================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K/A-1
(Amendment No. 1, amending Part II, Item 8 and Part IV, Item 14)
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 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 or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Electronics Drive
Trenton, New Jersey 08619
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (609) 586-7010
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Class A Common Stock
Class B Common Stock
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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K under the Securities Exchange Act of 1934 is not contained
herein, and will not be contained, to the best of the Registrant's knowledge, in
definitive proxy or information statements incorporated in Part III of this Form
10-K or any amendments to this Form 10-K X
As of March 26, 1999, 21,204,264 shares of Class A Common Stock and 71,144
shares of Class B Common Stock were outstanding, and the aggregate market value
of shares held by unaffiliated stockholders was approximately $15,457,000 and
$163,000 respectively.
EXPLANATORY NOTE
This Form 10-K/A-1 amends the Form 10-K filed by the Registrant with the
Securities and Exchange Commission on April 15, 1999. This form is being filed
to correct typographical errors noted in the Company's Form 10-K. The errors
impacted certain subtotals in the Company's financial statements by
approximately $80 thousand. The line items affected were "Shareholders' Equity
before other comprehensive income," "Total Liabilities, Redeemable Securities
and Shareholders' Equity," and "Loss from Continuing Operations before other
income (expense)". There was no impact on net loss or net loss per share as
previously reported.
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<PAGE>
PART II
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
<TABLE>
<CAPTION>
Index to Financial Statements
Page
<S> <C>
Report of Independent Accountants....................................................................... F-1
Independent Auditors' Report............................................................................ F-2
Consolidated Balance Sheets - December 31, 1998, December 31, 1997 and October 31, 1997 ................ F-3
Consolidated Statements of Operations - Years ended December 31, 1998 and October 31, 1997 and
1996 and the Two Month Transition Period from November 1, 1997 through December 31, 1997............. F-4
Consolidated Statements of Shareholders' Equity (Deficiency) - Years ended December 31, 1998 and
October 31, 1997 and 1996 and the Two Month Transition Period from November 1, 1997 through
December 31, 1997.................................................................................... F-5
Consolidated Statements of Cash Flows - Years ended December 31, 1998 and October 31, 1997
and 1996 and the Two Month Transition Period from November 1, 1997 through December 31, 1997........ F-7
Notes to Consolidated Financial Statements.............................................................. F-8
</TABLE>
<PAGE>
PART IV
Item 14. Exhibits, Financial Statements and Reports on Form 8-K
- ----------------------------------------------------------------
(a) Financial Statements and Schedules:
1. Financial Statements: The Financial Statements listed in the Index
under Item 8 are included in this Annual Report at the pages
indicated.
2. Financial Statement Schedules: The financial statement schedules
for which provision is made in Regulation S-X have been omitted
because the required information is either presented in the
Financial Statements or the Notes thereto or is not applicable.
3. Exhibits: See the Exhibit Index on pages 38 through 40 of this
Annual Report.
(b) Reports on Form 8-K: The Company filed a Current Report on Form
8-K, on November 20, 1998, for the sale of 6,666,666 shares of its
Class A Common Stock at a purchase price of $3.00 per share for
aggregate proceeds of $20,000,000.
<PAGE>
Report of Independent Accountants
The Board of Directors and Shareholders
Base Ten Systems, Inc.
Trenton, New Jersey 08619
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in shareholders' equity
(deficit) and of cash flows present fairly, in all material respects, the
financial position of Base Ten Systems, Inc. and its subsidiaries at December
31, 1998 and December 31, 1997 and the results of their operations and cash
flows for the year ended December 31, 1998 and the two-months ended December 31,
1997 in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion expressed above. The financial
statements of Base Ten Systems, Inc., and its subsidiaries for the years
ended October 31, 1997 and 1996 were audited by other independent accountants
whose report dated February 6, 1998 expressed an unqualified opinion on those
statements.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note A to the
financial statements, the Company has suffered recurring losses from operations
and has redeemable preferred stock that raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note A. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
PRICEWATERHOUSECOOPERS LLP
Florham Park, New Jersey
April 12, 1999
See Notes to the Consolidated Financial Statements
F-1
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
Base Ten Systems, Inc.
Trenton, New Jersey 08619
We have audited the consolidated balance sheets of Base Ten Systems, Inc.
and subsidiaries as of October 31, 1997 and the related consolidated statements
of operations, shareholders' equity (deficiency) and cash flows for each of the
years in the period ended October 31, 1997 and 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Base Ten
Systems, Inc. and subsidiaries as of October 31, 1997 and the results of their
operations and their cash flows for each of the years in the period ended
October 31, 1997 and 1996 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
February 6, 1998
F-2
<PAGE>
<TABLE>
<CAPTION>
Base Ten Systems, Inc. and Subsidiaries
Consolidated Balance Sheets
(dollars in thousands, except par value)
Assets
December 31, December 31, October 31,
1998 1997 1997
--------------- ------------------- ------------------
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents......................................... $17,437 $ 9,118 $ 1,502
Accounts receivable, net.......................................... 2,372 1,583 1,808
Net assets held for sale.......................................... - - 5,338
Other current assets.............................................. 639 530 1,044
--------------- ------------------- ------------------
Total Current Assets........................................ 20,448 11,231 9,692
--------------- ------------------- ------------------
Property, plant and equipment, net................................... 5,026 4,346 4,305
Note receivable...................................................... 1,975 1,975 -
Other assets......................................................... 6,372 6,861 7,220
--------------- ------------------- ------------------
Total Assets $33,821 $24,413 $21,217
=============== =================== ==================
<CAPTION>
Liabilities, Redeemable Convertible Preferred Stock, and Shareholders' Equity (Deficiency)
<S> <C> <C> <C>
Current Liabilities:
Accounts payable.................................................. $ 984 $ 282 $ 962
Accrued expenses.................................................. 3,152 4,106 5,653
Deferred revenue.................................................. 756 709 352
Current portion of financing obligation........................... 74 54 54
--------------- ------------------ -------------------
Total Current Liabilities................................... 4,966 5,151 7,021
--------------- ------------------ -------------------
Long-Term Liabilities:
Long-term debt.................................................... 10,000 15,500 15,500
Financing obligation.............................................. 3,341 3,416 3,425
Other long-term liabilities....................................... 228 245 253
--------------- ------------------ -------------------
Total Long-Term Liabilities................................. 13,569 19,161 19,178
--------------- ------------------ -------------------
<PAGE>
Base Ten Systems, Inc. and Subsidiaries
Consolidated Balance Sheets
(dollars in thousands, except par value)
Assets
<CAPTION>
December 31, December 31, October 31,
1998 1997 1997
--------------- ------------------- ------------------
<S> <C> <C> <C>
Commitments and Contingencies - (Note K)
Redeemable Convertible Preferred Stock
Series A Preferred Stock, $1.00 par value, 997,801 shares
authorized; issued and outstanding 14,942 shares at
December 31, 1998 and 9,375 shares at December 31, 1997;
aggregate liquidation value of $14,942
at December 31, 1998.......................................... 12,914 14,684 -
Less: Subscription Receivable....................................... - (8,529) -
--------------- ------------------ -----------------
12,914 6,155 -
Shareholders' Equity (Deficiency)
Class A Common Stock, $1.00 par value,
60,000,000 shares authorized;
issued and outstanding 18,659,748 shares at
December 31, 1998; 7,828,719 shares at December 31, 1997,
and 7,768,952 shares at October 31, 1997...................... 18,660 7,829 7,769
Class B Common Stock, $1.00 par value, 2,000,000 shares
authorized; issued and outstanding 71,410 shares
at December 31, 1998 and 445,121 shares at
December 31, 1997 and October 31, 1997........................ 71 445 445
Additional paid-in capital....................................... 52,885 32,388 29,458
Accumulated Deficit.............................................. (68,767) (46,583) (42,647)
--------------- ------------------ ------------------
2,849 (5,921) (4,975)
Accumulated other comprehensive income (loss).................... (196) (133) (7)
Treasury Stock, 100,000 Class A Common Shares, at cost........... (281) - -
--------------- ------------------ ------------------
Total Shareholders' Equity (Deficiency).................... 2,372 (6,054) (4,982)
--------------- ------------------ -------------------
Total Liabilities, Redeemable Convertible Preferred Stock,
and Shareholders' Equity (Deficiency).................. $ 33,821 $ 24,413 $ 21,217
=============== ================== ===================
</TABLE>
See Notes to the Consolidated Financial Statements
F-3
<PAGE>
<TABLE>
<CAPTION>
Base Ten Systems, Inc. and Subsidiaries
Consolidated Statements of Operations
(dollars in thousands, except per share data)
Two
Year ended months ended Year ended Year ended
December 31, December 31, October 31, October 31,
1998 1997 1997 1996
------------ ------------ -------------- -----------
<S> <C> <C> <C> <C>
License and related revenue................................ $ 2,727 $ -- $ 1,221 $ 454
Services and related revenue............................... 4,823 181 1,291 808
------------ ------------ ------------- -------------
7,550 181 2,512 1,262
Cost of revenues........................................... 9,639 1,457 6,387 4,423
Research and development................................... 2,002 25 147 404
Selling and marketing...................................... 5,003 569 2,736 2,049
General and administrative................................. 8,944 1,647 7,743 3,073
------------ ------------ ------------- -------------
25,588 3,698 17,013 9,949
------------ ------------ ------------- -------------
Loss from continuing operations before other income (expense) and
income tax benefit...................................... (18,038) (3,517) (14,501) (8,687)
------------ ------------ ------------- -------------
Other income (expense), net................................ (982) (197) (1,479) (410)
------------ ------------ ------------- -------------
Loss from continuing operations before income tax benefit.. (19,020) (3,714) (15,980) (9,097)
------------ ------------ ------------- -------------
Income tax benefit......................................... -- -- -- 684
------------ ------------ ------------- -------------
Net loss from continuing operations........................ (19,020) (3,714) (15,980) (8,413)
------------ ------------ ------------- -------------
Discontinued operations:
Loss from operations of Government Technology Division, net of
income tax benefit of $363 in 1996...................... -- (222) (4,854) (546)
Loss on sale............................................... -- -- (1,173) --
------------ ------------ ------------- -------------
Loss from discontinued operations.......................... -- (222) (6,027) (546)
------------ ------------ ------------- -------------
Net loss................................................... $ (19,020) $ (3,936) $ (22,007) (8,959)
============ ============ ============= =============
Less: Dividends on Redeemable Convertible
Preferred Stock.................................... (1,740) -- -- --
Accretion on Redeemable Convertible
Preferred Stock.................................... (1,424) -- -- --
------------ ------------ ------------- -------------
Net loss available for common shareholders................. $ (22,184) $ (3,936) $ (22,007) (8,959)
============ ============ ============= =============
Basic and diluted loss per share:
Continuing operations...................................... $ (2.09) $ (0.45) $ (2.03) $ (1.09)
Discontinued operations.................................... -- (0.03) (0.76) (0.07)
------------ ------------ ------------- -------------
Net loss per share......................................... $ (2.09) $ (0.48) $ (2.79) $ (1.16)
============ ============ ============= =============
Weighted average common shares outstanding -
basic and diluted........................................ 10,618,000 8,258,000 7,895,000 7,743,000
============ ============ ============= =============
</TABLE>
See Notes to the Consolidated Financial Statements
F-4
<PAGE>
Base Ten Systems, Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity (Deficiency)
(dollars in thousands)
<TABLE>
<CAPTION>
Class A Class B Additional
Common Stock Common Stock Paid-In
Shares Amount Shares Amount Capital
- -------------------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance
October 31, 1995 .............. 7,216,195 $ 7,216 458,474 $ 458 $ 24,410
Conversions:
Common B to
Common A .................. 5,418 5 (5,418) (5) --
Exercise of options ........... 137,351 138 -- -- 676
Retirement of
treasury stock ................ -- -- (7,669) (8) --
Comprehensive
Income (Loss):
Net loss .................. -- -- -- -- --
Foreign currency
translation ............... -- -- -- -- --
Unrealized gain on
securities available
for sale .................. -- -- -- -- --
Total Comprehensive
Income (Loss):.................
=============================== ========== ========== ============ ============ ==========
Balance
October 31, 1996 .............. 7,358,964 7,359 445,387 445 25,086
=============================== ========== ========== ============ ============ ==========
=============================== ========== ========== ============ ============ ==========
Conversions:
Common B to
Common A .................. 266 -- (266) -- --
Exercise of
options ....................... 93,230 93 -- -- 506
Exercise of
warrants ...................... 305,000 305 -- -- 1,017
Issuance of
Common Stock:
Interest payments ......... 11,492 12 -- -- 99
Compensation
related to warrants
and options issuance .......... -- -- -- -- 2,750
Comprehensive
Income (Loss):
Net loss .................. -- -- -- -- --
Foreign currency
translation ............... -- -- -- -- --
Unrealized gain on
securities available
for sale .................. -- -- -- -- --
Total
Comprehensive Income (Loss):... -- -- -- -- --
<PAGE>
=============================== ========== ========== ============ ============ ==========
Balance
October 31, 1997 .............. 7,768,952 7,769 445,121 445 29,458
=============================== ========== ========== ============ ============ ==========
=============================== ========== ========== ============ ============ ==========
Exercise of options ........... 50,584 51 -- -- 445
Issuance of
Common Stock:
Interest payments ......... 9,183 9 -- -- 102
Common Stock Warrants,
net of subscription
receivable of $851 ............ -- -- -- -- 1,840
Compensation related to
warrants and options issuance.. -- -- -- -- 543
Comprehensive
Income (Loss):
Net loss .................. -- -- -- -- --
Foreign currency
translation ............... -- -- -- -- --
Unrealized loss on
securities available
for sale .................. -- -- -- -- --
Total Comprehensive
Income (Loss): ................ -- -- -- -- --
=============================== ========== ========== ============ ============ ==========
Balance at
December 31, 1997 ............. 7,828,719 $ 7,829 445,121 $ 445 $ 32,388
=============================== ========== ========== ============ ============ ==========
<PAGE>
<CAPTION>
Accumulated
Other Total
Accumulated Comprehensive Treasury Stock Shareholders'
Deficit Income (Loss) Shares Amount Equity
<S> ------------ ------------- ----------- ------------ ------------
<C> <C> <C> <C> <C>
Balance
October 31, 1995 .............. $ (11,681) $ (142) -- $ -- $ 20,261
Conversions:
Common B to
Common A .................. -- -- -- -- --
Exercise of options ........... -- -- -- (8) 806
Retirement of
treasury stock ................ -- -- -- 8 --
Comprehensive
Income (Loss):
Net loss .................. (8,959) -- -- -- (8,959)
Foreign currency
translation ............... -- (17) -- -- (17)
Unrealized gain on
securities available
for sale .................. -- 49 -- -- 49
Total Comprehensive ----------
Income (Loss):................. -- -- -- -- (8,927)
=============================== ============ ========== =========== ============ ==========
Balance
October 31, 1996 .............. (20,640) (110) -- -- 12,140
=============================== ============ ========== =========== ============ ==========
=============================== ============ ========== =========== ============ ==========
Conversions:
Common B to
Common A .................. -- -- -- -- --
Exercise of
options ....................... -- -- -- -- 599
Exercise of
warrants ...................... -- -- -- -- 1,322
Issuance of
Common Stock:
Interest payments ......... -- -- -- -- 111
Compensation
related to warrants
and options issuance .......... -- -- -- -- 2,750
Comprehensive
Income (Loss):
Net loss .................. (22,007) -- -- -- (22,007)
Foreign currency
translation ............... -- 9 -- -- 9
Unrealized gain on
securities available
for sale .................. -- 94 -- -- 94
Total ----------
Comprehensive Income (Loss):... -- -- -- -- (21,904)
=============================== ============ ========== =========== ============ ==========
Balance
October 31, 1997 .............. (42,647) (7) -- -- (4,982)
=============================== ============ ========== =========== ============ ==========
=============================== ============ ========== =========== ============ ==========
Exercise of options ........... -- -- -- -- 496
Issuance of
Common Stock:
Interest payments ......... -- -- -- -- 111
Common Stock Warrants,
net of subscription
receivable of $851 ............ -- -- -- -- 1,840
Compensation related to
warrants and options issuance.. -- -- -- -- 543
Comprehensive
Income (Loss):
Net loss .................. (3,936) -- -- -- (3,936)
Foreign currency
translation ............... -- (45) -- -- (45)
Unrealized loss on
securities available
for sale .................. -- (81) -- -- (81)
Total Comprehensive ----------
Income (Loss):................. -- -- -- -- (4,062)
=============================== ============ ========== =========== ============ ==========
Balance at
December 31, 1997 ............. $ (46,583) $ (133) -- $ -- $ (6,054)
=============================== ============ ========== =========== ============ ==========
</TABLE>
See Notes to the Consolidated Financial Statements
F-5
<PAGE>
<TABLE>
<CAPTION>
Base Ten Systems, Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity (Deficiency) (con't)
(dollars in thousands)
Class A Class B
Common Stock Common Stock
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Balance
at December 31, 1997 ..... 7,828,719 $ 7,829 445,121 $ 445
========================== ========== ========== ========== ==========
Conversions:
Common B to
Common A ............. 567,980 568 (378,657) (379)
Preferred A to
Common A ............. 1,917,806 1,918 -- --
Debenture to
Common A ............. 1,490,805 1,491 -- --
Exercise of options ...... 150,232 150 4,946 5
Issuance of
Common Stock:
Private placement .... 6,666,666 6,666 -- --
Interest payments .... 30,755 31 -- --
Employee stock
purchase plan ........ 6,785 7 -- --
Compensation related
to warrants and
options issuance ......... -- -- -- --
Dividends on
Redeemable Preferred
Stock .................... -- -- -- --
Accretion on
Redeemable Preferred
Stock .................... -- -- -- --
Collection of Common
Stock Warrants
Subscription Receivable .. -- -- -- --
Treasury stock
purchase ................. -- -- -- --
Comprehensive
Income (Loss):
Net loss ............. -- -- -- --
Foreign currency
translation .......... -- -- -- --
Unrealized gain on
securities available
for sale ............. -- -- -- --
Total Comprehensive
Income (Loss):............ -- -- -- --
========================== ========== ========== ========== ==========
Balance at
December 31, 1998 ........ 18,659,748 $ 18,660 71,410 $ 71
========================== ========== ========== ========== ==========
<PAGE>
<CAPTION>
Accumulated
Additional Other Total
Paid-In Accumulated Comprehensive Treasury Stock Shareholders'
Capital Deficit Income Shares Amount Equity
============ ============ ============== ========== ============ ==============
<S> <C> <C> <C> <C> <C> <C>
Balance
at December 31, 1997 ..... $ 32,388 $ (46,583) $ (133) -- $ -- $ (6,054)
========================== ========== =========== ========== ========== =========== ==============
Conversions:
Common B to
Common A ............. (189) -- -- -- -- --
Preferred A to
Common A ............. 3,016 -- -- -- -- 4,934
Debenture to
Common A ............. 3,680 -- -- -- -- 5,171
Exercise of options ...... 525 -- -- -- -- 680
Issuance of
Common Stock:
Private placement .... 12,127 -- -- -- -- 18,793
Interest payments .... 157 -- -- -- -- 188
Employee stock
purchase plan ........ 8 -- -- -- -- 15
Compensation related
to warrants and
options issuance ......... 322 -- -- -- -- 322
Dividends on
Redeemable Preferred
Stock .................... -- (1,740) -- -- -- (1,740)
Accretion on
Redeemable Preferred
Stock .................... -- (1,424) -- -- -- (1,424)
Collection of Common
Stock Warrants
Subscription Receivable .. 851 -- -- -- -- 851
Treasury stock purchase... -- -- -- (100,000) (281) (281)
Comprehensive
Income (Loss):
Net loss ............. -- (19,020) -- -- -- (19,020)
Foreign currency
translation .......... -- -- (55) -- -- (55)
Unrealized gain on
securities available
for sale ............. -- -- (8) -- -- (8)
Total Comprehensive -----------
Income (Loss):............ -- -- -- -- -- (19,083)
========================== ========== ========== ========== ========== ============ ==========
Balance at
December 31, 1998 ........ $ 52,885 $ (68,767) $ (196) (100,000) $ (281) $ 2,372
========================== ========== ========== ========== ========== ============ ==========
</TABLE>
See Notes to the Consolidated Financial Statements
F-6
<PAGE>
<TABLE>
<CAPTION>
Base Ten Systems, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(dollars in thousands)
Two Months
Year Ended Ended Year Ended Year Ended
December 31, December 31, October 31, October 31,
1998 1997 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (19,020) $ (3,936) $ (22,007) $ (8,959)
Adjustments to Reconcile Net Loss to Net Cash Used in
Operating Activities of Continuing Operations:
Depreciation and amortization 3,295 360 3,703 4,172
Stock-based compensation 322 543 2,750 --
Deferred gain on sale of building (19) (3) (19) (19)
Deferred income taxes -- -- -- (83)
Changes in operating assets and liabilities, excluding
effects of discontinued business:
Accounts receivable (789) 225 2,008 (1,481)
Other current assets (117) 433 305 366
Accounts payable and accrued expenses (802) (1,657) 3,792 1,766
Income taxes payable -- -- -- (1,038)
- -------------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Operations (17,130) (4,035) (9,468) (5,276)
===============================================================================================================================
Cash Flows from Investing Activities:
Additions to property, plant and equipment (592) (244) (617) (1,058)
Additions to capitalized software costs and other assets (724) (148) (3,360) (4,126)
Purchase of assets related to FlowStream product (2,099) -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (3,415) (392) (3,977) (5,184)
===============================================================================================================================
Cash Flows from Financing Activities:
Repayment of amounts borrowed (53) (14) (59) (113)
Proceeds from issuance of long-term debt -- -- 5,500 10,000
Proceeds from issuance of redeemable preferred stock 9,380 7,995 -- --
Proceeds from issuance of common stock 19,592 607 2,032 806
Proceeds from sale of discontinued business -- 3,500 -- --
- -------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided from Financing Activities 28,919 12,088 7,473 10,693
===============================================================================================================================
Effect of Exchange Rate Changes on Cash (55) (45) 9 11
===============================================================================================================================
Net (Decrease)/Increase In Cash 8,319 7,616 (5,963) 244
Cash, beginning of year 9,118 1,502 7,465 7,221
- -------------------------------------------------------------------------------------------------------------------------------
Cash, end of year $ 17,437 $ 9,118 $ 1,502 $ 7,465
===============================================================================================================================
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for interest $ 1,401 $ 88 $ 937 $ 485
===============================================================================================================================
Supplemental Disclosures of Non-Cash Investing and
Financing Activities:
Retirement of treasury common stock $ -- $ -- $ -- $ 8
Treasury stock purchase obligation $ 281 $ -- $ -- $ --
===============================================================================================================================
</TABLE>
See Notes to the Consolidated Financial Statements
F-7
<PAGE>
Base Ten Systems, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, October 31, 1997 and 1996 and
Two Months Ended December 31, 1997
A. Basis of Presentation and Liquidity
- --------------------------------------
The Company's financial statements have been prepared on the basis that
it will continue as a going concern. The Company has incurred significant
operating losses and negative cash flows in recent years. Also, at December 31,
1998 the Company was below the $4 million minimum net tangible assets, as
defined, required for its current listing on the NASDAQ National Market System.
In March 1999, the Company's shareholders' equity was increased by approximately
$9.6 million through the conversion of its $10 million convertible debenture
into common stock. Coincident with that debt conversion, the Company's Series A
Redeemable Convertible Preferred Stock was converted into Series B Redeemable
Convertible Preferred Stock. These Preferred Stocks have certain Redemption
Events, which if such events occurred, would provide the holder with the right
to require the Company to purchase their shares for cash which would adversely
affect the Company. (See Note N to the Consolidated Financial Statements.)
Accordingly, where these rights exist such Redeemable Securities are categorized
outside of shareholders' equity and, thus, do not qualify as equity for the
purposes of the NASDAQ minimum net tangible asset requirement. Also, security
holders may have other rights/claims in connection with the March 1999
transactions described above.
To further increase the Company's net tangible assets and in order to
help further ensure the Company's compliance with NASDAQ listing requirements,
management is in the process of negotiating with participants in the March 1999
debt conversion and Preferred Stock exchange to obtain waivers of any redemption
or recession rights. These waivers, if obtained, would eliminate the holders'
cash redemption rights. This would qualify all related securities for
classification in permanent stockholders' equity and increase the Company's
qualifying net tangible assets. If such waivers are obtained, then management
believes that the Company's current liquidity would be sufficient to meet its
cash needs for its existing business through fiscal 1999. However, there can be
no assurance that management's efforts in this regard will be successful.
If management is not successful in obtaining such waivers, and it
continues to incur operating losses it could fall below the minimum net asset
requirement needed to qualify for ongoing listing on NASDAQ. Management's plans
in this case include, among other things, attempting to improve (i) operating
cash flow through increased license sales and service revenue, and (ii)
increasing the level of anticipated streamlining of its selling, administration
and development functions. However there is no assurance that such plans, if
implemented, will be sufficient. Further, recently there have been announcements
of potential changes in senior management, which increase the uncertainty of
whether existing management plans will be executed.
Also, the Company is considering certain significant acquisitions which
depending on net liabilities assumed, if any, and on the success of cost
reduction efforts to bring the acquisitions to break-even, may require
additional funding. (See Note U to the Consolidated Financial Statements.)
However, there can be no assurance that such acquisitions will occur, or whether
additional funds required, if any, would be available to Base Ten.
If current cash and working capital reduced by cash used in operations in
1999 is not sufficient to satisfy the Company's liquidity and minimum net
tangible asset requirements, the Company will seek to obtain additional equity
financing. Additional funding may not be available when needed or on terms
acceptable to the Company. If the Company were required to raise additional
financing for the matters described above and/or to continue to fund expansion,
develop and enhance products and service, or otherwise respond to competitive
pressures, there is no assurance that adequate funds will be available or that
they will be available on terms acceptable to the Company. Such a limitation
could have a material adverse effect on the Company's business; financial
condition or operations and the financial statements do not include any
adjustment that could result therefrom.
<PAGE>
B. Description of Business
- ---------------------------
Base Ten Systems, Inc. and subsidiaries ("Base Ten" or the "Company") is
engaged in the development of software applications for the pharmaceutical and
medical device industries. The Company's product lines include manufacturing
execution systems (MES), medical screening and image processing software. The
Company's primary focus is its manufacturing execution systems which include
BASE10(TM)ME (formerly PHARM2(TM)), BASE10(TM)FS and BASE10(TM)CS. The MES
products are designed to reduce time and costs associated with regulatory
compliance, manage the elements of production materials, equipment, personnel,
process instructions, as well as allow rapid fulfillment of requests and
traceability for clinical supplies.
For the periods ended October 31, 1997 and December 31, 1997, the Company
was also engaged, through its Government Technology Division ("GTD"), in the
design and manufacture of electronic systems employing safety critical software
for the defense industry. Effective December 31, 1997, the GTD was sold by the
Company. See Note S to the Consolidated Financial Statements.
C. Summary of Significant Accounting Policies
- ----------------------------------------------
1. Principles of Consolidation - The consolidated financial statements include
the accounts of Base Ten and its wholly-owned subsidiaries. All significant
inter-company accounts, transactions and profits have been eliminated.
2. Discontinued Operations - As discussed more thoroughly in Note S to the
Consolidated Financial Statements, the results of operations and the net
assets of the Government Technology Division have been reported separately
as discontinued operations for all periods presented and net assets held
for sale at October 31, 1997 in the accompanying financial statements.
3. Change of Fiscal Reporting Period - In January 1998, the Board of Directors
approved a change of the Company's fiscal year end from October 31 to
December 31.
4. Risks and Uncertainties - The Company operates in the publicly traded
software industry, which is highly competitive and rapidly changing. The
Company has had a history of significant losses from operations and is
subject to all of the risks inherent in a technology business, including
but not limited to: potential for significant technological changes in the
industry or customer requirements, potential for emergence of competitive
products with new capabilities or technologies, ability to manage future
growth, ability to attract and retain qualified employees, dependence on
key personnel, limited senior management resources, success of its research
and development, protection of intellectual property rights, potentially
long sales and implementation cycles and ongoing satisfaction of NASDAQ
minimum net tangible asset requirements for continued listing.
The preparation of financial statements in accordance with generally
accepted accounting standards requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Significant estimates include the allowance for
doubtful accounts receivable, the total costs to be incurred under software
license agreements requiring significant customizations or modifications
and the useful lives of computer software costs. Actual costs and results
could differ from these estimates.
5. Revenue Recognition - The Company licenses software under license
agreements and provides services including maintenance, training and
consulting. In general, software license revenues are recognized upon
shipment of the software to the customer where there are no significant
customizations or modifications required. Revenues on all software license
transactions in which there are significant customizations or modifications
are recognized on the percentage of completion basis. Progress under
percentage of completion method is measured based on management's best
estimate of the cost of work completed in relation to the total cost of
work to be performed under the contract. Maintenance revenues for
maintaining, supporting and providing periodic upgrades are deferred and
recognized ratably over the maintenance period which is generally one year.
Revenues from training and consulting services are recognized as such
services are performed and are on a time and material basis.
F-8
<PAGE>
On January 1, 1998, the Company adopted Statement of Position 97-2,
"Software Revenue Recognition" ("SOP 97-2"). SOP 97-2 which supersedes
Statement of Position 91-1, "Software Revenue Recognition", generally
requires revenue earned on multiple element software arrangements to be
allocated to each element based on vendor-specific objective evidence of
the relative fair values of the elements. Absent vendor-specific evidence
of fair value of all elements in a multiple-element arrangement, all
revenue from the arrangement is deferred until such evidence exists or
until all elements are delivered. The adoption of SOP 97-2 has not had a
material impact on the Company's results of operations.
In March 1998, the AICPA issued Statement of Position 98-4, "Deferral of
the Effective Date of a Provision of SOP 97-2" ("SOP 98-4"). SOP 98-4
deferred, until the Company's fiscal year beginning January 1, 1999, the
application of certain passages in SOP 97-2, which limit what is considered
vendor-specific objective evidence necessary to recognize revenue for
software licenses in multiple-element arrangements when undelivered
elements exist. In December 1998, the AICPA issued Statement of Position
98-9, "Modification of SOP 97-2, Software Revenue Recognition, With Respect
to Certain Transactions"("SOP 98-9"). SOP 98-9 further deferred those
passages deferred by SOP 98-4 until the Company's fiscal year beginning
January 1, 2000. SOP 98-9 also amends certain passages of SOP 97-2 which
address the allocation of discounts in multiple element arrangements.
Management has not determined the impact, if any, that the application of
SOP 98-9 will have on its consolidated financial position or results of
operations.
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:
Leased asset - building 30 years
Leasehold improvements 5 to 10 years
Furniture, fixtures and equipment 3 to 10 years
Maintenance and repairs are charged to expense as incurred; expenditures
for leasehold improvements are generally capitalized. Upon sale or
retirement of an asset, the related costs and accumulated depreciation are
removed from the accounts and any gain or loss is recognized.
7. Research, Development and Computer Software Costs - In accordance with
Statement of Financial Accounting Standards No. 86, "Accounting for Costs
for Computer Software to be Sold, Leased or Otherwise Marketed" ("FAS 86"),
the Company capitalizes certain software development costs for new products
once it is determined that technological feasibility is achieved. Costs
incurred prior to the determination of technological feasibility and costs
associated with maintenance of existing products are expensed as incurred.
The cost of purchased software is capitalized when related to a product
which has achieved technological feasibility or that has an alternative
future use. Commencing upon initial product release, these costs are
amortized based on the straight-line method over the estimated useful life
of not greater than four years.
8. Long-Lived Assets - The Company accounts for long-lived assets in
accordance with the provisions of Statement of Financial Accounting
Standards No. 121, "Accounting for Impairment of Long-Lived Assets and Long
Lived Assets to be Disposed Of" ("FAS 121"). FAS 121 requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. 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. The
Company has evaluated its long-lived assets and determined that no material
impairment of these assets existed at December 31, 1998.
F-9
<PAGE>
In the second quarter of fiscal 1996 the Company conducted its regular
quarterly review of the recoverability of its capitalized software costs
and determined that neither PRENVAL(TM) nor uPACS(TM) would achieve
sufficient revenues in future periods to justify retention of the related
capitalized costs. Accordingly the Company wrote off the $2.4 million
balance of such capitalized costs to cost of revenues.
9. Cash and Cash Equivalents - The Company considers all investments with an
original maturity of three months or less at date of acquisition to be cash
equivalents.
10. Earnings Per Share - The Company calculates earnings per share in
accordance with the provisions of Statement of Financial Accounting
Standard No. 128, "Earnings Per Share" ("FAS 128"). FAS 128 requires the
Company to present Basic Earnings Per Share which excludes dilution and
Diluted Earnings Per Share which includes potential dilution.
11. Fair Value of Financial Instruments - The fair value of certain
financial instruments, including cash, accounts receivable, accounts
payable, and other accrued liabilities, approximates 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 December
31, 1998, December 31, 1997 and October 31, 1997 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.
12. Foreign Currency Translation - The accounts of the consolidated foreign
subsidiaries are translated into United States dollars in accordance with
Statement of Financial Accounting Standard No. 52, "Foreign Currency
Translation" ("FAS 52"). All balance sheet accounts have been translated
using the current rate of exchange at the balance sheet date. Results of
operations have been translated using the average rates prevailing
throughout the year. Translation gains or losses resulting from the changes
in the exchange rates from year-to-year are accumulated in a separate
component of shareholders' equity. Transaction gains and losses are
immaterial.
13. Income Taxes - Deferred income taxes are determined based on the tax effect
of the differences between the financial statement and tax bases of assets
and liabilities. Deferred tax assets and liabilities are classified as
either current or noncurrent based generally on the classification of the
related asset or liability.
14. 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 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 December 31, 1998, December 31, 1997 and October 31, 1997, all
securities covered by FAS 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 December 31, 1998, December 31, 1997 and
October 31, 1997, consisted of common stock with a cost basis of $50,000,
$50,000 and $150,000, respectively and are included in other current
assets. Differences between cost and market of $54,000, $62,000 and
$143,000 were included as a component of "accumulated other comprehensive
income" in shareholders' equity, as of December 31, 1998, December 31, 1997
and October 31, 1997, respectively.
<PAGE>
15. Segment Information - On January 1, 1998, the Company adopted Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("FAS 131"). FAS 131 supersedes
Statement of Financial Accounting Standards No. 14, "Financial Reporting
for Segments of a Business Enterprise" ("FAS 14") replacing the "industry
segment" approach with the "management" approach. The management approach
designates the internal organization that is used by management for making
operating decisions and assessing performance as the source of the
Company's reportable segments. FAS 131 also requires disclosures about
products and services, geographic areas and major customers. The adoption
of FAS 131 did not affect results of operations or the financial position
but did affect the disclosure of segment information.
F-10
<PAGE>
16. Comprehensive Income - On January 1, 1998, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("FAS 130"). FAS 130 establishes standards for reporting and presentation
of comprehensive income and its components in a full set of financial
statements. Comprehensive income consists of net income and net unrealized
gains (losses) on securities and is presented in the consolidated
statements of shareholders' equity. The Statement requires only additional
disclosures in the consolidated financial statements; it does not affect
the Company's financial position or results of operations. Prior year
financial statements have been reclassified to conform to the requirements
of FAS 130.
17. Reclassifications - Certain reclassifications have been made to prior year
financial statements to conform to the current year presentation.
D. Acquisition
- ---------------
On February 19, 1998, the Company acquired certain assets and assumed
certain liabilities of Consilium, Inc. ("Consilium"), a software developer that
specialized in manufacturing execution systems for the pharmaceutical, chemical
and semi-conductor industries. The assets purchased related to the FlowStream
product line of Consilium, which was sold to the pharmaceutical and chemical
markets. Under the terms of the agreement, the Company paid Consilium $1.5
million in cash and included assumed certain FlowStream-related liabilities of
Consilium, which together with transaction costs in cash of approximately
$600,000, resulted in a total purchase cost of $3.0 million. 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. No additional payments were required
for 1998. The cash portion of the acquisition was financed with the Company's
available cash balance. This acquisition was accounted for by the purchase
method of accounting.
The purchase price was allocated to the assets acquired based on their
estimated fair values. Equipment and furniture were purchased at estimated fair
value and are being depreciated over estimated lives of three to ten years.
Other intangible assets acquired are being amortized on a straight-line basis
over their estimated lives of three to seven years.
<PAGE>
Unaudited Pro-forma Results
- ---------------------------
The following unaudited pro-forma information presents the results of
operations of the Company as if the acquisition had taken place on November 1,
1996 (dollars in thousands, except per share data):
<TABLE>
<CAPTION>
Two Months
Year Ended Ended Year Ended
December 31, December 31, October 31,
1998 1997 1997
---- ---- ----
<S> <C> <C> <C>
Revenue $ 8,259 $ 1,044 $ 7,839
Net loss (19,869) (4,969) (28,207)
- -------- -------- ------- --------
Net loss per common share - basic and
diluted $ (2.17) $ (0.60) $ (3.57)
Weighted average common shares - basic and
diluted 10,618,000 8,258,000 7,895,000
---------- --------- ---------
</TABLE>
F-11
<PAGE>
These pro-forma results of operations have been prepared for comparative
purposes only and do not purport to be indicative of the results of operations
which actually would have resulted had the acquisition occurred on the date
indicated, or which may result in the future.
E. Accounts Receivable
- -----------------------
Accounts receivable are comprised of billed receivables arising from
recognized and deferred revenues and unbilled receivables which result from
consulting services. All of the unbilled receivables are expected to be billed
during the following year. The Company does not require collateral for its
receivables. Reserves are maintained for potential credit losses. The principle
components of accounts receivables are as follows (dollars in thousands):
<TABLE>
<CAPTION>
December 31, December 31, October 31,
1998 1997 1997
---- ---- ----
<S> <C> <C> <C>
Billed receivables $ 2,456 $ 537 $ 504
Unbilled receivables 236 1,186 1,444
--- ----- -----
2,692 1,723 1,948
Less: Allowance for doubtful accounts 320 140 140
--- --- ---
$ 2,372 $ 1,583 $ 1,808
=========== =========== ===========
</TABLE>
Bad debt expense amounted to $449,000 for the year ended December 31, 1998
and $140,000 for the year ended October 31, 1997. There was not any bad debt
expense recorded during the two month period ended December 31, 1997 and the
year ended October 31, 1996.
F. Property, Plant and Equipment
- ---------------------------------
Property, plant and equipment at December 31, 1998 and 1997 and October 31,
1997 includes the following amounts (dollars in thousands):
<TABLE>
<CAPTION>
December 31, December 31, October 31,
1998 1997 1997
---- ---- ----
<S> <C> <C> <C>
Leasehold improvements $ 343 $ 156 $ 149
Furniture, fixtures and equipment 5,160 4,255 4,018
Land and building 3,600 3,600 3,600
----- ----- -----
9,103 8,011 7,767
Less: Accumulated depreciation 4,077 3,665 3,462
----- ----- -----
$ 5,026 $ 4,346 $ 4,305
=========== =========== ===========
</TABLE>
Depreciation expense amounted to $412,000, $203,000, $530,000, and $462,000,
in fiscal 1998, the two month period December 31, 1997, fiscal 1997, and fiscal
1996, respectively.
<PAGE>
G. Other Assets
- ----------------
Other assets at December 31, 1998 and 1997 and October 31, 1997 includes
the following amounts (dollars in thousands):
<TABLE>
<CAPTION>
December 31, December 31, October 31,
1998 1997 1997
---- ---- ----
<S> <C> <C> <C>
Patents, net $ 356 $ 395 $ 404
Capitalized software costs, net 2,943 4,548 4,815
Debenture issue costs, net 393 971 1,032
Deposit-long term financing obligation 550 550 550
Long-term receivable -- 397 419
Other acquired intangibles, net 2,130 -- --
------------ -------------- -----------
--
$ 6,372 $ 6,861 $ 7,220
============ ============== ===========
</TABLE>
F-12
<PAGE>
Accumulated amortization related to the patents at December 31, 1998 and
1997 and October 31, 1997 was $37,000, $28,000 and $19,000, respectively.
Accumulated amortization related to the capitalized software costs at
December 31, 1998 and 1997 and October 31, 1997 was $7,052,000, $4,778,000 and
$4,363,000, respectively. Amortization of capitalized software costs of
$2,274,000, $415,000, $2,951,000 and $1,278,000 are included in cost of revenues
for the year ended December 31, 1998, the two months ended December 31, 1997 and
the years ended October 31, 1997 and 1996, respectively.
Accumulated amortization related to the debenture issue costs at December
31, 1998 and 1997 and October 31, 1997 was $207,000, $282,000 and $221,000,
respectively.
Accumulated amortization and expense related to the acquired intangibles
at December 31, 1998 was $351,000.
H. Income Taxes
- ----------------
The provision (benefit) for income taxes includes the following (dollars
in thousands):
<TABLE>
<CAPTION>
Year Ended Two Months Ended Year Ended Year Ended
December 31, 1998 December 31, 1997 October 31, 1997 October 31, 1996
----------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Current:
Federal $ -- $ -- $ -- $ (882)
State -- -- -- (165)
Foreign -- -- -- --
------------ ------------ ------------ --------------
Total Current $ -- $ -- $ -- $ (1,047)
============ ============ ============ ==============
Deferred:
Federal $ 5,192 $ 1,179 $ 6,373 $ --
State 1,507 342 972 --
Foreign -- -- -- --
------------ ------------ ------------ --------------
Total Deferred 6,699 1,521 7,345 --
------------ ------------ ------------ --------------
Valuation Allowance (6,699) (1,521) (7,345) --
------------ ------------ ------------ --------------
Net $ -- $ -- $ -- $ (1,047)
============ ============ ============ ==============
</TABLE>
The provision (benefit) for income taxes is allocated between continuing
and discontinued operations as summarized below (dollars in thousands):
<TABLE>
<CAPTION>
Year Ended Two Months Ended Year Ended Year Ended
December 31, 1998 December 31, 1997 October 31, 1997 October 31, 1996
----------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Continuing $ -- $ -- $ -- $ (684)
Discontinued -- -- -- (363)
------------ ------------ ------------ --------------
Total $ -- $ -- $ -- $ (1,047)
============ ============ ============ ==============
</TABLE>
<PAGE>
A reconciliation of the Company's effective rate to the U.S. statutory
rate is as follows:
<TABLE>
<CAPTION>
Percentage of Pre-Tax Earnings
--------------------------------------------------------
Two
Year Ended Months Year Ended Year Ended
December 31, Ended October 31, October 31,
1998 December 31, 1997 1996
1997
------------ ------------ ------------ ----------
<S> <C> <C> <C> <C>
Federal tax (benefit)/provisions at applicable statutory (34.0%) (34.0%) (35.0%) (34.0%)
rates
Increases (decreases) in income taxes resulting from:
State tax benefit, net of Federal tax effect (6.0) (6.0) -- (6.0)
Net changes in current and deferred valuation
allowances 40.0 40.0 35.0 31.5
Other, net -- -- -- (2.9)
----- ----- ----- -----
-- -- -- (11.4%)
======== ===== ===== =======
</TABLE>
F-13
<PAGE>
The components of the deferred tax assets and liabilities are as
follows (dollars in thousands):
<TABLE>
<CAPTION>
Year Ended Two Months Ended Year Ended
December 31, December 31, October 31,
1998 1997 1997
<S> <C> <C> <C>
Current
Vacation $ 154 $ 221 $ 136
Other 605 56 16
------ ----- ------
Total current assets 759 277 152
------ ----- ------
Noncurrent
Deferred gain on sale leaseback
$ 91 $ 91 $ 90
Compensation 1,255 1,100 1,100
Depreciation and amortization (107) 78 86
Net operating loss carryforward 17,210 10,963 9,560
Research and development
carryforward 519 519 519
-------- --------- -------
Total non-current assets 18,968 12,751 11,355
Valuation allowance (19,727) (13,028) (11,507)
-------- --------- --------
Net deferred tax assets $ -- $ -- $ --
======== ========= ========
</TABLE>
At December 31, 1998, the Company had incurred net operating loss ("NOL")
carryforwards for federal income tax purposes of approximately $43.7 million,
which expire in the years 2004 through 2018. Research and development
carryforwards of $0.5 million expire in the years 1999 through 2005. As certain
changes in the Company's ownership occur there is a limitation on the annual
amount of such NOL carryforwards and credits which can be utilized. Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes" ("FAS 109")
requires that a valuation allowance be created and offset against the deferred
tax assets if, based on existing facts and circumstances, it is more likely than
not that some portion or all of the deferred asset will not be realized. The
valuation allowance will be adjusted when the credits are realized or when, in
the opinion of management, sufficient additional positive evidence exists
regarding the likelihood of their realization. The reductions, if any, will be
reflected as a component of income tax expense.
The components of loss before income taxes were as follows:
<TABLE>
<CAPTION>
Year Ended Two Months Ended Year Ended Year Ended
December 31, 1998 December 31, 1997 October 31, 1997 October 31, 1996
----------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Domestic $ (16,679) $ (3,803) $ (20,632) $ (9,040)
Foreign (2,341) (133) (1,375) (966)
------ ---- ------ ----
$ (19,020) $ (3,936) $ (22,007) $ (10,006)
========= ============ ========== ==========
</TABLE>
<PAGE>
I. Accrued Expenses
- --------------------
Accrued expenses at December 31, 1998 and 1997 and October 31, 1997
includes the following amounts (dollars in thousands):
<TABLE>
<CAPTION>
December 31, December 31, October 31,
1998 1997 1997
---- ---- ----
<S> <C> <C> <C>
Wages & benefits $ 1,221 $ 2,013 $ 2,283
Discontinued operations -- -- 1,480
Accrued contract costs and warranty 394 1,151 1,151
Accrued Interest 301 339 225
Other 1,236 603 514
---------- ---------- ----------
$ 3,152 $ 4,106 $ 5,653
========== ========== ==========
</TABLE>
F-14
<PAGE>
J. Segment Information
- -----------------------
The Company is organized and operates as a single segment. The following
tabulation details the Company's operations in different geographic areas for
the year ended December 31, 1998, the two-month period ended December 31, 1997
and the years ended October 31, 1997 and 1996 (dollars in thousands):
<TABLE>
<CAPTION>
United States Europe Eliminations Consolidated
------------- ------ ------------ ------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1998:
- -----------------------------
Revenues from unaffiliated sources $4,019 $ 3,531 $ -- $ 7,550
------ ------------- ------------- -------------
Identifiable assets at December 31, 1998 $39,350 $ 1,353 $ (6,882) $ 33,821
------- ------------- ------------- ------------
Two-Months Ended December 31, 1997:
- -----------------------------------
Revenues from unaffiliated sources $ 82 $ 99 $ -- $ 181
------- ------------- ------------- -------------
Identifiable assets at December 31, 1997 $ 27,567 $ 1,137 $ (4,291) $ 24,413
-------- ------------- ------------- -------------
Year Ended October 31, 1997:
- ----------------------------
Revenues from unaffiliated sources $ 2,510 $ 2 $ -- $ 2,512
------- ------------- -------------- ------------
Identifiable assets at October 31, 1997 $24,979 $ 1,205 $ (4,967) $ 21,217
------- ------------- -------------- ------------
Year Ended October 31, 1996:
- ----------------------------
Revenues from unaffiliated sources $ 1,211 $ 51 $ -- $ 1,262
------- ------------- ----------- ------------
Identifiable assets at October 31, 1996 $32,739 $ 1,039 $ (3,381) $ 30,397
------- ------------- ------------- ------------
</TABLE>
In fiscal year 1998, one customer accounted for sales amounting to
$1,655,000 and four customers accounted for sales of $136,000 in the two-month
period ended December 31, 1997. In fiscal year 1997, three customers accounted
for sales of $1,221,000 and in fiscal year 1996 one customer accounted for sales
of $883,000.
<PAGE>
K. Commitments and Contingencies
- ---------------------------------
Employment Agreements
- ---------------------
At December 31, 1998, the Company had employment agreements with six
executives. One of these agreements was cancelled pursuant to a subsequent
resignation. The remaining agreements provide for up to one year of severance
payments in the aggregate of $897,000 plus normal benefits and any amounts due
under incentive compensation plans in the event the employee is terminated
without cause. In addition, subsequent to year end, the Company entered into
similar agreements with four additional executives with aggregate benefits
amounting to $238,000.
At December 31, 1998, the Company also had agreements with three of these
executives providing severance payments if the executive's employment is
terminated within three years after a change in control of the Company (i) by
the Company for reasons other than death, disability, or cause or (ii) by the
executive for good reason. The amount of the severance payment is 2.99 times
total average compensation and cost of employee benefits for each of the five
years prior to the change in control, subject to the amount deductible by the
Company under the Internal Revenue Code.
Consulting Agreements
- ---------------------
The Company has a consulting agreement providing one of its directors cash
compensation in an annual amount of $257,500 plus expenses. In fiscal 1998, the
Company terminated this agreement in accordance with the termination provision
in the agreement. The agreement provided the consultant the right to receive
warrants, subject to prior approval of the Board of Directors and subsequent
shareholder approval. The terms of the agreement termination provided that any
warrants issued pursuant to this agreement would terminate in the ordinary
course, pursuant to their respective terms.
Financing Obligation and 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. The Company also has an option to purchase the building
at the end of the lease and accordingly, has accounted for this sale leaseback
as a financing transaction. The buyer/lessor of the building was a partnership
in which two of the partners are former officers and directors of the Company.
In addition, a non-interest bearing security deposit of $550,000 was paid at
closing which is included in other non-current assets on the balance sheet.
Interest is calculated under the effective interest method and depreciation is
taken using the straight-line method. Subsequent to October 31, 1997, the
Company sub-leased a portion of the building in connection with the sale of the
Government Technology Division which is approximately $240,000 per year for five
years. The Company's future minimum gross lease payments related to the
sale-leaseback arrangement in effect at December 31, 1998 are as follows
(dollars in thousands):
F-15
<PAGE>
Year Ending December 31,
- ----------------------------------------------- ------------------
1999 $ 569
2000 615
2001 615
2002 615
2003 615
2004 and thereafter 3,963
- ----------------------------------------------- ------------------
6,992
Less: Interest portion (3,577)
- ----------------------------------------------- ------------------
Present value of net minimum payments $ 3,415
- ----------------------------------------------- ==================
At December 31, 1998 and 1997 and October 31, 1997, the gross amount of
the building and the related accumulated depreciation recorded under the
financing obligation were as follows (dollars in thousands):
<TABLE>
<CAPTION>
December 31, December 31, October 31,
1998 1997 1997
---- ---- ----
<S> <C> <C> <C>
Land and building $ 3,600 $ 3,600 $ 3,600
Less: Accumulated depreciation (500) (380) (360)
--- --- ---
$ 3,100 $ 3,220 $ 3,240
========== ========== ==========
</TABLE>
The Company also has several noncancelable operating leases that
expire over the next ten years. These leases generally require the Company to
pay all executory costs such as maintenance and insurance. Rental expense for
operating leases during fiscal years 1998, 1997 and 1996 were $423,000, $307,000
and $259,000 respectively. Rental expense for operating leases for the two-month
period ended December 31, 1997 was $51,000. Future minimum lease payments under
noncancelable operating leases as of December 31, 1998 are (dollars in
thousands):
Year Ending December 31,
- ------------------------------------ -------------
1999 $ 545
2000 386
2001 291
2002 218
2003 139
2004 and thereafter 728
- ------------------------------------ -------------
Total minimum lease payments $ 2,307
- ------------------------------------ =============
Legal Proceedings
- -----------------
The Company is involved from time to time in various claims and
proceedings including employee claims in the normal course of business, none of
which, individually or in the aggregate, in the opinion of management, will have
a material adverse effect on the consolidated financial position of the Company.
<PAGE>
L. Long Term Debt
- ------------------
$ 10 Million Convertible Subordinate Debenture
- ----------------------------------------------
In August 1996 the Company sold $10.0 million 9.01% Convertible
Subordinate Debentures due August 31, 2003 in a private offering. Under the
terms of the debentures the holder could 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 had the right to call the debentures after February
28, 1998 if the Company's Class A Common Stock price traded between
$15.00-$17.50 per share.
F-16
<PAGE>
On November 10, 1998, the shareholders approved a proposal to authorize the
Company to decrease the conversion price from $12.50 to $4.00 per share of Class
A Common Stock upon conversion of the debenture. Subsequent to year-end, on
March 5, 1999, the holder converted this debenture into 2.5 million shares of
Class A Common Stock.
$ 5.5 million Convertible Debenture
- -----------------------------------
On May 30, 1997, the Company sold 55 Units ("Units") at $100,000 per Unit,
for an aggregate of $5,500,000, to two accredited purchasers ("Purchasers") in a
private offering (the "Offering"). Each Unit consisted of (i) an 8% five-year
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 that was issuable upon conversion of
the Convertible Debentures was variable. The number of shares were to be
calculated at the time of conversion and were to 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. These prices were subsequently
revised to $13.05 and $13.53 pursuant to an agreement between the holders and
the Company in consideration of the holders' willingness to grant the Company a
waiver to sell the GTD. The Convertible Debentures were not convertible prior to
December 16, 1997. From December 16, 1997 until February 23, 1998 one-half of
the Convertible Debentures could have been converted and after February 23,
1998, the Convertible Debentures were fully convertible. The Warrants may be
exercised at any time through May 30, 2002 at an exercise price of $12.25 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.
During 1998, the $5.5 million Convertible Debentures were fully converted into
1,490,805 shares of Class A Common Stock.
M. Other Arrangements
- ----------------------
In May 1997 the Company entered into an agreement whereby it became a
minority owner of uPACS LLC, 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(TM) 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. A then outside investor, who is currently a principal shareholder of
the Company, made an initial capital contribution of $2 million and later made a
further capital contribution of $1 million 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 agreed to complete the
development of the uPACS(TM) technology and undertake to market, sell, and
distribute systems using the uPACS(TM) technology. The LLC will pay the Company
its expenses in connection with such services and the Company will pay royalties
to the LLC in connection with the sale of systems using the uPACS(TM)
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 would own a 37% interest
in the LLC.
During the fourth quarter of 1998, the Company determined that it did not
have the required resources to devote to both its core manufacturing execution
software business and the uPACS(TM) business, and as a result, initiated a
search for a potential buyer of the LLC and its technology. At December 31,
1998, the LLC had substantially exhausted its capital resources and, as of the
filing date of this annual report on Form 10-K, a buyer had not yet been
located. The Company currently intends to fund the LLC operation during the
search for a buyer.
F-17
<PAGE>
N. Redeemable Convertible Preferred Stock
- --------------------------------------------
On December 4, 1997, the Company entered into a securities purchase
agreement to sell 19,000 of Series A, $1.00 par value, Convertible Preferred
Stock ("Series A Preferred Stock") and common stock warrants for gross proceeds
of $19,000,000. The closing of the Series A Preferred Stock and warrants
occurred in two tranches. On December 9, 1997, the Company issued 9,375 shares
of Series A Preferred Stock and 375,000 warrants. An additional 346,000 warrants
were issued to consultants valued at approximately $1,011,000. The transaction
resulted in net proceeds of $6,984,000, net of offering costs of $1,380,000. The
Company allocated the net proceeds of the Series A Preferred Stocks and warrants
based upon their relative fair values resulting in $6,155,000 assigned to the
Series A Preferred Stock and $829,000 to the warrants. On December 31, 1997,
9,625 shares of Series A Preferred Stock and 385,000 warrants were issued to the
holders of the Series A Preferred Stock, net of cash offering costs of
approximately $245,000, resulting in net proceeds of $9,380,000. The company
allocated the net proceeds of the Series A Preferred Stock and the warrants
based upon their relative fair values resulting in $8,529,000 assigned to the
Series A Preferred Stock and $851,000 to the warrants. Such proceeds were
received on January 2, 1998, and are recorded as subscriptions receivable at
December 31, 1997.
The Series A Preferred Stock is convertible at any time into Class A
common shares at the Mandatory Redemption Price divided by the lesser of (a) the
volume weighted average price for any two trading days selected by the holder in
the twenty days prior to conversion, except that the holder may not accept the
lowest weighted average price ("variable conversion price"), and (b) $16.25.
Such lesser conversion price is limited to 3,040,000 shares. The most beneficial
conversion price at issuance was $12.16 which exceeded the market price value of
the common stock. Any Series A Preferred Stock unconverted outstanding because
of the share limitation can be exchanged at the holder's option for a
subordinated 8% promissory note maturing when the Series A Preferred Stock
matures. The Company has the right, at any time, to redeem all or any part of
the outstanding Series A Preferred Stock or subordinated notes at 130% of their
original purchase price.
The Series A Preferred Stock has a term of three years from the closing date
or December 31, 2000. On the maturity date, the Company must redeem the
outstanding preferred stock at its Mandatory Redemption Price, which is the sum
of purchase price, accrued but unpaid dividends and other contingent payments as
provided under the terms of the preferred stock agreement. The portion of the
Mandatory Redemption Price constituting such other contingent payments is
payable in cash whereas the purchase price and accrued but unpaid dividends are
payable in cash or common stock at the option of the Company. Accordingly, the
Company is accreting the carrying value of the preferred stock to the purchase
price and recognizing the accretion charges to retained earnings (accumulated
deficit) over the three year period from issuance to maturity. The accretion in
1998 aggregated approximately $1,424,000 or approximately $356,000 per quarter.
If the Company elects to settle the redemption in common stock, the Mandatory
Redemption Price is 1.25 times the purchase price and would result in an
additional charge in the period of redemption.
Holders of the Series A Preferred Stock have the right to require the
Company to purchase their shares for cash upon the occurrence of a Redemption
Event. Redemption Events include: a) suspension of trading or delisting from
specified stock exchanges of the common stock into which the Series A Preferred
Stock is convertible; b) failure by the Company to register, within 180 days,
the common stock into which the Series A Preferred Stock is convertible; c)
failure to issue common stock upon exercise of conversion rights by a preferred
shareholder, or d) failure to pay any amounts due to preferred shareholders. The
cash purchase price upon occurrence of a Redemption Event is the greater of a)
1.25 times the Mandatory Redemption Price, or b) the Mandatory Redemption Price
divided by the product of the effective conversion price and the market value of
the common shares. Any remaining accretion to the actual cash purchase price
would be recorded upon a Redemption Event.
The Series A Preferred Stock is mandatorily redeemable upon the occurrence
of a Redemption Event and, accordingly, is classified as Redeemable Preferred
Stock, rather than as a component of Shareholders' Equity (Deficit).
The Series A Preferred Stock pays a cumulative dividend of 8.0% per annum
in cash or stock at the option of the Company, or as noted above, during any
quarter in which the closing bid price for the Class A common stock was less
than $8.00 for any ten consecutive trading days. An equivalent payment was
payable to any holder of Series A Preferred Stock which was subject during any
quarter to a standstill period following a Company underwritten public offering
or which was non-convertible because of the limitations on the number of common
shares issuable upon conversion. Such dividends and payments were payable only
prior to conversion and payable in cash or additional Series A Preferred Stock
at the Company's option; however, if the Company elected to pay the dividend in
Series A Preferred Shares, the amount of such payment would have been 125% of
the cash amount. In 1998, the Company elected to satisfy these dividends with
shares of Series A Preferred Stock.
F-18
<PAGE>
The Series A Preferred Stock has a liquidation preference as to their
principal amount and any accrued and unpaid dividends. The Company has reserved
3,800,000 shares of common stock for conversion of Series A Preferred Stock and
exercise of the common stock warrants.
The holders of the Series A Preferred Stock have the same voting rights as
the holders of Class A common stock, calculated as if all outstanding shares of
Series A Preferred Stock had been converted into shares of Class A common Stock
on the record date for determination of shareholders entitled to vote on the
matter presented.
The 760,000 warrants issued to the holders of Series A Preferred Stock are
exercisable for five years at $16.25 per share. The holder may also elect to pay
the exercise price by receiving a reduced number of common shares in lieu of
paying the cash exercise price. The warrant agreements also provide for an
adjustment of the warrant exercise price upon the issuance of common stock or
equivalents with an exercise price below the current market price of the common
stock. This adjustment does not apply to the issuance of options under existing
plans or shares issued upon the exercise of options, warrants or rights
outstanding when the warrants were issued. The adjustment does apply to other
transactions where the Board of Directors determines an adjustment is necessary
to equitably protect the rights of the holder. The 346,000 warrants issued to
consultants are excercisable for five years and have exercise prices ranging
from $10.31 to $15.63 and bear similar terms to the warrants issued to the
holders of Series A Preferred Stock.
On November 10, 1998, the shareholders approved the sale and issuance of
Series B Convertible Preferred Stock ("Series B Preferred Shares") (subject to
the execution of definitive agreements) and the issuance of Class A Common Stock
Purchase Warrants to the Series A Preferred Stockholders that would receive
Series B Preferred Shares. The sale and issuance of Series B Preferred Shares
would be to the Series A Convertible Preferred Stockholders in the form of an
even exchange for Series A Preferred Shares. The terms of the Series B Preferred
Shares are similar to the Series A Preferred Shares, except that: (a) the Series
B Preferred Shares would have a conversion price of that number of shares
determined by dividing the Mandatory Redemption Price by $4.00, as defined above
in Series A Preferred Stock, whereas the conversion price of the Series A
Preferred Shares is equal to the lesser of (i) $16.25 or (ii) the Weighted
Volume Average Price (as defined) of the Class A Common Stock prior to the
conversion date limited to 3,040,000 shares; (b) the Series B Preferred Shares,
as a result of the conversion price of $4.00, would not provide the holder with
the option to receive a subordinated 8% promissory note, as the Series A
Preferred Shares provides; and (c) there will be no dividend payment due based
on the price of the Class A Common Stock, as the Series A Preferred Shares
provides.
The issuance of Class A Common Stock Purchase Warrants to the Series A
Preferred Stockholders that would receive Series B Preferred Shares provides for
the issuance of 80,000 Class A Common Stock Purchase Warrants for each $1
million of principal amount of the Series A Preferred Shares outstanding on
November 10, 1998 in addition to certain other Series A Preferred Shares which
were converted at $4.00 per share between September 1, 1998 and November 10,
1998. These purchase warrants are four-year warrants exercisable at $3.00, and
provide for mandatory exercise upon the occurrence of certain events.
During 1998, 5,798 shares of Series A Convertible Preferred Stock were
converted to 1,917,806 shares of Class A Common Stock and 1,740 shares of Series
A Preferred Stock were issued as dividends resulting in 14,942 shares
outstanding at December 31, 1998.
Subsequent to year-end, on March 5, 1999, the outstanding Series A
Preferred Stock and warrants were exchanged for Series B Preferred Stock. See
Note N to the Consolidated Financial Statements.
<PAGE>
O. Equity Transactions
- -----------------------
Common Stock
On April 16, 1998, the shareholders amended the Company's Certificate of
Incorporation to modify certain terms of the Class A Common Stock and 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.
F-19
<PAGE>
In December 1997, the National Association of Securities Dealers, Inc.
("NASD"), notified the Company that it proposed to de-list the Class B Common
Stock from Nasdaq SmallCap Market because the number of holders of Class B
Common Stock appeared to have fallen below 300 beneficial owners. The Company
proposed the amendments to alleviate certain negative impact of such de-listing
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 was no longer listed on the Nasdaq SmallCap Market.
Also on April 16, 1998, the shareholders approved the adoption of three
equity plans and an increase in the authorized Class A Common Stock from 22
million shares to 40 million shares.
On November 10, 1998, the shareholders approved an increase in the
authorized Class A Common Stock from 40 million to 60 million shares and the
sale and issuance of up to 6,666,666 shares of Class A Common Stock at a
purchase price of $3.00 per share, and Warrants to purchase up to 1,000,000
shares of Class A Common Stock at an exercise price of $3.00 per share.
In order to provide additional capital to the Company, the Company agreed
to sell 6,666,666 shares of Class A Common Stock at a purchase price of $3.00
per share for aggregate proceeds of $20,000,000. For each $1 million of Class A
Common Stock purchased, the purchaser received seven-year warrants to purchase
50,000 shares of Class A Common Stock, exercisable at $3.00 per share; a total
of 1,000,000 warrants were, therefore, issued to the purchaser. The placement
agent also received warrants to purchase up to 250,000 shares of Class A Common
Stock.
F-20
<PAGE>
P. Earnings Per Share
- ---------------------
The following is a reconciliation of the numerators and denominators used
to calculate loss per share in the Consolidated Statements of Operations (in
thousands, except per share data):
<TABLE>
<CAPTION>
Two Months
Year Ended Ended Year Ended Year Ended
December 31, December 31, October 31, October 31,
1998 1997 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Loss per common share-basic:
Net loss $ (19,020) $ (3,936) $ (22,007) $ (8,959)
Less: Dividends on Redeemable
Convertible Preferred Stock (1,740) -- -- --
Accretion on Redeemable
Convertible Preferred Stock (1,424) -- -- --
------ ----- ------- -----
Net loss to common shareholders (numerator) $ (22,184) $ (3,936) $ (22,007) $ (8,959)
------ ----- ------- -----
Weighted average shares - basic (denominator) 10,618,000 8,258,000 7,895,000 7,743,000
------ ----- ------- -----
Net loss per common share-basic $ (2.09) $ (0.48) $ (2.79) $ (1.16)
====== ===== ======= =====
Loss per common share-fully diluted:
Net loss $ (19,020) $ (3,936) $ (22,007) $ (8,959)
Less: Dividends on Redeemable
Convertible Preferred Stock (1,740) -- -- --
Accretion on Redeemable
Convertible Preferred Stock (1,424) -- -- --
------ ----- ------- -----
Net loss to common shareholders (numerator) $ (22,184) $ (3,874) $ (22,007) $ (8,959)
------ ----- ------- -----
Weighted average shares 10,618,000 8,258,000 7,895,000 7,743,000
Effect of dilutive options / warrants -- -- -- --
------ ----- ------- -----
Weighted average shares-fully diluted 10,618,000 8,258,000 7,895,000 7,743,000
(denominator)
------ ----- ------- -----
Net loss per common share-diluted $ (2.09) $ (0.48) $ (2.79) $ (1.16)
====== ===== ======= =====
</TABLE>
Stock options, warrants and rights would have an anti-dilutive effect on
earnings per share for the years ended December 31, 1998, October 31, 1997 and
1996 and the two month period ended December 31, 1997 and, therefore, were not
included in the calculation of fully diluted earnings per share.
<PAGE>
Q. Stock Option Plans, Warrants and Rights
- ------------------------------------------
The Company's 1990 Incentive Stock Option Plan reserves 484,000 shares of
either Class A or Class B Common Stock for purchase upon the exercise of options
that may not be granted at less than the fair market value as of the date of
grant and that are exercisable over a period not to exceed ten years. There are
no further shares available for option under this plan.
The Company's 1992 Incentive Stock Option Plan reserves 700,000 shares of
Class A Common Stock for purchase upon the exercise of options that may not be
granted at less than fair market value as of the date of grant and that are
exercisable over a period not to exceed ten years. There are no further shares
available for option under this plan.
The Company's Discretionary Deferred Compensation Plan reserves 1,150,000
shares of Class A Common Stock for issuance upon the exercise of options. There
are no options available for grant under this plan. Options may not be granted
at less than fair market value as of the date of grant and are exercisable over
a period not to exceed ten years.
The Company's 1995 Incentive Stock Option Plan reserves 750,000 shares of
Class A Common Stock for issuance upon the exercise of options. Options may not
be granted at less than fair market value as of the date of grant and are
exercisable over a period not to exceed ten years. There are no options
available for grant under this plan.
The Company's Base Ten Stock Option Plan reserves 80,000 shares of Class A
Common Stock for purchase upon the exercise of options that may not be granted
at less than fair market value as of the date of grant and that are exercisable
over a period not to exceed ten years. There are no options available for grant
under this plan.
The Company's 1998 Stock Option and Stock Award Plan reserves 3,000,000
shares of Class A Common Stock for purchase upon the exercise of options.
Options may not be granted at less than fair market value as of the date of
grant and are exercisable over a period not to exceed ten years. This plan
allows for the re-issuance of any canceled or expired options. Approximately
590,000 options remain available for grant under this plan.
F-21
<PAGE>
A summary of the status of the Company's aforementioned stock option plans
as of October 31, 1996 and 1997 and December 31, 1997 and 1998 and changes
during the periods ending on those dates is presented below:
<TABLE>
<CAPTION>
Class A Class B
-------------------------------------------------------------
Weighted - Weighted - Total
Number of Average Number of Average Number of
Shares Exercise Price Shares Exercise Price Shares
------ -------------- ------ -------------- ------
<S> <C> <C> <C> <C> <C>
Outstanding at October 31, 1995 1,265,394 $ 7.82 4,946 $ 3.00 1,270,340
Granted 307,700 10.79 -- -- 307,700
Exercised (103,351) 7.06 -- -- (103,351)
Canceled (3,850) 11.15 -- -- (3,850)
------ ----- ----- ------ ------
Outstanding at October 31, 1996 1,465,893 $ 8.85 4,946 $ 3.00 1,470,839
========= ====== ===== ====== =========
Granted 574,650 11.33 -- -- 574,650
Exercised (78,130) 6.81 -- -- (78,130)
Canceled (57,750) 9.73 -- -- (57,750)
------- ---- ----- ------ -------
Outstanding at October 31, 1997 1,904,663 $ 9.66 4,946 $ 3.00 1,909,609
========= ====== ===== ====== =========
Granted -- -- -- -- --
Exercised (50,584) 9.67 -- -- (50,584)
Canceled -- -- -- -- --
--------- ------ ----- ------ ---------
Outstanding at December 31, 1997 1,854,079 9.65 4,946 $ 3.00 1,859,025
========= ====== ===== ====== =========
Granted 2,546,100 2.94 -- -- 2,546,100
Exercised (125,232) 3.84 (4,946) 3.00 (130,178)
Canceled (404,324) 9.15 -- -- (404,324)
--------- ------ ----- ------ ---------
Outstanding at December 31, 1998 3,870,623 5.47 -- -- 3,870,623
========= ====== ===== ====== =========
Exercisable at December 31, 1998 1,942,823 $ 7.62 -- $ -- 1,942,823
========= ====== ===== ====== =========
</TABLE>
<PAGE>
The following tables summarizes information about the stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------- --------------------------------
Weighted-Average
Number Remaining Number
Outstanding Contractual Weighted-Average Exercisable at Weighted-Average
at December Life (in years) Exercise Price December 31, Exercise Price
Range of Exercise Prices 31, 1998 1998
- -------------------------- --------- -------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
$ 2.00 - $ 4.00 1,958,027 9.51 $ 2.21 525,227 $ 2.30
$ 5.13 - $ 8.00 622,620 8.09 $ 5.65 247,620 $ 6.43
$ 8.06 - $10.88 866,976 5.51 $ 9.67 866,976 $ 9.67
$11.13 - $14.50 423,000 7.34 $ 11.69 303,000 $ 11.91
</TABLE>
The Company's 1998 Employee Stock Purchase Program authorizes the issuance
of up to 1,000,000 shares of Class A Common Stock for purchase by Company
employees. Shares are purchased at 85% of the fair market value on standard
quarterly purchase dates as defined in the plan. Approximately 993,000 shares
were available for issuance and purchase at December 31, 1998.
At December 31, 1998, the Company has outstanding 3,264,089 warrants and
754,000 options to consultants and five non-management directors at prices
ranging from $2.00 to $18.00, expiring from 1999 to 2008. In 1998, 100,000
warrants and 87,000 options expired. Included in the above are 125,000 warrants
issued to a consultant for services related to the promotion and selling of the
Company's Stock at an exercise price which was less than the fair market value
of the Common Stock at the date of grant. The remaining options and warrants
were issued at fair market value at the date of grant.
F-22
<PAGE>
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation"
("FAS 123") for its stock options plans for employees. Had compensation cost for
these plans been determined under FAS 123, the Company's net loss would have
been increased to $20,192,000 and $24,898,000 with a net loss per common share
of $2.20 and $3.22 for years ended December 31, 1998 and October 31, 1997,
respectively. There were no options granted in the two-month period ended
December 31, 1997. For purposes of this calculation, the fair value of each
option grant was estimated on the grant date using the Black-Scholes
option-pricing model with the following assumptions: expected volatility of
between 43-77 percent; weighted average risk free interest rate of between
5.08-6.35 percent; and weighted average expected lives of 1 to 5 years. All
options granted to date under the stock option plans for employees have an
exercise price equal to the market price of the Company's stock on the grant
date.
In addition, the Company has recorded charges to earnings for years ended
December 31, 1998 and October 31, 1997 of $322,000 and $2,750,000 respectively,
representing the value of the options and warrants issued to consultants. The
Company also incurred a charge of $543,000 in the two-month period ended
December 31, 1997 as a result of extending option expriation dates to terminated
employees of the GTD. These charges have been computed using the Black-Scholes
option-pricing model.
R. Employee Benefit Plan
- -------------------------
The Company has a 401(k) plan which allows all eligible employees to defer
up to 17% of their pre-tax income through contributions to the plan. The plan
allows for a 1% base annual salary Company matching contribution for each
eligible employee. The Company's contribution was $51,000 for fiscal year 1998,
$23,000 for the two-month period ended December 31, 1997 and $34,000, and
$26,000 in fiscal years 1997 and 1996, respectively.
S. Discontinued Operations
- ---------------------------
On October 27, 1997 the Company entered into an agreement to sell the GTD
to Strategic Technology Systems, Inc. ("Strategic"). The sale between the
Company and Strategic was closed on December 31, 1997. Accordingly, the
operating results of the Government Technology Division have been segregated
from continuing operations and reported as a separate line item on the
consolidated statements of operations for all periods presented.
Results of operations of the GTD are as follows:
<TABLE>
<CAPTION>
Two Month Ended Year Ended Year Ended
December 31, 1997 October 31, 1997 October 31, 1996
----------------- ---------------- ----------------
<S> <C> <C> <C>
Net revenues $ -- $ 9,981 $ 13,329
Cost and expenses 222 14,835 14,238
</TABLE>
<PAGE>
The net loss on disposal of $1,173,000 for the year ended October 31, 1997
included a provision for estimated losses of the GTD of $1,068,000 through the
date of sale. The actual expenses of the GTD through the date of the sale
exceeded the provision for estimated losses by $222,000.
In accordance with the agreement between the Company and Strategic, and in
consideration for the value of the net assets sold, the Company received
$3,500,000 in cash, and an unsecured promissory note in a principal amount of
$1,975,000. The note has a five year term bearing interest at a rate of 7.5% per
annum. Principal payments under the note amortize over a three year period
beginning on the second anniversary of the closing which was December 31, 1997.
The terms of the note also provide for accelerated payments of principal and
interest pending the occurrence of certain events.
The Company also received a warrant from Strategic exercisable for that
number of shares of the voting common stock as equals 5% of issued and
outstanding shares of common stock and common stock equivalents immediately
following and giving effect to any initial underwritten public offering by
Strategic, with respect to which there can be no assurance. In the event that
Strategic is sold, merged or liquidated prior to its 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
canceled.
The Company has subleased to Strategic approximately 30,000 square feet
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 per
year for the last two years of the sublease.
F-23
<PAGE>
T. Comprehensive Income (Loss)
- -------------------------------
The accumulated balances for each classification of comprehensive income
(loss) are as follows (dollars in thousands):
<TABLE>
<CAPTION>
Accumulated
Unrealized Other
Foreign Gains on Comprehensive
Currency Items Securities Income (loss)
-------------- ---------- -------------
<S> <C> <C> <C>
Balance October 31, 1996 $ (159) $ 49 $ (110)
FY 1997 change 9 94 103
Balance October 31, 1997 (150) 143 (7)
========== ========= ============
1997 Transition Period change (45) (81) (126)
Balance December 31, 1997 (195) 62 (133)
========== ========= ============
FY 1998 change (55) (8) (63)
Balance December 31, 1998 $ (250) $ 54 $ (196)
========== ========= ============
</TABLE>
U. Subsequent Events
- ---------------------
Equity Transactions
-------------------
Subsequent to year-end, on March 5, 1999, the outstanding Series A
Preferred Shares were exchanged for Series B Preferred Shares. See Note N to the
Consolidated Financial Statements. As a result, 15,203 shares of Series B
Preferred Stock, with a principal amount of $15,203,000 were exchanged for the
outstanding shares of Series A Preferred Stock. In addition, 632,000 new
Warrants were issued to the Series B Preferred Stockholders, and 720,000
Warrants were issued to replace certain original Warrants issued in December
1997. The Series B Preferred Stock and Warrants will be recorded at their
estimated fair value. The Company is in the process of finalizing such fair
values and the amounts, if any, of noncash charges or credits.
At the November 10, 1998 shareholders' meeting, a proposal was approved
to authorize the Company to decrease the conversion price of the $10 million
Convertible Subordinated Debenture from $12.50 to $4.00 per share of Class A
Common Stock upon conversion of the debenture. On March 5, 1999, the holder
converted this $10 million debenture into 2.5 million shares of Class A Common
Stock which increased shareholders' equity by approximately $9.6 million
including a non-cash charge of approximately $5.5 million.
F-24
<PAGE>
The following unaudited pro-forma condensed balance sheet represents the
effect of the conversion of the $10 million of convertible debentures and
write-off of $393,000 in unamortized debenture issuance costs as if it had
occurred as of December 31, 1998, the effective date of the definitive agreement
as described above. This unaudited pro-forma condensed balance sheet has been
prepared for comparative purposes only (dollars in thousands).
<TABLE>
<CAPTION>
Actual as of Pro-forma as
December 31, of December
1998 31, 1998
(Audited) (Unaudited)
--------- -----------
<S> <C> <C>
Total current assets 20,448 20,448
---------- -----------
Property, plant and equipment, net 5,026 5,026
Note receivable 1,975 1,975
Other assets 6,372 5,979
---------- ----------
Total Assets $ 33,821 $ 33,428
========== ===========
Current liabilities $ 4,966 $ 4,966
---------- -----------
Long-term debt 10,000 --
Other long-term liabilities 3,569 3,569
---------- -----------
Total long-term liabilities 13,569 3,569
---------- -----------
Redeemable Preferred Stock 12,914 12,914
---------- -----------
Shareholders' equity 2,372 11,979
---------- -----------
Total liabilities, redeemable
preferred stock and shareholders' equity $ 33,821 $ 33,428
========== ===========
</TABLE>
Almedica Technology Group Acquisition
-------------------------------------
On March 16, 1999, the Company's Board of Directors agreed to proceed
with negotiations for the acquisition of Almedica Technology Group (Almedica), a
wholly-owned subsidiary of Almedica International, Inc., in a stock transaction.
Almedica develops clinical label and materials management software for the
pharmaceutical industry essential to the management of clinical trials. The
acquisition, which is subject to the negotiation of final terms and related
execution of a definitive agreement, is expected to close before the end of May
1999. Unaudited selected financial information for Almedica for the years ended
August 31, 1998 and 1997 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
Year Ended Year Ended
August 31, 1998 August 31, 1997
(unaudited) (unaudited)
----------- -----------
<S> <C> <C>
Sales $ 1,815 $ 1,604
Net income (560) (578)
----- -----
Total assets 1,195 1,397
Stockholders' equity 145 456
----- -----
</TABLE>
<PAGE>
Select Software Tools Acquisition
---------------------------------
On March 16, 1999, the Company's Board of Directors approved the
commencement of preliminary discussions which could lead to an acquistion of
Select Software Tools, plc (NASDAQ: SLCTY) ("Select") in a stock transaction.
Also, in connection with these preliminary discussions with Select, the Company
agreed to loan Select up to $1.0 million. The acquisition is subject to the
negotiation of final terms and execution of a definitive purchase agreement, and
the approval of Select stockholders.
On March 26, 1999, the Company loaned $700,000 to Select under a promissory
note. Unaudited selected financial information for Select for the nine months
ended September 30, 1998 and the year ended December 31, 1997 are as follows
(dollars in thousands):
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, 1998 December 31, 1997
(unaudited) (unaudited)
----------- -----------
<S> <C> <C>
Sales $ 19,439 $ 25,012
Net loss (12,074) (8,080)
------- ------
Total assets 17,618 21,891
Stockholders' equity (246) 11,677
---- ------
</TABLE>
F-25
<PAGE>
The Company believes that Select took certain restructuring actions in the
second half of 1998 and early 1999 in an effort to significantly reduce its
expense base. Select has informed the Company that they have identified certain
possible additional cost reductions which are intended to bring Select to
break-even by closing or shortly after the date of acquisition by Base Ten. If
the Select acquisition occurs, depending on net liabilities of Select, assumed
by the Company at the date of acquisition, if any, and on the success of these
cost reduction efforts, in bringing Select to net positive cashflow, the Company
may need to acquire additional funding in 1999. However, no assurances can be
given that the acquisition will occur and, if it does, whether additional
required funds would be available to Base Ten when needed.
F-26
<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 Amendment No. 1 to its
Annual Report on Form 10-K/A-1 to be signed on its behalf by the undersigned,
thereunto duly authorized, this 30th day of April, 1999.
BASE TEN SYSTEMS, INC.
THOMAS E. GARDNER
By: ---------------------------
Thomas E. Gardner
Chairman, Chief Executive Officer
and President
<PAGE>
<TABLE>
<CAPTION>
Exhibit Index
Exhibit Number Exhibit Page
-------------- ------ ----
<S> <C> <C> <C>
2. (a) Asset Purchase Agreement between Registrant and * (A)
Strategic Technology Systems, Inc.
dated October 27, 1997, (incorporated by
reference to Exhibit 2.1 of Registrant's Current
Report on Form 8-K (File No. 0-7100) dated
November 17, 1997).
(b) Asset Purchase Agreement dated as of February 19, *
1998 by and among Base Ten FlowStream, Inc.,
Base Ten Systems, Inc. and Consilium, Inc.
(incorporated by reference to Exhibit 2(b) to
Registrants' Current Report on Form 8-K (File No.
0-7100) dated March 6, 1998).
3. (a) Restated Certificate of Incorporation, as amended, *
of Registrant (incorporated by reference to
Exhibit 4(a) to Amendment No. 1 to Registrant's
Registration Statement on Form S-8
(File No. 2-84451) filed on July 31, 1990).
(b) Certificate of Amendment of the Restated *
Certificate of Incorporation dated September 1,
1992 (incorporated by reference to Exhibit
4(b)(2) to Amendment No. 3 to Registrant's
Registration Statement on Form S-1 (File No.
33-48404) filed on September 3, 1992).
(c) Amended By-Laws of the Registrant (incorporated *
by reference to Exhibit 4(d)(2) to Registrant's
Registration Statement on Form S-8 (File No.
33-60454) filed on April 1, 1993).
(d) Certificate of Amendment of Restated Certificate *
of Incorporation filed December 2, 1997,
(incorporated by reference to Exhibit 99.3 of
Registrant's Current Report on Form 8-K (File No.
0-7100) dated October 27, 1997).
(e) Amended By-laws of Registrant dated October 13, *
1997 (incorporated by reference to Exhibit
10(ee) to Registrant's Annual Report on Form 10-K
(File No. 0-7100) for the fiscal year ended
October 31, 1997).
(f) Amendment to Certificate of Incorporation filed *
on March 31, 1998 (incorporated by reference to
Exhibit 3(d) to Registrants' Current Report on
Form 8-K (File No. 0-7100) dated April 23, 1998).
(g) Amendment to Certificate of Incorporation filed *
on April 21, 1998 (incorporated by reference to
Exhibit 3(e) to Registrants' Current Report on
Form 8-K (File No. 0-7100) dated April 23, 1998).
(h) Certificate of Amendment of Certificate of *
Incorporation dated June 30, 1998 filed with
the Treasurer of the State of new Jersey on July
9, 1998 (incorporated by reference to Exhibit
3(g) to Registrants' Current Report on Form 8-K
(File No. 0-7100) dated January 13, 1999).
(i) Certificate of Amendment of Certificate of *
Incorporation dated September 30, 1998 filed
with the Treasurer of the State of New Jersey on
October 13, 1998 (incorporated by reference to
Exhibit 3(h) to Registrants' Current Report on
Form 8-K (File No. 0-7100) dated January 13,
1999).
(j) Certificate of Amendment of Certificate of *
Incorporation dated November 18, 1998 filed
with the Treasurer of the State of new Jersey on
November 19, 1998 (incorporated by reference to
Exhibit 3(i) to Registrants' Current Report on
Form 8-K (File No. 0-7100) dated January 13,
1999).
(k) Certificate of Amendment of Certificate of *
Incorporation dated January 11, 1999 filed with
the Treasurer of the State of new Jersey on
January 11, 1999 (incorporated by reference to
Exhibit 3(j) to Registrants' Current Report on
Form 8-K (File No. 0-7100) dated January 13,
1999).
(l) Form of Certificate of Amendment of Restated *
Certificate of Incorporation providing for
designation, preferences and rights of the
Convertible Preferred Shares, Series B (Exhibit A
to the Exchange Agreement dated as of December
31, 1998) (incorporated by reference to Exhibit
10(yy) to Registrants' Current Report on Form 8-K
(File No. 0-7100) dated January 13, 1999).
(m) Certificate of Amendment of Certificate of *
Incorporation dated March 3, 1999 filed with the
Treasurer of the State of New Jersey on March
4, 1999.
(n) Certificate of Correction to the Certificate of *
Amendment of Restated Certificate of
Incorporation providing for designation,
preferences and rights of the Convertible
Preferred Shares, Series B, filed with the
Treasurer of the State of New Jersey on March 18,
1999.
4. (a) Purchase Agreement filed as of August 8, 1996 *
between the Registrant and Jesse L. Upchurch
(incorporated by reference to Exhibit 4 (a) to
Registrant's Current Report on Form 8-K (File No.
0-7100) dated August 12, 1996).
10. (a) 1980 Deferred Compensation Agreement between * (A)
the Registrant and certain executive
officers (incorporated by reference to Exhibit
10.3 to Registrant's Registration Statement on
Form S-1 File No. 2-70259 filed on December 16,
1980).
(b) 1981 Incentive Stock Option Plan of Registrant, * (A)
as amended and restated on January 12, 1990
(incorporated by reference to Exhibit 4(c) to
Amendment No. 1 to Registrant's Registration
Statement on Form S-8 (File No. 2-84451) filed on
July 31, 1990).
(c) 1992 Stock Option Plan of Registrant * (A)
(incorporated by reference to Exhibit 10(ai) to
Amendment No. 3 to Registrant's Registration
Statement on Form S-1 (File No.
33-48404) filed on September 3, 1992).
(d) Change in Control Agreement dated October 23, * (A)
1991 between Registrant and Myles M.
Kranzler (incorporated by reference to Exhibit
10(e) to Registrant's Annual Report on Form 10-K
(File No. 0-7100) for the fiscal year ended
October 31, 1991).
<PAGE>
(e) Change in Control Agreement dated October 23, * (A)
1991 between Registrant and James A. Eby
(incorporated by reference to Exhibit 10(f)
to Registrant's Annual Report on Form 10-K (File
No. 0-7100) for the fiscal year ended October 31,
1991).
(f) Change in Control Agreement dated October 23, * (A)
1991 between Registrant and Edward J.
Klinsport (incorporated by reference to Exhibit
10(f) to Registrant's Annual Report on Form 10-K
(File No. 0-7100) for the fiscal year ended
October 31, 1991).
(g) Employment Agreement dated as of March 26, 1992 * (A)
between the Registrant and Myles M.
Kranzler (incorporated by reference to Exhibit
28(b) to Registrant's Current Report on Form 8-K
(File No. 0-7100) filed on April 10, 1992).
(h) Employment Agreement dated as of March 26, 1992 * (A)
between the Registrant and James A. Eby
(incorporated by reference to Exhibit 28(c) to
Registrant's Current Report on Form 8-K (File No.
0-7100) filed on April 10, 1992).
(i) Employment Agreement dated as of March 26, 1992 * (A)
between the Registrant and Edward J.
Klinsport (incorporated by reference to Exhibit
28(d) to Registrant's Current Report on Form 8-K
(File No. 0-7100) filed on April 10, 1992).
(j) Employment Agreement dated as of March 26, 1992 * (A)
between the Registrant and Alan J.
Eisenberg (incorporated by reference to Exhibit
28(e) to Registrant's Current Report on Form 8-K
(File No. 0-7100) filed on April 10, 1992).
(k) Amended Agreement dated July 28, 1992 between the * (A)
Registrant and Alexander Adelson
(incorporated by reference to Exhibit 10(ar) to
the Registrant's Registration Statement on
Amendment No. 3. to Form S-2 on Form S-1
(Registration No. 33-48404) filed on September 3,
1992).
(l) Modification of Amended Agreement dated January * (A)
11, 1993 between the Registrant and
Alexander M. Adelson.
(m) Amended Modification of Amended Agreement dated * (A)
January 28, 1994 between the
Registrant and Alexander M. Adelson.
(n) Amended Consulting Agreement made as of February * (A)
24, 1992 between the Registrant and Bruce
D. Cowen (incorporated by reference to Exhibit
10(as) to the Registrant's Registration Statement
on Amendment No. 3. to Form S-2 on Form S-1
(Registration No. 33-48404) filed on
September 3, 1992).
(o) Modification of Amendment Agreement dated January * (A)
11, 1993 between the Registrant and Bruce D.
Cowen.
(p) Consulting Agreement dated March 1, 1994 * (A)
between the Registrant and Bruce D. Cowen.
(q) Option Agreement dated as of November 9, 1992 *
between the Registrant and Donald M. Daniels
(incorporated by reference to Exhibit
10(as) to the Registrant's Annual Report on Form
10-K (File No. 0-7100) for the fiscal year ended
October 31, 1992).
(r) Option Agreement dated as of June 5, 1992 between *
the Registrant and Strategic Growth
International, Inc. (incorporated by reference to
Exhibit 10(at) to the Registrant's Annual Report
on Form 10-K (File No. 0-7100) for the fiscal
year ended October 31, 1992).
(s) Acquisition Agreement dated October 28, 1994 *
between the Registrant and CKR Partners, L.L.C.
(incorporated by reference to Exhibit 2(a) to
Registrant's Current Report on Form 8-K (File No.
0-7100) dated November 11, 1994).
(t) Lease dated October 28, 1994 between the *
Registrant and CKR Partners, L.L.C.
(incorporated by reference to Exhibit 10(b) to
Registrant's Current Report on Form 8-K (File No.
0-7100) dated November 11, 1994).
(u) Operating Agreement between the Registrant and *
Jesse L. Upchurch dated May 1, 1997
(incorporated by reference to Exhibit (u) of
Registrant's Current Report on Form 8-K (File No.
0-7100) dated May 1, 1997).
(v) License and Services Agreement between the *
Registrant and uPACS, L.L.C. dated May 1, 1997,
(incorporated by reference to Exhibit 10(v) of
Registrant's Current Report Form 8-K (File No.
0-7100) dated May 1, 1997).
(w) Compensation Agreement among uPACS, L.L.C., * (A)
Andrew Garret, Inc. and Andrew Sycoff dated
May 1, 1997, (incorporated by reference to
Exhibit 10(w) of Registrant's Current Report on
Form 8-K (file No. 0-7100) dated May 1, 1997).
(x) Securities Purchase Agreement between the *
Registrant and certain purchasers dated May 30,
1997, (incorporated by reference to Exhibit 99.1
of Registrant's Current Report on Form 8-K (File
No. 0-7100) dated May 30, 1997).
(y) Convertible Term Debenture issued by the *
Registrant to certain purchasers dated May 30,
1997, (incorporated by reference to Exhibit 99.2
of Registrant's Current Report on Form 8-K (File
No. 0-7100) dated May 30, 1997).
(z) Stock Purchase Warrant issued by the Registrant *
to certain purchases dated May 30, 1997,
(incorporated by reference to Exhibit 99.3 of
Registrant's Current Report on Form 8-K (File No.
0-7100) dated May 30, 1997).
(aa) Registration Rights Agreement between the *
Registrant and certain purchasers dated May 30,
1997, (incorporated by reference to Exhibit 99.4
of Registrant's Current Report on Form 8-K (File
No. 0-7100) dated May 30, 1997).
(bb) Securities Purchase Agreement between the *
Registrant and certain purchasers dated
December 4, 1997, (incorporated by reference to
Exhibit 99.1 of Registrant's Current Report on
Form 8-K (File No. 0-7100) filed dated December
9, 1997).
(cc) Registration Rights Agreement between the *
Registrant and certain purchasers dated
December 4, 1997, (incorporated by reference to
Exhibit 99.1 of registrant's Current Report on
Form 8-K (File No, 0-7100) dated May 30 filed
December 9, 1997).
(dd) Common Stock Purchase Warrant issued by *
Registrant and certain purchasers dated
December 4, 1997 (incorporated by reference to
Exhibit 99.4 of Registrant's Current Report Form
8-K (File No. 07100) dated December 9, 1997).
(ee) Warrant Agreement between Registrant and * (A)
Strategic Growth International dated April
15, 1997 (incorporated by reference to Exhibit
10(ee) to Registrant's Annual Report on Form 10-K
(File No. 0-7100) for the fiscal year ended
October 31, 1997).
<PAGE>
(ff) Consultant Agreement between Registrant and RTS * (A)
Research Lab, Inc., dated June 9, 1997
(incorporated by reference to Exhibit 10(ff) to
Registrant's Annual Report on Form 10-K (File No.
0-7100) for the fiscal year ended October 31,
1997).
(gg) Warrant Agreement between Registrant and * (A)
Strategic Growth International, Inc. dated
June 20, 1997 (incorporated by reference to
Exhibit 10(gg) to Registrant's Annual
Report on Form 10-K (File No. 0-7100) for the
fiscal year ended October 31, 1997).
(hh) Option Agreement between Registrant and David C. * (A)
Batten dated October 13, 1997 (incorporated
by reference to Exhibit 10(hh) to Registrant's
Annual Report on Form 10-K (File No. 0-7100) for
the fiscal year ended October 31, 1997).
(ii) Option Agreement between Registrant and Alan S. * (A)
Poole dated October 13, 1997 (incorporated
by reference to Exhibit 10(ii) to Registrant's
Annual Report on Form 10-K (File No. 0-7100) for
the fiscal year ended October 31, 1997).
(jj) Employment Agreement between Registrant and * (A)
Thomas E. Gardner dated October 17, 1997
(incorporated by reference to Exhibit 10(jj) to
Registrant's Annual Report on Form 10-K (File No.
0-7100) for the fiscal year ended October 31,
1997).
(kk) Change of Control Agreement between Registrant * (A)
and Thomas E. Gardner dated October 17, 1997
(incorporated by reference to Exhibit 10(kk) to
Registrant's Annual Report on Form 10-K (File No.
0-7100) for the fiscal year ended October 31,
1997).
(ll) Performance-Based Stock Option Agreement between * (A)
Registrant and Thomas E. Gardner dated
October 17, 1997 (incorporated by reference to
Exhibit 10(ll) to Registrant's Annual Report on
Form 10-K (File No. 0-7100) for the fiscal year
ended October 31, 1997).
(mm) Service-Based Stock Option Agreement between *
Registrant and Thomas E. Gardner dated October
17, 1997 (incorporated by reference to Exhibit
10(mm) to Registrant's Annual Report on Form 10-K
(File No. 0-7100) for the fiscal year ended
October 31, 1997).
(nn) Separation and Consulting Agreement between * (A)
Registrant and Myles M. Kranzler dated
October 20, 1997 (incorporated by reference to
Exhibit 10(nn) to Registrant's Annual Report on
Form 10-K (File No. 0-7100) for the fiscal year
ended October 31, 1997).
(oo) Omnibus Convertible Term Debenture Holder Waiver *
and Consent Regarding Sale of the
Government Technology Division and Amendment No.
1 to Convertible term Debenture
between Registrant and RGC International
Investors, LDC and the Tail Wind Fund,
LTD., dated October 20, 1997 (incorporated
by reference to Exhibit 10(oo) to
Registrant's Annual Report on Form 10-K (File No.
0-7100) for the fiscal year ended
October 31, 1997).
(pp) Employment Agreement between Registrant and C. * (A)
Richard Bagshaw dated November 26, 1997
(incorporated by reference to Exhibit 10(pp) to
Registrant's Annual Report on Form 10-K (File No.
0-7100) for the fiscal year ended October 31,
1997).
<PAGE>
(qq) Promissory Note from Strategic Technology *
Systems, Inc., to Registrant dated December 31,
1997 (incorporated by reference to Exhibit 10(gg)
to Registrant's Annual Report on Form 10-K (File
No. 0-7100) for the fiscal year ended October 31,
1997).
(rr) Warrant Agreement between Registrant and *
Strategic Technology Systems, Inc., dated
December 31, 1997 (incorporated by reference to
Exhibit 10(rr) to Registrant's Annual Report on
Form 10-K (File No. 0-7100) for the fiscal year
ended October 31, 1997).
(ss) Transition Agreement between Registrant and *
Strategic Technology Systems, Inc., dated
December 31, 1997 (incorporated by reference to
Exhibit 10(ss) to Registrant's Annual Report on
Form 10-K (File No. 0-7100) for the fiscal year
ended October 31, 1997).
(tt) Sublease between Registrant and Strategic *
Technology Systems, Inc., dated December 31,
1997 (incorporated by reference to Exhibit 10(tt)
to Registrant's Annual Report on Form 10-K (File
No. 0-7100) for the fiscal year ended October 31,
1997).
(uu) Fifth Amendment to Lease between Registrant and *
CKR PARTNERS, L.L.C., dated December 31, 1997
(incorporated by reference to Exhibit 10(uu) to
Registrant's Annual Report on Form 10-K (File No.
0-7100) for the fiscal year ended October 31,
1997).
(vv) Consulting Agreement between Registrant and * (A)
Edward J. Klinsport dated December 31, 1997
(incorporated by reference to Exhibit 10(vv) to
Registrant's Annual Report on Form 10-K (File No.
0-7100) for the fiscal year ended October 31,
1997).
(ww) Stock Purchase Agreement dated as of November *
12, 1998 by and between Base Ten
Systems, Inc. and Jesse L. Upchurch
(incorporated by reference to Exhibit 3(d) to
Registrants' Current Report on Form 8-K (File No.
0-7100) dated November 20, 1998).
(xx) Exchange Agreement dated as of December 31, 1998 *
by and between Base Ten Systems, Inc. and the
holders of the outstanding Series A, Convertible
Preferred Stock (incorporated by reference to
Exhibit 10(xx) to Registrants' Current Report on
Form 8-K (File No. 0-7100) dated January 13,
1999).
(yy) Form of Certificate of Amendment of Restated *
Certificate of Incorporation providing for
designation, preferences and rights of the
Convertible preferred Shares, Series B (Exhibit A
to the Exchange Agreement dated as of December
31, 1998) (incorporated by reference to Exhibit
10(yy) to Registrants' Current Report on Form 8-K
(File No. 0-7100) dated January 13, 1999).
(zz) Form of Common Stock Purchase Warrant Certificate *
(Exhibit B to the Exchange Agreement dated as
of December 31, 1998) (incorporated by reference
to Exhibit 10(zz) to Registrants' Current Report
on Form 8-K (File No. 0-7100) dated January 13,
1999).
(aaa) Form of Common Stock Purchase Warrant Certificate *
Exhibit C to the Exchange Agreement dated as
of December 31, 1998) (incorporated by reference
to Exhibit 10(aaa) to Registrants' Current Report
on Form 8-K (File No. 0-7100) dated January 13,
1999).
<PAGE>
(bbb) Irrevocable Consent dated December 22, 1998 by *
the holder of the Company's 9.01% Convertible
Subordinated Debentures (incorporated by
reference to Exhibit 10(bbb) to Registrants'
Current Report on Form 8-K (File No. 0-7100)
dated January 13, 1999).
(ccc) Offer Letter by the Registrant to C. Richard * (A)
Bagshaw dated November 26, 1997.
(ddd) Change in Control Agreement between the * (A)
Registrant and C. Richard Bagshaw dated January
13, 1998.
(eee) Offer Letter by the Registrant to William F. * (A)
Hackett dated December 8, 1997.
(fff) Change in Control Agreement between the * (A)
Registrant and William F. Hackett dated May 26,
1998.
(ggg) Severance Letter by the Registrant to Stephen A.
Cloughley dated April 23, 1999.
(hhh) Consultant Agreement between the Registrant and
Stephen A. Cloughley dated April 26, 1999.
21. Subsidiaries of the Registrant. **
23.1 Consent of Independent Accountants.
23.2 Independent Auditors' Consent.
24.1 Power of Attorney. **
27.1 Financial Data Schedule for the fiscal year- **
ended December 31, 1998, submitted to the
Securities and Exchange Commission in electronic
format.
27.2 Second Restated Financial Data Schedule for the
two month period from November 1, 1997 to
December 31, 1997 submitted to the Securities and
Exchange Commission in electronic format.
</TABLE>
- ---------------
* Incorporated by reference.
** Previously filed with Annual Report on Form 10-K.
(A) A management contract or compensatory plan or arrangement.
April 23, 1999
Stephen A. Cloughley
929 Gainsway Road
Yardley, PA 19067
Dear Stephen:
To confirm your previous conversation with Thomas Gardner, this is to advise you
of your termination of employment effective April 23, 1999.
You will receive severance pay, accrued vacation, and final pay representing
employment through April 23, 1999. As mutually agreed with Mr. Gardner, this
severance amount totals $60,000. After accounting for the $30,000 outstanding
personal loan that you have with the company, this results in a $30,000
severance payment. Your acceptance of the severance payment is considered an
agreement not to accept employment either directly or as a consultant with a
direct competitor of Base Ten including POMS and ProPack Data for a period of
two years.
Your health, dental, and life insurance will remain in effect through April 30,
1999. Effective May 1, 1999 you will be eligible to continue your current health
and dental coverage through COBRA, and you would be eligible for three months
medical coverage at no cost to you through the Aetna U.S. Healthcare Safety Net
Program. Jo Ann Fechter will answer any questions that you may have and explain
COBRA and 401(k) options to you during your exit interview.
Stephen, we appreciate your contributions to the company over this past
five-year period. We expect to maintain a consulting relationship with you going
forward, and estimate the need to use a minimum fifty days of your time during
1999 at a daily rate to you of $1,200.00.
Very truly yours,
WILLIAM F. HACKETT
- -------------------
William F. Hackett
Senior Vice President
STEPHEN A. CLOUGHLEY April 23, 1999
- --------------------------- --------------------
Accepted - Stephen A. Cloughley Date
CONSULTANT AGREEMENT
THIS AGREEMENT made this 26th day of April, 1999, between Base Ten Systems,
Inc., having its offices at One Electronics Drive, Trenton, New Jersey 08619
(hereinafter called "Base Ten") and Stephen Cloughley, an individual, with an
address of 929 Gainsway Road, Yardley, PA 19067 (hereinafter called
"Consultant"). It is agreed between the parties as follows: 1. Consultant agrees
to be available to render services to Base Ten as defined in Attachment A. 2.
Base Ten agrees to pay Consultant for services and expenses as defined in
Attachment B. 3. Consultant agrees to maintain as confidential and not disclose
to others during or subsequent to performing his services, nor make use of for
any commercial purpose, any information disclosed to him directly or directly by
Base Ten and any information specifically developed by Consultant for Base Ten
in performing his services except:
a. information which Base Ten has released in writing from being
maintained in confidence,
b. information which at the time of disclosure is in the public domain by
having been printed and published and available to the public in
libraries or other public places where such data is usually collected,
c. information, which after disclosure becomes part of the public domain
as above defined through no act of Consultant. d. information which
Consultant can show first came to him from a source other than Base Ten
without restriction of disclosure.
4. It is agreed to between the parties that the relationship hereunder is
not that of master and servant, but one of independent contractor.
Neither party, nor any of their employees, shall be deemed the legal
representative or employee of the other. Each party agrees to assume
complete responsibility regarding employer's liability, workmen's
compensation, social security, unemployment insurance and occupational
safety and health requirements with respect to his own employees, and
for compliance with any other applicable laws.
5. This Agreement may be terminated at any time during its term by either
party, provided that said party gives prior written notice to the other
of its intent to terminate thirty (30) days in advance. However,
termination of the Agreement does not relieve Consultant of its
obligations under Paragraphs 3 and 5.
This Agreement may be terminated by either party forthwith on giving
notice in writing to the other if the other is in material breach of
this Agreement and such breach has not been remedied within five (5)
weeks of written notice being given to the other of such breach, such
notice to contain an express warning of the intention to terminate. Any
termination of this Agreement (howsoever occasioned) shall not affect
any accrued rights or liabilities of either party, nor shall it affect
the coming into force or the continuance in force of any provision
hereof which is expressly or by implication intended to come into or
continue in force on or after such termination.
Upon any termination of this Agreement (howsoever occasioned),
Consultant shall forthwith deliver up to Base Ten all copies of any
information and data supplied by Base Ten for the purposes of this
Agreement and shall certify to Base Ten that no copies of such
information or data have been retained. If termination occurs during
1999, Base Ten shall pay a sum to Consultant equal to $60,000, less any
payments that have already been made according to Attachment B, Part 1,
Fees.
6. Force Majeure. Notwithstanding anything else contained in this
Agreement, neither party shall be liable for any delay in performing
its obligations hereunder if such delay is caused by circumstances
beyond its reasonable control (including without limitation any delay
caused by any act or omission of the other party and the withholding of
any relevant consents by any regulatory bodies). Subject to the party
so delaying promptly notifying the other party in writing of the
reasons for the delay (and the likely duration of the delay), the
performance of such party's obligations shall be suspended during the
period that the said circumstances persist and such party shall be
granted an extension of time for performance equal to the period of
delay. Either party may, if such delay continues for more than five (5)
weeks, terminate this Agreement forthwith on giving notice in writing
to the other in which event neither party shall be liable to the other
by reason of such termination.
7. The parties shall execute and do all such further deeds, documents and
things as may be necessary to carry the provisions of this Agreement
into full force and effect.
8. No forbearance, delay or indulgence by either party in enforcing the
provisions of this Agreement shall prejudice or restrict the rights of
that party nor shall any waiver of its rights operate as a waiver of
any subsequent breach and no right, power or remedy herein conferred
upon or reserved for either party is exclusive of any other right,
power or remedy available to that party and each such right, power or
remedy shall be cumulative.
9. This Agreement (including all Attachments hereto and all documents
referred to therein) Supersedes all prior agreements, arrangements and
undertakings between the parties and constitutes the entire agreement
between the parties relating to the subject matter hereof. No addition
to or modification of any provision of this Agreement shall be binding
upon the parties unless made by a written instrument duly signed by
both parties. In the event of any conflict between the terms and
conditions of this Agreement, the Attachments and all documents
referred to therein, the terms and conditions of this Agreement shall
prevail.
10. This Agreement shall be construed and governed under the laws of the
state of New Jersey.
IN WITNESS WHEREOF, this Agreement has been executed in duplicate as of
the day and year first above written.
ATTEST: BASE TEN SYSTEMS, INC.
WILLIAM F. HACKETT
- --------------------------------- ------------------------------------
William F. Hackett
Senior Vice President & CFO
ATTEST: STEPHEN A. CLOUGHLEY
- --------------------------------- ------------------------------------
STEPHEN A. CLOUGHLEY
<PAGE>
ATTACHMENT A
Services to be provided by Consultant to Base Ten shall include but not be
limited to the following:
1. Providing support for sales and marketing initiatives within Base Ten.
2. Developing sales and marketing materials upon the request of Base Ten.
3. Providing strategic guidance as requested.
<PAGE>
ATTACHMENT B
1. Fees: Base Ten shall pay for the services referenced in Attachment A at the
rate of $1,200.00 per day, and as invoiced by Consultant to Base Ten. Such
invoices shall be prepared and submitted to Base Ten at the end of the
month when such expenses are incurred. During May, June, and July of 1999 a
minimum payment of $7,200.00 per month shall be made to the Consultant. The
Company agrees to purchase a minimum of $60,000.00 in consulting services
from the Consultant prior to the end of 1999.
2. Expenses: Base Ten shall reimburse Consultant for all out of pocket
expenses incurred by Consultant as a result of performing the Services
referenced to in Attachment A. Such invoices shall be prepared and
submitted to Base Ten at the end of the period when such expenses are
incurred.
3. Payment: Payment to Consultant shall be made within 15 days after receipt
of invoice by Base Ten.
EXHIBIT 23.1
Consent of Independent Accountants'
The Board of Directors and Shareholders
Base Ten Systems, Inc.
Trenton, New Jersey 08619
We consent to the incorporation by reference in the Registration
Statements of Base Ten Systems, Inc. and Subsidiaries on Form S-8 (Registration
Nos. 33-89712, 33-60454, 33-55752, 333-00721, 333-21925, 333-59881, 333-59883,
333-59885 and Amendment No. 1 to Registration Statement No. 2-84451), and in the
Registration Statements of Base Ten Systems, Inc. and Subsidiaries on Form S-3
(Registration Nos. 33-89710, 333-00719, 333-06317, 333-21923, 333-31335,
333-34159, 333-46095 and 333-70535), of our report dated April 12, 1999 on our
audits of the consolidated financial statements of Base Ten Systems, Inc. and
its Subsidiaries as of December 31, 1998 and 1997, and for the year ended
December 31, 1998 and the two-months ended December 31, 1997, which report is
included in this Amendment No. 1 to the Annual Report on Form 10-K/A-1.
PRICEWATERHOUSECOOPERS LLP
Florham Park, New Jersey
April 28, 1999
EXHIBIT 23.2
Independent Auditors' Consent
The Board of Directors and Shareholders
Base Ten Systems, Inc.
Trenton, New Jersey 08619
We consent to the incorporation by reference in the Registration
Statements No. 33-89712, No. 33-60454, No. 33-55752, No. 333-00721; No.
333-21925; No. 333-59881, No. 333-59883, No. 333-59885 and Amendment No. 1 to
Registration Statement No. 2-84451 of Base Ten Systems, Inc. and Subsidiaries on
Form S-8 and the Registration Statement No. 33-89710, No. 333-00719, No.
333-06317, No. 333-21923, No. 333-31335, No. 333-34159, No. 333-46095 and No.
333-70535 of Base Ten Systems, Inc. and Subsidiaries on Form S-3 of our report
dated February 6, 1998, appearing in this annual report on Form 10-K/A-1 of Base
Ten Systems, Inc. and Subsidiaries for the year ended October 31, 1997.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
April 29, 1999
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<FISCAL-YEAR-END> DEC-31-1997
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