<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended April 30, 1996 Commission File No. 0-7100
BASE TEN SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-1804206
(State of incorporation) (I.R.S. Employer
Identification No.)
ONE ELECTRONICS DRIVE
TRENTON, N.J. 08619
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (609) 586-7010
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. YES /x/ NO /_/
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
TITLE OF CLASS OUTSTANDING AT MAY 21, 1996
Class A Common Stock, $1.00 par value 7,307,112
Class B Common Stock, $1.00 par value 450,177
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
BASE TEN SYSTEMS, INC.
AND SUBSIDIARIES
INDEX
Part I. Financial Information Page
Consolidated Balance Sheets -- April 30, 1996
and October 31, 1995 (unaudited) . . . . . . . . . . . . . . . . . 1
Consolidated Statements of Operations -- Three months and six
months ended April 30, 1996 and 1995 (unaudited) . . . . . . . . . 2
Consolidated Statement of Shareholders' Equity -- Six
months ended April 30, 1996 (unaudited). . . . . . . . . . . . . . 3
Consolidated Statements of Cash Flows -- Six months ended
April 30, 1996 and 1995 (unaudited). . . . . . . . . . . . . . . . 4
Notes to Consolidated Financial Statements . . . . . . . . . . . . 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . . . . 8
Part II. Other Information
Item 4: Submission of Matters to a Vote of Security Holders. . . 13
Item 6: Exhibits and Reports on Form 8-K . . . . . . . . . . . . 13
<PAGE>
BASE TEN SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
A S S E T S
<TABLE>
<CAPTION>
APRIL 30, 1996 OCTOBER 31, 1995
-------------- ----------------
<S> <C> <C>
CURRENT ASSETS:
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,994,000 $ 7,221,000
Accounts receivable (including unbilled receivables of
$4,018,000 in 1996 and $3,271,000 in 1995) . . . . . . . . . . . . . . . . . 7,724,000 6,034,000
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,911,000 3,151,000
Current portion of employee loan receivable . . . . . . . . . . . . . . . . . 128,000 108,000
Other current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 533,000 536,000
------------ ------------
TOTAL CURRENT ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,290,000 17,050,000
PROPERTY, PLANT AND EQUIPMENT. . . . . . . . . . . . . . . . . . . . . . . . . . 4,754,000 4,480,000
EMPLOYEE LOAN RECEIVABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212,000 298,000
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,678,000 6,177,000
------------ ------------
$ 22,934,000 $ 28,005,000
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 973,000 $ 1,246,000
Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,861,000 1,454,000
Income taxes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,038,000 1,038,000
Current portion of capital lease obligation . . . . . . . . . . . . . . . . . 43,000 42,000
------------ ------------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . 3,915,000 3,780,000
LONG-TERM LIABILITIES:
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77,000 83,000
Deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000 90,000
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 256,000 266,000
Capital lease obligation. . . . . . . . . . . . . . . . . . . . . . . . . . . 3,502,000 3,525,000
------------ ------------
TOTAL LONG-TERM LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . 3,847,000 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 and outstanding
7,298,112 shares in 1996 and 7,216,195 shares in 1995. . . . . . . . . . . . 7,298,000 7,216,000
Class B common stock, $1.00 par value,
2,000,000 shares authorized; issued and outstanding
450,177 shares in 1996 and 458,474 shares in 1995. . . . . . . . . . . . . . 450,000 458,000
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . . . 24,218,000 23,908,000
Deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (16,610,000) (11,179,000)
------------ ------------
15,356,000 20,403,000
Equity adjustment from foreign currency translation. . . . . . . . . . . . . . . (184,000) (142,000)
------------ ------------
15,172,000 20,261,000
------------ ------------
$ 22,934,000 $ 28,005,000
------------ ------------
------------ ------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1
<PAGE>
BASE TEN SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
APRIL 30 APRIL 30
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Sales . . . . . . . . . . . . . $ 7,379,000 $ 7,921,000 $ 3,768,000 $5,171,000
Other . . . . . . . . . . . . . 91,000 213,000 27,000 86,000
----------- ----------- ----------- ----------
7,470,000 8,134,000 3,795,000 5,257,000
----------- ----------- ----------- ----------
COSTS AND EXPENSES:
Cost of sales . . . . . . . . . 5,193,000 5,530,000 2,735,000 3,186,000
Research and development. . . . 562,000 386,000 237,000 179,000
Selling, general and
administrative. . . . . . . . 3,895,000 3,242,000 2,019,000 1,602,000
Write-off of software
development costs . . . . . . . 2,429,000 -- 2,429,000 --
Amortization. . . . . . . . . . 561,000 187,000 334,000 140,000
Interest. . . . . . . . . . . . 260,000 282,000 132,000 139,000
----------- ----------- ----------- ----------
12,901,000 9,627,000 7,886,000 5,246,000
----------- ----------- ----------- ----------
EARNINGS/(LOSS) BEFORE
INCOME TAXES . . . . . . . . . . . (5,431,000) (1,493,000) (4,091,000) 11,000
INCOME TAXES/(BENEFIT) . . . . . . -- (520,000) 470,000 4,000
----------- ----------- ----------- ----------
NET EARNINGS/(LOSS). . . . . . . . $(5,431,000) $ (973,000) $(4,561,000) $ 7,000
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
NET EARNINGS/(LOSS) PER
COMMON SHARE . . . . . . . . . . . $ (.70) $ (.12) $ (.59) $ .01
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING. . . . . . . . . . . . 7,708,454 7,169,613 7,717,112 7,339,109
</TABLE>
See Notes to Consolidated Financial Statements
2
<PAGE>
BASE TEN SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
SIX MONTHS ENDED APRIL 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
EQUITY
ADJUSTMENT
COMMON STOCK FROM
-------------------------------------------- ADDITIONAL FOREIGN
CLASS A CLASS B PAID-IN CURRENCY TREASURY
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TRANSLATION STOCK
------ ------ ------ ------ ------- ------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance-
October 31, 1995 7,216,195 $7,216,000 458,474 $458,000 $23,908,000 $(11,179,000) $(142,000) --
Conversions of
Class B Common
to Class A Common 628 1,000 (628) (1,000)
Exercise of options 81,189 81,000 310,000 (7,669)
Issuance of Common
Stock 100
Foreign currency
translation (42,000)
Retirement of Treasury
Stock (7,669) (7,000) 7,669
Net loss (5,431,000)
--------- ---------- ------- --------- ----------- ------------- ----------- ------
Balance -
April 30, 1996 7,298,112 $7,298,000 450,177 $ 450,000 $24,218,000 $(16,610,000) $ (184,000) --
--------- ---------- ------- --------- ----------- ------------- ----------- ------
--------- ---------- ------- --------- ----------- ------------- ----------- ------
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
BASE TEN SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30,
------------------------
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(5,431,000) $ (973,000)
ADJUSTMENTS TO RECONCILE NET LOSS TO
NET CASH USED IN OPERATING ACTIVITIES:
Depreciation and amortization 799,000 234,000
Write-off of software
development costs 2,429,000 --
Deferred gain on sale of building -- (15,000)
Accounts receivable (1,703,000) (1,871,000)
Inventories 240,000 (350,000)
Other current assets 111,000 (375,000)
Accounts payable (280,000) (236,000)
Accrued expenses 324,000 621,000
Customers' advance payments 93,000 985,000
Deferred taxes (6,000) --
Deferred compensation (78,000) (65,000)
Other assets (1,381,000) (464,000)
Other long-term liabilities (9,000) --
Income taxes payable -- (520,000)
------------ ------------
NET CASH USED IN OPERATIONS (4,892,000) (3,029,000)
------------ ------------
CASH FLOWS USED IN INVESTING
ACTIVITIES:
Additions to property, plant and equipment-net (508,000) (217,000)
Decrease in long-term lease obligation - net of current
portion -- (18,000)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (508,000) (235,000)
CASH FLOWS PROVIDED FROM FINANCING
ACTIVITIES:
Repayment of amounts borrowed (21,000) --
Proceeds from issuance of common stock 384,000 4,773,000
------------ ------------
NET CASH PROVIDED FROM FINANCING ACTIVITIES 363,000 4,773,000
Effect of exchange rate change on cash (190,000) (8,000)
------------ ------------
NET INCREASE IN CASH (5,227,000) 1,501,000
CASH, beginning of period 7,221,000 1,868,000
------------ ------------
CASH, end of period 1,994,000 $ 3,369,000
------------ ------------
------------ ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for interest $ 261,000 $ 265,000
------------ ------------
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Retirement of treasury stock $ 7,000 $ 12,000
------------ ------------
</TABLE>
See Notes to Consolidated Financial Statements
4
<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 ("Base Ten" or 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
for the interim periods have been 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/or order on an individual basis to determine the proper revenue
recognition method. Contracts to deliver software which require
significant customization and/or modification over an extended period
of time are accounted for using the percentage-of-completion method.
For products and/or orders which are more standardized in nature,
revenue is recognized when the earnings process is complete and
title has passed, generally upon 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. In the second quarter of fiscal 1996 the
Company conducted its regular quarterly review of the recoverability
of its capitalized software development costs and determined that
neither its PRENVAL nor its uPACS products would achieve sufficient
revenues in future periods to justify retention of the related
capitalized costs as productive assets. To confirm its determination,
the Company reviewed the marketing chronology related to these
products. With respect to PRENVAL, it became apparent to the Company
in late February 1996, after a discussion with the licensee, that
enhancements that are not developed or available for the product were
being requested by customers who had a chance to use and test the
product during the first quarter of fiscal 1996, and that, as a
result, sales would not exceed the amount necessary to generate
additional royalties in excess of the minimum required under the
license. 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. With respect to uPACS, the Com-
pany had implemented sales efforts in late 1995 and displayed the pro-
duct 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 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 was marketable. Accordingly the Company wrote off $2.4
million of such capitalized costs.
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
5
<PAGE>
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.
APRIL 30, 1996 OCTOBER 31, 1995
-------------- ------------------
Raw materials ............ $ 1,208,000 $ 1,557,000
Work in process........... 1,668,000 1,515,000
Finished goods ........... 80,000 95,000
----------- ------------
2,956,000 3,167,000
Less advance payments..... 45,000 16,000
----------- ------------
$ 2,911,000 $ 3,151,000
----------- ------------
----------- ------------
D. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are summarized as follows:
APRIL 30, 1996 OCTOBER 31, 1995
-------------- ----------------
Machinery and equipment............. $ 9,320,000 $ 8,853,000
Furniture and fixtures ............. 647,000 617,000
Leased Asset - Land and Building.... 3,600,000 3,600,000
Leasehold Improvement 46,000 21,000
----------- -----------
13,613,000 13,091,000
Less accumulated depreciation
and amortization ................... 8,859,000 8,611,000
----------- -----------
$ 4,754,000 $ 4,480,000
----------- -----------
----------- -----------
6
<PAGE>
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
Company and another is a director. A non-interest bearing security deposit
of $550,000 is 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:
FISCAL
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
----------
----------
F. NET EARNINGS PER SHARE:
Loss per share for the periods ended April 30, 1996 and 1995 were
calculated using the following 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 quarter ended, April 30,
1995 and 1996 and therefore were not included in the calculation of
earnings per share.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OR OPERATIONS
GENERAL
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 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 design 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 occuring 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. Due to the level of
standardization in PHARMASYST, commencing in the second quarter of 1996, the
Company will generally recognize revenues from sales of PHARMASYST upon
products delivery. The Company will continue to account for any PHARMASYST
revenue relating to specific customization requests under the percentage of
completion method.
Research and development for defense-related projects are performed
under development contracts with prime contractors under which the Company
generally receives full or partial funding. Funding under these contracts
is accounted for as revenues.
Research and development for commercial projects are undertaken at
the Company's expense. Since 1991, the Company has spent $6.2 million for
such development efforts, including $3.2 million for its PHARMASYST products,
$1.7 million for its medical screening software and $1.1 million for
its ultrasound image archiving system. Development expenditures for
PHARMASYST and other commercial products have consisted primarily of salaries
of software engineers.
Software development expenditures for individual projects are expensed
as research and development until a product attains technological
feasability. Thereafter, expenditures are capitalized until products
attain commercial availability. The Company established technological
feasability for PHARMASYST in 1993 and subsequently capitalized $3.2 million
in additional 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, have been
capitalized. 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
development costs and determined that neither its PRENVAL nor its uPACS
products would achieve sufficient revenues in future periods to justify
retention of the related capitalized costs as productive assets. To confirm
its determination, the Company reviewed the marketing chronology related to
these products. With respect to PRENVAL, it became apparent to the Company
in late February 1996, after a discussion with the licensee, that
enhancements that are not developed or available for the product were being
requested by customers who had a chance to use and test the product during
the first quarter of fiscal 1996, and that, as a result, sales would not
exceed the amount necessary to generate additional royalties in excess of the
minimum required under the license. 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. 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 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 was marketable.
Accordingly the Company wrote off $2.4 million of such capitalized costs.
8
<PAGE>
SIX MONTHS ENDED APRIL 30, 1996 AND 1995
Total revenues decreased by $664,000, or 8.2%, from $8.1 million in the
six months ended April 30, 1995 to $7.5 million in the same period in 1996.
Revenues from defense operations declined by $1.5 million or 18.8% from $7.7
million for the six months ended April 30, 1995 to $6.3 million in 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 64.2% 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 $422,000, or
18.2%, 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 $336,000, 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 decline in total defense revenues. Gross margin
decreased from 32.0% to 30.5%. The decrease was due to the fixed nature of
certain expenses, partially offset by increased sales of relatively high
margin PHARMASYST products
9
<PAGE>
during 1996. The gross margin of PHARMASYST sales is relatively high
because a substantial portion of the development costs of PHARMASYST was
capitalized rather than expensed. Such costs will be amortized over a period
of four years.
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 1995 to 52.1% for 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. Capitalized 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 April 30, 1995 to $561,000 for the same period in 1996. The
increase primarily reflects increased sales of PHARMASYST products in 1996.
Interest expense decreased by $22,000 due the reduction of the capitalized
lease obligation through amortization.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of fiscal 1996, the Company used $4.9 million
of cash in its operations. The use of cash arose primarily from the Company's
net loss of $5.4 million for the period and from increases of $1.7 million in
accounts receivable from $6.0 million at October 31, 1995 to $7.7 million at
April 30, 1996. The Company spent approximately $1.3 million for the
development of its PHARMASYST products during the period, of which $ 1.0
million was capitalized as "other assets." The increase in accounts
receivable resulted primarily from increased billings during the last month
of the second quarter. The Company's loss for the six months ended April 30,
1996 included noncash expense consisting of a writeoff of capitalized software
costs aggregating approximately $2.4 million and additional writeoffs of
$350,000 relating to other costs and capitalized items as well as
depreciation and amortization expense of $799,000 for the period, including
$560,000 amortization of capitalized software development costs. A $407,000
increase in accrued expenses from $1.5 million at October 31, 1995 to $1.9
million at April 30, 1996 and a $240,000 reduction in inventories from $3.2
million to $2.9 million reduced the Company's use of cash in operations,
offset in part by a $280,000 decrease in accounts payable from $1.2 million
to $973,000.
The Company raised approximately $390,000 from the sale of Common Stock
in connection with the exercise of options in the six months ended April
30, 1996 and invested $508,000 in property, plant and equipment leading to
a net use of cash of $5.2 million from $7.2 million at October 31, 1995 to
$2.0 million at April 30, 1996.
The Company's current activities and plans for product development and
marketing for the balance of fiscal 1996 would require more cash than the
Company expects to generate from operations. The Company intends to seek
equity financing in the public markets in the third quarter. Should the
Company be unable to raise additional funds through such a financing the
Company would be forced to reduce its new product developments, marketing
efforts, and other costs or seek other sources of capital, including
borrowing. The Company currently has no committed lines of credit or other
lending arrangements.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of Base Ten Systems, Inc. was held on
March 26, 1996 in New York City. Matters voted on at the meeting were the
election of a director and the approval of the Company's 1995 Incentive Stock
Option Plan. The number of votes cast for, against, or withheld, as well as the
number of abstentions and broker non-votes as to each matter, including a
separate tabulation with respect to each nominee for office, is as follows:
1. Election of Director Class A Common
For Withheld
--- --------
Myles M. Kranzler 6,893,521 200,247
2. Approval of 1995 Class A Common and Class B Common
----------------------------------
Incentive Stock Option Plan For Against Abstentions Broker
Non-Votes
--- -------- ----------- ---------
644,683 81,255 7,595 305,271
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS - None
(b) REPORTS ON FORM 8-K - None.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: June , 1996
BASE TEN SYSTEMS, INC.
(Registrant)
By: /S/ MYLES M. KRANZLER
---------------------------------
Myles M. Kranzler
President and Chairman of the Board
(Principal Executive Officer)
By: /S/ EDWARD J. KLINSPORT
---------------------------------
Edward J. Klinsport
Executive Vice President and Chief
Financial Officer
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FORM THE SIX
MONTHS ENDED APRIL 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> FEB-01-1996
<PERIOD-END> APR-30-1996
<CASH> 1,994,000
<SECURITIES> 0
<RECEIVABLES> 7,724,000
<ALLOWANCES> 0
<INVENTORY> 2,911,000
<CURRENT-ASSETS> 13,290,000
<PP&E> 4,754,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 22,934,000
<CURRENT-LIABILITIES> 3,915,000
<BONDS> 0
0
0
<COMMON> 7,298,000
<OTHER-SE> 15,172,000
<TOTAL-LIABILITY-AND-EQUITY> 22,934,000
<SALES> 7,379,000
<TOTAL-REVENUES> 7,470,000
<CGS> 5,193,000
<TOTAL-COSTS> 12,901,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5,431,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,431,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,431,000)
<EPS-PRIMARY> (.70)
<EPS-DILUTED> 0
</TABLE>
