SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarter ended June 30, 2000 Commission File No. 0-7100
BASE TEN SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-1804206
(State of incorporation) (I.R.S. Employer
Identification No.)
One Electronics Drive
Trenton, N.J. 08619
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (609) 586-7010
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. YES /x/ NO /_/
Indicate the number of shares outstanding of each of the issuer's
classes of Common Stock, as of the latest practicable date.
Title of Class Outstanding at August 3, 2000
------------------- ------------------
Class A Common Stock, $5.00 par value 5,108,209
Class B Common Stock, $5.00 par value 12,623
<PAGE>
Base Ten Systems, Inc.
And Subsidiaries
<TABLE>
<CAPTION>
Index
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Part I. Financial Information Page
Item 1: Financial Statements
Consolidated Balance Sheets - June 30, 2000 (unaudited)
and December 31, 1999........................................................................ 1
Consolidated Statements of Operations - Three and six months
ended June 30, 2000 and 1999 (unaudited)..................................................... 2
Consolidated Statements of Common Stock and Other Shareholders' Equity (Deficit) - Six
months ended June 30, 2000 (unaudited)........................................................ 3
Consolidated Statements of Cash Flows - Six months ended
June 30, 2000 and 1999 (unaudited)........................................................... 4
Notes to Consolidated Financial Statements................................................... 5
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations........................................................... 11
Item 3: Quantitative and Qualitative Disclosures About Market Risk ........................... 15
Part II. Other Information
Item 4: Submission of Matters to a Vote of Security Holders............................. 16
Item 6: Exhibits and Reports on Form 8-K................................................ 17
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<TABLE>
<CAPTION>
Item 1. Financial Statements
Base Ten Systems, Inc. and Subsidiaries
Consolidated Balance Sheets
(unaudited)
(dollars in thousands, except par value)
Assets
<S> <C> <C>
June 30, December 31,
2000 1999
------------------- --------------------
Current Assets:
Cash and cash equivalents................................................. $ 2,685 $ 5,843
Accounts receivable, net.................................................... 884 559
Current portion of notes receivable......................................... 658 658
Other current assets........................................................ 394 441
------------------- --------------------
Total Current Assets.................................................. 4,621 7,501
Property, plant and equipment, net............................................. 4,158 4,564
Note receivable................................................................ 988 1,317
Acquired intangible assets..................................................... 4,308 5,210
Other assets................................................................... 418 485
------------------- --------------------
Total Assets $ 14,493 $ 19,077
=================== ====================
Liabilities, Redeemable Convertible Preferred Stock, Common Stock
and Other Shareholders' Deficit
Current Liabilities:
Accounts payable............................................................ $ 375 $ 345
Accrued expenses............................................................ 1,528 1,770
Deferred revenue............................................................ 2,119 1,423
Current portion of financing obligation..................................... 146 136
------------------- --------------------
Total Current Liabilities............................................. 4,168 3,674
------------------- --------------------
Long-Term Liabilities:
Financing obligation........................................................ 3,128 3,204
Other long-term liabilities................................................. 199 214
------------------- --------------------
Total Long-Term Liabilities........................................... 3,327 3,418
------------------- --------------------
Commitments and Contingencies
Series B Preferred Stock, $1.00 par value, issued and outstanding 15,203 shares
at June 30, 2000 and December 31, 1999; aggregate liquidation value of
$15,203 at June 30, 2000 and December 31, 1999............................. 19,004 19,004
Common Stock and Other Shareholders' Deficit:
Class A Common Stock, $5.00 par value, 12,000,000 shares authorized; issued
and outstanding 5,107,540 shares at June 30, 2000 and 5,102,096 at
December 31, 1999........................................................ 25,537 25,510
Class B Common Stock, $5.00 par value, 400,000 shares authorized; issued and
outstanding 12,623 shares at June 30, 2000 and 14,181 shares at
December 31, 1999........................................................ 63 71
Additional paid-in capital.................................................. 63,514 63,527
Accumulated deficit......................................................... (100,735) (95,754)
Accumulated other comprehensive gain (loss) ................................ (104) (92)
Treasury Stock, 100,000 Class A Common Shares, at cost...................... (281) (281)
------------------- --------------------
Total Common Stock and Other Shareholders' Deficit.................... (12,006) (7,019)
------------------- --------------------
Total Liabilities, Redeemable Convertible Preferred Stock, Common Stock
and Other Shareholders' Deficit....................................... $ 14,493 $ 19,077
=================== ====================
</TABLE>
See Notes to the Consolidated Financial Statements
<PAGE>
Base Ten Systems, Inc. and Subsidiaries
Consolidated Statements of Operations
(unaudited)
(dollars in thousands, except per share data)
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<CAPTION>
Three Months Ended Six Months Ended
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June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
-------------------- ------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
License and related revenue................ $ 37 $ 154 $ 159 $ 770
Services and related revenue............... 759 862 1,608 1,915
-------------------- ------------------- -------------------- --------------------
796 1,016 1,767 2,685
-------------------- ------------------- -------------------- --------------------
Cost of revenues........................... 885 1,270 2,019 2,765
Research and development................... 257 436 787 895
Selling and marketing...................... 614 1,541 1,272 2,959
General and administrative................. 1,426 1,853 2,590 4,049
Non-cash debt conversion charge............ -- -- -- 3,506
-------------------- ------------------- -------------------- --------------------
3,182 5,100 6,668 14,174
-------------------- ------------------- -------------------- --------------------
Loss before other income (expense)......... (2,386) (4,084) (4,901) (11,489)
Other income (expense), net................ 9 138 (80) 84
-------------------- ------------------- -------------------- --------------------
Net loss from continuing operations........ (2,377) (3,946) (4,981) (11,405)
Gain from sale of discontinued operations.. -- 1,044 -- 1,044
-------------------- ------------------- -------------------- --------------------
Net loss................................... (2,377) (2,902) (4,981) (10,361)
Less: Dividends on Redeemable Convertible
Preferred Stock............ -- -- -- (262)
Accretion on Redeemable Convertible
Preferred Stock............ -- (282) -- (564)
Credit on exchange of Redeemable
Convertible Preferred Stock -- -- -- 445
-------------------- ------------------- -------------------- --------------------
Net loss available for common shareholders. $ (2,377) $ (3,184) $ (4,981) $ (10,742)
==================== =================== ==================== ====================
Basic and diluted net loss per share
Continuing operations.............. $ (0.46) $ (0.96) $ (0.97) $ (2.83)
Discontinued operations............ -- 0.24 -- 0.25
-------------------- ------------------- -------------------- --------------------
$ (0.46) $ (0.72) $ (0.97) $ (2.58)
==================== =================== ==================== ====================
Weighted average common shares outstanding
- basic and diluted.................. 5,120,000 4,431,000 5,119,000 4,168,000
-------------------- ------------------- -------------------- --------------------
</TABLE>
See Notes to the Consolidated Financial Statements
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<TABLE>
<CAPTION>
Base Ten Systems, Inc. and Subsidiaries
Consolidated Statements of Common Stock and Other Shareholders' Deficit
(unaudited)
(dollars in thousands)
Class A Class B
Common Stock Common Stock
Shares Amount Shares Amount
------------------------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Balance at
December 31, 1999 ........... 5,102,096 $ 25,510 14,181 $ 71
============================= ========== ========== ========== ==========
Conversions:
Common B to
Common A ................ 2,341 12 (1,558) (8)
Issuance of
Common Stock:
Employee stock
purchase plan ........... 3,103 15 -- --
Comprehensive
Loss:
Net loss ................ -- -- -- --
Unrealized loss on
securities available
for sale ................ -- -- -- --
Total Comprehensive
Loss ........................
----------------------------- ---------- ---------- ---------- ----------
Balance at
June 30, 2000 ............... 5,107,540 $ 25,537 12,623 $ 63
============================= ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Total Common
Accumulated Stock and
Additional Other Treasury Stock Other
Paid-in Accumulated Comprehensive Shareholders'
Capital Deficit Loss Shares Amount Deficit
----------------------------- ----------- ---------- ------------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1999 ........... $ 63,527 $ (95,754) $ (92) (100,000) $ (281) $ (7,019)
============================= ========== ========== ========== =========== ========== =============
Conversions:
Common B to
Common A ................ (4) -- -- -- -- --
Issuance of
Common Stock:
Employee stock
purchase plan ........... (9) -- -- -- -- 6
Comprehensive
Loss:
Net loss ................ -- (4,981) -- -- -- (4,981)
Unrealized loss on
securities available
for sale ................ -- -- (12) -- -- (12)
-------------
Total Comprehensive
Loss ........................ (4,993)
----------------------------- ----------- ---------- ----------- ----------- ---------- -------------
Balance at
June 30, 2000 ............... $ 63,514 $ (100,735) $ (104) (100,000) $ (281) $ (12,006)
============================= =========== ========== ========== ========== ========== ============
</TABLE>
See Notes to the Consolidated Financial Statements
<PAGE>
Base Ten Systems, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, 2000 June 30, 1999
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<S> <C> <C>
Cash Flows from Operating Activities:
Net loss ......................................................................... $ (4,981) $ (10,361)
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:
Depreciation and amortization .................................................... 1,245 1,475
Non-cash debt conversion charge .................................................. -- 3,506
Deferred gain on sale of building ................................................ (10) (5)
Gain on sale of discontinued operations .......................................... -- (1,044)
Bad debt expense ................................................................. -- 40
Changes in operating assets and liabilities:
Accounts receivable .............................................................. (325) (467)
Other current assets ............................................................. 35 141
Other assets ..................................................................... 25 --
Accounts payable, accrued expenses and deferred revenue .......................... 479 (1,191)
---------- -----------
Net Cash Used in Operating Activities ....................................................... (3,532) (7,906)
========== ===========
Cash Flows from Investing Activities:
Proceeds from note receivable .................................................... 329 --
Additions to property, plant and equipment ....................................... (96) (64)
Loss on disposition of assets .................................................... 194 --
Acquisition of Almedica, net of cash required .................................... -- (66)
---------- -----------
Net Cash Provided by (Used in) Investing Activities ......................................... 427 (130)
========== ===========
Cash Flows from Financing Activities:
Repayment of amounts borrowed .................................................... (66) (32)
Proceeds from issuance of common stock ........................................... 6 51
Proceeds from sale of discontinued operations .................................... -- 1,044
---------- -----------
Net Cash (Used in) provided by Financing Activities ......................................... (60) 1,063
========== ===========
Effect of Exchange Rate Changes on Cash ..................................................... 7 (133)
========== ===========
Net (Decrease)/Increase In Cash ............................................................. (3,158) (7,106)
Cash, beginning of period ................................................................... 5,843 17,437
---------- -----------
Cash, end of period ......................................................................... $ 2,685 $ 10,331
========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for interest ......................................... $ 241 $ 396
</TABLE>
See Notes to the Consolidated Financial Statements
<PAGE>
Base Ten Systems, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Three Months Ended June 30, 2000
(Unaudited)
A. Basis of Presentation and Liquidity
The financial statements of Base Ten Systems, Inc. and subsidiaries (the
"Company" or "Base Ten") 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. At June 30,
2000, the Company did not meet certain criteria required for the continued
listing of the Company's Class A Common Stock (the "Class A Common Stock")
on the NASDAQ SmallCap Market System which, unless the Company raises
sufficient additional capital in the immediate future, could result in the
Class A Common Stock being delisted from the NASDAQ SmallCap Market
System. To increase the Company's net tangible assets, to help ensure the
Company's compliance with NASDAQ listing requirements and to enable the
Company to fund its operations through 2000, management is seeking the
infusion of additional capital financing. If such efforts are not
successful, there would be a material adverse effect on the Company's
financial position and operations and its ability to continue as a going
concern. These financial statements do not include any adjustments that
could result therefrom.
On May 11, 2000, the NASD notified the Company that it failed to meet the
NASDAQ SmallCap Market System continued listing criteria. The NASD
specifically inquired about the Company's ability to meet the NASDAQ
SmallCap Market System $2.0 million minimum net tangible asset
requirement, the $35.0 million minimum market capitalization requirement
and its $0.5 million minimum net income requirement. In order to
facilitate the NASD's review of the Company's eligibility for continued
listing on the NASDAQ SmallCap Market System, the Company submitted its
plan for achieving and sustaining compliance with all of the listing
criteria. As of the date of this filing, the NASD has not notified the
Company of the results of its review of the Company's plan for achieving
and sustaining compliance with all of the listing criteria.
On August 7, 2000, the NASD notified the Company that it has failed to
maintain a minimum bid price of $1.00 as required for continued listing on
the NASDAQ SmallCap Market System. If the Company is unable to demonstrate
compliance with the minimum bid price rule on or before November 6, 2000,
its Class A Common Stock will be delisted from the NASDAQ SmallCap Market
System at the opening of business on November 8, 2000. The Company intends
to appeal the NASD's determination to a NASDAQ Listing Qualifications
Panel.
Under the terms and conditions of the Company's Series B Redeemable
Convertible Preferred Stock, par value $1.00 (the "Series B Preferred
Stock"), an event causing the Class A Common Stock to be delisted from the
NASDAQ SmallCap Market System could have had a material adverse effect on
the Company's financial position. However, subsequent to June 30, 2000,
the holders of the Series B Preferred Stock (the "Series B Shareholders")
converted 5,000 shares of Series B Preferred Stock into 250,000 shares of
Class A Common Stock, and the Company redeemed all of the remaining shares
of Series B Preferred Stock and related 269,560 warrants for approximately
$1.1 million. After this transaction, the Series B Preferred Stock and
related cash redemption rights are no longer outstanding. See Note H to
the Consolidated Financial Statements for a description of this
transaction.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The consolidated
interim financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1999. The
results of operations for the three months and six months ended June 30,
2000 are not necessarily indicative of the operating results for the full
year. In management's opinion, all adjustments necessary for a fair
presentation of the financial statements are reflected in the accompanying
statements.
Certain reclassifications have been made to prior period financial
statements to conform to the current period presentation.
B. Description of Business
The Company develops, manufactures and markets computer software systems
that assist manufacturers in industries regulated by the Food and Drug
Administration ("FDA"). The Company's software systems aid customers in
complying with FDA current Good Manufacturing Practice ("cGMP")
guidelines, and improve their overall productivity by automating certain
manual processes. The Company's software systems include BASE10(R)ME and
BASE10(R)FS, which are "Manufacturing Execution Systems." BASE10(R)ME uses
Windows NT operating systems and BASE10(R)FS uses HP-UX and Digital
VAX/VMS operating systems. The Company's software systems also include
BASE10(R)CS, BASE10(R)ADLS and BASE10(R)ADMS, which are "Clinical Supply
Chain Management Solutions." These software systems assist clinical
specialists in managing supplies for clinical trials. BASE10(R)CS uses
Windows NT operating systems. BASE10(R)ADLS and BASE10(R)ADMS, formerly
known as ADLS and ADMS, respectively, were acquired from Almedica
International, Inc. in June 1999.
During 2000, contracts to provide software and services to certain
customers were terminated due to the Company's inability to meet delivery
deadlines for version 3.2 of BASE10(R)ME, which was caused by the
substantial customization of the core product required for those projects.
The termination of those contracts will allow the Company to reallocate
resources to other projects requiring less substantial customization. To
reduce its dependence on the BASE10(R)ME and BASE10(R)CS products, the
Company announced plans to more aggressively market the BASE10(R)ADLS,
BASE10(R)ADMS and BASE10(R)FS products. The timely delivery of product to
the Company's customers cannot be completely assured. The financial
statements at December 31, 1999 and for the year then ended reflect the
impact of the terminated contracts and delays in the delivery of
BASE10(R)ME and BASE10(R)CS.
The Company owns a minority interest in uPACs LLC (the "LLC") which
develops and markets an ultrasound picture archiving communications system
that digitizes, records and stores images on CD-ROM as an alternative to
film and video storage. In 1997, the Company formed the LLC with an
individual investor who is currently a principal shareholder of the
Company. The Company contributed uPACs(TM) technology to the LLC, and the
investor contributed $3 million to the LLC to fund required further
development of the technology. During 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. The Company ceased funding the LLC operation after the first
quarter of 2000. Costs of funding the LLC during the first quarter of 2000
totaled less than $50,000.
C. Summary of Significant Accounting Policies
Risks and Uncertainties - The Company operates in the 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:
claims by customers for contractual or other unfulfilled commitments,
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, ongoing satisfaction of requirements
for continued listing of the Company's stock on the NASDAQ SmallCap Market
System, and prior to the Series B Conversion, the potential for redemption
events related to the Company's Series B Preferred Stock. (See Notes A and
E to the Consolidated Financial Statements).
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, reserves for claims by customers for contractual or other
unfulfilled commitments, the useful lives of capitalized computer software
costs and deferred tax asset valuation reserves. Actual costs and results
could differ from these estimates.
D. Acquisitions
Almedica Technology Group Acquisition
On June 11, 1999, the Company acquired all of the outstanding stock of
Almedica Technology Group Inc., a wholly-owned subsidiary of Almedica
International, Inc. Simultaneous with the closing of the transaction, the
subsidiary, which develops and distributes clinical studies software for
the pharmaceutical industry, was renamed BTS Clinical, Inc. (BTS Clinical,
Inc. has since been renamed Activ Netsciences, Inc.) The stock of the
subsidiary was acquired in exchange for 3,950,000 shares of Class A Common
Stock (790,000 after adjustment for the September, 1999 reverse stock
split). At the time of the purchase, the Class A Common Stock traded for
$0.90625 per share ($4.53125 after adjustment for the September, 1999
reverse stock split).
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. Management estimated the value of certain
intangible assets to be $4.1 million as of the purchase date. These assets
are included in other assets and are being amortized on a straight line
basis over their estimated lives of three to seven years.
Acquired Intangible Assets
Accumulated amortization related to the acquired intangibles at June 30,
2000 and December 31, 1999 was $2,292,000 and $1,606,000, respectively.
Included in acquired intangible assets is a covenant not to compete with
the Company (the "Covenant") signed by an executive who joined Base Ten as
part of the 1999 acquisition of BTS Clinical, Inc. The Covenant covers the
period of the executive's employment with Base Ten plus two years
thereafter. The Covenant was valued at $1.9 million at the time of the
acquisition and was being written off over four years, which management
estimated was the useful life of the agreement. The executive left the
employment of the Company as of March 31, 2000, and the Covenant will be
amortized over its remaining contractual life.
E. Redeemable Convertible Preferred Stock
Subsequent to June 30, 2000, 5000 shares of the Series B Preferred Stock
were exchanged for 250,000 shares of Class A Common Stock and all of the
remaining shares of Series B Preferred Stock were redeemed. The exchange
and the redemption are referred to herein as, the "Series B Conversion."
See Note H to the Consolidated Financial Statements for a description of
this transaction.
On March 5, 1999, the Company's Series A Preferred Stock (the "Series A
Preferred Stock") and certain warrants were exchanged for approximately
15,203 shares of Series B Preferred Stock with a principal amount of
approximately $15,203,000. In addition, 632,000 new warrants (126,400
after adjustment for the reverse stock split) were issued to Series B
Preferred Shareholders, and 720,000 warrants (144,000 after adjustment for
the September 1999 reverse stock split) were issued to replace certain
warrants issued in December 1997. The Series B Preferred Stock and the
warrants were recorded at June 30, 2000 and December 31, 1999 at their
estimated fair value of $19,004,000.
The terms of the Series B Preferred Stock were similar to the terms of the
Series A Preferred Stock, except that: (a) the Series B Preferred Stock
had a conversion price of that number of shares determined by dividing the
Mandatory Redemption Price, as defined in the terms of the Series B
Preferred Stock, by $4.00 ($20.00 after adjustment for the September 1999
reverse stock split), whereas the conversion price of the Series A
Preferred Stock was equal to the Mandatory Redemption Price divided by 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 (608,000 shares after adjustment for the September
1999 reverse stock split); (b) the Series B Preferred Stock did not
provide the holder with the option to receive a subordinated 8% promissory
note because of the elimination of the 3,040,000 share limitation (608,000
shares after adjustment for the September 1999 reverse stock split); and
(c) the Series B Preferred Stock did not provide for a dividend payment
based on the market price of the Class A Common Stock. As a result of the
exchange of Series A Preferred Stock for Series B Preferred Stock,
preferred stock dividends are no longer required to be paid by the
Company.
Prior to the Series B Conversion, the Series B Preferred Stock was
convertible at any time or from time to time into Class A Common Stock at
a conversion price of $4.00 ($20.00 after adjustment for the September
1999 reverse stock split).
The Series B Preferred Stock was to mature on December 15, 2000. On the
maturity date, the Company would have been obligated to redeem the
outstanding Series B Preferred Stock at its Mandatory Redemption Price,
which would have been the sum of the purchase price, accrued but unpaid
dividends and other contingent payments as provided pursuant to the terms
of the Series B Preferred Stock. The portion of the Mandatory Redemption
Price constituting such other contingent payments would have been payable
in cash, whereas the purchase price and accrued but unpaid dividends would
have been payable in cash or common stock at the option of the Company. If
the Company elected to settle the redemption in Class A Common Stock, the
Mandatory Redemption Price would have been 1.25 times the purchase price.
The Company was accreting the carrying value of the Series B Preferred
Stock to the purchase price and recognizing the accretion charges to
retained earnings (accumulated deficit) over the period from issuance to
maturity. However, since the Company was below the $2 million minimum net
tangible assets, as defined, required for its continued listing on the
NASDAQ SmallCap Market System at December 31, 1999 and remains below this
requirement for ongoing listing of the Class A Common Stock, the Company
recorded the Series B Redeemable Convertible Preferred Stock at its
Redemption Price of $19.0 million and recorded corresponding charges to
net loss available for common shareholders and accumulated deficit as of
December 31, 1999.
Prior to the Series B Conversion, holders of the Series B Preferred Stock
had the right to require the Company to purchase their shares for cash
upon the occurrence of a redemption event. Redemption events included: (a)
suspension of trading or delisting from the NASDAQ SmallCap Market of the
Class A Common Stock for an aggregate of 30 trading days in any 18 month
period; (b) failure by the Company to cause the holders to be able to
utilize the registration statement filed for the resale of the shares of
the Class A Common Stock shares into which the Series B Preferred Stock
was convertible; (c) failure to issue Class A 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 (which would have approximated $19
million at June 30, 2000 plus any other contingent payments which would
have become due) would have been 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.
The Series B Preferred Stock was mandatorily redeemable upon the
occurrence of a redemption event at the election of the holder and,
accordingly, is classified as Redeemable Convertible Preferred Stock,
rather than as a component of Shareholders' Equity (Deficit).
Series B Preferred Shareholders had the same voting rights as the holders
of Class A Common Stock, calculated as if all outstanding shares of Series
B 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, subject to limitations applicable to certain
holders.
For each $1 million of the Series A Preferred Stock held by the Series B
Preferred Shareholders on September 1, 1998 and thereafter converted at a
conversion price of $4.00 or more, the Series B Preferred Shareholders
received four-year warrants to purchase 80,000 shares (16,000 after
adjustment for the reverse stock split) of Class A Common Stock
exercisable at $3.00 ($15.00 after adjustment for the reverse stock split)
per share. The issuance of one-half of the warrants was effected by
modifying certain provisions of existing warrants held by the Series B
Preferred Shareholders. Subsequent to June 30, 2000, the Company
repurchased all of the outstanding warrants held by the Series B
Shareholders. Prior to the Series B Conversion, the Company could have
forced the exercise of the warrants if, among other things, the Class A
Common Stock traded at $4.00 ($20.00 after adjustment for the reverse
stock split) or more for 20 consecutive trading days and the aggregate of
cash (and cash equivalents) as shown on the Company's most recent balance
sheet was $5,000,000 or more. If there was a forced exercise, the exercise
price of certain other existing warrants held by the Series B Preferred
Shareholders would have been modified to the lesser of (i) market value
and (ii) the exercise price then in effect.
F. 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 six months ended June 30, 2000 and 1999 (dollars in thousands):
<TABLE>
<CAPTION>
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United States Europe Eliminations Consolidated
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<S> <C> <C> <C> <C>
Six Months Ended June 30, 2000:
Revenues from unaffiliated sources $ 1,136 $ 513 $ -- $ 1,649
---------------------------------------- ---------------- ------------------- ----------------- -------------------
Identifiable assets at June 30, 2000 $ 21,450 $ 724 $ (7,681) $ 14,493
---------------------------------------- ---------------- ------------------- ----------------- -------------------
Six Months Ended June 30, 1999:
Revenues from unaffiliated sources $ 1,075 $ 594 $ -- $ 1,669
---------------------------------------- ---------------- ------------------- ----------------- -------------------
Identifiable assets at June 30, 1999 $ 35,517 $ 998 $ (6,923) $ 29,592
---------------------------------------- ---------------- ------------------- ----------------- -------------------
</TABLE>
<PAGE>
G. Net Loss 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. 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 share and per
share data):
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loss per common share-basic:
Net loss from continuing operations $ (2,377) $ (3,946) $ (4,981) $ (11,405)
Add: Gain from sale of discontinued operations -- 1,044 -- 1,044
Less: Dividend on Series A Preferred Stock -- -- -- (262)
Accretion on Series A Preferred Stock -- (282) -- (564)
Credit on exchange of Redeemable Convertible
Preferred Stock -- -- -- 445
------------------------------------------------------------------------------------------------------------------------------------
Net loss to common shareholders (numerator) $ (2,377) $ (3,184) $ (4,981) $ (10,742)
===================================================================================================================================
Weighted average shares - basic (denominator) 5,120,000 4,431,000 5,119,000 4,168,000
------------------------------------------------------------------------------------------------------------------------------------
Net loss per common share-basic $ (0.46) $ (0.72) $ (0.97) $ (2.58)
------------------------------------------------------------------------------------------------------------------------------------
Loss per common share-fully diluted:
Net loss from continuing operations $ (2,377) $ (3,946) $ (4,981) $ (11,405)
Add: Gain from sale of discontinued operations -- 1,044 -- 1,044
Less: Dividend on Series A Preferred Stock -- -- -- (262)
Accretion on Series A Preferred Stock -- (282) -- (564)
Credit on exchange of Redeemable Convertible
Preferred Stock -- -- -- 445
------------------------------------------------------------------------------------------------------------------------------------
Net loss to common shareholders (numerator) $ (2,377) $ (3,184) $ (4,981) $ (10,742)
===================================================================================================================================
Weighted average shares 5,120,000 4,431,000 5,119,000 4,168,000
Effect of dilutive options / warrants -- -- -- --
------------------------------------------------------------------------------------------------------------------------------------
Weighted average shares-fully diluted (denominator) 5,120,000 4,431,000 5,119,000 4,168,000
------------------------------------------------------------------------------------------------------------------------------------
Net loss per common share-diluted $ (0.46) $ (0.72) $ (0.97) $ (2.58)
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Stock options, warrants and rights would have an anti-dilutive effect on
earnings per share for the periods ended June 30, 2000 and 1999 and,
therefore, were not included in the calculation of fully diluted earnings
per share.
H. Subsequent Events
Note Receivable
Subsequent to June 30, 2000, the Company agreed with Strategic Technology
Systems, Inc. ("STS") to accept a one-time lump sum payment of $1.6
million as full and complete settlement of the note receivable from STS.
At the time the Company received the payment from STS, the note bore an
outstanding principal balance of approximately $1,646,000 plus accrued
interest of approximately $10,000. Accordingly, the Company will record a
charge to income in the third quarter of 2000 of $56,000 for the
conversion of the note receivable to cash.
Series B Preferred Shares
Subsequent to June 30, 2000, the holders of the Series B Preferred Stock
converted 5,000 of their shares into 250,000 shares of Class A Common
Stock. In addition, the Company purchased the remaining shares of Series B
Preferred Stock, as well as 269,560 warrants to purchase Class A Common
Stock, for approximately $1.1 million. As a result of these transactions,
the Series B Preferred Stock will be eliminated, while the Shareholders'
Equity section of the Company's balance sheet will be increased by
approximately $17.9 million in the third quarter.
The following Pro Forma Condensed Consolidated Balance Sheet presents the
Company's Balance Sheet as if the subsequent events occurred as of June
30, 2000.
<TABLE>
<CAPTION>
Base Ten Systems, Inc. and Subsidiaries
Pro Forma Condensed Consolidated Balance Sheet
(unaudited)
(dollars in thousands, except par value)
Assets
June 30,
2000
-------------------
<S> <C>
Current Assets:
Cash and cash equivalents................................................... $ 3,221
Accounts receivable, net.................................................... 884
Current portion of notes receivable......................................... --
Other current assets........................................................ 394
-------------------
Total Current Assets.................................................. 4,499
Property, plant and equipment, net............................................. 4,158
Note receivable................................................................ --
Acquired intangible assets..................................................... 4,308
Other assets................................................................... 418
-------------------
Total Assets $ 13,383
===================
Liabilities, Redeemable Convertible Preferred Stock, Common Stock
and Other Shareholders' Equity
Total Current Liabilities...................................................... $ 4,168
Total Long-Term Liabilities.................................................... 3,327
Commitments and Contingencies
Series B Preferred Stock, $1.00 par value, issued and outstanding 0 shares at June
30, 2000; aggregate liquidation value of $0 at June 30, 2000............... --
Common Stock and Other Shareholders' Equity:
Class A Common Stock, $5.00 par value, 12,000,000 shares authorized; issued and
outstanding 5,357,540 shares at June 30, 2000............................ 26,787
Class B Common Stock, $5.00 par value, 400,000 shares authorized; issued and
outstanding 12,623 shares at June 30, 2000............................... 63
Additional paid-in capital.................................................. 68,487
Accumulated Deficit......................................................... (89,064)
Accumulated other comprehensive gain (loss) ................................ (104)
Treasury Stock, 100,000 Class A Common Shares, at cost...................... (281)
-------------------
Total Common Stock and Other Shareholders' Equity..................... 5,888
-------------------
Total Liabilities, Redeemable Convertible Preferred Stock, Common Stock
and Other Shareholders' Equity........................................ $ 13,383
===================
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
This section should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations included in the Annual
Report on Form 10-K for the period ended December 31, 1999, as amended for Base
Ten Systems, Inc. and subsidiaries (the "Company" or "Base Ten").
Three Months ended June 30, 2000 compared with Three Months ended June 30, 1999
Continuing Operations
Revenues
Company revenues decreased 22% to $0.8 million in the period ended June
30, 2000 as compared to $1.0 million in the period ended June 30, 1999. Revenues
for the 2000 period were derived 5% from software licenses and enhancements, and
95% from services, installations and maintenance, compared to revenues for the
1999 period which were derived 15% from software licenses and enhancements and
85% from services, installations and maintenance. This decrease was due
primarily to ongoing delays during 2000 in the delivery of the Company's
BASE10(R)ME and BASE10(R)CS products.
Cost of Sales
Cost of sales, which includes amortization of software development costs,
decreased from $1.3 million in the period ended June 30, 1999 to $0.9 million in
the 2000 period. The decrease is primarily due to lower amortization of
capitalized software development costs in 2000 as a result of a write-off at
December 31, 1999 of substantially all of the capitalized development costs for
PHARMASYST(TM) and BASE10(R)ME.
Research and Development Costs
Research and development costs decreased to $0.3 million in the quarter
ended June 30, 2000 from $0.4 million in the quarter ended June 30, 1999,
primarily due to reductions in the size of the Company's development staff.
Sales and Marketing Expenses
Company sales and marketing expenses decreased in the 2000 period to $0.6
million from $1.5 million in the quarter ended June 30, 1999. This decrease was
mainly due to decreases in human resource costs of $0.2 million, outside
consulting services of $ 0.6 million and travel expenses of $ 0.1 million.
General and Administrative Expenses
Company general and administrative expenses decreased in the 2000 period
to $1.4 million from $1.9 million in the comparable 1999 period. The decrease in
the 2000 period is primarily due to a reduction of $ 0.3 million in outside
professional services and a reduction of $ 0.1 million of costs for funding the
LLC.
Other Income or Expense
Other income was approximately $0.1 million in the quarter ended June 30,
1999 as compared to $0.0 in the quarter ended June 30, 2000 due primarily to
lower interest income earned in 2000 as a result of lower average cash balances.
Losses from Continuing Operations
The Company incurred a loss from continuing operations of $2.4 million in
the quarter ended June 30, 2000, compared to a $3.9 million loss from continuing
operations for the quarter ended June 30, 1999. The decreased loss in the 2000
period was primarily due to reduced expenses totaling $1.9 million in the
quarter ended June 30, 2000, partially offset by reduced revenues of $0.2
million. The expense reduction was primarily attributed to lower expenses in the
quarter ended June 30, 2000 as compared to the quarter ended June 30, 1999 of:
(1) costs of revenues of $0.4 million; (2) sales and marketing expenses of $0.9
million; and (3) general and administrative charges of $0.5 million.
Six Months ended June 30, 2000 compared with Six Months ended June 30, 1999
Continuing Operations
Revenues
Company revenues decreased 33% to $1.8 million in the period ended June
30, 2000 as compared to $2.7 million in the period ended June 30, 1999. Revenues
for the 2000 period were derived 9% from software licenses and enhancements, and
91% from services, installations and maintenance, compared to revenues for the
1999 period which were derived 29% from software licenses and enhancements and
71% from services, installations and maintenance. This decrease was due
primarily to ongoing delays during 2000 in the delivery of the Company's
BASE10(R)ME and BASE10(R)CS products.
Cost of Sales
Cost of sales, which includes amortization of software development costs
for PHARMASYST(TM) and BASE10(R)ME, decreased from $2.8 million in the period
ended June 30, 1999 to $2.0 million in the 2000 period. The decrease is
primarily due to lower amortization of capitalized software development costs in
2000 as a result of a write-off at December 31, 1999 of substantially all of the
capitalized development costs for PHARMASYST(TM) and BASE10(R)ME.
Research and Development Costs
Research and development costs decreased to $0.8 million in the quarter
ended June 30, 2000 from $0.9 million in the quarter ended June 30, 1999
primarily due to reductions in the size of the Company's development staff.
Sales and Marketing Expenses
Company sales and marketing expenses decreased in the 2000 period to $1.3
million from $3.0 million in the six months ended June 30, 1999. This decrease
was mainly due to decreases in human resource costs of $0.2 million, outside
consulting services of $1.2 million and travel expenses of $0.2 million.
General and Administrative Expenses
Company general and administrative expenses decreased in the 2000 period
to $2.6 million from $4.0 million in the comparable 1999 period. The decrease in
the 2000 period is primarily due to a reduction of $ 1.1 million in outside
professional services; and a reduction of $ 0.5 million of costs for funding the
LLC.
Debt Conversion Costs
Debt conversion costs in the 1999 period relate to a non-cash accounting
charge of $3.5 million related to the conversion of the $10 million debenture in
March 1999. The debenture was issued in August 1996 to Jesse L. Upchurch, who is
currently a principal shareholder of the Company. The conversion, as a result of
the modification of the conversion price from $50.00 to $20.00 (after adjustment
for the reverse stock split in 1999), resulted in an issuance of 500,000 shares
of the Company's Class A Common Stock (after adjustment for the reverse stock
split), as compared to 800,000 shares which would have potentially been
converted at the $50.00 price. This non-cash charge is arrived at by assigning a
fair value to the additional 340,000 shares (after adjustment for the reverse
stock split) issued by the Company as a result of the modification in conversion
price. In addition, there was a charge of $0.1 million related to the March 1999
repricing of warrants issued to the agent of the debenture holder. This non-cash
expense has no effect on cash flows or the Company's net tangible asset balance.
Other Income or Expense
Other income or expense changed from income of $0.1 for the six months
ended June 30, 1999 to expense of $0.1 million for the six months ended June 30,
2000. The change is due to lower interest income in 2000 caused by (1) lower
cash balances in 2000 and (2) interest received in 1999 from a loan to Select
Software Tools.
Losses from Continuing Operations
The Company incurred a loss from continuing operations of $5.0 million in
the six months ended June 30, 2000, compared to a $11.4 million loss for the six
months ended June 30, 1999. The decreased loss in the 2000 period was primarily
due to reduced operating expenses totaling $7.5 million in the six months ended
June 30, 2000, partially offset by reduced revenues of $0.9 million. The expense
reduction was primarily attributed to the non-cash accounting charge of $3.5
million related to the conversion of the $10 million debenture that took place
in 1999 and lower expenses in the six months ended June 30, 2000 as compared to
the six months ended June 30, 1999 of: (1) costs of revenues of $0.8 million;
(2) sales and marketing expenses of $1.7 million; and (3) general and
administrative charges of $1.5 million.
Liquidity and Capital Resources
The financial statements of Base Ten 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. At June 30, 2000, the
Company did not meet certain criteria required for the continued listing of its
Class A Common Stock (the "Class A Common Stock") on the NASDAQ SmallCap Market
System which, unless the Company raises sufficient additional capital in the
immediate future, could result in the Class A Common Stock being delisted from
the NASDAQ SmallCap Market System. To increase the Company's net tangible
assets, to help ensure the Company's compliance with NASDAQ listing requirements
and to enable the Company to fund its operations through 2000, management is
seeking the infusion of additional capital financing. If such efforts are not
successful, there would be a material adverse effect on the Company's financial
position and operations and its ability to continue as a going concern. These
financial statements do not include any adjustments that could result therefrom.
On May 11, 2000, the NASD notified the Company that it failed to meet the
NASDAQ SmallCap Market System continued listing criteria. The NASD specifically
inquired about the Company's ability to meet the NASDAQ SmallCap Market System
$2.0 million minimum net tangible asset requirement, the $35.0 million minimum
market capitalization requirement and its $0.5 million minimum net income
requirement. In order to facilitate the NASD's review of the Company's
eligibility for continued listing on the NASDAQ SmallCap Market System, the
Company submitted its plan for achieving and sustaining compliance with all of
the listing criteria. As of the date of this filing, the NASD has not notified
the Company of the results of its review of the Company's plan for achieving and
sustaining compliance with all of the listing criteria.
On August 7, 2000, the NASD notified the Company that it has failed to
maintain a minimum bid price of $1.00 as required for continued listing on the
NASDAQ SmallCap Market System. If the Company is unable to demonstrate
compliance with the minimum bid price rule on or before November 6, 2000, its
Class A Common Stock will be delisted from the NASDAQ SmallCap Market System at
the opening of business on November 8, 2000. The Company intends to appeal the
NASD's determination to a NASDAQ Listing Qualifications Panel.
Under the terms and conditions of the Company's Series B Redeemable
Convertible Preferred Stock, $1.00 par value (the "Series B Preferred Stock"),
an event causing the Class A Common Stock to be delisted from the NASDAQ
SmallCap Market System could have had a material adverse effect on the Company's
financial position. However, subsequent to June 30, 2000, the holders of the
Series B Preferred Stock converted 5,000 of their shares into 250,000 shares of
Class A Common Stock. In addition, the Company purchased the remaining shares of
Series B Preferred Stock as well as 269,560 warrants to purchase Class A Common
Stock for approximately $1.1 million. The combination of these transactions
eliminated the Series B Preferred Stock. See Note H to the Consolidated
Financial Statements for a description of this transaction.
The Company's working capital decreased from $3.8 million to $0.5 million
during the six months ended June 30, 2000. The Company had $2.7 million of cash
at June 30, 2000, whereas the Company had $5.8 million of cash at December 31,
1999. The decrease in cash during the six months ended June 30, 2000 resulted
primarily from the use of cash in operations of $3.5 million.
Cash used in operations during 2000 has been affected primarily by the net
loss of $5.0 million offset by non-cash depreciation and amortization charges of
$1.2 million and an increase in total current liabilities of $0.5 million.
On March 5, 1999, the Company's $10 million, 9.01% convertible debenture
was converted into 2,500,000 shares (500,000 after adjustment for the reverse
stock split) of Class A Common Stock, which increased shareholders' equity by
approximately $9.6 million, including a non-cash charge of approximately $3.5
million. As a result of these debenture conversions, the Company realized an
annual interest expense savings of approximately $1.3 million.
On March 5, 1999, the outstanding shares of the Company's Series A
Preferred Stock (the "Series A Preferred Stock") and certain warrants were
exchanged for Series B Preferred Stock. As a result, approximately 15,203 shares
of Series B Preferred Stock, with a principal amount of approximately
$15,203,000 were exchanged for the outstanding shares of Series A Preferred
Stock. In addition, 632,000 new warrants (126,400 after adjustment for the
reverse stock split) were issued to Series B Preferred Shareholders, and 720,000
warrants (144,000 after adjustment for the reverse stock split) were issued to
replace certain original warrants issued in December 1997. The Series B
Preferred Stock and warrants were recorded at December 31, 1999 at their
estimated fair value of $19,004,000. The difference between this estimated fair
value and the carrying value of the Series A Preferred Stock has been recorded
as a debit to net loss available to common shareholders and accumulated deficit.
The terms of the Series B Preferred Stock were similar to the terms of the
Series A Preferred Stock, except that: (a) the Series B Preferred Stock had a
conversion price of that number of shares determined by dividing the Mandatory
Redemption Price, as defined in the terms of the Series B Preferred Stock, by
$4.00 ($20.00 after adjustment for the September 1999 reverse stock split),
whereas the conversion price of the Series A Preferred Stock was equal to the
Mandatory Redemption Price divided by 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 (608,000 shares after adjustment
for the September 1999 reverse stock split); (b) the Series B Preferred Stock
did not provide the holder with the option to receive a subordinated 8%
promissory note because of the elimination of the 3,040,000 share limitation
(608,000 shares after adjustment for the September 1999 reverse stock split);
and (c) the Series B Preferred Stock did not provide for a dividend payment
based on the market price of the Class A Common Stock. As a result of the
exchange of Series A Preferred Stock for Series B Preferred Stock, preferred
stock dividends are no longer required to be paid by the Company.
Prior to the Series B Conversion, the Series B Preferred Stock was
convertible at any time or from time to time into Class A Common Stock at a
conversion price of $4.00 ($20.00 after adjustment for the September 1999
reverse stock split).
The Series B Preferred Stock was to mature on December 15, 2000. On the
maturity date, the Company would have been obligated to redeem the outstanding
Series B Preferred Stock at its Mandatory Redemption Price, which would have
been the sum of the purchase price, accrued but unpaid dividends and other
contingent payments as provided pursuant to the terms of the Series B Preferred
Stock. The portion of the Mandatory Redemption Price constituting such other
contingent payments would have been payable in cash, whereas the purchase price
and accrued but unpaid dividends would have been payable in cash or common
stock, at the option of the Company. If the Company elected to settle the
redemption in Class A Common Stock, the Mandatory Redemption Price would have
been 1.25 times the purchase price. The Company was accreting the carrying value
of the Series B Preferred Stock to the purchase price and recognizing the
accretion charges to retained earnings (accumulated deficit) over the period
from issuance to maturity. However, since the Company was below the $2 million
minimum net tangible assets, as defined, required for the continued listing of
the Class A Common Stock on the NASDAQ SmallCap Market System at December 31,
1999 and remains below this requirement for the ongoing listing of the Class A
Common Stock, the Company recorded the Series B Preferred Stock at its
Redemption Price of $19.0 million and recorded corresponding charges to net loss
available for common shareholders and accumulated deficit as of December 31,
1999.
The Company is a shareholder in uPACS LLC (the "LLC"), a limited liability
company which has developed a system for archiving ultrasound images with
networking, communication and off-line measurement capabilities. During 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, the operations of the LLC were funded by the Company
during the search for a buyer. As of March 31, 2000, the Company ceased funding
the LLC. Costs of funding the LLC during 2000 totaled less than $50,000. The
Company intends to either sell its interest in the LLC or abandon the efforts to
further develop its technology.
The Company is continually monitoring and evaluating its selling,
administrative and development functions with the intention of further
streamlining operations and reducing operating expenses. The Company anticipates
that decisions based on this evaluation may result in certain nonrecurring
charges during 2000, but the extent of such charges is not yet quantifiable.
During 2000, contracts to provide software and services to certain
customers were terminated due to the Company's inability to meet delivery
deadlines for version 3.2 of BASE10(R)ME which was caused by the substantial
customization of the core product required for those projects. The termination
of those contracts have allowed the Company to reallocate resources to other
projects requiring less substantial customization. To reduce its dependence on
the BASE10(R)ME and BASE10(R)CS products, the Company announced plans to more
aggressively market the BASE10(R)ADLS, BASE10(R)ADMS and BASE10(R)FS products.
The timely delivery of product to the Company's customers cannot be completely
assured. The financial statements at December 31, 1999 and for the year then
ended reflect the impact of the terminated contracts and concerns over the
delivery of BASE10(R)ME and BASE10(R)CS.
Forward Looking Statement
The foregoing contains forward looking information within the meaning of
The Private Securities Litigation Reform Act of 1995. Such forward looking
statements and paragraphs may be identified by such forward looking terminology
as "may", "will", "believe", "anticipate", or similar words or variations
thereof. Such forward looking statements involve certain risks and uncertainties
including the particular factors described more fully above in this business
discussion and in each case actual results may differ materially from such
forward looking statements. Successful marketing of BASE10(R)ME, BASE10(R)CS,
BASE10(R)FS, BASE10(R)ADLS and BASE10(R)ADMS and their future contribution to
Company revenues depends heavily on, among other things, successful early
completion of current test efforts and the necessary corrections to the software
permitting timely delivery to customers, none of which can be assured. Other
important factors that the Company believes may cause actual results to differ
materially from such forward looking statements are discussed in the "Risk
Factors" sections in the Company's Registration Statement on Form S-3 (File No.
333-70535) as well as current and previous filings with the Securities and
Exchange Commission. In assessing forward looking statements contained herein,
readers are urged to read carefully those statements and other filings with the
Securities and Exchange Commission. The Company does not undertake to publicly
update or revise its forward looking statements even if experience or future
changes make it clear that any projected results or events (expressed or
implied) will not be realized.
Item 3: Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
<PAGE>
Part II. Other Information
Item 4: Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders was held on June 14, 2000.
At the Annual Meeting, Stephen A. Cloughley and Edward Klinsport were
elected as directors. Mr. Cloughley was elected to serve a three-year term and
Mr. Klinsport was elected to serve a one-year term. The results of the
shareholder vote are as follows:
<TABLE>
<CAPTION>
Proposal Class Votes For Votes Withheld Abstentions
-------- ----- --------- -------------- -----------
<S> <C> <C> <C> <C>
Election of Class A Common Stock 2,990,393 7,963 --
Stephen A. Cloughley Class B Common Stock 1,656 5 --
Series B Preferred Stock
(as if converted to Class
A Common Stock) 243,761 -- --
Election of Class A Common Stock 1,157,069 1,847,287 --
William F. Hackett Class B Common Stock 1,656 5 --
Series B Preferred Stock
(as if converted to Class
A Common Stock) 243,761 -- --
Election of Class A Common Stock 2,232,203 -- --
Edward J. Klinsport Class B Common Stock -- -- --
Series B Preferred Stock
(as if converted to Class
A Common Stock) -- -- --
</TABLE>
Directors whose terms of office continued following the Annual Meeting were
Robert Hurwitz and John C. Rhineberger. A vote of shareholders was taken at the
Annual Meeting on three proposals. The proposal to increase the authorized Class
A Common Stock from 12 million shares to 27 million shares was approved by the
shareholders. The proposals to amend the 1998 Stock Option and Stock Award Plan
and to amend the 1998 Directors' Stock Option Plan were not approved by the
shareholders. The results of the shareholder votes are as follows:
<TABLE>
<CAPTION>
Proposal Class Votes For Votes Withheld Abstentions
-------- ----- --------- -------------- -----------
<S> <C> <C> <C> <C>
Proposal to increase Class A Common Stock 2,236,915 19,943 5,466
Class A Common Stock Class B Common Stock 1,051 105 517
to 27 million shares Series B Preferred Stock
(as if converted to Class
A Common Stock) 243,761 -- --
Amendment to the 1998 Class A Common Stock 1,113,249 1,850,840 34,266
Stock Option and Stock Class B Common Stock 889 240 532
Award Plan Series B Preferred Stock
(as if converted to Class
A Common Stock) 243,761 -- --
Amendment to the 1998 Class A Common Stock 1,107,532 1,856,518 34,306
Directors' Stock Option Class B Common Stock 884 245 532
Plan Series B Preferred Stock
(as if converted to Class
A Common Stock) 243,761 -- --
</TABLE>
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits - (27) Financial Data Schedule (Edgar filing only).
(b) Reports on Form 8-K - None.
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: August 14, 2000
Base Ten Systems, Inc.
(Registrant)
By: STEPHEN A. CLOUGHLEY
------------------------------------------
Stephen A. Cloughley
President and Chief Executive Officer
(Principal Executive Officer)
By: WILLIAM F. HACKETT
---------------------------------------
William F. Hackett
Senior Vice President and Chief
Financial Officer
(Principal Financial Officer)
