<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, 1997 COMMISSION FILE NO. 0-7100
BASE TEN SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
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)
</TABLE>
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.
<TABLE>
<S> <C>
TITLE OF CLASS OUTSTANDING AT MAY 31, 1997
Class A Common Stock, $1.00 par value 7,481,210
Class B Common Stock, $1.00 par value 445,121
</TABLE>
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- --------------------------------------------------------------------------------
<PAGE>
BASE TEN SYSTEMS, INC.
AND SUBSIDIARIES
INDEX
<TABLE>
<S> <C> <C>
Part I. Financial Information Page
Consolidated Balance Sheets--April 30, 1997 (unaudited) and October 31, 1996
(audited).................................................................... 1
Consolidated Statements of Operations--Three months and six months ended
April 30, 1997 and 1996 (unaudited).......................................... 2
Consolidated Statements of Shareholders' Equity--Six months ended April 30,
1997 (unaudited)............................................................. 3
Consolidated Statements of Cash Flows--Six months ended April 30, 1997 and
1996 (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.................. 17
Item 6: Exhibits and Reports on Form 8-K..................................... 17
</TABLE>
<PAGE>
BASE TEN SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
1997 1996
------------- ---------------
<S> <C> <C>
CURRENT ASSETS:
Cash........................................................................... $ 2,648,000 $ 7,465,000
Accounts receivable (including unbilled receivables of $3,249,000 in 1997 and
$4,162,000 in 1996).......................................................... 5,818,000 7,515,000
Inventories.................................................................... 3,511,000 2,935,000
Current portion of employee loans receivable................................... 99,000 128,000
Other current assets........................................................... 517,000 386,000
------------- ---------------
TOTAL CURRENT ASSETS......................................................... 12,593,000 18,429,000
PROPERTY, PLANT AND EQUIPMENT.................................................... 5,209,000 5,071,000
Employee Loans Receivable........................................................ 119,000 148,000
OTHER ASSETS..................................................................... 8,700,000 6,700,000
------------- ---------------
$ 26,621,000 $ 30,348,000
------------- ---------------
------------- ---------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................................... $ 1,508,000 $ 1,472,000
Accrued expenses............................................................... 3,077,000 2,994,000
Current portion of capital lease obligation.................................... 54,000 47,000
------------- ---------------
TOTAL CURRENT LIABILITIES.................................................... 4,639,000 4,513,000
LONG TERM LIABILITIES:
Other long-term liabilities.................................................... 271,000 266,000
Capital lease obligation....................................................... 3,451,000 3,478,000
Long-term debt................................................................. 10,000,000 10,000,000
------------- ---------------
TOTAL LONG-TERM LIABILITIES.................................................. 13,722,000 13,744,000
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 7,481,210 shares in 1997 and 7,358,964 shares in 1996............ 7,481,000 7,359,000
Class B common stock, $1.00 par value, 2,000,000 shares authorized; issued and
outstanding 445,121 shares in 1997 and 445,387 shares in 1996 (convertible
into Class A Common Stock on a one for one basis)............................ 445,000 445,000
Additional paid-in capital..................................................... 25,557,000 25,086,000
Deficit........................................................................ (25,068,000) (20,640,000)
------------- ---------------
8,415,000 12,250,000
Equity adjustment from foreign currency translation............................ (155,000) (159,000)
------------- ---------------
8,260,000 12,091,000
------------- ---------------
$ 26,621,000 $ 30,348,000
------------- ---------------
------------- ---------------
</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
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
1997 1996 1997 1996
------------- ------------- ------------- -------------
REVENUES
Sales............................................... $ 6,190,000 $ 7,379,000 $ 2,938,000 $ 3,768,000
Other............................................... 113,000 91,000 19,000 27,000
------------- ------------- ------------- -------------
6,303,000 7,470,000 2,957,000 3,795,000
------------- ------------- ------------- -------------
COSTS AND EXPENSES:
Cost of sales....................................... 4,892,000 5,193,000 2,320,000 2,735,000
Research and development............................ 332,000 562,000 171,000 237,000
Selling, general and administrative................. 4,096,000 3,895,000 2,193,000 2,019,000
Write-off of software development costs............. -- 2,429,000 -- 2,429,000
Amortization of software medical cost............... 681,000 561,000 338,000 334,000
Interest............................................ 730,000 261,000 368,000 132,000
------------- ------------- ------------- -------------
10,731,000 12,901,000 5,390,000 7,886,000
------------- ------------- ------------- -------------
LOSS BEFORE INCOME TAXES.............................. (4,428,000) (5,431,000) (2,433,000) (4,091,000)
INCOME TAXES.......................................... -- -- -- 470,000
------------- ------------- ------------- -------------
NET LOSS.............................................. $ (4,428,000) $ (5,431,000) $ (2,433,000) $ (4,561,000)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
NET LOSS PER COMMON SHARE............................. $ (.57) $ (.70) $ (.31) $ (.59)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING............ 7,813,792 7,708,454 7,819,310 7,717,112
</TABLE>
See Notes to Consolidated Financial Statements
2
<PAGE>
BASE TEN SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
SIX MONTHS ENDED APRIL 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK EQUITY
----------------------------------------------- ADJUSTMENT
FROM
CLASS A CLASS B ADDITIONAL FOREIGN
------------------------ --------------------- PAID-IN CURRENCY
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TRANSLATION
---------- ------------ --------- ---------- ------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance-
October 31, 1996........... 7,358,964 $ 7,359,000 445,387 $ 445,000 $ 25,086,000 $ (20,640,000) $ (159,000)
Conversions of Class B Common
to Class A Common.......... 266 (266)
Exercise of options and
warrants................... 115,893 116,000 471,000
Issuance of Common Stock..... 6,087 6,000
Foreign currency
translation................ 4,000
Net loss..................... (4,428,000)
---------- ------------ --------- ---------- ------------- -------------- -----------
Balance -
April 30, 1997............. 7,481,210 $ 7,481,000 445,121 $ 445,000 $ 25,557,000 $ (25,068,000) $ (155,000)
---------- ------------ --------- ---------- ------------- -------------- -----------
---------- ------------ --------- ---------- ------------- -------------- -----------
</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,
----------------------------
<S> <C> <C>
1997 1996
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.......................................................................... $ (4,428,000) $ (5,431,000)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH USED IN OPERATING ACTIVITIES:
Depreciation and amortization..................................................... 914,000 799,000
Write-off of software development costs........................................... -- 2,429,000
Accounts receivable............................................................... 1,711,000 (1,703,000)
Inventories....................................................................... (576,000) 240,000
Employee loans receivable......................................................... 58,000 --
Other current assets.............................................................. (129,000) 111,000
Accounts payable.................................................................. 35,000 (280,000)
Accrued expenses.................................................................. 81,000 417,000
Deferred taxes.................................................................... -- (6,000)
Other assets...................................................................... (2,681,000) (1,381,000)
Other long-term liabilities....................................................... (5,000) (87,000)
------------- -------------
NET CASH USED IN OPERATIONS....................................................... (5,020,000) (4,892,000)
------------- -------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to property, plant and equipment........................................ (376,000) (508,000)
------------- -------------
NET CASH USED IN INVESTING ACTIVITIES............................................. (376,000) (508,000)
------------- -------------
CASH FLOWS PROVIDED FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock............................................ 591,000 384,000
Payments under capital lease...................................................... (20,000) (21,000)
------------- -------------
NET CASH PROVIDED FROM FINANCING ACTIVITIES....................................... 571,000 363,000
Effect of exchange rate change on cash............................................ 8,000 (190,000)
------------- -------------
NET DECREASE IN CASH................................................................ (4,817,000) (5,227,000)
CASH, beginning of period........................................................... 7,465,000 7,221,000
------------- -------------
CASH, end of period................................................................. 2,648,000 1,994,000
------------- -------------
------------- -------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest.......................................... $ 745,000 $ 261,000
------------- -------------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Retirement of treasury stock...................................................... $ -- $ 7,000
------------- -------------
</TABLE>
4
<PAGE>
BASE TEN SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED APRIL 30, 1997
(UNAUDITED)
A. DESCRIPTION OF BUSINESS
Base Ten Systems, Inc. ("Base Ten" or the "Company") is engaged in the
design and manufacture of electronic systems employing safety critical software
for defense markets and the development of commercial applications focused on
manufacturing execution systems, medical screening and image processing
software. The Company also manufactures defense products to specifications for
prime government contractors and designs and builds proprietary electronic
systems for use in secure communications by various U.S. government agencies.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
1. In management's opinion, all adjustments necessary for a fair
presentation of the financial statements are reflected in the accompanying
statements.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The consolidated
interim financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the fiscal year ended October 31, 1996. The results
of operations for the three months and six months ended April 30, 1997 are
not necessarily indicative of the operating results for the full year.
2. Basis of Presentation--The Company's consolidated financial
statements have been prepared on a historical cost basis.
3. Principles of Consolidation--The consolidated financial statements
include the accounts of Base Ten. All significant intercompany accounts,
transactions and profits have been eliminated.
4. Revenue Recognition--For Medical Software Products, 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. For products in the Government Technology Division
earnings on long-term contracts are recognized on the
percentage-of-completion or unit-of-delivery basis. Changes in estimates are
accounted for using the cumulative catch-up method and are immaterial in
each period presented.
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 of 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.
5. Inventories--Inventories are stated at the lower of cost (first-in,
first-out method) or market.
5
<PAGE>
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.
6. 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
Furiture and fixtures..................................... 3 to 20 years
</TABLE>
7. Write-off 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" ("SFAS 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 Company has
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 in the second fiscal quarter.
8. Other Assets--Included in other non-current assets are software
development costs capitalized in accordance with No. 86, "Accounting for
Costs for Computer Software to be Sold, Leased or Otherwise Marketed,"
pursuant to which the Company is required to capitalize certain software
development and production costs once technological feasibility has been
achieved. The cost of purchased software is capitalized when related to a
product which has achieved technological feasibility or that has an
alternative future use. Software development costs incurred prior to
achieving technological feasibility are charged to research and
development expense as incurred. The Company performs quarterly reviews
of the recoverability of its capitalized software costs and other long
lived assets based on anticipated revenues and cash flows from sales of
these products. The Company considers historical performance and future
estimated results in its evaluation of potential impairment
and then compares the carrying amount of the asset to the estimated future
cash flows expected to result from the use of the asset. If the carrying
amount of the asset exceeds estimated expected undiscounted future cash
flows, the Company measures the amount of the impairment by comparing the
carrying amount of the asset to its fair value. The estimation of fair value
is generally measured by discounting expected future cash flows at the rate
the Company utilizes to evaluate potential investments. The Company
estimates fair value based on the best information available making whatever
estimates, judgments and projections are considered necessary.
6
<PAGE>
Commencing upon initial product release, these costs are amortized based on
the straight-line method over the estimatead life.
9. Cash and Cash Equivalents--The Company considers all investments
with a maturity of three months or less at date of acquisition to be cash
equivalents.
10. Income Taxes--Effective November 1, 1993, the Company adopted
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS 109), which requires a change from the deferred method's income
statement approach of accounting for income taxes to an asset and liability
approach of accounting for income taxes. Under the asset and liability
approach, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. This change has not had any effect on the Company's Consolidated
Statement of Operations.
11. Recently Issued Accounting Standards--
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123), which required 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 requires disclosure 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 for all grants after November 1, 1995.
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.
The Financial Accounting Standards Board issued Statement of
Accounting Standards No. 128, "Earnings Per Share" ("FAS 128"). The
Company is required to adopt FAS 128 for both interim and annual periods
ending after December 15, 1997. FAS 128 requires the Company to present
Basic Earnings Per Share which excludes dilution and Diluted Earnings Per
Share which includes potential dilution. The Company believes that the
adoption of FAS 128 will not have a material effect on the Company's
earnings per share calculations.
12. Net Earnings/(Loss) Per Share--Earnings per share for periods ended
April 30, 1997 and 1996 were calculated using the number of weighted average
common shares outstanding.
Stock options, warrants and rights would have an anti-dilutive effect on
earnings per share for the periods included.
13. Use of Estimates--The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ
from these estimates.
14. Fair Value of Financial Instruments--The fair market value of
certain financial instruments, including cash, accounts receivable, accounts
payable, and other accrued liabilities, approximate the amount recorded in
the balance sheet because of the relatively current maturities of these
financial instruments. The fair market value of long term debt at April 30,
1997 and October 31, 1996 approximates the amounts recorded in the balance
sheet based on information available to the Company with respect to interest
rates and terms for similar financial instruments.
7
<PAGE>
15. Foreign Currency Translation--The accounts of the consolidated
foreign subsidiaries are translated into United States dollars in accordance
with Financial Accounting Standards Board (FASB) Statement No. 52.
Transaction gains and losses are immaterial.
16. Change in Presentation--Certain balance sheet items for the interim
period in fiscal 1996 have been reclassified to conform to the 1997
presentation.
C. INVENTORIES:
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
<TABLE>
<CAPTION>
APRIL 30, 1997 OCTOBER 31, 1996
---------------- ------------------
<S> <C> <C>
Raw materials................................................ $ 1,293,000 $ 1,232,000
Work in process.............................................. 1,807,000 1,383,000
Finished goods............................................... 544,000 369,000
---------------- ----------------
3,644,000 2,984,000
Less advance payments........................................ 133,000 49,000
---------------- ----------------
$ 3,511,000 $ 2,935,000
---------------- ----------------
---------------- ----------------
</TABLE>
As provided in several of the Company's contracts, customers advance funds
to Base Ten for the purpose of purchasing inventory. The related advances have
been offset against inventory.
D. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are summarized as follows:
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
1997 1996
------------- ---------------
<S> <C> <C>
Machinery and equipment...................................... $ 9,991,000 $ 9,668,000
Furniture and fixtures....................................... 718,000 705,000
Leased asset--land and building.............................. 3,600,000 3,600,000
Leasehold improvement........................................ 120,000 85,000
------------- ---------------
14,429,000 14,058,000
Less accumulated depreciationand amortization................ 9,220,000 8,987,000
------------- ---------------
$ 5,209,000 $ 5,071,000
------------- ---------------
------------- ---------------
</TABLE>
E. OTHER ASSETS:
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
1997 1996
------------- ---------------
<S> <C> <C>
Patents (net of amortization)................................ $ 373,000 $ 362,000
Capitalized costs............................................ 6,492,000 4,255,000
Unamortized bond issue costs................................. 536,000 579,000
Deposit--long-term capital lease............................. 550,000 550,000
Long-term receivable......................................... 585,000 770,000
Other........................................................ 164,000 184,000
------------- ---------------
$ 8,700,000 $ 6,700,000
------------- ---------------
------------- ---------------
</TABLE>
8
<PAGE>
F. LONG-TERM CAPITAL LEASE:
LEASES. The Company entered into a sale and leaseback arrangement on
October 28, 1994. Under the arrangement, the Company sold its main building
in Trenton, New Jersey and agreed to lease it back for a period of 15 years
under terms that qualify the arrangement as a capital lease. The buyer/lessor
of the building was a partnership. One of the partners is a current 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 will be taken using the straight line method
over the term of the lease.
The Company's future minimum lease payments related to the sale-leaseback
arrangement in effect at January 31, 1997 are as follows:
<TABLE>
<CAPTION>
FISCAL
- ------
<S> <C>
1997................................................ $ 560,000
1998................................................ 560,000
1999................................................ 560,000
2000................................................ 615,000
2001................................................ 615,000
2002 and thereafter................................. 5,344,000
-------------
8,254,000
Less: Interest portion (4,749,000)
-------------
Present value of net minimum payments $ 3,505,000
-------------
-------------
</TABLE>
G. LONG-TERM DEBT:
In August 1996, the Company sold $10.0 million of its 9.01% Convertible
Subordinate Debentures due August 31, 2003. Under the terms of the Debentures,
the holder can convert the Debentures into the Company's Class A Common Stock,
at $12.50 per share, 125% of the closing price on August 9, 1996. The Company
has the right to call the Debentures after February 28, 1998, if the Company's
stock price trades at certain levels between 150%--175% of the closing price, or
$15-$17.50 per share. The Company's financing costs relating to such Debentures
amounted to approximately $.6 million. These costs are being amortized over the
life of the loan.
H. SUBSEQUENT EVENTS:
On May 1, 1997, the Company entered into an agreement whereby it became a
minority owner of a limited liability company (the "LLC"). Under the terms of
the agreement, the Company made a capital contribution to the LLC of its rights
to its uPACS technology which is a system for archiving ultrasound images with
networking, communication and off-line measurement capabilities. In exchange for
such capital contribution, the Company received a 9% interest in the LLC. An
outside investor made a capital contribution of $2 million and agreed to make a
further capital contribution of $1 million on or before December 1, 1997, in
return for a 91% interest in the LLC. In connection with the formation of the
LLC, the Company entered into a Services and License Agreement whereby the
Company has agreed to complete the development of the uPACS technology and
undertake to market, sell and distribute systems using the uPACS technology. The
LLC will pay the Company its expenses in connection with such services and the
Company will pay to the LLC royalties in connection with the sale of systems
using the uPACS technology. At such time as the LLC has distributed to the
outside investor an aggregate amount equal to $4.5 million of its net cash flow,
the Company would become a 63% owner of the LLC and the outside investor will
own a 37% interest in the LLC. There can be no assurance that uPACS will be
successful or that the LLC will operate profitably or that the funds under the
LLC will be sufficient for the further development and marketing of uPACS.
9
<PAGE>
On May 30, 1997, the Company sold 55 units ("Units") at $100,000 per Unit,
for an aggregate of $5,500,000, to 2 accredited purchasers ("Purchasers") in a
private offering (the "Offering"). Each Unit consisted of (i) a convertible
debenture ("Convertible Debenture") in the principal amount of $100,000
convertible into shares of the Company's Class A Common Stock, and (ii) a
warrant ("Warrant") to acquire 1,800 shares of Class A Common Stock. The number
of shares of Class A Common Stock issuable upon conversion of the Convertible
Debentures is variable. The number of shares will be calculated at the time of
conversion and will be the lesser of (i) the product obtained by multiplying (x)
the lesser of the average of the closing bid prices for the Class A Common Stock
for the (A) five or (B) thirty consecutive trading days ending on the trading
day immediately preceding the date of determination by (y) a conversion
percentage equal to 95% with respect to any conversions occurring prior to
February 24, 1998 and 92% with respect to any conversions occurring on or after
February 24, 1998 and (ii) $13.50 with respect to any conversions occurring
prior to May 30, 1998 or $14.00 with respect to any conversions occurring on
or after May 30, 1998. The Convertible Debentures are not convertible prior to
December 16, 1997. From December 16, 1997 until February 23, 1998, one-half of
the Convertible Debentures may be converted and after February 23, 1998, the
Convertible Debentures are fully convertible. The Warrants may be exercised at
any time through May 30, 2002 at an exercise price of $12.26 per share. The
Company received net proceeds of approximately $4,950,000 from the sale of
the Units after deduction of fees and expenses related to the Offering.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL.
Base Ten Systems, Inc. (the "Company") operates with a Medical Technology
Division and a Government Technology Division and designs, develops,
manufactures and markets complex, precision electronic systems for the defense
industry and comprehensive software solutions for the pharmaceutical and medical
device manufacturing industries. The Company's products are used in safety
critical applications requiring consistent, highly reliable outcomes where an
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 a
premier commercially available PC-based standardized MES solution capable of the
necessary functionality and supporting documentation suitable for regulated
manufacturing in the pharmaceutical and medical device industries. The Company
is engaged in a continuing program to maintain compliance with an industry
generated standard for Good Automated Manufacturing Practice (GAMP) as a means
of differentiating itself from present and future competition.
The Company has entered into collaborative relationships with certain
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 & Lybrand Consulting AG, Walsh Automation, a
Canadian systems integrator, WTI Systems Ltd, an English Systems Integrator,
Toyo Engineering Co., a Japanese developer of turnkey manufacturing
facilities, Bailey Controls Company, a provider of distributed control
systems, Intellution, Inc., a supplier of manufacturing systems for the
pharmaceutical industry, the Taisei Corporation, a $15 billion construction
and engineering company in Japan, Peat Marwick KPMG, with QAD, a manufacturer
of MRP (Manufacturing Resource Planning) software and most recently with
Wonderware, a leading provider of manufacturing software. The Company has not
yet been able to use these relationships to produce any sales and cannot
predict if or when such relationships will prove successful. The Company must
complete further development work on PHARM2, which is an advanced version of
the PHARMASYST product, and must conduct training of its partners to make
such relationships effective. No assurance can be given that this will
successfully occur.*
The Company develops and manufactures weapons management systems and
other defense-related products. Currently, the Company has ongoing
development contracts with McDonnell Douglas Helicopter Systems, McDonnell
Douglas Aerospace, Daimler-Benz AG, Aerospace, and the U.S. Air Force. 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. In
addition, the Company entered into a contract with McDonnell Douglas
Aerospace for an Interference Blanker Unit used aboard the F-18. A contract
for the completion of the product design and early production for components
of the SLAM ER missile system was awarded to the Company in October, 1996.
These contracts are subject to government budget allocations. Recent budget
decisions reduced funds available for F18 procurement and reduced the
Company's opportunities for future business.
11
<PAGE>
RESULTS OF OPERATIONS
NONDEFENSE OPERATIONS- During 1996 the Company focused on the development
of PHARM2-TM-, an advanced version of the PHARMASYST product introduced in
1995. At the end of the 1997 second quarter the Company had contracts or
signed license agreements for installation at a total of 32 sites from a
total of eighteen manufacturers or their integrators including Abbot Hospital
Products, Pfizer International Products Group, SmithKline Beecham, Pharmacia
& Upjohn, 3M, Novo Nordisk, Taisei, Berlex, and Wyeth. More recently the
Company has added Roche, Astra, and an additional contract from Pharmacia &
Upjohn.
Although the Company has made several deliveries of the first release of
PHARM2, other deliveries of PHARM2 continue to be overdue. Although
cancellation for late deliveries may occur, the Company does not currently
anticipate the loss of material orders as a result thereof.* For the PHARM2
business to grow it is necessary for the Company to increase its delivery
rate. Although such deliveries are planned no assurances can be given that
they will take place in a timely manner. One effect of further delayed
deliveries would be to negatively impact the Company's cash flow, which could
limit the Company's ability to grow. The Company is having difficulty in
acquiring the resources necessary to make its deliveries and is seeking to
overcome this difficulty through intensive recruiting. Failure to add the
necessary staff could result in specific order cancellations, which while not
material in value, could have an adverse effect on the Company's business
through damage to its reputation.
The Company sells PHARM2 through direct salespersons operating out of its
headquarters in New Jersey; Laguna Niguel, California; Camberley, England;
Brussels, Belgium; Copenhagen, Denmark; and Tokyo, Japan. The Tokyo office was
opened in January, 1997 in response to opportunities under development in the
Pacific Rim. In addition to direct selling, the Company has developed
relationships with implementers and integrators already active in this market to
increase the number of opportunities available to it to demonstrate and offer
its products (see "General" above).* The Company requires additional sales
persons to grow and has, as of yet, not been able to find suitable candidates.
Failure to add to the staff could negatively impact future revenues.
During the 1997 first quarter the Company engaged an internationally
recognized consulting organization to assist it in the further development and
refinement of procedures and documentation for the Company in order to be fully
compliant with the principles embodied in GAMP and the Company believes it
currently is now in full compliance with the principles embodied in GAMP. GAMP
is the output of an industry group defining the methodology for creation of
software products for the pharmaceutical industry. Although no assurances can be
given, the Company believes that this provides added value to the Company's
ability to sell in this market and this should further differentiate the
Company from its competition.* The Company has also strengthened its quality
assurance organization through the employment of personnel familiar with
pharmaceutical manufacturing practice.
In February 1997, the Company announced the validation of the Dispensing
module of PHARMASYST at the Canadian manufacturing facility of a major
pharmaceutical company, one of the Company's principal clients. The Company
believes that the value of validation will be realized in increased
acceptance of the Company's products by other pharmaceutical companies.*
Although the Company generates certain revenue upon delivery of PHARM2 to its
clients, it is necessary for a pharmaceutical company to validate its
equipment and processes in order to satisfy FDA regulations and PHARM2 is a
critical portion of the manufacturing activity. The Company announced its
first validated site in October, 1996 for a major pharmaceutical company
manufacturing medical devices using the PHARMASYST Electronic Batch Recording
System.
During the 1997 six month period, the Company strengthened its technical
resources through the addition of development staff in both Camberley, England
and in its New Jersey headquarters and must continue to do so to meet its
delivery commitments. The Company considers its technical staff to be a primary
resource and crucial to its continuance in this business area. Loss of any
portion of its technical resources would be injurious and loss of a significant
portion of its technical staff could cause serious and immediate damage to the
Company's business. The Company believes it has good relations with its
technical staff.
12
<PAGE>
DEFENSE OPERATIONS. During the six month period ending April 30, 1997 the
Company concentrated on the development tasks related to the Interference
Blanker Unit (IBU) awarded to the Company in mid-1996, the development tasks
related to the Maintenance Data Recorder also awarded to the Company in
mid-1996, and the development tasks related to the SLAM ER missile contract
awarded in October, 1996. This activity involved primarily technical staff and
was responsible for the major part of the income generated by the Government
Technology Division in this period.
In addition, the Company continued its development of additional software
for the Tornado program, the Company's most successful product. The Tornado
program extends beyond the year 2000 and could offer the Company significant
additional business.* The Company has been asked to provide cost and pricing
information for additional production for the Tornado Stores Management System.
This contract, if awarded, could result in $10 to $12 million of new business.
It is expected that this contract will be awarded in 1997, although no assurance
can be provided that the Company will be a recipient of this award.* The award
of this contract is dependent on, among other factors, the defense budget of the
German government. Efforts to secure the released funds for this contract have
been unsuccessful to date due to budget allocations for other priorities.
The Company continues to seek additional sources of business in the weapons
control area concentrating on those opportunities where the Company's technical
skills are relevant.
SIX MONTHS ENDED APRIL 30,1997 COMPARED WITH 1996. Total revenues
decreased by $1.2 million, or 15.6%, from $7.5 million in the six months
ended April 30,1996 to $6.3 million in the same period in 1997. Revenues from
Defense operations decreased by $0.8 million or 12.7%, to $5.6 million for
the six months ended April 30,1997 compared with revenues of $6.3 million in
the same period in 1996. Commercial revenues declined by $0.4 million or 36.4%
from $1.1 million in the six months ended April 30, 1996 to $0.7 million in
the same period in 1997.
The decline in Defense revenues was due in part to lower order writing
caused by delays in government funding, administrative delays in issuing
contracts and reduced contract values due to competitive pressures.
The reduction in commercial revenues resulted from a greater concentration
on the development of PHARM2-TM- during the six months ending April 30,1997 and
less on completion of certain customizing work for the PHARMASYST product
compared with the first three months of 1996. The PHARM2-TM- development effort
is a capitalized software project and does not contribute to revenues. Revenue
will be recognized both on the delivery of PHARM2-TM-, which began in the second
quarter 1997 and is expected to increase in subsequent quarters*, and on the
accompanying customization based on percent completion.
The Company incurred a net loss of $4.4 million in the six months ended
April 30,1997 compared with a loss of $5.4 million in the comparable period in
1996. The loss in 1997 was due to reduced order bookings in the Government
Technology Division resulting in lower revenues without a corresponding decrease
in overhead or selling, general, and administrative costs. In addition, the
development contracts which the Company has accepted in anticipation of future
production were bid aggressively and have a high cost relative to realized
revenue. These contracts will not be complete until 1998 and the effect of this
aggressive bidding will continue to affect revenues. The effect on earnings is a
function of what additional revenues the Company can develop from other
contracts yet to be booked. There was not sufficient revenue developed by the
Medical Technology Division to offset the continuing marketing and sales costs
as well as the additional administrative costs necessary to support the
development process. The loss was also due to interest expense of $0.7 million
and amortization of capitalized software of $0.7 million. Interest in
succeeding periods will increase on the $5.5 million of Convertible Debentures
sold subsequent to the close of the period.
The loss in the six months ended April 30,1996 was also due in large part to
the write-off of $2.4 million of capitalized software. The reduced order
bookings of the Government Technology Division and the high ratio of cost
compared to revenue in the Medical Technology Division, including the selling
and marketing expenses and the administrative costs necessary to support the
development process, also contributed to the loss.
13
<PAGE>
The Company expects to incur additional losses in the 1997 third quarter,
and could be expected to incur further losses in succeeding quarters if
currently anticipated orders do not materialize in the amounts required on a
timely basis or if the Company does not complete its current orders on
schedule.* While the Company is actively making proposals to its customers
for new business, the Company also has no ability to control government
funding or budgeting processes and is subject to unpredictable timing of the
capital authorizations required by its customers to purchase its PHARM2-TM-
products. The Company intends to add to its sales capability so as to
increase the number of selling opportunities in an effort to reduce the
effect of funding and contract placement delays.*
Cost of sales declined by $.3 million from $5.2 million or 69.5% of
revenues in the six months ended April 30, 1996 to $4.9 million or 77.6% of
revenues in the six months ended April 30, 1997. The cost of sales in the
1997 period increased relative to revenues due primarily to increases in the
direct labor content of the Defense operations. In the six months ended April
30, 1997 the direct labor content of the Defense operations was $1.2 million
or 20.8% of Defense revenues compared with a direct labor of $0.8 million or
13.0% of revenues in the six months ended April 30, 1996. Increases in direct
labor and overhead in the Medical Technology Division from $1.6 million in the
six months ending April 30, 1996 to $2.0 million in the six months ending April
30, 1997 had a secondary effect on cost of sales. Since the design of PHARM2 was
essentially completed in the period ending April 30,1997, the future
capitalization expense will be substantially reduced thus having an adverse
effect on the future Cost of Sales. Such an adverse effect can only be overcome
by an increase in revenues through potential deliveries of PHARM2 and the
associated customization income.
There was a significant increase in the use of contract labor during the six
months ending April 30, 1997 to $0.6 million from less than $0.1 million in the
six months ending April 30, 1996. This expense occurred primarily during the
first three months of fiscal 1997 and declined to less than $0.3 million during
the second three months. Contract labor is used to accommodate peak demands
without hiring permanent staff who would become redundant when the peak subsided
resulting in the added expense of hiring and separation costs. The Medical
Technology Division had a significant need for test technicians during the first
three months of fiscal 1997 and utilized contract labor to satisfy this
requirement.
Selling, general and administrative expenses increased by $0.2 million, from
$3.9 million or 52.1% of revenues in the six months ending April 30, 1996 to
$4.1 or 65.0% of revenues in the six months ended April 30, 1997. The change was
due primarily to an increase of $0.3 million in consulting costs for the Medical
Technology Division. These costs include the use of software and sales
consultants as opposed to the hiring of permanent personnel.
Research and development expenses declined from $0.6 million in the six
months ended April 30,1996 to $0.3 million in the six months ended April 30,
1997. Amortization of capitalized software increased from $0.6 million in the
six months ended April 30,1996 to $0.7 million in the six months ended April
30,1997. Capitalized software development costs increased by approximately
$2.9 million for the six months ended April 30,1997 from $1.3 million for the
six months ended April 30, 1996. The increase in capitalized software was due
to increased development effort for PHARM2.
THREE MONTHS ENDED APRIL 30,1997 COMPARED WITH THE THREE MONTHS ENDED APRIL
30,1996
Revenues in the three month period ended April 30, 1997 were $3.0 million
compared with $3.8 million in the three months ended April 30,1996. The
reduction in revenues was due primarily to a reduction in Government Technology
Division revenues caused by delays in government funding, delays in contract
releases, and reduced revenues on certain defense contracts due to competitive
pressures. These defense contracts will not be completed until 1998 and the
effect of the reduced revenues will affect future earnings.
The Company had a net loss of $2.4 million in the three months ended April
30,1997 compared with a net loss of $4.6 million in the three months ended April
30,1996. The loss in 1996 included the write off of $2.4 million in capitalized
software costs and a tax expense of $0.5 million neither of which costs were
incurred in 1997.
14
<PAGE>
The loss in each of the three month periods were affected by Medical
Technology Division costs of marketing and selling as well as the
administrative costs necessary to support the development of new products
including PHARM2. These costs were not offset by sufficient revenue to
prevent a loss and are expected to continue for at least the third quarter of
1997 and could continue into subsequent quarters in the absence of adequate
revenues from delivery of PHARM2 and the accompanying customization revenues
which are accounted for on the percentage of completion method.
The loss in the 1997 three month period was also affected by interest
costs of $0.4 million compared with interest costs of $0.1 million in the
1996 three month period. The increase in interest was due to the interest
paid on the $10 million Convertible Debentures which the Company sold in 1996.
Interest in succeeding periods will increase due to the interest on the
$5.5 million of Convertible Debentures sold subsequent to the close of the
period.
The Cost of Sales in the three months ended April 30,1997 was $2.3
million or 78.5% of revenues compared with a Cost of Sales of $2.7 million or
72.1% in the comparable period in 1996. The difference in the Cost of Sales
was due in part to the reduced revenue in the period ending April 30,1997
compared with the period ending April 30,1996. Although the cost of direct
and contract labor in the period ending April 30,1997 was greater than in the
period ending April 30,1996 and the overhead expense in the 1997 three month
period was greater than in the comparable 1996 period, the increase in
capitalized software in 1997 reduced the effect of the increases in labor and
overhead. Since the design of PHARM2 was essentially completed in the period
ending April 30,1997, the future capitalization expense will be substantially
reduced thus having an adverse effect on the future cost of sales. Such an
adverse effect can only be overcome by an increase in revenues through
potential deliveries of PHARM2 and the associated customization income.
Selling, general and administrative expenses in the three month period
ending April 30,1997 were $2.2 million or 74.2% of revenues compared with $2.0
million or 53.2% of revenues in the corresponding period in 1996. The increase
in 1997 was due primarily to increased consulting fees to sales consultants and
others providing services required by the Medical Technology Division.
Research and development costs in both periods were relatively the same.
LIQUIDITY
During the second quarter ending April 30, 1997, the Company used $4.1
million of cash in its operations. The use of cash for operations was due
primarily to the Company's expenditure of approximately $2.9 million for the
development of its PHARMASYST products and the Company's net loss of $2.4
million for the quarter. Cash used in investing activities during the second
quarter of $.2 million was due primarily to the purchase of property, plant and
equipment. Net cash provided from financing activities was attributable to the
exercise of options and warrants for the purchase of the Company's common stock.
The combined use of cash from all activities during the quarter was $4.8 million
for the reasons stated above. At April 30, 1997 the Company's cash and other
liquid assets were $2.6 million.
The Company recently obtained a $1 million line of credit facility with a
local bank, which expires in February 1998. Interest is 1% above the bank's
prime lending rate and the credit line is collateralized by accounts receivable.
There currently are no amounts outstanding under the credit line.
On May 1, 1997, the Company entered into an agreement whereby it became a
minority owner of a limited liability company (the "LLC"). Under the terms of
the agreement, the Company made a capital contribution to the LLC of its rights
to its uPACS technology which is a system for archiving ultrasound images with
networking, communication and off-line measurement capabilities. In exchange for
such capital contribution, the Company received a 9% interest in the LLC. An
outside investor made a capital
contribution of $2 million and agreed to make a further capital contribution
of $1 million on or before December 1, 1997, in return for a 91% interest in
the LLC. The Company believes that the funds available under the LLC will be
sufficient to fund operations in connection with uPACS for approximately
eighteen months.* In connection with the formation of the LLC, the Company
entered into a Services and License Agreement whereby the Company has agreed
to
15
<PAGE>
complete the development of the uPACS technology and undertake to market,
sell and distribute systems using the uPACS technology. The LLC will pay the
Company its expenses in connection with such services and the Company will
pay to the LLC royalties in connection with the sale of systems using the
uPACS technology. At such time as the LLC has distributed to the outside
investor an aggregate amount equal to $4.5 million of its net cash flow, the
Company would become a 63% owner of the LLC and the outside investor will own
a 37% interest in the LLC. There can be no assurance that uPACS will be
successful or that the LLC will operate profitably or that the funds under
the LLC will be sufficient for the further development and marketing of
uPACS. The Company cannot predict if or when uPACS sales will commence in its
updated versions. There is intense competition in this market and the Company
has not established its market position. The Company anticipates difficulty
in achieving such sales until further product development is complete and
market tested.
On May 30, 1997, the Company sold 55 units ("Units") at $100,000 per Unit,
for an aggregate of $5,500,000, to 2 accredited purchasers ("Purchasers") in a
private offering (the "Offering"). Each Unit consisted of (i) a convertible
debenture ("Convertible Debenture") in the principal amount of $100,000
convertible into shares of the Company's Class A Common Stock, and (ii) a
warrant ("Warrant") to acquire 1,800 shares of Class A Common Stock. The number
of shares of Class A Common Stock issuable upon conversion of the Convertible
Debentures is variable. The number of shares will be calculated at the time of
conversion and will be the lesser of (i) the product obtained by multiplying (x)
the lesser of the average of the closing bid prices for the Class A Common Stock
for the (A) five or (B) thirty consecutive trading days ending on the trading
day immediately preceding the date of determination by (y) a conversion
percentage equal to 95% with respect to any conversions occurring prior to
February 24, 1998 and 92% with respect to any conversions occurring on or after
February 24, 1998 and (ii) $13.50 with respect to any conversions occurring
prior to May 30, 1998 or $14.00 with respect to any conversions occurring on
or after May 30, 1998. The Convertible Debentures are not convertible prior to
December 16, 1997. From December 16, 1997 until February 23, 1998, one-half of
the Convertible Debentures may be converted and after February 23, 1998, the
Convertible Debentures are fully convertible. The Warrants may be exercised at
any time through May 30, 2002 at an exercise price of $12.26 per share. The
Company received net proceeds of approximately $4,950,000 from the sale of the
Units after deduction of fees and expenses related to the Offering.
The Company believes that cash generated by operations and existing
capital resources in combination with such credit facility, the funds
available from the LLC, and the net proceeds from the sale of the Convertible
Debentures will be sufficient to fund its operations through fiscal year end
1997, if it receives anticipated orders for both of its commercial products
and currently anticipated orders for its Government Technology Division
materialize at the times and in the amounts planned. In addition, the Company
is relying on the continued successful development of its Medical Technology
Division leading product, PHARM2, during the third quarter of calendar 1997
to stimulate new orders and permit the delivery of existing orders. However,
neither the completion of PHARM2 nor the resulting generation of cash from it
or government contracts can be assured either in time or amount or that such
amounts will be sufficient for the Company's needs. If the Company should not
receive the anticipated orders in time and in the amounts planned during
fiscal 1997 the Company may need to reduce its operating costs. The effect of
these reductions could have an adverse affect in the Company's ability to
market, develop, and implement its products with the result that the Company
may continue to incur losses.*
*FORWARD LOOKING INFORMATION
THE FOREGOING CONTAINS FORWARD LOOKING INFORMATION WITHIN THE MEANING OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. THESE STATEMENTS APPEAR IN A
NUMBER OF PLACES AND CAN BE IDENTIFIED BY AN "ASTERISK" REFERENCE TO A
PARTICULAR SECTION OF THE FOREGOING OR BY THE USE OF SUCH FORWARD-LOOKING
TERMINOLOGY SUCH AS "BELIEVE", "EXPECT", "MAY", "WILL", "SHOULD" OR THE NEGATIVE
THEREOF OR VARIATIONS THEREOF. SUCH FORWARD LOOKING STATEMENTS INVOLVE CERTAIN
RISKS AND UNCERTAINTIES, INCLUDING THE PARTICULAR FACTORS DESCRIBED ABOVE IN
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS AS WELL AS THROUGHOUT THIS REPORT. IN
EACH CASE ACTUAL RESULTS MAY DIFFER MATERIALLY FROM SUCH FORWARD LOOKING
STATEMENTS. THE COMPANY DOES NOT UNDERTAKE TO PUBLICLY UPDATE OR REVISE ITS
FORWARD LOOKING STATEMENTS EVEN IF EXPERIENCE OR FUTURE CHANGES MAKE IT CLEAR
THAT ANY PROJECTED RESULTS (EXPRESSED OR IMPLIED) WILL NOT BE REALIZED.
16
<PAGE>
PART II. OTHER INFORMATION
ITEM 2: CHANGES IN SECURITIES
None.
ITEM 4: SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
The Annual Meeting of Shareholders of Base Ten Systems, Inc. was held on
March 20, 1997 in New York City. Matters voted on at the meeting were the
election of three directors by the holders of Class B Common Stock, the election
of one director by the holders of Class A Common Stock, and the adoption of
amendments to the Company's Discretionary Deferred Compensation 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 three directors
<TABLE>
<CAPTION>
CLASS B COMMON
---------------------
FOR WITHHELD
---------- ---------
<S> <C> <C>
Edward J. Klinsport................................................... 421,718 1,971
Alexander M. Adelson.................................................. 421,718 1,971
Alan S. Poole......................................................... 421,718 1,971
</TABLE>
2. Election of one director
<TABLE>
<CAPTION>
CLASS A COMMON
---------------------
FOR WITHHELD
---------- ---------
<S> <C> <C>
Bruce D. Cowen*....................................................... 7,019,185 208,376
</TABLE>
3. Amendments to the Company's Discretionary Deferred Compensation Plan
<TABLE>
<CAPTION>
CLASS A COMMON AND CLASS B COMMON
----------------------------------------------
BROKER
FOR AGAINST ABSTENTIONS NON-VOTES
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
601,665 75,768 16,209 452,751
</TABLE>
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits--(27) Financial Data Schedule (Edgar filing only.)
(b) Reports on Form 8-K--None.
* Subsequent to the Annual Meeting, Mr. Cowen resigned from the Board of
Directors. In April 1997 the Board appointed David Basten to file a vacancy.
17
<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 16, 1997
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
(PRINCIPAL FINANCIAL OFFICER)
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule containes summary financial information extracted from Form 10Q
for the Quarter ended April 30, 1997 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000010242
<NAME> BASE-10 SYSTEMS INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1996
<PERIOD-END> APR-30-1997
<CASH> 2,648,000
<SECURITIES> 0
<RECEIVABLES> 5,818,000
<ALLOWANCES> 0
<INVENTORY> 3,511,000
<CURRENT-ASSETS> 12,593,000
<PP&E> 5,209,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 26,621,000
<CURRENT-LIABILITIES> 4,639,000
<BONDS> 0
0
0
<COMMON> 7,926,000
<OTHER-SE> 334,000
<TOTAL-LIABILITY-AND-EQUITY> 26,621,000
<SALES> 6,190,000
<TOTAL-REVENUES> 6,303,000
<CGS> 4,892,000
<TOTAL-COSTS> 10,731,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,428,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,428,000)
<EPS-PRIMARY> (.57)
<EPS-DILUTED> 0
</TABLE>
