SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1998 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.
<TABLE>
<CAPTION>
Title of Class Outstanding at May 14, 1998
<S> <C>
Class A Common Stock, $1.00 par value 9,168,435
Class B Common Stock, $1.00 par value 241,031
</TABLE>
<PAGE>
BASE TEN SYSTEMS, INC.
AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
Part I. Financial Information Page
Consolidated Balance Sheets - March 31, 1998 (unaudited)
and October 31, 1997 (audited).................................... 1
Consolidated Statements of Operations -- Three months ended
March 31, 1998 and April 30, 1997 (unaudited)..................... 2
Consolidated Statements of Shareholders' Equity - Three
months ended March 31, 1998 (unaudited)........................... 3
Consolidated Statements of Cash Flows -- Three months ended
March 31, 1998 and April 30, 1997 (unaudited)..................... 4
Notes to Consolidated Financial Statements........................ 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations............................... 12
Part II. Other Information
Item 2: Changes in Securities......................... 17
Item 4: Submission of Matters to a Vote of Security
Holders....................................... 18
Item 6: Exhibits and Reports on Form 8-K.............. 19
</TABLE>
<PAGE>
BASE TEN SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
As of As of
March 31, 1998 October 31, 1997
-------------- ----------------
(Unaudited) (Audited)
<S> <C> <C>
CURRENT ASSETS:
Cash.......................................................................... $ 10,633,000 $ 1,502,000
Accounts receivable (including unbilled receivables of $1,038,000
at March 31, 1998 and $1,444,000 at October 31, 1997)...................... 2,450,000 1,808,000
Inventories................................................................... 495,000 478,000
Net assets held for sale...................................................... -- 5,338,000
Other current assets.......................................................... 664,000 566,000
------------ ------------
TOTAL CURRENT ASSETS........................................................ 14,242,000 9,692,000
PROPERTY, PLANT AND EQUIPMENT....................................................... 5,029,000 4,305,000
RECEIVABLE FROM SALE OF ASSETS...................................................... 2,238,000 --
OTHER ASSETS........................................................................ 8,449,000 7,220,000
------------ ------------
$ 29,958,000 $ 21,217,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................................. $ 1,207,000 $ 962,000
Accrued expenses............................................................. 4,347,000 6,005,000
Current portion of capital lease obligation.................................. 54,000 54,000
------------- -------------
TOTAL CURRENT LIABILITIES.................................................. 5,608,000 7,021,000
LONG TERM LIABILITIES:
Long-term debt............................................................... 15,200,000 15,500,000
Capital lease obligation..................................................... 3,402,000 3,425,000
Other long-term liabilities.................................................. 228,000 253,000
------------ ------------
TOTAL LONG-TERM LIABILITIES................................................ 18,830,000 19,178,000
SHAREHOLDERS' EQUITY (DEFICIENCY)
Preferred stock, $1.00 par value,
950,000 shares authorized; issued and outstanding 18,975 shares at March 19,000 --
31, 1998...................................................................
Class A Common Stock, $1.00 par value,
22,000,000 shares authorized; issued and outstanding 8,076,823 shares at
March 31, 1998 and 7,768,952 shares at October 31, 1997.................... 8,077,000 7,769,000
Class B Common Stock, $1.00 par value,
2,000,000 shares authorized; issued and outstanding 450,067 shares at March
31, 1998 and 445,121 shares at October 31, 1997........................... 450,000 445,000
Additional paid-in capital................................................... 48,021,000 29,458,000
Deficit...................................................................... (50,916,000) (42,647,000)
------------ ------------
5,651,000 (4,975,000)
Equity adjustment from foreign currency translation.......................... (206,000) (150,000)
Unrealized gain on securities available for sale............................. 75,000 143,000
------------ ------------
5,520,000 (4,982,000)
------------ ------------
$ 29,958,000 $ 21,217,000
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
BASE TEN SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31 April 30
1998 1997
---- ----
<S> <C> <C>
REVENUE
Sales................................................... $ 910,000 $ 469,000
----------------- -----------------
COSTS AND EXPENSE:
Cost of sales........................................... 1,573,000 515,000
Amortization of software development costs.............. 883,000 338,000
Research and development................................ 140,000 39,000
Sales and marketing..................................... 1,165,000 670,000
General and administrative.............................. 1,305,000 499,000
----------------- -----------------
5,066,000 2,061,000
----------------- -----------------
OPERATING LOSS............................................... (4,156,000) (1,592,000)
OTHER INCOME (EXPENSE)....................................... (239,000) (349,000)
----------------- -----------------
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAX BENEFIT
(4,395,000) (1,941,000)
INCOME TAX BENEFIT........................................... -- --
----------------- -----------------
NET LOSS FROM CONTINUING OPERATIONS.......................... (4,395,000) (1,941,000)
----------------- -----------------
DISCONTINUED OPERATIONS:
LOSS FROM DISCONTINUED OPERATIONS............................ -- (492,000)
----------------- -----------------
NET LOSS..................................................... $ (4,395,000) $ (2,433,000)
================= =================
LOSS PER COMMON SHARE:
Continuing Operations................................... (.58) (.25)
Discontinued Operations................................. -- (.06)
----------------- -----------------
NET LOSS PER COMMON SHARE.................................... (.58) (.31)
================= =================
WEIGHTED AVERAGE COMMON SHARES............................... 8,340,000 7,819,000
----------------- -----------------
LOSS PER COMMON SHARE-ASSUMING DILUTION:
Continuing Operations................................... (.58) (.25)
Discontinued Operations................................. -- (.06)
----------------- -----------------
NET LOSS PER COMMON SHARE-ASSUMING DILUTION.................. (.58) (.31)
================= =================
WEIGHTED AVERAGE COMMON SHARES-ASSUMING DILUTION............. 8,340,000 7,819,000
----------------- -----------------
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
BASE TEN SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
(Unaudited)
Equity
Adjustment Unrealized
From Gain on
Common Stock Preferred Stock Additional Foreign Securities
------------ ---------------
Class A Class B Paid-in Currency Available
------- -------
Shares Amount Shares Amount Shares Amount Capital Deficit Translation for Sale
------ ------ ------ ------ ------ ------ ------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance-
December 31, 1997 7,828,719 $7,829,000 445,121 $ 445,000 9,375 $ 9,000 $37,991,000 $(46,521,000) $(195,000) $ 62,000
Conversions of:
Class B Common
to Class A Common -- -- -- -- -- -- -- -- -- --
Preferred Stock
to Class A Common 80,000 80,000 -- -- (500) -- (80,000) -- -- --
Convertible
Debenture to
Class A Common 58,795 59,000 -- -- -- -- 241,000 -- -- --
Exercise of options 90,250 90,000 4,946 5,000 -- -- 366,000 -- -- --
Issuance of Common
Stock 19,059 19,000 -- -- -- -- 89,000 -- -- --
Issuance of Preferred
Stock -- -- -- -- 10,100 10,000 9,414,000 -- -- --
Foreign currency
translation -- -- -- -- -- -- -- -- (11,000) --
Unrealized gain on
securities
available for sale -- -- -- -- -- -- -- -- -- 13,000
Net loss -- -- -- -- -- -- -- (4,395,000) -- --
--------- ---------- ------- -------- ------ -------- ----------- ------------ ----------- ------
Balance -
March 31, 1998 8,076,823 $8,077,000 450,067 $450,000 18,975 $ 19,000 $48,021,000 $(50,916,000) $ (206,000) $75,000
========= ========== ======= ======== ====== ======== =========== ============ ========== =======
</TABLE>
See Notes to Consolidated Statements
<PAGE>
<TABLE>
<CAPTION>
BASE TEN SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March Three Months Ended
31, April 30
---------------------------- ------------------------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss....................................................... $(4,395,000) $ (2,433,000)
ADJUSTMENTS TO RECONCILE NET LOSS TO
NET CASH USED IN OPERATING ACTIVITIES:
Depreciation and amortization.................................. 950,000 461,000
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable............................................ (867,000) 764,000
Inventories.................................................... (174,000) (603,000)
Employee loan receivable - net of current portion.............. -- 22,000
Other current assets........................................... (121,000) (13,000)
Accounts payable and accrued expenses.......................... (961,000) 59,000
Other assets................................................... (542,000) (1,239,000)
----------- -----------
NET CASH USED IN OPERATIONS.................................... (6,110,000) (2,982,000)
----------- -----------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to property, plant and equipment-net................. (258,000) (169,000)
Purchase of assets related to FlowStream product............... (2,068,000) --
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES.......................... (2,326,000) (169,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of amounts borrowed.................................. (31,000) (10,000)
Proceeds from issuance of common and preferred stock........... 9,993,000 553,000
----------- -----------
NET CASH PROVIDED FROM FINANCING ACTIVITIES.................... 9,962,000 543,000
Effect of exchange rate changes on cash........................ (11,000) (17,000)
----------- -----------
NET INCREASE (DECREASE) IN CASH...................................... 1,515,000 (2,625,000)
CASH, beginning of period............................................ 9,118,000 5,273,000
----------- -----------
CASH, end of period.................................................. $10,633,000 2,648,000
=========== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest....................... $ 579,000 $ 615,000
----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
BASE TEN SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998
(Unaudited)
A. Description of Business
Base Ten Systems, Inc. ("Base Ten" or the "Company") is engaged in the
development of commercial applications focused on manufacturing execution
systems, medical screening and image processing software. For the period ended
April 30, 1997, the Company was also engaged, through its Government Technology
Division, in the design and manufacture of electronic systems employing safety
critical software for the defense industry. Effective December 31, 1997, the
Government Technology Division was sold by the Company. See Note F below.
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, 1997. The results of
operations for the three months ended March 31, 1998 are not
necessarily indicative of the operating results for the full
year.
As a result of the change of the fiscal year end from
October 31st to December 31st, the quarterly comparisons are
between the first calendar quarter for 1998 and the second
fiscal quarter for 1997, as indicated in the financial
statements. The first quarter of 1998 includes the months of
January, February and March; the comparative second quarter of
fiscal year 1997 includes the months of February, March and
April. Although there is a difference of one calendar month,
management does not believe that the difference is significant.
2. Basis of Presentation - The consolidated financial statements
include the accounts of Base Ten and its subsidiaries. All
significant inter-company accounts, transactions and profits
have been eliminated. As discussed more thoroughly in Note F,
the results of operations of the Government Technology Division
have been reported separately as discontinued operations for the
period ended April 30, 1997. Net assets of the GTD were sold to
Strategic Technology Systems, Inc. ("STS") at the close of
business on December 31, 1997 and as such are not presented at
March 31, 1998. Net assets of the GTD are reported as net assets
held for sale at October 31, 1997.
3. Recently Issued Accounting Standards - In February
1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share" ("SFAS No. 128"). SFAS No. 128
applies to entities with publicly held common stock or potential
common stock and is effective for financial statements issued
for periods ending after December 15, 1997. Accordingly, the
Company implemented SFAS No. 128 for periods ended after
December 15, 1997 (see Note B-4).
In June 1997, the Financial Accounting Standards Board
issued Statement No. 130, "Reporting Comprehensive Income"
("SFAS no. 130"). SFAS No. 130 applies to all companies and is
effective for fiscal years beginning after December 15, 1997.
SFAS No. 130 establishes standards for the reporting and display
of comprehensive income in a set of financial statements.
Comprehensive income is defined as the change in net assets of a
business enterprise during a period from transactions generated
from non-owner sources. It includes all changes in equity during
a period except those resulting from investments by owners and
distributions to owners. Management believes that the adoption
of SFAS No. 130 has not had a material impact on the financial
statements.
In June 1997, the Financial Accounting Standards Board
issued Statement No. 131 "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS No. 131"). SFAS No.
131 applies to all public companies and is effective for fiscal
years beginning after December 15, 1997. SFAS No. 131 requires
that business segment financial information be reported in the
financial statements utilizing the management approach. The
management approach is defined as the manner in which management
organizes the segments within the enterprise for making
operating decisions and assessing performance. The Company has
only one operating segment - providing software products and
services to FDA regulated industries. Management believes the
adoption of SFAS No. 131 has not had a material impact on the
financial statements.
In October 1997, the American Institute of Certified
Public Accountants issued Statement of Position 97-2, "Software
Revenue Recognition," which is effective for transactions
entered into in fiscal years beginning after December 15, 1997.
The Statement of Position governs the recognition of revenue by
enterprises that license, sell, lease or otherwise market
software, except where software is incidental to the products or
services being offered as a whole. Application of this Statement
of Position has not had a material impact on the financial
statements.
4. Net Loss Per Share
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standard ("FAS") No.
128, "Earnings per Share". FAS No. 128 specified the
computation, presentation and disclosure requirements for
earnings per share ("EPS") and became effective for both interim
and annual periods ending after December 15, 1997. All prior
period EPS data has been restated to conform with the provisions
of FAS No. 128. The following is a reconciliation of the
numerators and denominators used to calculate loss per share
before extraordinary loss in the Consolidated Statements of
Operations:
<TABLE>
<CAPTION>
Three Months Three Months
Ended March 31, Ended April 30,
-------------------- ---------------
1998 1997
---- ----
<S> <C> <C>
Loss per common share:
Net Loss......................................................... $ (4,395,000) $ (2,433,000)
Less: Preferred stock dividends................................. (475,000) --
------------- -------------
Net Loss to common shareholders (numerator)...................... (4,870,000) (2,433,000)
============= =============
Weighted average shares (denominator)............................ 8,340,000 7,819,000
------------- -------------
Net loss per common share ....................................... (.58) (.31)
============= =============
Loss per common share-assuming dilution:
Net Loss ........................................................ $ (4,395,000) $ (2,433,000)
Less: Preferred stock dividends................................. (475,000) --
------------- -------------
Net Loss to common shareholders (numerator)...................... (4,870,000) (2,433,000)
============= =============
Weighted average shares.......................................... 8,340,000 7,819,000
Effect of Dilutive Options/Warrants.............................. -- --
------------- -------------
Weighted averages shares-assuming dilution (denominator) 8,340,000 7,819,000
------------- -------------
Net loss per common share....................................... (.58) (.31)
============= =============
</TABLE>
<PAGE>
During the three months ended March 31, 1998 and April 30,
1997, there were no outstanding options included in the
computation of diluted EPS as the Company had a net loss, and
the effect of stock options, warrants and stock conversions
would be anti-dilutive to earnings per share.
1. 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.
2. Investments - The Company accounts for its investments using
Statement of Financial Accounting Standard No. 115, "Accounting
for Certain Investments in Debt and Equity Securities" ("FAS No.
115"). This standard requires that certain debt and equity
securities be adjusted to market value at the end of each
accounting period. Unrealized market value gains and losses are
charged to earnings if the securities are traded for short-term
profit. Otherwise, such unrealized gains and losses are charged
or credited to a separate component of shareholders' equity.
Management determines the proper classifications of
investments in obligations with fixed maturities and marketable
equity securities at the time of purchase and reevaluates such
designations as of each balance sheet date. At March 31, 1998
and October 31, 1997, all securities covered by FAS No. 115 were
designated as available for sale. Accordingly, these securities
are stated at fair value, with unrealized gains and losses
reported in a separate component of shareholders' equity.
Securities available for sale at March 31, 1998 and October 31,
1997, consisted of common stock with a cost basis of $50,000 and
$150,000. Differences between cost and market of $75,000 and
$143,000 were included as a separate component of shareholder's
equity, "unrealized gain on securities available for sale", as
of March 31, 1998 and October 31, 1997, respectively.
3. Reclassifications - Certain reclassifications have been made to
prior year financial statements to conform to the current year
presentation.
C. Acquisitions
On February 19, 1998, the Company acquired certain assets and assumed
certain liabilities of Consilium, Inc. ("Consilium"), for approximately
$2,068,000, including transaction costs. This acquisition has been
accounted for under the purchase method. Intangible assets of
$2,450,000, which are included in other assets, are being amortized on
the straight-line method over periods not exceeding seven years. The
agreement also provides for additional payments based upon a percentage
of the excess of targeted sales of the "FlowStream" product, as defined,
for the years ended December 31, 1998 and 1999, respectively.
<PAGE>
D. Inventories
<TABLE>
<CAPTION>
March 31, 1998 October 31, 1997
-------------- ----------------
<S> <C> <C>
Raw materials.............................................. $ 35,000 $ 32,000
Work in progress........................................... 272,000 252,000
Finished goods............................................. 218,000 201,000
-------------- ----------------
525,000 485,000
Less advance payments...................................... 30,000 7,000
-------------- ----------------
$ 495,000 $ 478,000
</TABLE>
E. Sale of Convertible Preferred Stock
During December 1997 the Company sold and issued $19 million of
convertible preferred stock ("Preferred Stock") and Class A Stock
purchase warrants (the "Warrants"). Initially the Company sold and
issued $9.375 million of Preferred Stock and Warrants as of December 5,
1997, to several institutional investors. On December 31, 1997, after
obtaining shareholder approval, the Company sold and issued a second
installment of $9.625 million of Preferred Stock and Warrants to
complete the $19 million sale and issuance. The second installment of
$9.625 million was received as cash in January 1998.
The Preferred Stock has a term of three years and pays a cumulative
dividend of 8.0% per annum during any quarter in which the closing bid
price for the Class A Stock is less than $8.00 for any ten consecutive
trading days. An equivalent payment is payable to any holder of
Preferred Stock which is subject during any quarter to a standstill
period following a Company underwritten public offering or which is
non-convertible because of the limitations described below. Such
dividends and payments are payable only prior to conversion and payable
in cash or additional Preferred Stock at Base Ten's option; however, if
the Company elects to pay the dividend in Preferred Stock, the amount of
such payment will be 125% of the cash amount. During the first quarter
of 1998, the Company's Class A Stock closing bid price was below $8.00
for more than ten consecutive trading days. The Company paid the
dividend to its Preferred Stock shareholders in additional Preferred
Stock.
The Preferred Stock has a liquidation preference as to its principal
amount and any accrued and unpaid dividends.
The Preferred Stock is convertible at any time or from time to time into
Class A Stock, at a conversion price equal to the lesser of (i) $16.25
per share or (ii) the Weighted Average Price (as defined) of the Class A
Stock prior to the conversion date. In any event, no more than 3,040,000
shares of Class A Stock shall be issued upon conversion of all of the
Preferred Stock. Any Preferred Stock remaining outstanding because of
this limitation may be redeemed at the holder's option for a
subordinated 8% promissory note maturing when the Preferred would have
matured. The Company has the right, at any time, to redeem all or any
part of the outstanding Preferred Stock or subordinated notes at 130% of
their original purchase price, subject to certain limitations.
Any shares of Preferred Stock or subordinated notes still outstanding
three years after issuance must be redeemed in either cash, or at the
Company's option, in Class A Stock. If the Company elects to make the
redemption in Class A Stock, the amount of such payment will be 125% of
the original purchase price.
The holders of the Preferred Stock have the same voting rights as the
holders of Class A Stock, calculated as if all outstanding shares of
Preferred Stock had been converted into shares of Class A Stock on the
record date for determination of shareholders entitled to vote on the
matter presented.
For each $1 million of Preferred Stock purchased, purchasers received
five-year warrants to purchase 40,000 shares of Class A Stock
exercisable at $16.25 per share. If exercised these would represent an
additional 760,000 shares of Class A Stock, or up to an aggregate of
3,800,000 shares of Class A Stock resulting from this sale (subject to
adjustment in certain circumstances), assuming conversion of all
Preferred Stock and exercise of all warrants.
A registration statement ("Registration Statement") filed with the
Securities and Exchange Commission ("SEC") registering for resale the
Class A Stock underlying the Preferred Stock, including any Preferred
Stock which may be issued as a dividend, and the Warrants, was declared
effective by the SEC on February 19, 1998. The holders have agreed, if
requested by a managing underwriter, to a maximum 90-day standstill
period following any underwritten Company public offering, but not in
excess of two such standstills (or more than 90 days) in any 18-month
period. In the event a standstill period is effective, the maturity date
of the Preferred Stock would be extended by the duration of the
standstill period.
F. Discontinued Operations
On October 27, 1997 the Company entered into an agreement to sell its
Government Technology Division ("GTD") to Strategic Technology Systems,
Inc. ("STS"). Accordingly, the operating results of the GTD have been
segregated from continuing operations and reported as a separate line
item on the consolidated statements of operations for the period ended
April 30, 1997.
<PAGE>
The net assets of the GTD were sold to STS at the close of business on
December 31, 1997, and as such are not presented at March 31, 1998. The
net assets of the GTD are included in the consolidated balance sheet as
of October 31, 1997 under "Net Assets Held For Sale." The composition of
the net assets at October 31, 1997 is as follows:
------------------------------------------------------------------------
Net Assets of the GTD to be sold to STS as of October 31, 1997
------------------------------------------------------------------------
Current assets $ 6,105,000
Property and equipment-net 631,000
Current liabilities (1,398,000)
-----------
TOTAL NET ASSETS $ 5,338,000
===========
The agreement between the Company and STS, in general, requires that the
selling price of the net assets, on the closing date of December 31,
1997, be equal to the lower of the aggregate net asset value as of
October 31, 1997 or December 31, 1997. As of the filing date of this
Form 10-Q, the Company and STS have not agreed on the final net asset
valuation as of December 31, 1997. As a result, the Company has recorded
a receivable from STS at March 31, 1998 based on the agreed upon net
asset value at October 31, 1997. The Company does not currently
anticipate a material adverse effect to its financial statements as
presented herein as a result of this treatment of the net asset
valuation and related amounts receivable from STS. If the Company and
STS can not agree on the final valuation of the net assets at December
31, 1997, the agreement provides for an arbitration process which would
require two independent audit firms to make the final determination. If
these two audit firms can not come to agreement, they would choose a
third independent audit firm to decide the final net asset value as of
December 31, 1997.
In consideration for the value of the net assets sold, the Company
received $3,500,000 in cash, and will receive an unsecured promissory
note in a principal amount equal to the difference between (i) the
amount of the net assets of GTD as of the closing date plus $400,000,
and (ii) $3,500,000. The note will have a five year term bearing
interest at a rate of 7.5% per annum. Principal payments under the note
will amortize over a three year period beginning on the second
anniversary of the closing. The note also provides for accelerated
payment of principal and interest upon the occurrence of certain events.
In addition, the Company will receive a $400,000 contingent payment
provided STS is in receipt of a certain order from one of its customers.
The amount will be payable $100,000 per fiscal quarter beginning three
months after STS receives such order.
The Company will also receive a warrant from STS exercisable for that
number of shares of the voting common stock of STS which equals 5% of
the issued and outstanding shares of common stock and common stock
equivalents immediately following and giving effect to any initial
underwritten public offering by STS. In the event that STS is sold,
merged or liquidated prior to any such initial underwritten public
offering, the Company will receive 15% of the gross proceeds of such
transaction that are in excess of $7 million, and the warrant described
above will be cancelled.
The Company has subleased to STS approximately 30,000 square feet of
space plus allowed the use of 10,000 square feet of common areas for a
period of five years at an annual rental of $240,000 for the first three
years and $264,000 for each of the last two years of the sublease.
<PAGE>
G. Subsequent Events
On April 16, 1998, the Company held its Annual Shareholders' Meeting. At
the meeting, the following were approved by the shareholders: (1) the
election of Messrs. Alan S. Poole, William Sword, Thomas E. Gardner and
David C. Batten to the Board of Directors, (2) the amendment of the
Certificate of Incorporation to modify certain terms of the Class A
Common Stock and the Class B Common Stock (see below), and to increase
the authorized Class A Common Stock from 22 million shares to 40 million
shares, (3) the adoption of three equity plans, and (4) the issuance
and grant of certain options and warrants. A certificate of amendment
reflecting item (2) above was filed with the New Jersey Secretary of
State and is now effective.
The modifications to the terms of the Class A and Class B Common Stock
increased the exchange ratio for conversion of Class B Common Stock into
Class A Commonn Stock from 1:1 to 1:1.5; changed the voting rights of
the Class A Common Stock and the Class B Common Stock with respect to
the election of directors so that the directors of the Company will be
elected by holders of Class A Common Stock and Class B Common Stock
voting together as a single class; made the voting rights of both
classes the same so that they have the same voting power; eliminated a
separate class vote of Class B Common Stock holders on certain corporate
transactions; and changed the dividend restriction so that Class A
Common Stock and Class B Common Stock receive the same dividends.
During April and May 1998, certain holders of the Company's Convertible
Term Debentures converted their holdings into Class A Common Stock. $3.5
million of Convertible Term Debentures were converted into 757,098
shares of Class A Common Stock as of May 14, 1998.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
During 1997 the Company operated a Medical Technology Division (the
"MTD"), and a Government Technology Division (the "GTD"). On December 31, 1997,
following approval by shareholders, the Company sold the GTD (the "GTD Sale") to
Strategic Technology Systems, Inc. ("STS"). On January 29, 1998, the Company
elected to change its fiscal year so that the annual accounting period will
henceforth be from January 1 through December 31. This Quarterly Report on Form
10-Q, for the period ended March 31, 1998, will not include, except as indicated
herein, the operations of the GTD.
STS is a newly formed corporation managed and partially owned by
individuals who were, prior to the GTD Sale, members of the Company's senior
management (the "Management Group"). Members of the Management Group were
significantly involved in the business and development of the GTD while employed
by the Company and left the Company's employ to join STS concurrently with the
GTD Sale. STS acquired substantially all of the operating assets of the GTD in
exchange for certain consideration and the assumption of certain liabilities,
pursuant to the terms and conditions set forth in an Asset Purchase Agreement
between the Company and STS dated October 27, 1997 (the "Asset Purchase
Agreement"). The Asset Purchase Agreement was filed as an exhibit to the Current
Report on Form 8-K filed by the Company with the Securities and Exchange
Commission on November 11, 1997.
The consolidated financial statements of the Company have been restated
in order to account for the operations of the GTD as discontinued operations in
view of the GTD Sale. In the restatement, all items of income and expense
attributable to GTD's operations for all periods presented have been eliminated
from consolidation and accounted for on a net basis as discontinued operations.
All assets and liabilities of the GTD were sold to STS at the close of business
on December 31, 1997, and as such are not presented at March 31, 1998.
Accordingly, the following discussion of the Company's financial condition and
the results of operations excludes the results of the discontinued operations,
except as otherwise indicated.
In February 1998, the Company purchased certain assets from Consilium,
Inc. Refer to Note C in the Notes to Consolidated Financial Statements and the
"Continuing Operations Overview" below for more information about this
acquisition.
Continuing Operations Overview
Since 1991 the Company has been engaged in the development of products
for the regulated manufacturing industry and, most recently, computerized
Manufacturing Execution Systems ("MES") for the pharmaceutical and medical
device industries. The Company believes the demand for MES in these markets is
poised for significant growth over the next several years for a number of
reasons.* First, there is growing pressure upon the Company's customer base for
compliance with regulations promulgated by the FDA, the International Standards
Organization (ISO 9000), and other industry standards such as Good Automated
Manufacturing Practices ("GAMP"). Second, there are increasing competitive
influences brought on by the business combinations occurring in the customer
market and the purchasing power for customer products among HMOs and other
benefit programs.
The Company believes that the PHARMASYST product is a premier,
standardized PC-based systems running on Microsoft Windows-NT with requisite
functionality and documented support required by the pharmaceutical and medical
device industries to assist in reducing costs while remaining FDA, ISO 9000, and
GAMP compliant. The Company believes that the acquisition of certain assets from
Consilium, Inc. in February 1998 further broadens the Company's reach into these
industries with the addition of the FlowStream product, a UNIX-based MES
targeted at pharmaceutical, medical device and specialty chemical customers. The
Company will continue to pursue a leadership position in this market, and
intends to explore other potential opportunities for growth in other regulated
areas such as food, cosmetics, and chemical industries through ongoing
investment in these MES products.*
The Company has received indications from customers and prospects that
compliance with industry standards is an imperative to sales. As such, efforts
have been focused on compliance with certain industry standards and the Company
believes that both PHARMASYST and FlowStream are compliant with FDA, ISO 9000,
and GAMP.* As described above, there is a need for pharmaceutical and medical
device manufacturers to have MES products compliant with current Good
Manufacturing Practices (cGMP) as established by the FDA. Further, the Company
considers the additional costs of compliance with ISO 9000 and GAMP to be
prudent investments.*
The installation of MES is complex process involving integration of
existing hardware platform and systems. A significant factor in successful field
installation is the ability of the customer personnel to understand the system
and, in addition to participating in the required training, to accommodate the
difference between standard paper systems and electronic methodology. In
addition, the system must undergo rigorous testing after installation and may
require an extended period of modifications to fully comply with customer
requirements, some of which may be at the Company's expense.*
For use in a manufacturing environment, the system generally has to
undergo validation in accordance with defined procedures determining its fitness
for use in a regulated environment. The Company currently has two PHARMASYST
systems installed and validated, one at a medical device manufacturing plant and
the other at a pharmaceutical manufacturing plant. There are 14 validated
FlowStream installations at various customer sites. One additional PHARMASYST
product and one PHARM2 product are believed to have completed customer testing
necessary for validation but have not been formally declared validated by the
customer.
In order to address the needs of the dynamic environment of the
Company's customers, the Company must look to continually enhance compliance to
industry standards. The Company believes that revenue recognition can be
accelerated by incorporating greater functionality in both PHARMASYST and
FlowStream, thereby reducing the amount of customization at each customer
installation. This reduction in customization could result in shortened time
between order placement and subsequent revenue recognition.*
Personnel are already in place to address product development and
enhancement, sales and marketing, and customer support. Management believes
absorbing these expenses in advance of revenue generation is essential to
facilitating market emergence and near term growth of the Company.*
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 products or orders which are more
standardized in nature, revenue is recognized on delivery. In 1996, the Company
determined that its PHARM2(TM) product had become standardized and, generally,
PHARM2(TM) license fees are recognized as revenue upon delivery of standard
PHARM2(TM); revenue for customization is recognized on a percent completion
basis; and revenue from other services is recognized as rendered.
Software development expenditures are expensed as research and
development until a product attains technological feasibility. Thereafter,
expenditures are capitalized until products attain commercial viability. The
Company established technological feasibility for PHARMASYST(R) in 1993. At
March 31, 1998 and including development of PHARM2(TM), PHARMASYST(R) had a
capitalized value of $3.7 million after allowing for amortization. Development
expenditures for PHARMASYST(R) and other commercial products have consisted
primarily of salaries of software engineers and quality assurance staff plus
applicable allocated overhead. The amortization period for PHARMASYST(R) and
PHARM2(TM) is scheduled to be completed by June 1999 and until then will have a
significant effect on earnings.
Three Months ended March 31, 1998 compared with Three Months ended April 30,
1997.
Continuing Operations
Revenues
Company revenues were $0.9 million in the period ended March 31, 1998 as
compared to $0.5 million in the three months ended April 30, 1997. Of the $0.4
million increase in revenues, $0.2 million was related to the FlowStream
product. The Company currently anticipates releasing the next version of its MES
product in the second quarter of 1998 with resulting sales arising in the second
half of 1998.*
Cost of Sales
Cost of sales during the period ended March 31, 1998 increased
significantly to $1.6 million from $0.5 million in the quarter ended April 30,
1997, primarily due to salary and labor-related expenses for software
development being largely expensed as incurred in the quarter ended March 31,
1998, as opposed to the quarter ended April 30, 1997 when salaries were
primarily capitalized. In the 1998 period, salary and labor-related expenses in
cost of sales were approximately $1.2 million.
Amortization of Software Development Costs
Amortization of capitalized software increased in the 1998 period to
$0.9 million, as compared to $0.3 million in the 1997 period. This increase is
attributable to the greater capitalization level of software costs in the first
quarter of 1998 versus the quarter ended April 30, 1997, combined with the lower
amount of remaining amortizable months available to spread capitalized costs
over in the 1998 period, as compared to the 1997 period.
Research and Development Costs
Research and development costs increased to $140,000 in the 1998 period
as compared to $39,000 in the 1997 period. The increase is related to additional
salaries and related expenses in the 1998 period. Research and development costs
are incurred to develop future additions to the Company's current product
family.
Sales and Marketing Expenses
Company sales and marketing expenses increased significantly in the 1998
period to $1.2 million, from $0.7 million in the quarter ended April 30, 1997.
This rise was mainly due to increases in salary and related expenses resulting
from the hiring of additional personnel.
General and Administrative Expenses
Company general and administrative expenses increased significantly in
the 1998 period to $1.3 million, from $0.5 million in the comparable 1997
period. This rise was mainly due to increases in consulting and professional
fees and administrative salary and related expenses. Also, a portion of the
general and administrative expenses in the comparable period in 1997 were
allocated to the prior government division, and, therefore, are included in
discontinued operations for the 1997 period.
Other Expense
Other expense decreased from $0.3 million in the 1997 period to $0.2
million in the 1998 period. Other expense in 1998 is primarily comprised of
interest expense of $0.5 million, offset by $0.2 million of interest income and
$0.1 million of other income. In the 1997 period, other expense is mainly
comprised of interest expense. Interest expense increased in the 1998 period as
a result of a higher level of debt; interest income increased in the 1998 period
as a result of higher cash balances available to earn interest.
Continuing Losses
The Company incurred a net loss of $4.4 million in the quarter ended
March 31, 1998, compared to a $1.9 million net loss from continuing operations
for the quarter ended April 30, 1997. The increased loss was primarily due to
low revenues, coupled with significant increases in all expense categories. More
specifically, the Company has increased headcount and resulting salary and
related expenses in software development, research and development, sales and
administration. In addition, software development salaries are primarily being
expensed, and not capitalized, as they were in the 1997 period. Amortization
expense also increased significantly to $0.9 million, compared to $0.3 million
in the period ended April 30, 1997. The Company expects additional losses for
the balance of 1998, including amortization expense currently estimated to be
$3.5 million for the 1998 year.* The Company's ability to achieve profitable
operations is dependent upon, among other things, the completion of current
development and testing activities for PHARM2 and FlowStream, timely delivery
and successful installation and validation of its systems by its customers, and
successful competition in the markets in which the Company participates. *
Readiness for the Year 2000
The Company has taken actions to understand the nature and extent of the
work required to make its systems and infrastructure Year 2000 compliant. The
Company currently does not believe that it has any material Year 2000 problem
with its products and believes, based on available information, that it will be
able to manage its total Year 2000 transition without any material adverse
effect on business operations or financial prospects. While no assurances can be
given, the Company anticipates converting all of its present infrastructure
software systems to currently available software products which are already Year
2000 compliant. The Company cannot anticipate the impact of suppliers and
vendors non-compliance with the Year 2000.*
Liquidity and Capital Resources
On December 31, 1997 the Company received a cash payment of $3,500,000
from STS, related to the sale of the GTD net assets to STS. Refer to Note F of
the Notes to Consolidated Financial Statements for more information regarding
the sale of assets of the GTD to STS.
Also, in December 1997, the Company sold two installments of the sale of
an aggregate of $19 million of convertible preferred stock ("Preferred Stock")
and Class A Common Stock Purchase Warrants (the "Warrants"). In December 1997,
the Company received cash of $8.0 million related to the first installment of
the $19 million sale of Preferred Stock and Warrants. The $8.0 million cash
received was net of financing fees of $1.0 million and legal fees of $0.4
million, both of which covered fees for the first and second installments of the
$19 million sale. The second installment of $9.6 million was received as cash in
January 1998. Refer to Note E and Item 2 of Part II for more information
regarding the terms of the Preferred Stock.
The Company had $10.6 million of cash at March 31, 1998, and currently
believes that cash to be generated by operations and existing capital resources
will be sufficient to fund its operations through the end of fiscal 1998.
However, in this respect, the Company is relying on its leading products,
PHARM2(TM) and FlowStream to stimulate new orders. Neither the additional
development of the Company's MES products nor the consequential generation of
cash can be assured, either in time or amount, or that such amounts will be
sufficient for the Company's needs. In the absence of such orders or the promise
thereof, neither of which can be assured, as well as in connection with its
expected capital needs for 1999, the Company may elect to seek additional
sources of capital and may also elect to reduce the pace of its development of
its products or establish other cost reduction measures, which could adversely
impact the Company. In the event the Company elects to seek additional capital
there can be no assurance that such funds or capital would be available on the
terms or in the amounts needed.*
*Forward Looking Statement
The foregoing contains forward looking information within the meaning of
The Private Securities Litigation Reform Act of 1995. Such forward looking
statements and paragraphs may be identified by an "asterisk" ("*") or by such
forward looking terminology as "may", "will", "believe", "anticipate", or
similar words or variations thereof. Such forward looking statements involve
certain risks and uncertainties including the particular factors described below
in the MD&A section and throughout this report and in each case actual results
may differ materially from such forward looking statements. Successful marketing
of PHARM2(TM) and its future contribution to Company revenues depends heavily
on, among other things, successful early completion of current test efforts and
the necessary corrections to the software permitting timely delivery to
customers, none of which can be assured. Other important factors that the
Company believes may cause actual results to differ materially from such forward
looking statements are discussed in the "Risk Factors" sections in the Company's
Registration Statement on Form S-3 (File No. 333-46095) as well as current and
previous filings with the Securities and Exchange Commission. In assessing
forward looking statements contained herein, readers are urged to read carefully
those statements and other filings with the Securities and Exchange Commission.
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 or events (expressed or implied) will not be realized.
<PAGE>
PART II. OTHER INFORMATION
Item 2: Changes in Securities
Sale and Issuance of $19 Million Convertible Preferred Stock and
Warrants
During December 1997 the Company sold and issued $19 million of
convertible preferred stock ("Preferred Stock") and Class A Stock
purchase warrants (the "Warrants"). Initially the Company sold and
issued $9.375 million of Preferred Stock and Warrants as of December 5,
1997, to several institutional investors. On December 31, 1997, after
obtaining shareholder approval, the Company sold and issued a second
installment of $9.625 million of Preferred Stock and Warrants to
complete the $19 million sale and issuance. The second installment of
$9.625 million was received as cash in January 1998.
The Preferred Stock has a term of three years and pays a cumulative
dividend of 8.0% per annum during any quarter in which the closing bid
price for the Class A Stock is less than $8.00 for any ten consecutive
trading days. An equivalent payment is payable to any holder of
Preferred Stock which is subject during any quarter to a standstill
period following a Company underwritten public offering or which is
non-convertible because of the limitations described below. Such
dividends and payments are payable only prior to conversion and payable
in cash or additional Preferred Stock at Base Ten's option; however, if
the Company elects to pay the dividend in Preferred Stock, the amount of
such payment will be 125% of the cash amount.
The Preferred Stock has a liquidation preference as to its principal
amount and any accrued and unpaid dividends.
The Preferred Stock is convertible at any time or from time to time into
Class A Stock, at a conversion price equal to the lesser of (i) $16.25
per share or (ii) the Weighted Average Price (as defined) of the Class A
Stock prior to the conversion date. In any event, no more than 3,040,000
shares of Class A Stock shall be issued upon conversion of all of the
Preferred Stock. Any Preferred Stock remaining outstanding because of
this limitation may be redeemed at the holder's option for a
subordinated 8% promissory note maturing when the Preferred would have
matured. The Company has the right, at any time, to redeem all or any
part of the outstanding Preferred Stock or subordinated notes at 130% of
their original purchase price, subject to certain limitations.
Any shares of Preferred Stock or subordinated notes still outstanding
three years after issuance must be redeemed in either cash, or at the
Company's option, in Class A Stock. If the Company elects to make the
redemption in Class A Stock, the amount of such payment will be 125% of
the original purchase price.
The holders of the Preferred Stock have the same voting rights as the
holders of Class A Stock, calculated as if all outstanding shares of
Preferred Stock had been converted into shares of Class A Stock on the
record date for determination of shareholders entitled to vote on the
matter presented.
For each $1 million of Preferred Stock purchased, purchasers received
five-year warrants to purchase 40,000 shares of Class A Stock
exercisable at $16.25 per share. If exercised these would represent an
additional 760,000 shares of Class A Stock, or up to an aggregate of
3,800,000 shares of Class A Stock resulting from this sale (subject to
adjustment in certain circumstances), assuming conversion of all
Preferred Stock and exercise of all warrants.
A registration statement ("Registration Statement") filed with the
Securities and Exchange Commission ("SEC") registering for resale the
Class A Stock underlying the Preferred Stock, including any Preferred
Stock which may be issued as a dividend, and the Warrants, was declared
effective by the SEC on February 19, 1998. The holders have agreed, if
requested by a managing underwriter, to a maximum 90-day standstill
period following any underwritten Company public offering, but not in
excess of two such standstills (or more than 90 days) in any 18-month
period. In the event a standstill period is effective, the maturity date
of the Preferred Stock would be extended by the duration of the
standstill period.
Conversion of Convertible Term Debentures to Class A Common Stock
During March 1998, $300,000 of Convertible Term Debentures were
converted to 58,795 shares of Class A Common Stock. At March 31, 1998,
after the effect of this conversion, the Company had $15,200,000 of
Convertible Term Debentures on its balance sheet.
In April and May 1998, an additional $3,500,000 of Convertible Term
Debentures were converted to 757,098 shares of Class A Common Stock.
Conversion of Convertible Preferred Stock to Class A Common Stock
During March 1998, 500 shares of Convertible Preferred Stock were
converted to 80,000 shares of Class A Common Stock.
Item 4: Submission of Matters to a Vote of Security Holders.
On April 16, 1998, the Company held its Annual Shareholders' Meeting. At
the meeting, the following were approved by the shareholders: (1) the election
of Messrs. Alan S. Poole, William Sword, Thomas E. Gardner and David C. Batten
to the Board of Directors, (2) the amendment of the Certificate of Incorporation
to modify certain terms of the Class A Common Stock and the Class B Common Stock
(see below), and to increase the authorized Class A Common Stock from 22 million
shares to 40 million shares, (3) the adoption of three equity plans, and (4)
the issuance and grant of certain options and warrants. A certificate of
amendment reflecting item (2) above was filed with the New Jersey Secretary of
State and is now effective.
The modifications to the terms of the Class A and Class B Common Stock
increased the exchange ratio for conversion of Class B Common Stock into Class A
Commonn Stock from 1:1 to 1:1.5; changed the voting rights of the Class A Common
Stock and the Class B Common Stock with respect to the election of directors so
that the directors of the Company will be elected by holders of Class A Common
Stock and Class B Common Stock voting together as a single class; made the
voting rights of both classes the same so that they have the same voting power;
eliminated a separate class vote of Class B Common Stock holders on certain
corporate transactions; and changed the dividend restriction so that Class A
Common Stock and Class B Common Stock receive the same dividends.
In December 1997, the National Association of Securities Dealers, Inc.
(the "NASD"), notified the Company that it proposed to de-list the Class B
Common Stock from the Nasdaq SmallCap Market because the number of holders of
Class B Common Stock appears to have fallen below 300 beneficial owners. The
Company proposed these amendments to alleviate certain of the negative impact of
such delisting of the Class B Common Stock, and the NASD granted to the Company
a temporary exception, until May 1, 1998, in order to permit the Company to
effect these amendments. Following the close of business on May 1, 1998, the
Class B Common Stock is no longer listed on the Nasdaq SmallCap Market. The
Class A Common Stock continues to be listed on the Nasdaq National Market
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits - (27) Financial Data Schedule (Edgar filing only.)
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K on January 9, 1998, for
the completion of the sale of the Government Technology Division and for the
second and final installment of the sale of $19 million of Convertible Preferred
Shares.
The Company filed a Current Report on Form 8-K dated January 29, 1998,
filed February 2, 1998, reporting the Company's change in fiscal year from
October 31 to December 31.
The Company filed a Current Report on Form 8-K dated February 19, 1998,
filed March 6,1998, reporting the Company's execution of a Definitive Purchase
Agreement with Consilium, Inc. under which the Company purchased the assets of
Consilium's Health Care and Process business unit for a cash consideration of
$1.5 million and the assumption of certain maintenance and warranty obligations.
The Company filed a Current Report on Form 8-K dated March 3,1998, filed
March 9, 1998, reporting the dismissal of Deloitte & Touche LLP as the principal
accountant to audit the Company's financial statements.
The Company filed a Current Report on Form 8-K dated March 13, 1998,
filed March 16, 1998, reporting the appointment of Price Waterhouse LLP as the
principal accountant to audit the Company's financial statements.
The Company filed a Current Report on Form 8-K dated April 16, 1998,
filed April 23, 1998, reporting that at the Company's Annual Shareholders'
Meeting of April 16, 1998, the shareholders of the Company approved the
amendment of the Certificate of Incorporation to modify certain terms of the
Class A Common Stock and the Class B Common Stock. The modifications to the
terms of the Class A and Class B Common Stock increased the exchange ratio for
conversion of Class B Common Stock into Class A Common Stock from 1:1 to 1:1.5;
changed the voting rights of the Class A Common Stock and the Class B Common
Stock with respect to the election of directors so that the directors of the
Company will be elected by holders of Class A Common Stock and Class B Common
Stock voting together as a single class; made the voting rights of both classes
the same so that they have the same voting power; eliminated a separate class
vote of Class B Common Stock holders on certain corporate transactions; and
changed the dividend restriction so that Class A Common Stock and Class B Common
Stock receive the same dividends.
The Company filed a Current Report on Form 8-K/A - Amendment No. 1 dated
February 19, 1998, filed May 5, 1998, reporting that the Company amended Item
7 of its previously filed Report on Form 8-K. This amendment stated that the
financial statements required by Item 7(a) of the Form 8-K are not included in
this Report because they were not currently available to the Company. If upon
further examination the Company determined that the assets purchased by the
Company require a change in the classification of the transaction previously
reported as an "Item 2" event to the classification of the transaction as an
"Item 5" event, the Company would proceed to amend this Report accordingly.
Proforma financial statements required under Item 7(b) of the Form 8-K were
included in this Report.
The Company filed a Current Report on Form 8-K/A - Amendment No. 2 dated
February 19, 1998, filed May 11, 1998, reporting that the Company amended the
classification of the transaction previously reported as an "Item 2" event to
the classification of the tranaaction as an "Item 5" event. Upon further
examination of the transaction, the Company determined that the assets purchased
by the Company did not involve a "business," as that term is defined in Rule
11-01(d) of Regulation S-X.
<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: May 15, 1998
BASE TEN SYSTEMS, INC.
(Registrant)
By: THOMAS E. GARDNER
-------------------------------------------------
Thomas E. Gardner
Chairman of the Board,
President and Chief Executive Officer
(Principal Executive Officer)
By: WILLIAM F. HACKETT
-------------------------------------------------
William F. Hackett
Senior Vice President and Chief
Financial Officer
(Principal Financial Officer)
<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: May 15, 1998
BASE TEN SYSTEMS, INC.
(Registrant)
By:
-------------------------------------------------
Thomas E. Gardner
Chairman of the Board,
President and Chief Executive Officer
(Principal Executive Officer)
By:
-------------------------------------------------
William F. Hackett
Senior Vice President and Chief
Financial Officer
(Principal Financial Officer)
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