
agreement aggregating $100,000 plus expense reimbursements and a five-year
nontransferable option to purchase 20,000 shares of Common Stock at $7 7/8 per
share, representing the market price on the date of grant. The agreement has
been extended for an additional one-year term, entitling Mr. Cowen to a warrant
to purchase 30,000 shares of Common Stock at an exercise price of $10 1/4 per
share and to quarterly fees of $6,250 plus expense reimbursements.

39
<PAGE>
The Company has a financial advisory agreement with Messrs. Adelson and
Cowen for consulting services on strategic opportunities, providing for success
fees on any introduced acquisition or equity financing completed during the term
of the agreement. The agreement provides for a cash fee equal to 2% of gross
proceeds in an equity financing or, for an acquisition, 3% of pretax profits
earned by the acquired operations over the three years after the transaction
plus 1% of the consideration paid by the Company for the acquired operations.
For either an equity financing or an acquisition, the agreement also provides
for the issuance of warrants based on the terms of the particular transaction.
In fiscal 1993, for services relating to the exercise of the Company's Series A
Rights, which expired November 9, 1992, Messrs. Adelson and Cowen each received,
in lieu of any cash fees, a five-year warrant to purchase 100,000 shares of
Common Stock at an exercise price of $3.00 and a five-year warrant to purchase
125,000 shares of Common Stock at an exercise price of $5.00 per share. In
connection with the Common Stock offered hereby, Messrs. Adelson and Cowen will
receive aggregate cash payments from the Company in an amount equal to 2% of the
gross proceeds of the offering, and no additional compensation.

As an incentive to serve on the Board of Directors Mr. Cowen was granted a
five-year warrant in May 1996 to purchase 100,000 shares of Common Stock at an
exercise price of $10 3/8 per share, representing the market price on the date
of the grant.

In order to improve financial performance, the Company implemented a cost
reduction plan in 1995. Under the plan, each officer of the Company and its
divisions worked for the minimum wage during a three month period beginning May
15, 1995. Each of these employees other than the Chairman received three year
loans equal to their relinquished salary, with interest at 6.5% annually. The
Chairman and each of the Presidents of the Company's two divisions continued to
work for the minimum wage for the balance of the fiscal year, and the division
Presidents received three year loans for the additional relinquished salary. At
April 30, 1996, the aggregate outstanding balance of the employee loans was
$340,000. The Company expects that repayment of the loans will be effected over
the course of their terms by means of offsets against employee compensation. In
the six months ended April 30, 1996, aggregate employee compensation of $86,000
was offset against outstanding loan balances and accrued interest. The Company
does not expect to receive material amounts of cash in connection with the
repayment of the loans.

DESCRIPTION OF CAPITAL STOCK

GENERAL

The authorized capital stock of the Company consists of 22,000,000 shares of
Class A Common Stock ("Common Stock"), 2,000,000 shares of Class B Common Stock
and 1,000,000 shares of Preferred Stock, all of which have a par value of $1.00
per share.

COMMON STOCK

DIVIDENDS. Both classes of the Company's common stock have identical cash
and property dividend rights except that no cash or property dividend may be
paid on the Class B Common Stock unless a dividend at least equal in amount is
paid concurrently on the Common Stock. Cash or property dividends can be
declared and paid on the Common Stock without being declared and paid on the
Class B Common Stock.

If a distribution is paid in shares of Common Stock or Class B Common Stock,
the distribution may be paid only as follows: (i) shares of Common Stock may be
paid to holders of shares of Common Stock, and shares of Class B Common Stock
may be paid to holders of shares of Class B Common Stock; and (ii) the same
number of shares shall be paid in respect of each outstanding share of Common
Stock or Class B Common Stock. The Company may not subdivide or combine shares
of either class without at the same time proportionately subdividing or
combining shares of the other class.

40
<PAGE>
VOTING RIGHTS. Holders of Common Stock are entitled to elect 25% of the
members of the Board of Directors (rounded to the next highest whole number) so
long as the number of outstanding shares of Common Stock is at least 10% of the
number of outstanding shares of both classes. Currently, the holders of Common
Stock are entitled, as a class, to elect two directors of the Company, and the
holders of the Class B Common Stock are entitled, as a class, to elect the
remaining directors. As a result of this provision, the holders of a majority of
the Class B Common Stock can and will continue to be able to elect a majority of
the directors and thereby control the Company, regardless of the number of
shares of Class B Common Stock outstanding from time to time. Directors may be
removed, only for cause, by the holders of the class of common stock that
elected them.

Except for the election or removal of directors and for class votes as
required by law or the Company's Restated Certificate of Incorporation, holders
of both classes of common stock vote or consent as a single class on all
matters, with each share of Common Stock having one-tenth vote per share and
each share of Class B Common Stock having one vote per share.

The outstanding shares of Common Stock currently represent approximately 92%
of the total number of shares of both classes outstanding. If the number of
outstanding shares of Common Stock should become less than 10% of the total
number of shares of both classes, the holders of Common Stock would not have the
right to elect 25% of the Company's directors, but would have one-tenth vote per
share for all directors, and the holders of Class B Common Stock would have one
vote per share for all directors.

CONVERSION. At the option of the holder, each share of Class B Common Stock
is convertible at any time into one share of Common Stock. Conversion of a
significant number of shares of Class B Common Stock could put control of the
Board of Directors into the hands of the holders of a relatively small equity
interest in the Company who would continue to hold the Class B Common Stock. The
Class A Common Stock is not convertible.

OTHER RIGHTS. Stockholders of the Company have no preemptive or other
rights to subscribe for additional shares. On liquidation, dissolution or
winding up of the Company, all holders of common stock, regardless of class, are
entitled to share ratably in any assets available for distribution. No shares of
either class of common stock are subject to redemption. All outstanding shares
are fully paid and nonassessable.

TRANSFER AGENT. The transfer agent and registrar for shares of the Common
Stock and Class B Common Stock is American Stock Transfer & Trust Company, 40
Wall Street, New York, New York 10005.

PREFERRED STOCK

No shares of Preferred Stock have been issued. The Company's Board of
Directors is empowered to fix the designations, powers, preferences and
relative, participating, optional or other special rights of the Preferred Stock
and the qualifications, limitations or restrictions of those preferences or
rights. The voting rights of the Class B Common Stock described above are
subject to voting rights that may be granted in connection with the creation of
any series of Preferred Stock. However, no issue of Preferred Stock may change
the ratio of one-tenth of a vote for each share of Common Stock to one vote for
each share of Class B Common Stock.

WARRANTS

The Company has agreed to sell to the Underwriter, for $0.001 per warrant,
five-year warrants to purchase shares of Common Stock in an amount equal to 5%
of the number of shares of Common Stock sold in this offering, expected to equal
100,000 shares (or 115,000 shares if the Underwriter's over-allotment option is
exercised in full) (the "Underwriter Warrants"). The Underwriter Warrants will
be exercisable at a price per share equal to 120% of the initial offering price
per share to the public of the Common Stock offered hereby, commencing one year
from the date of this Prospectus and expiring four years after such date. The
Underwriter Warrants may also be converted into Common

41
<PAGE>
Stock without any payment to the Company at a ratio equal to (i) the amount (if
any) by which the market price of Common Stock on the date of conversion exceeds
the exercise price of the Underwriter Warrants divided by (ii) the market price
of the Common Stock on that day.

REGISTRATION RIGHTS

The Company has granted certain registration rights to the holders of the
Underwriter Warrants. The holders of a majority of the Underwriter Warrants may
require once that the Company file a registration statement covering some or all
of the Common Stock issuable upon exercise thereof (the "Underwriter Warrant
Shares") at the Company's expense. Upon any request to file such a registration
statement, the Company must give notice to the other holders of Underwriter
Warrants, if any, and give them the opportunity to include their Underwriter
Warrant Shares in the registration statement. The Company must keep the
registration statement effective for the lesser of two years or until all the
Underwriter Warrant Shares so registered have been sold. Holders of Underwriter
Warrants may require the Company to file additional registration statements, but
they must bear the costs associated with such additional registration
statements. Holders of Underwriter Warrants also have certain "piggyback"
registration rights. None of the registration rights may be exercised until one
year after the date of this Prospectus.

DIRECTOR LIABILITY AND INDEMNIFICATION

The Company's Restated Certificate of Incorporation provides that no
director or officer of the Company shall be personally liable to the Company or
its stockholders for damages for breach of any duty owed to the Company or its
stockholders, except liability for any breach of duty based upon an act or
omission (i) in breach of his duty of loyalty to the Company or its
stockholders, (ii) not in good faith or involving a knowing violation of law or
(iii) resulting in receipt by of an improper personal benefit. These exculpation
provisions are effective to the fullest extent authorized or permitted by the
laws of the State of New Jersey.

The Company's Restated Certificate of Incorporation also provides that any
present or future director or officer of the Company and certain other persons
shall be indemnified by the Company against reasonable costs, expenses and legal
fees paid or incurred in connection with any action, suit or proceeding to which
they made a party by reason of being or having been engaged in that position,
provided that certain conditions are met. Under the Company's Bylaws, the
Company is required to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(including an action by or in the right of the Company) by reason of the fact
that he is or was a director or officer of the Company against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement to
the maximum extent, according to the standards and in the manner provided by
applicable law.

Each of the officers and directors of the Company is insured against certain
liabilities that might be incurred in that capacity under a directors and
officers insurance and reimbursement policy. If any claims are made against
officers or directors of the Company or its subsidiaries for a Wrongful Act (as
defined in the policy) while acting in that capacity, to the extent the Company
or its subsidiary has made proper indemnification, the insurer will, subject to
the retention amount, reimburse the Company or its subsidiary for 100% of any
Loss (as defined in the policy). In addition, to the extent that the Company or
its subsidiary has not indemnified an officer or director, the insurer will,
subject to the retention amount, pay all of the Loss on the insured's behalf.
Defense Costs (as defined in the Policy) are part of Loss and are subject to the
limits of the policy. The retention amount under the policy is $250,000. The
retention amount is first applied to the Company or its subsidiary. The
retention amount is not applicable to officers or directors if the Company or
its subsidiary is not permitted or required to indemnify them.

42
<PAGE>
UNDERWRITING

Subject to the terms and conditions of the underwriting agreement (the
"Underwriting Agreement") between the Company and the Underwriter relating to
the offering, the Company has agreed to sell to the Underwriter, and the
Underwriter has agreed to purchase from the Company, the number of shares of
Common Stock set forth opposite the name listed below:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- --------------------------------------------------------------------------------- -----------
<S> <C>
Pacific Growth Equities, Inc.....................................................

-----------
Total........................................................................ 2,000,000
-----------
-----------
</TABLE>

The Underwriting Agreement provides that the obligation of the Underwriter
to pay for and accept delivery of the shares of Common Stock offered hereby is
subject to the approval of certain legal matters by counsel and to certain other
conditions, including the conditions that no stop order suspending the
effectiveness of the Registration Statement relating to this offering is in
effect and no proceedings for that purpose are pending before or threatened by
the Securities and Exchange Commission ("SEC") and that there has been no
material adverse change in the condition of the Company from that set forth in
the Registration Statement. The Underwriter is obligated to take and pay for all
of the shares offered hereby (other than those covered by the over-allotment
option described below) if any are taken.

The Underwriter has advised the Company that it proposes initially to offer
shares directly to the public at the public offering price set forth on the
cover page hereof. The Underwriter may allow to certain dealers a concession of
not more than $ per share, and the Underwriter may allow, and such dealers
may re-allow, a discount of not more than $ per share to certain other
dealers. The offering price and other selling terms may be changed by the
Underwriter. The Underwriter has informed the Company that it does not intend to
confirm sales to accounts over which it has discretionary authority.

The Company has granted to the Underwriter a 30-day option to purchase up to
an aggregate of 300,000 shares of Common Stock at the price to the public less
the underwriting discounts and commissions, as set forth on the cover page of
this Prospectus. The Underwriter may exercise this option only for the purpose
of covering over-allotments made in connection with the sale of shares offered
hereby.

The Company's executive officers, directors and certain security holders
have agreed not to offer, sell or otherwise dispose of any shares of Common
Stock (including shares of Class B Common Stock) for a period of 180 days from
the date of this Prospectus without the prior written consent of the
Underwriter. The Company has agreed not to issue, sell, offer or contract to
sell, grant options to purchase or otherwise dispose of any securities of the
Company for a period of 180 days from the date of this Prospectus without the
prior written consent of the Underwriter, except that the Company may issue
shares of Common Stock or Class B Common Stock without the consent of the
Underwriter upon the exercise of outstanding stock options and warrants.

The Underwriting Agreement provides that the Company will indemnify the
Underwriter against certain liabilities, including civil liabilities under the
Securities Act of 1933, as amended (the "Securities Act"), or will contribute to
payments the Underwriter may be required to make in respect thereof. In
addition, the Company has agreed to reimburse the Underwriter for up to $50,000
of accountable fees and expenses and has agreed to issue and sell to the
Underwriter, for nominal consideration, five-year warrants to purchase shares of
Common Stock in an amount equal to 5% of the number of shares

43
<PAGE>
of Common Stock sold in this offering, expected to equal 100,000 shares (or
115,000 shares if the Underwriter's over-allotment option is exercised in full)
(the "Underwriter Warrants"). The Underwriter Warrants will be exercisable at a
price per share equal to 120% of the initial offering price per share to the
public of the Common Stock offered hereby, commencing one year from the date of
this Prospectus and expiring four years after such date. The terms of the
Underwriter Warrants were established as the result of negotiations between the
Company and the Underwriter. If the Underwriter Warrants are exercised, the
Underwriter may realize additional compensation. By their terms, the Underwriter
Warrants will be restricted from sale, transfer, assignment or hypothecation for
a period of one year, except to officers and partners of the Underwriter. The
number of shares covered by the Underwriter Warrants and the exercise price
thereof are subject to adjustment in certain events to prevent dilution. The
Company has granted the holder or holders of the Underwriter Warrants certain
registration rights. See "Description of Capital Stock -- Registration Rights."

Upon consummation of this offering, the Company will pay Messrs. Adelson and
Cowen, each a director of the Company, cash fees aggregating 2% of the gross
proceeds of the offering. See "Certain Transactions."

In connection with this offering, the Underwriter and certain selling group
members (if any) who are qualifying registered market makers on Nasdaq may
engage in passive market making transactions in the Common Stock on Nasdaq in
accordance with Rule 10b-6A under the Securities Exchange Act of 1934 (the
"Exchange Act") during the two business day period before commencement of sales
in this offering. The passive market making transactions must comply with
applicable price and volume limits and be identified as such. In general, a
passive market maker may display its bid at a price not in excess of the highest
independent bid for the security. If all independent bids are lowered below the
passive market maker's bid, however, its bid must then be lowered when certain
purchase limits are exceeded. Net purchases by a passive market maker on each
day are generally limited to a specified percentage of the passive market
maker's average daily trading volume in the Common Stock during a prior period
and must be discontinued when that limit is reached. Passive market making may
stabilize the market price of the Common Stock above the level that would
otherwise prevail and, if commenced, may be discontinued at any time.

LEGAL MATTERS

Certain legal matters in connection with this offering are being passed upon
for the Company by Pitney, Hardin, Kipp & Szuch, 200 Campus Drive, P. O. Box
1945, Morristown, New Jersey 07962-1945. Certain legal matters in connection
with this offering are being passed upon for the Underwriter by Howard, Rice,
Nemerovski, Canady, Falk & Rabkin, A Professional Corporation, Three Embarcadero
Center, 7th Floor, San Francisco, California 94111.

EXPERTS

The consolidated financial statements of Base Ten Systems, Inc. and
subsidiaries as of October 31, 1994 and 1995, and for each of the three years in
the period ended October 31, 1995, appearing in and incorporated by reference in
this Prospectus and Registration Statement have been audited by Deloitte &
Touche LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein and in the Registration Statement and incorporated by
reference, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.

44
<PAGE>
AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Exchange Act
and in accordance therewith files reports and other information with the
Securities and Exchange Commission (the "SEC"). Reports, proxy material and
other information filed by the Company can be inspected and copied at prescribed
rates at the public reference facilities maintained by the SEC at 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and at the following
Regional Offices of the SEC: 7 World Trade Center, Suite 1300, New York, New
York 10048 and Citibank Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of these materials can also be obtained from the
Public Reference Section of the SEC at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549.

The Company has filed with the SEC a Registration Statement on Form S-3 (the
"Registration Statement") under the Securities Act of 1933 (the "Securities
Act") with respect to the securities offered hereby. This Prospectus does not
contain all of the information set forth or incorporated by reference in the
Registration Statement. Copies of the Registration Statement and the exhibits
thereto may be examined without charge at the public reference facility of the
SEC, or obtained at prescribed rates from the public reference facilities
maintained by the SEC at the addresses set forth above.

INCORPORATION OF CERTAIN INFORMATION BY REFERENCE

The following documents filed by the Company with the SEC are incorporated
herein by reference:

1. Annual Report on Form 10-K for the year ended October 31, 1995.

2. Quarterly Report on Form 10-Q for the quarter ended January 31, 1996
and an Amendment thereto dated April 16, 1996 on Form 10-Q/A.

3. Quarterly Report on Form 10-Q for the quarter ended April 30, 1996.

4. The Company's Proxy Statement for the Annual Meeting of Shareholders
held on March 26, 1996.

All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering hereunder shall be deemed to be incorporated by
reference into this Prospectus and a part hereof from the date of filing of
those documents.

Any statement contained herein or in a document or information incorporated
or deemed to be incorporated herein by reference shall be deemed to be modified
or superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any subsequently filed document which also is, or is
deemed to be, incorporated herein by reference modifies or supersedes that
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus.

The Company will provide without charge to each person to whom a Prospectus
is delivered, upon request, a copy of the documents incorporated by reference in
this Prospectus (excluding exhibits thereto). Requests should be directed to
Investor Relations, Base Ten Systems, Inc., One Electronics Drive, Trenton, New
Jersey 08619, telephone: (609) 586-7010.

45
<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
BASE TEN SYSTEMS, INC. AND SUBSIDIARIES:
Consolidated Balance Sheets at October 31, 1995 and April 30, 1996 (unaudited)............................. F-2
Consolidated Statements of Operations for the six months ended April 30, 1995 and 1996 (unaudited)......... F-3
Consolidated Statement of Shareholders' Equity for the six months ended April 30, 1996 (unaudited)......... F-4
Consolidated Statements of Cash Flows for the six months ended April 30, 1995 and 1996 (unaudited)......... F-5
Notes to Interim Consolidated Financial Statements (unaudited)............................................. F-6
Report of Independent Auditors............................................................................. F-9
Consolidated Balance Sheets at October 31, 1994 and 1995................................................... F-10
Consolidated Statements of Operations for the three years ended October 31, 1995........................... F-11
Consolidated Statements of Shareholders' Equity for the three years ended October 31, 1995................. F-12
Consolidated Statements of Cash Flows for the three years ended October 31, 1995........................... F-13
Notes to Consolidated Financial Statements................................................................. F-14
</TABLE>

F-1
<PAGE>
BASE TEN SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS

<TABLE>
<CAPTION>
OCTOBER 31,
1995 APRIL 30, 1996
--------------- ---------------
<S> <C> <C>
CURRENT ASSETS:
Cash...................................................................... $ 7,221,000 $ 1,994,000
Accounts receivable (including unbilled receivables of $3,271,000 in 1995
and $4,018,000 in 1996).................................................. 6,034,000 7,724,000
Inventories............................................................... 3,151,000 2,911,000
Current Portion of Employee Loan Receivable............................... 108,000 128,000
Other current assets...................................................... 536,000 533,000
--------------- ---------------
TOTAL CURRENT ASSETS.................................................... 17,050,000 13,290,000
PROPERTY, PLANT AND EQUIPMENT............................................. 4,480,000 4,754,000
EMPLOYEE LOAN RECEIVABLE.................................................. 298,000 212,000
OTHER ASSETS.............................................................. 6,177,000 4,678,000
--------------- ---------------
$ 28,005,000 $ 22,934,000
--------------- ---------------
--------------- ---------------

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................................... $ 1,246,000 $ 973,000
Accrued expenses.......................................................... 1,454,000 1,861,000
Income taxes payable...................................................... 1,038,000 1,038,000
Current Portion of Capital Lease Obligation............................... 42,000 43,000
--------------- ---------------
TOTAL CURRENT LIABILITIES............................................... 3,780,000 3,915,000
LONG-TERM LIABILITIES:
Deferred Income Taxes....................................................... 83,000 77,000
Deferred Compensation....................................................... 90,000 12,000
Other Long-Term Liabilities................................................. 266,000 256,000
Capital Lease Obligation.................................................... 3,525,000 3,502,000
--------------- ---------------
TOTAL LONG-TERM LIABILITIES............................................. 3,964,000 3,847,000
COMMITMENTS AND CONTINGENCIES............................................... -- --
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 7,216,195 shares in 1995 and 7,298,112 shares in
1996..................................................................... 7,216,000 7,298,000
Class B Common Stock, $1.00 par value, 2,000,000 shares authorized; issued
and outstanding 458,474 shares in 1995 and 450,177 shares in 1996........ 458,000 450,000
Additional paid-in capital................................................ 23,908,000 24,218,000
Deficit................................................................... (11,179,000) (16,610,000)
--------------- ---------------
20,403,000 15,356,000
Equity adjustment from foreign currency translation....................... (142,000) (184,000)
--------------- ---------------
20,261,000 15,172,000
--------------- ---------------
$ 28,005,000 $ 22,934,000
--------------- ---------------
--------------- ---------------
</TABLE>

See Notes to Unaudited Consolidated Financial Statements

F-2
<PAGE>
BASE TEN SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED APRIL 30 SIX MONTHS ENDED APRIL 30
----------------------------- ------------------------------
1995 1996 1995 1996
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
REVENUE
Sales........................................... $ 5,171,000 $ 3,768,000 $ 7,921,000 $ 7,379,000
Other........................................... 86,000 27,000 213,000 91,000
------------- -------------- -------------- --------------
5,257,000 3,795,000 8,134,000 7,470,000
------------- -------------- -------------- --------------
COSTS AND EXPENSE:
Cost of sales................................... 3,186,000 2,735,000 5,530,000 5,193,000
Research and development........................ 179,000 237,000 386,000 562,000
Selling, general and administrative............. 1,602,000 2,019,000 3,242,000 3,895,000
Write-off of software development costs......... -- 2,429,000 -- 2,429,000
Amortization.................................... 140,000 334,000 187,000 561,000
Interest........................................ 139,000 132,000 282,000 261,000
------------- -------------- -------------- --------------
5,246,000 7,886,000 9,627,000 12,901,000
------------- -------------- -------------- --------------
EARNINGS/(LOSS) BEFORE INCOME TAXES............... 11,000 (4,091,000) (1,493,000) (5,431,000)
INCOME TAXES/(BENEFIT)............................ 4,000 470,000 (520,000) --
------------- -------------- -------------- --------------
NET EARNINGS (LOSS)........................... $ 7,000 $ (4,561,000) $ (973,000) $ (5,431,000)
------------- -------------- -------------- --------------
------------- -------------- -------------- --------------
NET EARNINGS (LOSS) PER COMMON SHARE.............. $ .01 $ (.59) (.12) (.70)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING........ 7,339,109 7,717,112 7,169,613 7,708,454
</TABLE>

See Notes to Unaudited Consolidated Financial Statement

F-3
<PAGE>
BASE TEN SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
SIX MONTHS ENDED APRIL 30, 1996
(UNAUDITED)

See Notes to Consolidated Statements

F-4
<PAGE>
BASE TEN SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED APRIL 30,
------------------------------
1995 1996
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss..................................................................... $ (973,000) $ (5,431,000)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH USED IN OPERATING ACTIVITIES:
Depreciation and amortization................................................ 234,000 799,000
Write-off of software development costs...................................... -- 2,429,000
Deferred gain on sale of building............................................ (15,000) --
Accounts Receivable.......................................................... (1,871,000) (1,703,000)
Inventories.................................................................. (350,000) 240,000
Other current assets......................................................... (375,000) 111,000
Accounts payable............................................................. (236,000) (280,000)
Accrued expenses............................................................. 621,000 324,000
Customers' advance payments.................................................. 985,000 93,000
Deferred taxes............................................................... -- (6,000)
Deferred compensation........................................................ (65,000) (78,000)
Other assets................................................................. (464,000) (1,381,000)
Other long-term liabilities.................................................. -- (9,000)
Income taxes payable......................................................... (520,000) --
-------------- --------------
NET CASH USED IN OPERATIONS................................................ (3,029,000) (4,892,000)
-------------- --------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to property, plant and equipment -- net............................ (217,000) (508,000)
Decrease in long-term lease obligation -- net of current portion............. (18,000) --
-------------- --------------
NET CASH USED IN INVESTING ACTIVITIES...................................... (235,000) (508,000)
-------------- --------------
CASH FLOWS PROVIDED FROM FINANCING ACTIVITIES:
Repayment of amounts borrowed................................................ -- (21,000)
Proceeds from issuance of common stock....................................... 4,773,000 384,000
-------------- --------------
NET CASH PROVIDED FROM FINANCING ACTIVITIES................................ 4,773,000 363,000
Effect of exchange rate change on cash....................................... (8,000) (190,000)
-------------- --------------
NET INCREASE IN CASH....................................................... 1,501,000 (5,227,000)
CASH, beginning of period...................................................... 1,868,000 7,221,000
-------------- --------------
CASH, end of period........................................................ $ 3,369,000 $ 1,994,000
-------------- --------------
-------------- --------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest..................................... $ 265,000 $ 261,000
-------------- --------------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Retirement of treasury stock................................................. $ 12,000 $ 7,000
-------------- --------------
</TABLE>

See Notes to Unaudited Consolidated Financial Statements

F-5
<PAGE>
BASE TEN SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED APRIL 30, 1996
(UNAUDITED)

A. DESCRIPTION OF BUSINESS
Base Ten Systems, Inc. and subsidiaries (the "Company") design, develop,
manufacture and market complex electronic systems for the defense industry and
comprehensive software solutions for the pharmaceutical industry.

B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

1. In management's opinion, all adjustments (consisting of normal recurring
adjustments) necessary for a fair statement of the results are included for the
interim periods presented.

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 period ended April 30, 1996
are not necessarily indicative of the operating results for the full year.

The financial information at the fiscal year ended October 31, 1995 is
derived from the audited consolidated financial statements of the Company.

2. BASIS OF PRESENTATION -- The Company's consolidated financial statements
have been prepared on a historical cost basis.

3. SOFTWARE REVENUE RECOGNITION -- The Company evaluates each product and
order on an individual basis to determine the proper revenue recognition method.
Contracts to deliver software which require significant customization or
modification for an extended period of time are accounted for under the
percentage of completion method. For the products or orders which are more
standardized in nature, revenue is recognized on delivery.

4. WRITEOFF OF CAPITALIZED SOFTWARE DEVELOPMENT COSTS -- A portion of the
Company's software development costs since 1991 have been capitalized and
included in other non-current assets in accordance with the Statement of
Financial Accounting Standard No. 86, Accounting for Costs for Computer Software
to be Sold, Leased or otherwise Marketed ("FAS 86"), requiring the amortization
of these costs over the estimated economic life of the product. See "Other
Assets" below. The Company performs quarterly reviews of the recoverability of
its capitalized software costs based on anticipated revenues and cash flows from
sales of these products.

F-6
<PAGE>
BASE TEN SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED APRIL 30, 1996
(UNAUDITED)

B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Company concluded that the product, as it then existed, would not generate
sufficient sales to recover the capitalized costs, and that only a new product
with networking, communications and off-line measurement capabilities would be
capable of producing acceptable sales volume.

5. OTHER ASSETS -- Other assets at April 30, 1996 include $2,571,000 of
software development costs that remain capitalized in accordance with FAS 86
after giving effect to the foregoing writeoff of unrecoverable development
costs. See "Writeoff of Capitalized Software Development Costs" above.
Amortization of the remaining capitalized software development costs 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.

6. STATEMENT 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.

7. CHANGE IN PRESENTATION -- Certain balance sheet items for the interim
period in fiscal 1995 have been reclassified to conform to the 1996
presentation.

C. INVENTORIES:
Inventories are stated at the lower of cost (first-in, first-out method) or
market.

<TABLE>
<CAPTION>
OCTOBER 31, APRIL 30,
1995 1996
--------------- -------------
<S> <C> <C>
Raw materials....................................................... $ 1,557,000 $ 1,208,000
Work in process..................................................... 1,515,000 1,668,000
Finished goods...................................................... 95,000 80,000
--------------- -------------
3,167,000 2,956,000
Less advance payments............................................. 16,000 45,000
--------------- -------------
$ 3,151,000 $ 2,911,000
--------------- -------------
--------------- -------------
</TABLE>

D. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are summarized as follows:

<TABLE>
<CAPTION>
OCTOBER 31,
1995 APRIL 30, 1996
--------------- --------------
<S> <C> <C>
Machinery and equipment............................................ $ 8,853,000 $ 9,320,000
Furniture and fixtures............................................. 617,000 647,000
Leased asset -- land and building.................................. 3,600,000 3,600,000
Leasehold improvement.............................................. 21,000 46,000
--------------- --------------
13,091,000 13,613,000
Less accumulated depreciation and amortization................... 8,611,000 8,859,000
--------------- --------------
$ 4,480,000 $ 4,754,000
--------------- --------------
--------------- --------------
</TABLE>

E. LONG-TERM CAPITAL LEASE:

LEASES. The Company entered into a sale and leaseback arrangement on
October 28, 1995. Under the arrangement, the Company sold its 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 is a partnership, one of the partners of which is a director and
officer of the

F-7
<PAGE>
BASE TEN SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED APRIL 30, 1996
(UNAUDITED)

E. LONG-TERM CAPITAL LEASE: (CONTINUED)
Company and another is a director. 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 in effect at April 30, 1996 are
as follows:

<TABLE>
<CAPTION>
FISCAL
- ---------------------------------------------------------------------
<S> <C>
1996................................................................. $ 280,000
1997................................................................. 560,000
1998................................................................. 560,000
1999................................................................. 560,000
2000................................................................. 615,000
2001 and thereafter.................................................. 5,970,000
-------------
8,545,000
Less: Interest portion............................................. 5,000,000
-------------
Present value of net minimum payments............................ $ 3,545,000
-------------
-------------
</TABLE>

F. NET LOSS PER SHARE:
Loss per share for the periods ended April 30, 1995 and 1996 were calculated
using the number of weighted average common shares outstanding for each period.
The stock options and warrants would have an anti-dilutive effect on loss per
share for the quarters ended, April 30, 1995 and 1996 and therefore were not
included in the calculation of earnings per share.

F-8
<PAGE>
INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
Base Ten Systems, Inc.
Trenton, New Jersey 08619

We have audited the consolidated balance sheets of Base Ten Systems, Inc.
and subsidiaries as of October 31, 1995 and 1994, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended October 31, 1995. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Base Ten
Systems, Inc. and subsidiaries as of October 31, 1995 and 1994, and the results
of their operations and their cash flows for each of the three years in the
period ended October 31, 1995 in conformity with generally accepted accounting
principles.

DELOITTE & TOUCHE LLP

Parsippany, New Jersey
December 15, 1995

F-9
<PAGE>
BASE TEN SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

ASSETS
<TABLE>
<CAPTION>
OCTOBER 31,
--------------------------------
1994 1995
--------------- ---------------
<S> <C> <C>
CURRENT ASSETS:
Cash........................................................................ $ 1,868,000 $ 7,221,000
Accounts receivable (including unbilled receivables of $2,006,000 in 1994
and $4,421,000 in 1995).................................................... 5,068,000 7,184,000
Inventories................................................................. 2,411,000 3,151,000
Other current assets........................................................ 417,000 644,000
--------------- ---------------
TOTAL CURRENT ASSETS.................................................... 9,764,000 18,200,000
PROPERTY, PLANT AND EQUIPMENT............................................... 4,582,000 4,480,000
OTHER ASSETS................................................................ 3,263,000 5,325,000
--------------- ---------------
TOTAL ASSETS............................................................ $ 17,609,000 $ 28,005,000
--------------- ---------------
--------------- ---------------

LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>

CURRENT LIABILITIES:
Accounts payable and accrued expenses....................................... $ 2,541,000 $ 2,700,000
Income taxes payable........................................................ 1,363,000 1,038,000
Current portion of Capital Lease Obligation................................. -- 42,000
--------------- ---------------
TOTAL CURRENT LIABILITIES............................................... 3,904,000 3,780,000
--------------- ---------------
LONG-TERM LIABILITIES:
Deferred Income Taxes....................................................... 243,000 83,000
Deferred Compensation....................................................... 148,000 90,000
Other Long-Term Liabilities................................................. 282,000 266,000
Capital Lease Obligation.................................................... 3,601,000 3,525,000
--------------- ---------------
TOTAL LONG-TERM LIABILITIES............................................. 4,274,000 3,964,000
--------------- ---------------
COMMITMENTS AND CONTINGENCIES...............................................
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
5,006,562 and 7,216,195 shares in 1994 and 1995, respectively.............. 5,007,000 7,216,000
Class B Common Stock, $1.00 par value, 2,000,000 shares authorized; issued
476,476 and 458,474 shares in 1994 and 1995, respectively.................. 476,000 458,000
Additional paid-in capital.................................................. 14,374,000 23,908,000
Deficit..................................................................... (10,304,000) (11,179,000)
--------------- ---------------
9,553,000 20,403,000
Equity adjustment from foreign currency translation......................... (122,000) (142,000)
--------------- ---------------
TOTAL SHAREHOLDERS' EQUITY.............................................. 9,431,000 20,261,000
--------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.............................. $ 17,609,000 $ 28,005,000
--------------- ---------------
--------------- ---------------
</TABLE>

See Notes to Consolidated Financial Statements.

F-10
<PAGE>
BASE TEN SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------------------------
1993 1994 1995
-------------- -------------- --------------
<S> <C> <C> <C>
REVENUES
Sales.......................................................... $ 21,829,000 $ 18,698,000 $ 17,841,000
Other.......................................................... 433,000 584,000 466,000
-------------- -------------- --------------
22,262,000 19,282,000 18,307,000
COST AND EXPENSES:
Cost of sales.................................................. 14,958,000 12,996,000 11,813,000
Research and development....................................... 403,000 887,000 863,000
Selling, general and administrative............................ 5,147,000 5,131,000 6,426,000
Interest....................................................... 289,000 209,000 554,000
-------------- -------------- --------------
20,797,000 19,223,000 19,656,000
-------------- -------------- --------------
EARNINGS/(LOSS) BEFORE INCOME TAXES.............................. 1,465,000 59,000 (1,349,000)
INCOME TAX PROVISION/(BENEFIT)................................... 507,000 24,000 (474,000)
-------------- -------------- --------------
NET EARNINGS/(LOSS).............................................. $ 958,000 $ 35,000 $ (875,000)
-------------- -------------- --------------
-------------- -------------- --------------
NET EARNINGS/(LOSS) PER COMMON SHARE:
PRIMARY:
Net earnings/(loss)............................................ $ .18 $ .03 $ (.13)
NET EARNINGS/(LOSS) PER COMMON SHARE:
FULLY DILUTED:
Net earnings/(loss)............................................ $ .17 $ .03 $ (.13)
</TABLE>

See Notes to Consolidated Financial Statements.

F-11
<PAGE>
BASE TEN SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK EQUITY
------------------------------------------- ADJUSTMENT
FROM
CLASS A CLASS B ADDITIONAL FOREIGN
--------------------- -------------------- PAID-IN CURRENCY
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TRANSLATION TREASURY
--------- ---------- --------- --------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE:
October 31, 1992......... 2,953,557 $2,953,000 641,012 $ 641,000 $ 9,811,000 $(11,297,000) $(134,000) --
Conversions of Class B
Common to Class A
Common.................. 156,939 157,000 (156,939) (157,000) -- -- -- --
Exercise of Options...... 194,102 194,000 74,038 74,000 397,000 -- -- (42,428)
Exercise of Rights....... 1,037,160 1,037,000 -- -- 1,409,000 -- -- --
Exercise of Warrants..... 345,700 346,000 -- -- 1,627,000 -- -- --
Issuance of Common
Stock................... 1,640 2,000 -- -- 9,000 -- -- --
Foreign currency
translation............. -- -- -- -- -- -- (28,000) --
Retirement of treasury
stock................... (42,428) (42,000) -- -- -- -- -- 42,428
Net Earnings/(Loss)...... -- -- -- -- -- 958,000 -- --
--------- ---------- --------- --------- ----------- ------------ ----------- -----------
BALANCE:
October 31, 1993......... 4,646,670 4,647,000 558,111 558,000 13,253,000 (10,339,000) (162,000) --
Conversions of Class B
Common to Class A
Common.................. 81,635 82,000 (81,635) (82,000) -- -- -- --
Exercise of Options...... 87,561 88,000 -- -- 185,000 -- -- (13,631)
Exercise of Rights....... 305 -- -- -- -- -- -- --
Exercise of Warrants..... 204,022 204,000 -- -- 936,000 -- -- --
Foreign currency
translation............. -- -- -- -- -- -- 40,000 --
Retirement of treasury
stock................... (13,631) (14,000) -- -- -- -- -- 13,631
Net Earnings/(Loss)...... -- -- -- -- -- 35,000 -- --
--------- ---------- --------- --------- ----------- ------------ ----------- -----------
BALANCE:
October 31, 1994......... 5,006,562 5,007,000 476,476 476,000 14,374,000 (10,304,000) (122,000) --
Conversions of Class B
Common to Class A
Common.................. 20,896 21,000 (20,896) (21,000) -- -- -- --
Exercise of Options...... 123,131 123,000 5,000 5,000 400,000 -- -- (13,743)
Exercise of Rights....... 828,542 828,000 -- -- 3,444,000 -- -- --
Exercise of Warrants..... 1,248,701 1,249,000 -- -- 5,690,000 -- -- --
Foreign currency
translation............. -- -- -- -- -- -- (20,000) --
Retirement of treasury
stock................... (11,637) (12,000) (2,106) (2,000) -- -- -- 13,743
Net Earnings/(Loss)...... -- -- -- -- -- (875,000) -- --
--------- ---------- --------- --------- ----------- ------------ ----------- -----------
BALANCE:
October 31, 1995......... 7,216,195 $7,216,000 458,474 $ 458,000 $23,908,000 $(11,179,000) $(142,000) --
--------- ---------- --------- --------- ----------- ------------ ----------- -----------
--------- ---------- --------- --------- ----------- ------------ ----------- -----------
</TABLE>

See Notes to Consolidated Financial Statements

F-12
<PAGE>
BASE TEN SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------------------
1993 1994 1995
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings/(loss)................................................ $ 958,000 $ 35,000 $ (875,000)
ADJUSTMENTS TO RECONCILE NET EARNINGS TO NET CASH (USED IN)/PROVIDED
FROM OPERATING ACTIVITIES:
Depreciation and amortization........................................ 671,000 586,000 1,106,000
Deferred gain on sale of building.................................... -- (282,000) (17,000)
Deferred income taxes................................................ 187,000 (290,000) (149,000)
Accounts receivable.................................................. (1,527,000) 228,000 (2,116,000)
Inventories.......................................................... 411,000 (269,000) (740,000)
Other current assets................................................. 148,000 303,000 (237,000)
Accounts payable and accrued expenses................................ (408,000) (398,000) 162,000
Deferred compensation................................................ (14,000) (23,000) (58,000)
Other assets......................................................... (378,000) (2,171,000) (2,696,000)
Income taxes payable................................................. 316,000 314,000 (325,000)
------------- ------------- -------------
NET CASH PROVIDED FROM (USED IN)/ OPERATIONS......................... 364,000 (1,967,000) (5,945,000)
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment -- net.................... (479,000) (306,000) (350,000)
Proceeds from sale of land and building.............................. -- 3,600,000 --
------------- ------------- -------------
NET CASH (USED IN)/PROVIDED FROM INVESTING ACTIVITIES................ (479,000) 3,294,000 (350,000)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of amounts borrowed........................................ (1,855,000) (4,711,000) (34,000)
Proceeds from the issuance of common stock........................... 5,053,000 1,399,000 11,725,000
------------- ------------- -------------
NET CASH PROVIDED FROM/(USED IN) FINANCING ACTIVITIES................ 3,198,000 (3,312,000) 11,691,000
Effect of exchange rate changes on cash.............................. (16,000) 50,000 (43,000)
------------- ------------- -------------
NET INCREASE/(DECREASE) IN CASH...................................... 3,067,000 (1,935,000) 5,353,000
CASH, beginning of year.............................................. 736,000 3,803,000 1,868,000
------------- ------------- -------------
CASH, end of year.................................................... $ 3,803,000 $ 1,868,000 $ 7,221,000
------------- ------------- -------------
------------- ------------- -------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest............................... $ 259,000 $ 173,000 $ 527,000
------------- ------------- -------------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Retirement of treasury stock......................................... $ 42,000 $ 14,000 $ 14,000
------------- ------------- -------------
</TABLE>

See Notes to Consolidated Financial Statements

F-13
<PAGE>
BASE TEN SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1993, 1994 AND 1995

A. DESCRIPTION OF BUSINESS
Base Ten Systems, Inc. and subsidiaries (the "Company") designs and
manufactures proprietary weapons control systems employing microprocessors and
advanced software for use in military aircraft and builds custom designed
electronic assemblies as a subcontractor to prime government contractors. In
addition, the Company develops batch processing control, medical screening and
image archiving software and designs and builds proprietary electronic systems
for use in secure communications.

B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1. BASIS OF PRESENTATION -- The Company's consolidated financial statements
have been prepared on an historical cost basis.

2. PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the accounts of the Company. All significant intercompany accounts,
transactions and profits have been eliminated.

3. REVENUE RECOGNITION -- Earnings on long-term contracts are recognized on
the percentage-of-completion or unit-of-delivery basis. On contracts where the
percentage-of-completion method is used, costs and estimated earnings in excess
of progress billings are presented as unbilled receivables. Unbilled costs on
unit-of-delivery contracts are included in inventory. Payments received in
excess of costs incurred on long-term contracts are recorded as customers'
advance payments, which are included as a reduction of inventory on the balance
sheet.

4. INVENTORIES -- Inventories are stated at the lower of cost (first-in,
first-out method) or market.

Inventoried costs on contracts include direct material, labor and applicable
overhead. In accordance with industry practice, inventoried costs include
amounts relating to contracts with a long production cycle, some of which are
not expected to be realized within one year.

5. PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment are
carried at cost and depreciated over estimated useful lives, principally on the
straight-line method. The estimated useful lives used for the determination of
depreciation and amortization are:

<TABLE>
<S> <C>
Leased asset -- building............................. 15 years
Machinery and equipment.............................. 3 to 10 years
Furniture and fixtures............................... 3 to 20 years
</TABLE>

6. OTHER ASSETS -- Included in other non-current assets are software
development costs capitalized in accordance with Statement of Financial
Accounting Standard No. 86, "Accounting for Costs for Computer Software to be
Sold, Leased or Otherwise Marketed". As of October 31, 1994 and 1995,
capitalized software development costs (net of amortization) were $2,070,000 and
3,773,000, respectively. 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 of four
to five years. For the year ended October 31, 1995, amortization of software
development costs was $630,000. The Company performs periodic reviews of the
recoverability of its capitalized software costs based on anticipated revenues
and cash flows from sales of these products.

7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES -- Included in accounts payable
and accrued expenses are accrued vacation costs aggregating $486,000 and
$122,000 in fiscal 1994 and 1995, respectively, accrued payroll of $271,000 and
$347,000 in fiscal 1994 and 1995, respectively, and accounts payable of
$1,078,000 and $1,340,000 in fiscal 1994 and 1995, respectively. The decrease in
accrued vacation cost is primarily due to a one time reduction in vacation
entitlement in fiscal 1995.

F-14
<PAGE>
BASE TEN SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED OCTOBER 31, 1993, 1994 AND 1995

B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
8. STATEMENT OF CASH FLOWS -- For the purposes of the statement of cash
flows, the Company considers all investments with a maturity of three months or
less at date of acquisition to be cash equivalents.

9. RECENTLY ISSUED ACCOUNTING STANDARD -- In October 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation," which requires adoption of
the disclosure provisions no later than fiscal years beginning after December
15, 1995 and adoption of the recognition and measurement provisions for
nonemployee transactions no later than after December 15, 1995. The new standard
defines a fair value method of accounting for stock options and other equity
instruments. Under the fair value method, compensation cost is measured at the
grant date based on the fair value of the award and is recognized over the
service period, which is usually the vesting period.

Pursuant to the new standard, companies are encouraged, but are not
required, to adopt the fair value method of accounting for employee stock-based
transactions. Companies are also permitted to continue to account for such
transactions under Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," but would be required to disclose in a note to the
financial statements pro forma net income and, if presented, earnings per share
as if the Company had applied the new method of accounting.

The accounting requirements of the new method are effective for all employee
awards granted after the beginning of the fiscal year of adoption. The Company
has not yet determined if it will elect to change to the fair value method, nor
has it determined the effect the new standard will have on net income and
earnings per share should it elect to make such a change. Adoption of the new
standard will have no effect on the Company's cash flows.

10. EMPLOYEE LOANS -- The Company has loans amounting to $406,000 due from
each of its Corporate and Divisional Officers which will be repaid monthly
including interest at 6.5% beginning February, 1996 through January 31, 1999.

C. INVENTORIES

<TABLE>
<CAPTION>
OCTOBER 31,
------------------------------
1994 1995
-------------- --------------
<S> <C> <C>
Raw materials....................................................... $ 1,795,000 $ 1,557,000
Work in progress.................................................... 848,000 1,515,000
Finished goods...................................................... 110,000 95,000
-------------- --------------
2,753,000 3,167,000
Less advance payments............................................... 342,000 16,000
-------------- --------------
$ 2,411,000 $ 3,151,000
-------------- --------------
-------------- --------------
</TABLE>

F-15
<PAGE>
BASE TEN SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED OCTOBER 31, 1993, 1994 AND 1995

D. PROPERTY, PLANT AND EQUIPMENT

<TABLE>
<CAPTION>
OCTOBER 31,
------------------------------
1994 1995
-------------- --------------
<S> <C> <C>
Leasehold improvement............................................... $ -- $ 21,000
Machinery and equipment............................................. 8,581,000 8,853,000
Furniture and fixtures.............................................. 608,000 617,000
Leased asset -- land and building................................... 3,600,000 3,600,000
-------------- --------------
12,789,000 13,091,000
Less accumulated depreciation....................................... 8,207,000 8,611,000
-------------- --------------
$ 4,582,000 $ 4,480,000
-------------- --------------
-------------- --------------
</TABLE>

Maintenance and repairs charged to costs and expenses amounted to $353,000,
$239,000 and $240,000 in fiscal 1993, 1994, and 1995, respectively.

E. INCOME TAXES

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 had
no effect on the Company's statement of operations.

The provision (benefit) for income taxes includes the following:

<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------------------
1993 1994 1995
----------- ------------ ------------
<S> <C> <C> <C>
Current:
Federal........................................................ $ 275,000 $ 259,000 $ (325,000)
State.......................................................... 41,000 55,000 --
Foreign........................................................ -- -- --
----------- ------------ ------------
Total Current.............................................. 316,000 314,000 (325,000)
----------- ------------ ------------
Deferred:
Federal........................................................ 191,000 (239,000) (124,000)
State.......................................................... -- (51,000) (25,000)
Foreign........................................................ -- -- --
----------- ------------ ------------
Total Deferred............................................. 191,000 (290,000) (149,000)
----------- ------------ ------------
$ 507,000 $ 24,000 $ (474,000)
----------- ------------ ------------
----------- ------------ ------------
</TABLE>

F-16
<PAGE>
BASE TEN SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED OCTOBER 31, 1993, 1994 AND 1995

E. INCOME TAXES (CONTINUED)
A reconciliation of the Company's effective rate to the U.S. statutory rate
is as follows:

<TABLE>
<CAPTION>
PERCENTAGE OF PRE-TAX EARNINGS
-------------------------------------
YEAR ENDED OCTOBER 31,
-------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Federal tax (benefit)/provisions at applicable statutory rates......... 34.0% 34.0% (34.0)%
Increases (decreases) in income taxes resulting from:
State tax benefit, net of Federal tax effect......................... 1.0 7.0 (4.0)
Net changes in current and deferred valuation allowances............. -- -- 6.9
Other, net........................................................... -- -- (4.0)
--- --- -----
35.0% 41.0% (35.1)%
--- --- -----
--- --- -----
</TABLE>

The components of the deferred tax assets and liabilities as follows:

<TABLE>
<CAPTION>
OCTOBER 31,
----------------------------
1994 1995
------------ --------------
<S> <C> <C>
CURRENT
Vacation............................................................... $ 25,000 $ 46,000
Deferred compensation.................................................. 59,000 34,000
Other.................................................................. 10,000 3,000
------------ --------------
Total current assets............................................... $ 94,000 $ 83,000
------------ --------------
------------ --------------
NONCURRENT
Deferred gain on sale leaseback........................................ $ 111,000 $ 101,000
Depreciation........................................................... (354,000) (315,000)
Net operating loss carryforwards....................................... -- 681,000
Research and development and investment tax credits carryforwards...... 500,000 528,000
Valuation allowance.................................................... (500,000) (1,078,000)
------------ --------------
Total noncurrent liabilities....................................... $ (243,000) $ (83,000)
------------ --------------
------------ --------------
</TABLE>

The research and development and investment tax credits and the net
operating loss carryforward are available to offset future taxable earnings of
the Company. SFAS No. 109 requires that a valuation allowance be created and
offset against the deferred tax assets if, based on existing facts and
circumstances, it is more likely than not that some portion or all of the
deferred asset will not be realized. The valuation allowance will be adjusted
when the credits are realized or when, in the opinion of management, sufficient
additional positive evidence exists regarding the likelihood of their
realization. The reductions, if any, will be reflected as a component of income
tax expense.

The total current amounts presented above are included in other current
assets on the balance sheet.

F-17
<PAGE>
BASE TEN SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED OCTOBER 31, 1993, 1994 AND 1995

E. INCOME TAXES (CONTINUED)
The components of earnings/(loss) before income taxes were as follows:

<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------------------
1993 1994 1995
------------- ---------- --------------
<S> <C> <C> <C>
Domestic.................................................... $ 1,377,000 $ 79,000 $ (1,343,000)
Foreign..................................................... 88,000 (20,000) (6,000)
------------- ---------- --------------
$ 1,465,000 $ 59,000 $ (1,349,000)
------------- ---------- --------------
------------- ---------- --------------
</TABLE>

F. NET EARNINGS/(LOSS) PER SHARE
Primary and fully diluted earnings per share for fiscal years ended October
31, 1993, 1994, and 1995 were calculated using the following number of weighted
average common shares outstanding:

<TABLE>
<CAPTION>
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Primary........................................................ 7,131,135 7,568,681 6,925,744
Fully Diluted.................................................. 7,135,538 7,568,927 6,925,744
</TABLE>

Primary and fully diluted earnings per common share were computed based on
the assumption that certain dilutive stock options were exercised for the years
ended October 31, 1993 and 1994. The dilutive effect of the stock options,
warrants and rights was determined using the modified treasury stock method in
1993 and 1994.

The stock options, warrants and rights would have an anti-dilutive effect on
earnings per share for the year ended October 31, 1995 and therefore were not
included in the calculation of weighted average shares outstanding for both
primary and fully diluted earnings per share.

G. GEOGRAPHIC AND SEGMENT INFORMATION
The following tabulation details the Company's operations in different
geographic areas for the years ended October 31, 1993, 1994 and 1995.

<TABLE>
<CAPTION>
UNITED STATES EUROPE ELIMINATION CONSOLIDATED
-------------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
Year Ended October 31, 1993:
Revenues from unaffiliated sources.................. $ 22,085,000 $ 177,000 $ -- $ 22,262,000
-------------- ----------- -------------- --------------
Operating profit.................................... $ 1,666,000 $ 88,000 $ -- $ 1,754,000
-------------- ----------- -------------- --------------
Identifiable assets at October 31, 1993:............ $ 17,297,000 $ 536,000 $ (578,000) $ 17,255,000
-------------- ----------- -------------- --------------
Year Ended October 31, 1994:
Revenues from unaffiliated sources.................. $ 19,268,000 $ 14,000 $ -- $ 19,282,000
-------------- ----------- -------------- --------------
Operating profit/loss............................... $ 288,000 $ (20,000) $ -- $ 268,000
-------------- ----------- -------------- --------------
Identifiable assets at October 31, 1994:............ $ 17,664,000 $ 398,000 $ (453,000) $ 17,609,000
-------------- ----------- -------------- --------------
Year Ended October 31, 1995:
Revenues from unaffiliated sources.................. $ 17,925,000 $ 382,000 $ -- $ 18,307,000
-------------- ----------- -------------- --------------
Operating loss...................................... $ (789,000) $ (6,000) $ -- $ (795,000)
-------------- ----------- -------------- --------------
Identifiable assets at October 31, 1995:............ $ 28,063,000 $ 960,000 $ (1,018,000) $ 28,005,000
-------------- ----------- -------------- --------------
</TABLE>

F-18
<PAGE>
BASE TEN SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED OCTOBER 31, 1993, 1994 AND 1995

G. GEOGRAPHIC AND SEGMENT INFORMATION (CONTINUED)
The Company's business is composed of two industry segments: government
technology and medical technology. A summary of information relating to these
divisions is presented below for the year ended October 31, 1995. Prior to 1995,
the Medical Technology Division was considered insignificant and therefore not
presented.

<TABLE>
<CAPTION>
GOVERNMENT MEDICAL
TECHNOLOGY TECHNOLOGY
SEGMENT SEGMENT OTHER CONSOLIDATED
-------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Year Ended October 31, 1995:
Revenues.......................................... $ 15,597,000 $ 2,244,000 $ 466,000 $ 18,307,000
-------------- -------------- ------------- --------------
Operating profit (loss):.......................... $ 1,017,000 $ (2,278,000) $ 466,000 $ (795,000)
-------------- -------------- ------------- --------------
Identifiable assets at October 31, 1995........... $ 11,433,000 $ 7,003,000 $ 9,569,000 $ 28,005,000
-------------- -------------- ------------- --------------
Depreciation and amortization:.................... $ 257,000 $ 685,000 $ 164,000 $ 1,106,000
-------------- -------------- ------------- --------------
Capital expenditures:............................. $ 118,000 $ 218,000 $ 14,000 $ 350,000
-------------- -------------- ------------- --------------
</TABLE>

Operating profit (loss) includes all revenues and expenses of the reportable
segment, except for interest income, dividend income, other income and exchange
losses. These items are shown as part of the "other."

Identifiable assets are assets used in the operation of each segment. Other
identifiable assets consist primarily of cash and assets that are corporate
owned.

Total Government Technology sales in the amounts of $3,825,000, $4,289,000
and $4,633,000 in fiscal 1993, 1994 and 1995, respectively, were made to a
single European customer. All sales were export sales and are included in the
United States sales to unaffiliated customers. In 1995, three domestic customers
accounted for sales of $1,037,000, $1,619,000 and $3,540,000, respectively. As
provided in several contracts, customers advance funds to the Company for the
purpose of purchasing inventory. The related advances have been offset against
these inventories.

H. COMMITMENTS AND CONTINGENCIES

CHANGE IN CONTROL. The Company has agreements with three of its executive
officers providing severance payments if the executive's employment is
terminated within three years after a change in control of the Company (i) by
the Company for reasons other than death, disability or cause or (ii) by the
executive for good reason. The amount of the severance payment is 2.99 times
total average compensation and cost of employee benefits for each of the five
years prior to the change in control, subject to a maximum equal to the amount
deductible by the Company under the Internal Revenue Code.

EMPLOYMENT AGREEMENTS. The Company has employment agreements with four key
employees. Three of the agreements provide for one year of compensation in the
aggregate of $600,000 plus normal benefits and any amounts due under incentive
compensation plans in the event the employee is terminated without cause. The
fourth agreement provides for a lump sum payment in the amount of $150,000 in
the event of retirement subsequent to October 31, 1996.

CONSULTING AGREEMENT. The Company has a consulting agreement providing one
of its directors compensation in the amount of $230,000 in fiscal 1996 and
$155,000 in fiscal 1997 for technical and marketing services. This agreement is
cancelable with three months notice by either party and expires on May 31, 1998.

F-19
<PAGE>
BASE TEN SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED OCTOBER 31, 1993, 1994 AND 1995

H. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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 an officer and
director of the Company. In addition, 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 is 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 October 31, 1995 are as follows:

<TABLE>
<CAPTION>
FISCAL
- --------------------------------------------------------------------
<S> <C>
1996................................................................ 560,000
1997................................................................ 560,000
1998................................................................ 560,000
1999................................................................ 560,000
2000................................................................ 615,000
2001 and thereafter................................................. 5,971,000
--------------
8,826,000
Less interest portion............................................... (5,259,000)
--------------
Present value of net minimum payments............................... $ 3,567,000
--------------
--------------
</TABLE>

I. DEFERRED COMPENSATION PLANS
The Company has a non-qualified deferred compensation plan that provides for
compensation payments to a key individual. Distributions are made five years
after amounts are earned.

J. STOCK OPTION PLANS, WARRANTS AND RIGHTS
The Company's 1990 Incentive Stock Option Plan reserves 484,000 shares of
either Class A or Class B Common Stock for purchase upon the exercise of options
that may be granted at not less than the fair market value as of the date of
grant and that are exercisable over a period not to exceed ten years. There are
no options available for grant under this plan.

The Company's 1992 Stock Option Plan reserves 700,000 shares of Class A
Common Stock for purchase upon the exercise of options. Approximately 44,000
options remain available for grant under this plan. Options may not be granted
at less than fair market value as of the date of grant and are exercisable over
a period not to exceed ten years.

The Company's discretionary compensation plan reserves 400,000 shares of
Class A Common Stock for issuance upon the exercise of options. Approximately
34,000 options remain available for grant under this plan. Options may not be
granted at less than fair market value as of the date of grant and are
exercisable over a period not to exceed ten years.

F-20
<PAGE>
BASE TEN SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED OCTOBER 31, 1993, 1994 AND 1995

J. STOCK OPTION PLANS, WARRANTS AND RIGHTS (CONTINUED)
Information with respect to the aforementioned stock option plans is
summarized as follows:

<TABLE>
<CAPTION>
CLASS A CLASS B TOTAL
---------- --------- ----------
<S> <C> <C> <C>
Outstanding at October 31, 1992 ($1.25 to $11.59 per share)................... 607,305 83,984 691,289
Granted ($7.00 to $8.875 per share)........................................... 176,300 -- 176,300
Exercised ($1.25 to $4.00 per share).......................................... (194,102) (74,038) (268,140)
Canceled ($3.00 per share).................................................... (172) -- (172)
---------- --------- ----------
Outstanding at October 31, 1993 ($3.00 to $11.59 per share)................... 589,331 9,946 599,277
Granted ($7.93 per share)..................................................... 400,170 -- 400,170
Exercised ($3.00 to $8.625 per share)......................................... (87,561) -- (87,561)
Canceled ($8.00 - $8.625 per share)........................................... (31,450) -- (31,450)
Expired ($10.00 to $11.59).................................................... (2,182) -- (2,182)
---------- --------- ----------
Outstanding at October 31, 1994 ($3.00 to $8.875 per share)................... 868,308 9,946 878,254
Granted ($6.625 to $11.25 per share).......................................... 46,000 -- 46,000
Exercised ($3.00 to $8.625 per share)......................................... (104,431) (5,000) (109,431)
Canceled ($8.625 per share)................................................... (26,483) -- (26,483)
---------- --------- ----------
Outstanding at October 31, 1995 ($3.00 to $11.25 per share)................... 783,394 4,946 788,340
---------- --------- ----------
---------- --------- ----------
Exercisable at October 31, 1995............................................... 753,393 4,946 758,339
---------- --------- ----------
---------- --------- ----------
</TABLE>

The Company has issued 665,000 warrants and 332,000 options to consultants
and three non-management directors at prices ranging from $3.00 to $9.375,
expiring from 1997 to 2004. One consultant and one director have exercised
warrants or options for a total of 20,000 shares during fiscal 1995 at prices
ranging from $3.4375 to $7.25 per share. None of these warrants or options have
expired to date. Included in the above are 250,000 warrants issued to
consultants for services related to the promotion and selling of the Company's
stock at an exercise price which was less than the fair market value of the
stock at the date of grant. The remaining options and warrants were issued at
fair market value at the date of grant.

During fiscal 1995, the Board of Directors issued options to various
employees to purchase a total of 75,000 shares of Class A Common Stock. The
options have exercise prices ranging from $7.25 to $8.50 per share (fair market
value at the date of grant) and expire in 2000.

The Company has adopted a 1995 Incentive Stock Option Plan subject to
shareholder approval at the 1996 Annual Meeting of Shareholders. The plan
reserves 750,000 shares of Class A Common Stock. Options may not be granted at
less than fair market value as of the date of grant and are exercisable over a
period not to exceed ten years. In October, 1995, the Company granted to
employees options to purchase 420,050 Class A Common Shares at either $10 7/8 or
11 15/16 per share (fair market value at the date of grant), exercisable at
various rates through 2005.

K. EMPLOYEE BENEFIT PLAN
In 1986, the Company adopted a benefit plan under section 401(k) of the
Internal Revenue Code. In 1992, the plan was amended to discontinue the
Company's contribution. The plan allows all employees to defer up to 17% of
their pretax income through contributions to the plan.

F-21
<PAGE>
[REVERSE SIDE OF TABLE OF CONTENTS PAGE]

PICTURE COLLAGE OF PRODUCTS
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH THE
OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING THE OFFER
OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE THE OFFER OR SOLICITATION.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 1
Risk Factors................................... 4
The Company.................................... 9
Use of Proceeds................................ 10
Capitalization................................. 11
Price Range of Common Stock and Dividends...... 12
Selected Consolidated Financial Data........... 13
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 14
Business....................................... 20
Management..................................... 33
Principal Stockholders......................... 38
Certain Transactions........................... 39
Description of Capital Stock................... 40
Underwriting................................... 43
Legal Matters.................................. 44
Experts........................................ 44
Available Information.......................... 45
Incorporation of Certain Information by
Reference..................................... 45
Index to Financial Statements.................. F-1
</TABLE>

2,000,000 SHARES

BASE TEN SYSTEMS, INC.

CLASS A COMMON STOCK

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

PROSPECTUS

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

PACIFIC GROWTH EQUITIES, INC.

JUNE , 1996

- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

<TABLE>
<S> <C>
SEC registration fee........................................ $ 9,765.00
NASD filing fee............................................. 3,331.00
Blue sky fees and expenses.................................. 5,000.00*
Printing and engraving costs................................ 100,000.00*
Legal fees.................................................. 400,000.00*
Accounting fees............................................. 150,000.00*
Cash fees................................................... 500,000.00
Nasdaq fee.................................................. 17,500.00
Miscellaneous............................................... 114,404.00
--------------
Total................................................... $ 1,300,000.00*
--------------
--------------
</TABLE>

- ------------------------
*Estimated

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Article 9 of the Company's Restated Certificate of Incorporation, as
amended, provides that any present or future director or officer of the Company,
and any present or future director or officer of any other company serving as
such at the request of the Company, or the legal representative of any such
director or officer, shall be indemnified by the Company against reasonable
costs, expenses (exclusive of any amount paid to the Company in settlement) and
counsel fees paid or incurred in connection with any action, suit or proceeding
to which any such director or officer or his legal representative may be made a
party by reason of his being or having been such director or officer; provided
that, (i) said action, suit or proceeding shall be prosecuted against such
director or officer or against his legal representative to final determination,
and it shall not be finally adjudged in said action, suit or proceeding that he
had been derelict in the performance of his duties as such director or officer,
or (ii) said action, suit or proceeding shall be settled or otherwise terminated
as against such director or officer or his legal representative without a final
determination on the merits and it shall be determined by a majority of the
members of the Board of Directors who are not parties to said action, suit or
proceeding, or by a person or persons specially appointed by the Board of
Directors to determine the same that said director or officer has not in any
substantial way been derelict in the performance of his duties as charged in
such action, suit or proceeding. The foregoing right of indemnification shall
not be exclusive of other rights to which such director or officer or legal
representative may be entitled by law, and shall inure to the benefit of the
heirs, executors or administrators of such director or officer.

Article 10 of the Company's Restated Certificate of Incorporation, as
amended, provides that no director or officer of the Company shall be personally
liable to the Company or its shareholders for damages for breach of any duty
owed to the Company or its shareholders, except for liability for any breach of
duty based upon an act or omission (i) in breach of such director's or officer's
duty of loyalty to the Company or its shareholders, (ii) not in good faith or
involving a knowing violation of law, or (iii) resulting in receipt by such
director or officer of an improper personal benefit. As used in this Article, an
act or omission in breach of a director's or officer's duty of loyalty means an
act or omission which such director or officer knows or believes to be contrary
to the best interests of the Company or its shareholders in connection with a
matter in which such director or officer has a material conflict of interest.
The provisions of this Article shall be effective as and to the fullest extent
that, in whole or in part, they shall be authorized or permitted by the laws of
the State of New Jersey. No repeal or modification of the provisions of this
Article nor, to the fullest extent permitted by law, any modification of law
shall adversely affect any right or protection of a director or officer of the
Company which exists at the time of such repeal or modification.

II-1
<PAGE>
Article X of the Company's Bylaws, as amended, provides as follows:

The Company shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(including an action by or in the right of the Company) by reason of the fact
that he is or was a director or officer of the Company against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement to
the maximum extent, according to the standards and in the manner provided by
applicable law.

To the extent, according to standards and in such manner as the Board of
Directors may direct pursuant to and in accordance with applicable law in the
particular case, the Company shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(including an action by or in the right of the Company) by reason of the fact
that he is or was an employee or agent of the Company, or is or was serving at
the request of the Company, as a director, officer, employee or agent of another
Company, partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement.

The indemnification provided by this Article X shall not be deemed exclusive
of any other rights to which those seeking indemnification may be entitled under
any agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding such office and shall continue as to a person who has ceased to be
a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.

The Company, acting by its Board of Directors, shall have power to purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the Company, or is or was serving at the request
of the Company as a director, officer, employee or agent of another Company,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Company would have the power to indemnify
him against such liability under the provisions of this Article X. Nothing in
this paragraph shall obligate the Company to indemnify any person to any extent
other than as provided in the foregoing paragraphs of this Article X.

Statutory authority for indemnification of and insurance for the Company's
directors and officers is contained in the New Jersey Business Company Act (the
"Act"), in particular Section 14A:3-5 of the Act, the material provisions of
which are summarized as follows:

Directors and officers may be indemnified in non-derivative proceedings
against settlements, judgments, fines and penalties and against reasonable
expenses (including counsel fees) where the person acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Company and also, in a criminal proceeding, he must have had no reasonable
cause to believe that his conduct was unlawful. In derivative proceedings such
persons may be indemnified against reasonable expenses (including counsel fees)
where the person acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Company, but not against
settlements, judgments, fines or penalties except that, without a court
determination as to entitlement to indemnity, no indemnity may be provided to a
person who has been adjudged liable to the Company. In all cases, the Act
provides that indemnification may only be made by the Company (unless ordered by
a court) only as authorized in a specific case upon a determination that
indemnification is proper in the circumstances because the person has met the
applicable standard of conduct required of the person, requires a person to be
indemnified for reasonable expenses (including counsel fees) to the extent he
has been successful in any proceeding and permits a Company to advance expenses
upon an undertaking for repayment if it shall be ultimately determined that the
director or officer is not entitled to indemnification. The indemnification and
advancement of expenses provided by or granted pursuant to the Act is not
exclusive of other rights of indemnification to which a

II-2
<PAGE>
corporate agent may be entitled under a certificate of in Company, bylaw,
agreement, vote of shareholders or otherwise. However, no indemnification may be
made to or on behalf of a director or officer if a final adjudication adverse to
the director or officer establishes that the director's or officer's acts or
omissions were in breach of his duty of loyalty to the Company or its
shareholders, were not in good faith or involved a knowing violation of law, or
resulted in receipt by the director or officer of an improper personal benefit.
A Company may purchase and maintain insurance on behalf of any directors and
officers against expenses incurred in any proceeding and liabilities asserted
against them by reason of being or having been a director of officer, whether or
not the Company would have the power to indemnify the directors or officers
against such expenses and liabilities under the statute.

Each of the officers and directors of the Company is insured against certain
liabilities which he might incur in his capacity as an officer or director of
the Company or its subsidiaries pursuant to a directors and officers insurance
and reimbursement policy. The general effect of the policy is that if any claims
are made against officers or directors of the Company or its subsidiaries or any
of them for a Wrongful Act (as defined in the policy) while acting in their
individual or collective capacities as directors or officers, to the extent the
Company or its subsidiary has properly indemnified such officers and directors,
the insurer will, subject to the retention amount, reimburse the Company or its
subsidiary for 100% of any Loss (as defined in the policy). In addition, to the
extent that the Company or its subsidiary has not indemnified an officer or
director, the insurer will, subject to the retention amount, pay on behalf of
such officer or director 100% of the Loss. Defense Costs (as defined in the
Policy) are part of Loss and are subject to the limits of the policy.

The retention amount under the policy is $250,000. The retention amount is
first applied to the Company or its subsidiary. The retention amount is not
applicable to officers or directors if the Company or its subsidiary is not
permitted or required to indemnify the officers or directors. If, however, the
Company or its subsidiary is permitted or required to indemnify the officers or
directors, then the retention amount does apply to them.

Under the policy, the term "Wrongful Act" means any actual or alleged error,
or misstatement, or misleading statement, or act, or omission, or neglect or
breach of duty by the directors or officers in their capacities as such,
individually or collectively, or any matter claimed against them solely by
reason of their being directors or officers of the Company or its subsidiaries,
except that certain claims are excluded by the terms and conditions of the
policy. The term "Loss" means damages, judgments, settlements and Defense Costs.
The term "Defense Costs" means reasonable and necessary fees, costs and expenses
consented to by the insurer resulting solely from the investigation, adjustment,
defense and appeal of any claim against any director or officer, but excluding
salaries of officers or employees of the Company or its subsidiaries.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits

The following documents are filed as Exhibits to this Registration
Statement:

II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT PAGE
- ------------- ------------------------------------------------------------------------------------------ ---------
<C> <S> <C>
3.3 Amended By-Laws of the Registrant (incorporated by reference to Exhibit 4(d)(2) to
Registrant's Registration Statement on Form S-8 (File No. 33-60454) filed on April 1,
1993).................................................................................... *
5.1 Opinion of Pitney, Hardin, Kipp & Szuch (legality opinion)................................
10.1 1980 Deferred Compensation Agreement between the Registrant and certain executive officers
(incorporated by reference to Exhibit 10.3 to Registrant's Registration Statement on Form
S-1 File No. 2-70259 filed on December 16, 1980)......................................... (A)*
10.2 1981 Incentive Stock Option Plan of Registrant, as amended and restated on January 12,
1990 (incorporated by reference to Exhibit 4(c) to Amendment No. 1 to Registrant's
Registration Statement on Form S-8 (File No. 2-84451) filed on July 31, 1990)............ (A)*
10.3 1992 Stock Option Plan of Registrant (incorporated by reference to Exhibit 10(ai) to
Amendment No. 3 to Registrant's Registration Statement on Form S-1 (File No. 33-48404)
filed on September 3, 1992).............................................................. (A)*
10.4(a) Amended and Restated Change in Control Agreements dated September 6, 1995 between
Registrant and each of Myles M. Kranzler and Edward J. Klinsport and Change in Control
Agreement dated September 6, 1995 between Registrant and Alan J. Eisenberg............... (A)(1)
10.4(b) Change in Control Agreement dated October 23, 1991 between Registrant and James A. Eby
(agreement will terminate December 31, 1996 pursuant to notice of termination delivered
September 1995) (incorporated by reference to Exhibit 10(f) to Registrant's Annual Report
on Form 10-K (File No. 0-7100) for the fiscal year ended October 31, 1991................ (A)*
10.5 Employment Agreements dated as of March 26, 1992 between the Registrant and each of Myles
M. Kranzler, James A. Eby, Edward J. Klinsport and Alan J. Eisenberg (incorporated by
reference to Exhibit 28(b) through (e) to Registrant's Current Report on Form 8-K (File
No. 0-7100) filed on April 10, 1992)..................................................... (A)*
10.6 Amended Agreement dated July 28, 1992 between the Registrant and Alexander Adelson
(incorporated by reference to Exhibit 10(ar) to the Registrant's Registration Statement
on Amendment No. 3. to Form S-2 on Form S-1 (Registration No. 33-48404) filed on
September 3, 1992)....................................................................... (A)*
10.7 Amended Modification of Amended Agreement dated January 11, 1993 between the Registrant
and Alexander M. Adelson (incorporated by reference to Exhibit to the Registrant's
Annual Report on Form 10-K (File No. 0-7100) for the fiscal year ended October 31,
1994).................................................................................... (A)*
10.8 Consulting Agreement dated March 1, 1994 between the Registrant and Bruce D. Cowen
(incorporated by reference to Exhibit to the Registrant's Annual Report on Form 10-K
(File No. 0-7100) for the fiscal year ended October 31, 1994)............................ (A)*
10.9 Option Agreement dated as of November 9, 1992 between the Registrant and Donald M. Daniels
(incorporated by reference to Exhibit 10(as) to the Registrant's Annual Report on Form
10-K (File No. 0-7100) for the fiscal year ended October 31, 1992)....................... (A)*
</TABLE>

II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT PAGE
- ------------- ------------------------------------------------------------------------------------------ ---------
<C> <S> <C>
10.10 Option Agreement dated as of June 5, 1992 between the Registrant and Strategic Growth
International, Inc. (incorporated by reference to Exhibit 10(at) to the Registrant's
Annual Report on Form 10-K (File No. 0-7100) for the fiscal year ended October 31,
1992).................................................................................... *
10.11 Acquisition Agreement dated October 28, 1994 between the Registrant and CKR Partners,
L.L.C. (incorporated by reference to Exhibit 2(a) to Registrant's Current Report on Form
8-K (File No. 0-7100) dated November 11, 1994)........................................... *
10.12 Lease dated October 28, 1994 between the Registrant and CKR Partners, L.L.C. (incorporated
by reference to Exhibit 2(b) to Registrant's Current Report on Form 8-K (File No. 0-7100)
dated November 11, 1994)................................................................. *
21.1 Subsidiaries of the Registrant (incorporated by reference to Exhibit 21 to Registrant's
Annual Report on Form 10-K (File No. 0-7100) for the fiscal year ended October 31,
1995).................................................................................... *
23.1 Consent of Deloitte & Touche LLP..........................................................
24.1 Power[s] of Attorney......................................................................
</TABLE>

- ------------------------
(1) To be filed by amendment

(A) Management contract or compensatory plan or arrangement

* Incorporated by reference

ITEM 17. UNDERTAKINGS

Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.

The undersigned Registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act, (ii) to
reflect in the prospectus any facts or events arising after the effective
date of the registration statement (or the most recent post-effective
amendment thereof) that, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration
statement, and (iii) to include any material information with respect to the
plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement.

(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.

II-5
<PAGE>
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or Rule
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

The undersigned Registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.

II-6
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Trenton, State of New Jersey on June 19, 1996.

BASE TEN SYSTEMS, INC.

<TABLE>
<S> <C>
By: * By: /S/ EDWARD J. KLINSPORT
------------------------------------ ------------------------------------
Myles M. Kranzler Edward J. Klinsport
CHIEF EXECUTIVE OFFICER CHIEF FINANCIAL OFFICER
</TABLE>

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on June 19, 1996.

<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------------------ ------------------------------------------------------

<C> <S>
*
------------------------------------------- Chairman of the Board, President, Chief Executive
Myles M. Kranzler Officer and Director

*
------------------------------------------- Vice Chairman of the Board of Director
Bruce D. Cowen

/s/ EDWARD J. KLINSPORT
------------------------------------------- President -- Government Technology Division, Executive
Edward J. Klinsport Vice President Chief Financial Officer and Director

/s/ ALAN J. EISENBERG
------------------------------------------- President -- Medical Technology Division, Vice
Alan J. Eisenberg President and Director

*
------------------------------------------- Director
Alexander M. Adelson

------------------------------------------- Director
Alan S. Poole

/s/ SUSAN M. KLINSPORT
------------------------------------------- Chief Accounting Officer
Susan M. Klinsport
</TABLE>

<TABLE>
<S> <C>
*By: /s/ EDWARD J. KLINSPORT
------------------------------------
Edward J. Klinsport
ATTORNEY-IN-FACT
</TABLE>

II-7
<PAGE>
INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT PAGE
- ------------- ------------------------------------------------------------------------------------------ ---------
<C> <S> <C>
1.1 Form of Underwriting Agreement............................................................ (1)
1.2 Form of Warrant Agreement................................................................. (1)
3.1 Restated Certificate of Incorporation, as amended, of Registrant (incorporated by
reference to Exhibit 4(a) to Amendment No. 1 to Registrant's Registration Statement on
Form S-8 (File No. 2-84451) filed on July 31, 1990)...................................... *
3.2 Certificate of Amendment of the Restated Certificate of Incorporation dated September 1,
1992 (incorporated by reference to Exhibit 4(b)(2) to Amendment No. 3 to Registrant's
Registration Statement on Form S-1 (File No. 33-48404) filed on September 3, 1992)....... *
3.3 Amended By-Laws of the Registrant (incorporated by reference to Exhibit 4(d)(2) to
Registrant's Registration Statement on Form S-8 (File No. 33-60454) filed on April 1,
1993).................................................................................... *
5.1 Opinion of Pitney, Hardin, Kipp & Szuch (legality opinion)................................
10.1 1980 Deferred Compensation Agreement between the Registrant and certain executive officers
(incorporated by reference to Exhibit 10.3 to Registrant's Registration Statement on Form
S-1 File No. 2-70259 filed on December 16, 1980)......................................... (A)*
10.2 1981 Incentive Stock Option Plan of Registrant, as amended and restated on January 12,
1990 (incorporated by reference to Exhibit 4(c) to Amendment No. 1 to Registrant's
Registration Statement on Form S-8 (File No. 2-84451) filed on July 31, 1990)............ (A)*
10.3 1992 Stock Option Plan of Registrant (incorporated by reference to Exhibit 10(ai) to
Amendment No. 3 to Registrant's Registration Statement on Form S-1 (File No. 33-48404)
filed on September 3, 1992).............................................................. (A)*
10.4(a) Amended and Restated Change in Control Agreements dated September 6, 1995 between
Registrant and each of Myles M. Kranzler and Edward J. Klinsport and Change in Control
Agreement dated September 6, 1995 between Registrant and Alan J. Eisenberg............... (A)(1)
10.4(b) Change in Control Agreement dated October 23, 1991 between Registrant and James A. Eby
(agreement will terminate December 31, 1996 pursuant to notice of termination delivered
September 1995) (incorporated by reference to Exhibit 10(f) to Registrant's Annual Report
on Form 10-K (File No. 0-7100) for the fiscal year ended October 31, 1991................ (A)*
10.5 Employment Agreements dated as of March 26, 1992 between the Registrant and each of Myles
M. Kranzler, James A. Eby, Edward J. Klinsport and Alan J. Eisenberg (incorporated by
reference to Exhibit 28(b) through (e) to Registrant's Current Report on Form 8-K (File
No. 0-7100) filed on April 10, 1992)..................................................... (A)*
10.6 Amended Agreement dated July 28, 1992 between the Registrant and Alexander Adelson
(incorporated by reference to Exhibit 10(ar) to the Registrant's Registration Statement
on Amendment No. 3. to Form S-2 on Form S-1 (Registration No. 33-48404) filed on
September 3, 1992)....................................................................... (A)*
10.7 Amended Modification of Amended Agreement dated January 11, 1993 between the Registrant
and Alexander M. Adelson (incorporated by reference to Exhibit to the Registrant's
Annual Report on Form 10-K (File No. 0-7100) for the fiscal year ended October 31,
1994).................................................................................... (A)*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT PAGE
- ------------- ------------------------------------------------------------------------------------------ ---------
<C> <S> <C>
10.8 Consulting Agreement dated March 1, 1994 between the Registrant and Bruce D. Cowen
(incorporated by reference to Exhibit to the Registrant's Annual Report on Form 10-K
(File No. 0-7100) for the fiscal year ended October 31, 1994)............................ (A)*
10.9 Option Agreement dated as of November 9, 1992 between the Registrant and Donald M. Daniels
(incorporated by reference to Exhibit 10(as) to the Registrant's Annual Report on Form
10-K (File No. 0-7100) for the fiscal year ended October 31, 1992)....................... (A)*
10.10 Option Agreement dated as of June 5, 1992 between the Registrant and Strategic Growth
International, Inc. (incorporated by reference to Exhibit 10(at) to the Registrant's
Annual Report on Form 10-K (File No. 0-7100) for the fiscal year ended October 31,
1992).................................................................................... *
10.11 Acquisition Agreement dated October 28, 1994 between the Registrant and CKR Partners,
L.L.C. (incorporated by reference to Exhibit 2(a) to Registrant's Current Report on Form
8-K (File No. 0-7100) dated November 11, 1994)........................................... *
10.12 Lease dated October 28, 1994 between the Registrant and CKR Partners, L.L.C. (incorporated
by reference to Exhibit 2(b) to Registrant's Current Report on Form 8-K (File No. 0-7100)
dated November 11, 1994)................................................................. *
21.1 Subsidiaries of the Registrant (incorporated by reference to Exhibit 21 to Registrant's
Annual Report on Form 10-K (File No. 0-7100) for the fiscal year ended October 31,
1995).................................................................................... *
23.1 Consent of Deloitte & Touche LLP..........................................................
24.1 Power[s] of Attorney......................................................................
</TABLE>

- ------------------------
(1) To be filed by amendment

(A) Management contract or compensatory plan or arrangement

* Incorporated by reference

<PAGE>
EXHIBIT 5

PITNEY, HARDIN, KIPP & SZUCH
MAIL P.O. BOX 1945
MORRISTOWN, NEW JERSEY 07962-1945

June 19, 1996

Base Ten Systems, Inc.
One Electronics Drive
Trenton, New Jersey 08619

We have acted as counsel to Base Ten Systems, Inc. (the "Company") in
connection with the registration by the Company under the Securities Act of
1933, as amended (the "Act") of 2,300,000 shares of Class A Common Stock of the
Company (the "Shares").

We have examined the Registration Statement on Form S-3 (the "Registration
Statement"), dated June 19, 1996 to be filed by the Company with the Securities
and Exchange Commission in connection with the registration of the Shares.

We have also examined originals, or copies certified or otherwise identified
to our satisfaction, of the Restated Certificate of Incorporation and By-Laws of
the Company, as currently in effect, and relevant resolutions of the Board of
Directors of the Company; and we have examined such other documents as we deemed
necessary in order to express the opinion hereinafter set forth. In our
examination of such documents and records, we have assumed the genuineness of
all signatures, the authenticity of all documents submitted to us as originals,
and conformity with the originals of all documents submitted to us as copies.

Based on the foregoing, it is our opinion that when, as and if the
Registration Statement shall have become effective pursuant to the provisions of
the Act, and the Shares shall have been duly issued and delivered in the manner
contemplated by the Registration Statement, including the Prospectus therein,
the Shares will be legally issued, fully paid and non-assessable.

The foregoing opinion is limited to the laws of the State of New Jersey, and
we are expressing no opinion as to the effect of the laws of any other
jurisdiction.

We hereby consent to the use of this opinion as an Exhibit to the
Registration Statement and to the reference to this firm under the heading
"Legal Opinion" in the Prospectus. In giving such consent, we do not thereby
admit that we come within the category of persons whose consent is required
under Section 7 of the Act, or the Rules and Regulations of the Securities and
Exchange Commission thereunder.

Very truly yours,

/s/ PITNEY, HARDIN, KIPP & SZUCH
--------------------------------------
Pitney, Hardin, Kipp & Szuch

<PAGE>
EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT

We consent to the use in and incorporation by reference in this Registration
Statement, relating to 2,300,000 shares of Common Stock of Base Ten Systems,
Inc. on Form S-3, of our report dated December 15, 1995, appearing in the
Prospectus, which is part of this Registration Statement, and appearing in the
Annual Report on Form 10-K of Base Ten Systems, Inc. for the year ended October
31, 1995, which is incorporated by reference in this Registration Statement. We
also consent to the reference to us under the heading "Experts" in such
Prospectus.

DELOITTE & TOUCHE LLP

Parsippany, New Jersey
June 19, 1996

<PAGE>
EXHIBIT 24.1

POWER OF ATTORNEY

KNOWN ALL MEN BY THESE PRESENTS that each individual whose signature appears
below constitutes and appoints Myles M. Kranzler and Edward J. Klinsport, and
each of them, his true and lawful attorneys-in-fact and agents with full power
of substitution, for him and in his name, place and stead in any and all
capacities, to sign the Registration Statement on Form S-3 of Base Ten Systems,
Inc. and any amendments thereto, and to file same, with all exhibits thereto,
and all documents in connection therewith, with the Securities and Exchange
Commission, pursuant to the Securities Act of 1933, as amended, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
to comply with the provisions of the Securities Act of 1933, and all
requirements of the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitutes, may lawfully do or cause to be done by virtue thereof.

IN WITNESS WHEREOF, the undersigned has subscribed these presents this 13th
day of June, 1996.

/s/ ALEXANDER M. ADELSON

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Alexander M. Adelson

/s/ BRUCE D. COWEN

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Bruce D. Cowen

/s/ ALAN J. EISENBERG

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Alan J. Eisenberg

/s/ MYLES M. KRANZLER

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Myles M. Kranzler

/s/ EDWARD J. KLINSPORT

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Edward J. Klinsport

/s/ ALAN S. POOLE

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Alan S. Poole

/s/ SUSAN M. KLINSPORT

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Susan M. Klinsport