<PAGE>
================================================================================
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 September 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
---------------------------------------- ---------
(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 November 7, 2000
Class A Common Stock, $5.00 par value 5,358,209
Class B Common Stock, $5.00 par value 12,623
<PAGE>
Base Ten Systems, Inc.
And Subsidiaries
Index
<TABLE>
<CAPTION>
<S> <C> <C>
Part I. Financial Information Page
Item 1: Financial Statements
Consolidated Balance Sheets - September 30, 2000 (unaudited)
and December 31, 1999......................................................................... 1
Consolidated Statements of Operations - Three and nine months
ended September 30, 2000 and 1999 (unaudited)................................................. 2
Consolidated Statements of Common Stock and Other Shareholders' Equity (Deficit) - Nine
months ended September 30, 2000 (unaudited).................................................... 3
Consolidated Statements of Cash Flows - Nine months ended
September 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............................................................ 9
Item 3: Quantitative and Qualitative Disclosures About Market Risk ............................ 12
Part II. Other Information
Item 6: Exhibits and Reports on Form 8-K................................................... 13
</TABLE>
<PAGE>
Item 1. Financial Statements
Base Ten Systems, Inc. and Subsidiaries
Consolidated Balance Sheets
(unaudited)
(dollars in thousands, except par value)
Assets
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
-----------------------------
Current Assets:
<S> <C> <C>
Cash and cash equivalents ................................................. $ 1,612 $ 5,843
Accounts receivable, net ................................................... 23 559
Current portion of notes receivable ........................................ -- 658
Other current assets ....................................................... 420 441
Current assets of discontinued operations .................................. 564 --
-----------------------------
Total Current Assets .................................................. 2,619 7,501
Property, plant and equipment, net ............................................ 3,197 4,564
Note receivable ............................................................... -- 1,317
Acquired intangible assets .................................................... -- 5,210
Other assets .................................................................. 50 485
Non current assets of discontinued operations ................................. 3,307 --
-----------------------------
Total Assets .......................................................... $ 9,173 $ 19,077
=============================
Liabilities, Redeemable Convertible Preferred Stock, Common Stock
and Other Shareholders' Equity (Deficit)
Current Liabilities:
Accounts payable ........................................................... $ 232 $ 345
Accrued expenses ........................................................... 792 1,770
Deferred revenue ........................................................... -- 1,423
Current liabilities of discontinued operations ............................. 1,371 --
Current portion of financing obligation .................................... 151 136
-----------------------------
Total Current Liabilities ............................................. 2,546 3,674
-----------------------------
Long-Term Liabilities:
Financing obligation ....................................................... 3,090 3,204
Other long-term liabilities ................................................ 194 214
-----------------------------
Total Long-Term Liabilities ........................................... 3,284 3,418
-----------------------------
Commitments and Contingencies
Series B Preferred Stock, $1.00 par value, issued and outstanding 15,203 shares
at December 31, 1999; aggregate liquidation value of
$15,203 at December 31, 1999 ............................................... -- 19,004
-----------------------------
Common Stock and Other Shareholders' Equity (Deficit):
Class A Common Stock, $5.00 par value, 27,000,000 shares
authorized; issued and outstanding 5,358,209 shares at September
30, 2000 and 5,102,096 at December 31, 1999 ............................. 26,790 25,510
Class B Common Stock, $5.00 par value, 400,000 shares authorized; issued and
outstanding 12,623 shares at September 30, 2000 and
14,181 shares at December 31, 1999 ...................................... 63 71
Additional paid-in capital ................................................. 68,485 63,527
Accumulated deficit ........................................................ (91,619) (95,754)
Accumulated other comprehensive gain (loss) ................................ (95) (92)
Treasury Stock, 100,000 Class A Common Shares, at cost ..................... (281) (281)
-----------------------------
Total Common Stock and Other Shareholders' Equity (Deficit) .......... 3,343 (7,019)
-----------------------------
Total Liabilities, Redeemable Convertible Preferred Stock,
Common Stock and Other Shareholders' Equity (Deficit) ................. $ 9,173 $ 19,077
=============================
</TABLE>
See Notes to the Consolidated Financial Statements
1
<PAGE>
Base Ten Systems, Inc. and Subsidiaries
Consolidated Statements of Operations
(unaudited)
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------------- ---------------------------------
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
General and administrative expenses...................... $ 947 $ 1,484 $ 3,355 $ 5,401
Non-cash debt conversion charge.......................... -- -- -- 3,506
----------------------------------------------------------------------
Loss before other income (expense)....... (947) (1,484) (3,355) (8,907)
Other income (expense), net.............................. (31) 57 152 260
----------------------------------------------------------------------
Net loss from continuing operations...................... (978) (1,427) (3,203) (8,647)
Discontinued operations:
Gain (loss) from disposition of discontinued operations.. (1,077) -- (1,077) 1,044
Loss from discontinued operations........................ (547) (1,953) (3,302) (6,138)
----------------------------------------------------------------------
Net loss from discontinued operations.................... (1,624) (1,953) (4,379) (5,094)
----------------------------------------------------------------------
Net loss................................................. (2,602) (3,380) (7,582) (13,741)
Less: Dividends on Redeemable Convertible
Preferred Stock............................ -- -- -- (262)
Accretion on Redeemable Convertible
Preferred Stock............................ -- (396) -- (960)
Credit on exchange of Redeemable Convertible
Preferred Stock............................ -- -- -- 445
Gain on redemption of Series B Preferred Stock..... 11,717 -- 11,717 --
----------------------------------------------------------------------
Net income (loss) available for common shareholders...... $ 9,115 $ (3,776) $ 4,135 $ (14,518)
======================================================================
Basic and diluted net income (loss) per share:
Continuing operations.............................. $ 2.06 $ (0.36) $ 1.65 $ (2.11)
Discontinued operations............................ (0.31) (0.39) (0.85) (1.14)
----------------------------------------------------------------------
Net income (loss) per share.............................. $ 1.75 $ (0.75) $ 0.80 $ (3.25)
======================================================================
Weighted average common shares outstanding - basic
and diluted..................................... 5,221,000 5,054,000 5,153,000 4,463,000
----------------------------------------------------------------------
</TABLE>
See Notes to the Consolidated Financial Statements
2
<PAGE>
Base Ten Systems, Inc. and Subsidiaries
Consolidated Statements of Common Stock and Other Shareholders' Equity (Deficit)
(unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Class A Class B Total
Common Stock Common Stock Treasury Stock Common
Stock and
Accumulated Other
Additional Other Shareholders'
Paid-In Accumulated Comprehensive Equity
Shares Amount Shares Amount Capital Deficit Loss Shares Amount (Deficit)
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1999 5,102,096 $25,510 14,181 $ 71 $ 63,527 $(95,754) $ (92) (100,000) $(281) $(7,019)
==================================================================================================================================
Conversions:
Common B to --
Common A 2,341 12 (1,558) (8) (4) -- -- -- --
Preferred B to --
Common A 250,000 1,250 -- -- 5,000 -- -- -- 6,250
Issuance of
Common Stock:
Purchase of --
Warrants -- -- -- -- (27) -- -- -- (27)
Employee stock --
purchase plan 3,772 18 -- -- (11) -- -- -- 7
---------------------------------------------------------------------------------------------------------------------------------
Comprehensive
Income (Loss):
Net loss -- -- -- -- -- (7,582) -- -- -- (7,582)
Unrealized loss on --
securities
available
for sale -- -- -- -- -- -- (3) -- (3)
Gain on redemption --
of Series B
Preferred Stock -- -- -- -- -- 11,717 -- -- 11,717
------------------------------------------------------------------------------------------------------------
Total Comprehensive
Income (Loss) -- -- -- -- -- 4,135 (3) -- -- 4,132
---------------------------------------------------------------------------------------------------------------------------------
Balance at
September 30, 2000 5,358,209 $ 26,790 12,623 $ 63 $ 68,485 $(91,619) $ (95) (100,000) $(281) $ 3,343
==================================================================================================================================
</TABLE>
See Notes to the Consolidated Financial Statements
3
<PAGE>
Base Ten Systems, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, September 30,
2000 1999
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss............................................. $ (7,582) $ (13,741)
Adjustments to Reconcile Net Loss to Net Cash Used in Operating
Activities:
Net loss from discontinued operations................ 3,302 --
(Gain) loss on disposition of discontinued operations 1,077 (1,044)
Depreciation and amortization........................ 424 2,537
Non-cash debt conversion charge...................... -- 3,506
Deferred gain on sale of building.................... (20) (5)
Bad debt expense..................................... -- 120
Loss on disposition of assets........................ 46 --
Changes in operating assets and liabilities:
Accounts receivable.................................. (23) 167
Other current assets................................. (52) 185
Other assets......................................... 2 500
Accounts payable, accrued expenses and deferred revenue (1,091) (1,786)
-----------------------------------------------------------------------------------------------------
Net Cash Used in Operating Activities......................... (3,899) (9,561)
-----------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Proceeds from note receivable........................ 1,929 --
Additions to property, plant and equipment........... -- (281)
Acquisition of Almedica, net of cash required........ -- (66)
-----------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Investing Activities........... 1,929 (347)
-----------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Repayment of amounts borrowed........................ (99) (43)
Proceeds from issuance of common stock............... 6 66
Conversion and repurchase of Series B Preferred Stock (1,063) --
-----------------------------------------------------------------------------------------------------
Net Cash (Used in) provided by Financing Activities........... (1,156) 23
-----------------------------------------------------------------------------------------------------
Cash Flows from Discontinued Operations:
Net cash used in operating activities................ (1,093) --
Proceeds from sale of discontinued operations........ -- 1,044
-----------------------------------------------------------------------------------------------------
Net Cash used in Discontinued Operations...................... (1,093) 1,044
-----------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash....................... (12) (57)
-----------------------------------------------------------------------------------------------------
Net (Decrease)/Increase In Cash............................... (4,231) (8,898)
Cash, beginning of period..................................... 5,843 17,437
-----------------------------------------------------------------------------------------------------
Cash, end of period........................................... $ 1,612 $ 8,539
-----------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for interest............. $ 366 $ 520
</TABLE>
See Notes to the Consolidated Financial Statements
4
<PAGE>
Base Ten Systems, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Nine Months Ended September 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 its current
operations will be discontinued. The Company has incurred significant
operating losses and negative cash flows in recent years. In October 2000,
the Company announced it will pursue a new business direction in contract
manufacturing for various industries. In conjunction with this strategy,
the Company will seek to dispose of its operations as a supplier of
software for managing clinical trials. The assets and liabilities
associated with the software operations have been adjusted to reflect their
expected value upon disposition.
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. On September 7,
2000, the NASD notified the Company that, as a result of the elimination of
the Company's Series B Preferred Stock, Base Ten was deemed to be in
compliance with the minimum net tangible asset requirement.
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. On November 6, 2000, the Company
requested a hearing before a NASDAQ Listing Qualifications Panel to appeal
the NASD's determination to delist the Company's Class A Common Stock from
the NASDAQ SmallCap Market System. The hearing is scheduled for December 8,
2000.
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 nine months ended September 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
Base Ten was founded in 1966 and became publicly traded in 1968. Through
its earlier history, the Company's focus was designing and producing safety
critical products for defense and space programs through its Government
Technology Division ("GTD"). As the "cold war" came to an end, management
recognized that declines in U.S. and international defense spending
required that Base Ten develop commercial lines of business. As an
outgrowth of strategic planning work begun in 1990, management began
looking at new business lines leveraging its experience in developing
safety critical technology applications.
Since 1994, the Company has been a developer, manufacturer and marketer of
computer software systems that assist manufacturers in industries regulated
by the Food and Drug Administration ("FDA"). The Company's software systems
aided customers in complying with FDA current Good Manufacturing Practice
("cGMP") guidelines, and improve their overall productivity by automating
certain manual processes (the "MES business"). In 1999, Base Ten acquired
from Almedica International, Inc. a suite of software systems to assist
clinical specialists in managing supplies for clinical trials (the
"clinical software business").
<PAGE>
The GTD was sold to Strategic Technology Systems, Inc. in 1997. On October
10, 2000, the Company entered into an Asset Purchase Agreement (the
"Agreement") with ABB Automation, Inc. under which certain assets and
liabilities of the MES business were sold for $2.0 million. Under the
Agreement, the Company is precluded from competing in the MES business, as
defined by the Agreement. On October 27, 2000, the Company announced that
it will pursue a new direction as a contract manufacturer to various
industries. The Company has commenced a search for a purchaser of the
clinical software business.
The Company owns a minority interest in uPACs LLC (the "LLC"), which
developed and marketed an ultrasound picture archiving communications
system that digitizes, records and stores images on CD-ROM as an
alternative to film and video storage. The LLC ceased operations in the
first quarter of 2000.
C. Summary of Significant Accounting Policies
Risks and Uncertainties - The Company has operated for several years 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 current and former 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,
protection of intellectual property rights and potentially long sales and
implementation cycles. Additionally, the Company is subject to the risks,
as a contract manufacturer, of obtaining and fulfilling manufacturing
projects and attracting and retaining qualified management and staff.
Reliance on Estimates - 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, the deferred tax asset valuation
reserves and the disposition value of assets and liabilities to be disposed
of. 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. and 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 shares 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).
<PAGE>
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 - As a result of the Company's disposal of the
MES business in October 2000 and the decision to dispose of the clinical
supplies business, acquired intangible assets were written down to expected
disposition value. Accumulated amortization related to the acquired
intangibles at September 30, 2000 and December 31, 1999 was $3,774,000 and
$1,606,000, respectively.
E. Redeemable Convertible Preferred Stock
In July 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 was eliminated, the Shareholders' Equity section of the
Company's balance sheet increased by approximately $17.9 million and a gain
of $11.7 million on the redemption of Series B Preferred Stock was
recorded.
<PAGE>
F. Net Income (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 income (loss) per share in the Consolidated
Statements of Operations (in thousands, except share and per share data):
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income (loss) per common share-basic:
Net loss from continuing operations $ (978) $ (1,427) $ (3,203) $ (8,647)
Add: Loss from discontinued operations (547) (1,953) (3,302) (6,138)
Gain (loss) from disposition of
discontinued operations (1,077) -- (1,077) 1,044
Dividend on Series A Preferred Stock -- -- -- (262)
Accretion on Series A Preferred Stock -- (396) -- (960)
Credit on exchange of
Redeemable -- -- -- 445
Convertible Preferred Stock
Gain on redemption of Series B Preferred
Stock 11,717 -- 11,717 --
------------------------------------------------------------------------------------------------------------------
Net income (loss) to common shareholders
(numerator) $ 9,115 $ (3,776) $ 4,135 $ (14,518)
------------------------------------------------------------------------------------------------------------------
Weighted average shares - basic (denominator) 5,221,000 5,054,000 5,153,000 4,463,000
------------------------------------------------------------------------------------------------------------------
Net income (loss) per common share-basic $ 1.75 $ (0.75) $ 0.80 $ (3.25)
------------------------------------------------------------------------------------------------------------------
Loss per common share-fully diluted:
Net loss from continuing operations $ (978) $ (1,427) $ (3,203) $ (8,647)
Add: Loss from discontinued operations (547) (1,953) (3,302) (6,138)
Gain (loss) from disposition of
discontinued operations (1,077) -- (1,077) 1,044
Dividend on Series A Preferred Stock -- -- -- (262)
Accretion on Series A Preferred Stock -- (396) -- (960)
Credit on exchange of
Redeemable -- -- -- 445
Convertible Preferred Stock
Gain on redemption of Series B Preferred
Stock 11,717 -- 11,717 --
------------------------------------------------------------------------------------------------------------------
Net income (loss) to common shareholders
(numerator) $ 9,115 $ (3,776) $ 4,135 $ (14,518)
------------------------------------------------------------------------------------------------------------------
Weighted average shares 5,221,000 5,054,000 5,153,000 4,463,000
Effect of dilutive options / warrants -- -- -- --
------------------------------------------------------------------------------------------------------------------
Weighted average shares-fully diluted 5,221,000 5,054,000 5,153,000 4,463,000
(denominator)
------------------------------------------------------------------------------------------------------------------
Net income (loss) per common
share-diluted $ 1.75 $ (0.75) $ 0.80 $ (3.25)
------------------------------------------------------------------------------------------------------------------
</TABLE>
Stock options, warrants and rights would have an anti-dilutive effect on
earnings per share for the periods ended September 30, 2000 and 1999 and,
therefore, were not included in the calculation of fully diluted earnings
per share.
<PAGE>
G. Subsequent Events
On October 10, 2000, the Company entered into an Asset Purchase Agreement
(the "Agreement") with ABB Automation Inc. ("ABB"). Under the terms of the
Agreement, ABB purchased the assets relating to the Company's BASE10(R)ME,
BASE10(R)CS and BASE10(R)FS product lines for $2.0 million. Assets
transferred to ABB as part of the transaction include patents, copyrights,
trademarks and tradenames, data, contracts, accounts receivable, employees,
equipment and software deployed in the Company's MES business.
On October 27, 2000, the Company announced that it will pursue a new
business direction as a contract manufacturer to various industries. Base
Ten is seeking a buyer of its clinical software business and to dispose of
its facilities in Trenton, New Jersey, California and Belgium. The assets
and liabilities of the Company's software operations have been adjusted as
of the balance sheet date to reflect their estimated disposition value and
are represented in the balance sheet as follows:
September 30,
2000
--------------
Current assets of discontinued operations:
Accounts receivable, net................................... 563
Other current assets....................................... 1
-----------
Total current assets of discontinued operations....... 564
-----------
Non current assets of discontinued operations:
Property, plant and equipment, net......................... 158
Acquired intangible assets................................. 2,826
Other assets............................................... 323
-----------
Total non current assets of discontinued operations... 3,307
-----------
Current liabilities of discontinued operations:
Deferred revenue........................................... 1,371
-----------
Total current liabilities of discontinued operations.. 1,371
-----------
As a result of the decision to dispose of the software operations, the
Company recorded an estimated loss on the disposition of discontinued
operations of $1,077,000 in the third quarter of 2000.
The following is the Company's results of operations for its discontinued
product lines for the three and nine months ended September 30, 1999 and
2000:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------- -------------------------------
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
License and related revenue.................. $ -- $ 245 $ 159 $ 1,015
Services and related revenue................. 566 1,509 2,174 3,424
-------------------------------------------------------------------
566 1,754 2,333 4,439
Cost of revenues............................. 351 1,374 2,369 4,139
Research and development..................... 202 340 989 1,235
Selling and marketing........................ 460 1,794 1,732 4,753
General and administrative................... 100 199 545 450
-------------------------------------------------------------------
1,113 3,707 5,635 10,577
-------------------------------------------------------------------
Loss from discontinued operations............ $ 547 $ 1,953 $ 3,302 $ 6,138
===================================================================
</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
AnnualReport 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 September 30, 2000 compared with Three Months ended
September 30, 1999
Continuing Operations
Revenues
The Company had no revenue from continuing operations during the three
month periods ended September 30, 1999 and 2000.
Cost of Sales
The Company had no costs of sales from continuing operations during the
three month periods ended September 30, 1999 and 2000.
Research and Development Costs
The Company had no research and development costs from continuing
operations during the three month periods ended September 30, 1999 and 2000.
Sales and Marketing Expenses
The Company had no sales and marketing costs from continuing operations
during the three month periods ended September 30, 1999 and 2000.
General and Administrative Expenses
The Company's general and administrative expenses decreased in the 2000
period to $0.9 million from $1.5 million in the comparable 1999 period. The
decrease in the 2000 period is primarily due to a reduction of $0.6 million in
outside professional services.
Other Income or Expense
Other expense was approximately $31,000 in the quarter ended September 30,
2000 compared to other income of approximately $57,000 in the quarter ended
September 30, 1999, 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 $1.0 million in
the quarter ended September 30, 2000, compared to a $1.4 million loss from
continuing operations for the quarter ended September 30, 1999. The decreased
loss in the 2000 period was primarily due to a reduction of $0.6 million in
general and administrative expenses in the quarter ended September 30, 2000.
Losses from Discontinued Operations
The Company incurred a loss from discontinued operations of $0.5 million in
the three months ended September 30, 2000, compared to a $2.0 million loss from
discontinued operations for the three months ended September 30, 1999. The
decreased loss in the 2000 period was primarily due to reduced expenses totaling
$2.6 million in the three months ended September 30, 2000, partially offset by
reduced revenues of $1.2 million. The expense reduction was primarily attributed
to lower expenses in the three months ended September 30, 2000 as compared to
the three months ended September 30, 1999 of: (1) costs of revenues of $1.0
million; (2) research and development costs of $0.1 million; (3) sales and
marketing expenses of $1.3 million; and (4) general and administrative charges
of $0.1 million.
<PAGE>
Nine Months ended September 30, 2000 compared with Nine Months ended September
30, 1999
Continuing Operations
Revenues
The Company had no revenue from continuing operations during the nine month
periods ended September 30, 1999 and 2000.
Cost of Sales
The Company had no costs of sales from continuing operations during the
nine month periods ended September 30, 1999 and 2000.
Research and Development Costs
The Company had no research and development costs from continuing
operations during the nine month periods ended September 30, 1999 and 2000.
Sales and Marketing Expenses
The Company had no sales and marketing costs from continuing operations
during the nine month periods ended September 30, 1999 and 2000.
General and Administrative Expenses
Company general and administrative expenses decreased in the 2000 period to
$3.4 million from $5.4 million in the comparable 1999 period. The decrease in
the 2000 period is primarily due to a reduction of $1.8 million in outside
professional services.
Debt Conversion Costs
Debt conversion costs in the 1999 period relate to a non-cash accounting
charge of $3.5 million from the conversion of a $10 million debenture in March
1999. The debenture was issued in August 1996 to Jesse L. Upchurch, a principal
shareholder of the Company. A result of the modification of the conversion price
from $50.00 to $20.00 (after adjustment for the reverse stock split in 1999),
the conversion resulted in an issuance of 500,000 shares of Class A Common Stock
(after adjustment for the reverse stock split), compared to 800,000 shares that
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 re-pricing of warrants issued to the agent of
the debenture holder. This non-cash expense had no effect on cash flows or the
Company's net tangible asset balance.
Other Income or Expense
Other income was approximately $0.3 million in the nine months ended
September 30, 1999 as compared to $0.2 in the nine months ended September 30,
2000 due primarily to lower interest income earned in 2000 as a result of lower
average cash balances.
<PAGE>
Losses from Continuing Operations
The Company incurred a loss from continuing operations of $3.2 million in
the nine months ended September 30, 2000 compared to a loss from continuing
operations of $8.6 million for the nine months ended September 30, 1999. The
decreased loss in the 2000 period was primarily due to a reduction of $2.0
million in general and administrative expenses and a non-cash debt conversion
charge in 1999 of $3.5 million.
Losses from Discontinued Operations
The Company incurred a loss from discontinued operations of $3.3 million in
the nine months ended September 30, 2000 compared to a $6.1 million loss from
discontinued operations for the nine months ended September 30, 1999. The
decreased loss in the 2000 period was primarily due to reduced expenses totaling
$5.0 million in the nine months ended September 30, 2000, partially offset by
reduced revenues of $2.1 million. The expense reduction was primarily
attributable to lower expenses in the nine months ended September 30, 2000
compared to the nine months ended September 30, 1999 of: (1) costs of revenues
of $1.8 million; (2) research and development costs of $0.2 million and (3)
sales and marketing expenses of $3.1 million.
Liquidity and Capital Resources
The financial statements of Base Ten have been prepared on the basis that
its current operations will be disposed. The Company has incurred significant
operating losses and negative cash flows in recent years. In October 2000, the
Company announced it will pursue a new business direction in contract
manufacturing for various industries. In conjunction with this strategy, the
Company will seek to dispose of its operations as a supplier of software for
managing clinical trials. The assets and liabilities associated with the
software operations have been adjusted to reflect their expected value upon
disposition.
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. On September 7, 2000, the NASD notified the Company that,
as a result of the elimination of the Company's Series B Preferred Stock, Base
Ten was deemed to be in compliance with the minimum net tangible asset
requirement.
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. On November 6, 2000, the Company requested a
hearing before a NASDAQ Listing Qualifications Panel to appeal the NASD's
determination to delist the Company's Class A Common Stock from the NASDAQ
SmallCap Market System. The hearing is scheduled for December 8, 2000.
In July 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 was
eliminated, and the Shareholders' Equity section of the Company's balance sheet
increased by approximately $17.9 million.
On October 10, 2000, the Company entered into an Asset Purchase Agreement
(the "Agreement") with ABB Automation Inc. ("ABB"). Under the terms of the
Agreement, ABB purchased the assets relating to the Company's BASE10(R)ME,
BASE10(R)CS and BASE10(R)FS product lines for $2.0 million. Assets transferred
to ABB as part of the transaction include patents, copyrights, trademarks and
tradenames, data, contracts, accounts receivable, employees, equipment and
software deployed in the Company's MES business.
On October 27, 2000, the Company announced that it will pursue a new
business direction as a contract manufacturer to various industries. Base Ten is
seeking a buyer of its clinical software business and to dispose of its
facilities in Trenton, New Jersey, California and Belgium. The Company
anticipates that the closing of office facilities may result in certain
nonrecurring charges, but the extent of the charges is not yet quantifiable.
<PAGE>
The Company is a minority owner of uPACS LLC, a limited liability company
that 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. As a
result, it 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's working capital decreased from $3.8 million to $0.1 million
during the nine months ended September 30, 2000. The Company had $1.6 million of
cash at September 30, 2000, whereas the Company had $5.8 million of cash at
December 31, 1999. The decrease in cash during the nine months ended September
30, 2000 resulted primarily from the use of cash in operations totaling $3.9
million.
Cash used in operations during 2000 has been affected primarily by the net
loss of $7.6 million and the decrease in current liabilities of $1.1 million,
partially offset by losses from discontinued operations of $4.4 million and
non-cash depreciation and amortization charges of $0.4 million.
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 may be identified by such forward-looking terminology as "may,"
"will," "believe," "anticipate," "expect," or similar words or variations
thereof. Such forward-looking statements involve certain significant risks and
uncertainties. Important factors that Base Ten believes may cause actual results
to differ materially from such forward-looking statements are discussed in the
"Risk Factors," "Business" and "MD&A" sections of the company's current S-3
registration statements and annual and quarterly reports on file with the
Securities and Exchange Commission. Additional risk factors include the
effectiveness of software and the ability of software to operate without "bugs"
in the technology and acceptance of the release by customers and actual rollout.
In assessing such forward-looking statements, investors are urged to read
carefully those reports and other filings. Base Ten does not undertake to
publicly update or revise its forward-looking statements, even if experience or
future changes indicate that any such results or event (expressed or implied)
will not be realized.
Item 3: Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
<PAGE>
Part II. Other Information
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits - (27) Financial Data Schedule (Edgar filing only).
(b) Reports on Form 8-K
o Current Report on Form 8-K dated October 10, 2000 filed on October 24,
2000 reporting Base Ten Systems, Inc.'s sale of certain assets and
liabilities relating to its MES business to ABB Automation, Inc.
o Current Report on Form 8-K dated October 27, 2000 filed on November 3,
2000 reporting Base Ten Systems, Inc.'s changes in the Board of
Directors and strategic shift into contract manufacturing.
o Current Report on Form 8-K dated October 31, 2000 filed on November 6,
2000 reporting Base Ten Systems, Inc.'s change in independent
accountants.
<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: November 21, 2000
Base Ten Systems, Inc.
(Registrant)
By: Edward J. Klinsport
--------------------------------------
Edward J. Klinsport
President and Chief Executive Officer
(Principal Executive Officer)
By: Kenneth W. Riley
--------------------------------------
Kenneth W. Riley
Chief Financial Officer
(Principal Financial Officer)
