-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PoxVFW6PbBeI9R2ONHJOpA//qDznUWZr+QUowedjLHoCe8fAqfviZ4CYlkI7EUGO O0VhHtP/G9Zb/kzqtLFLiw== 0000912057-96-012433.txt : 19960617 0000912057-96-012433.hdr.sgml : 19960617 ACCESSION NUMBER: 0000912057-96-012433 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960430 FILED AS OF DATE: 19960614 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BASE TEN SYSTEMS INC CENTRAL INDEX KEY: 0000010242 STANDARD INDUSTRIAL CLASSIFICATION: SEARCH, DETECTION, NAVIGATION, GUIDANCE, AERONAUTICAL SYS [3812] IRS NUMBER: 221804206 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-07100 FILM NUMBER: 96581647 BUSINESS ADDRESS: STREET 1: ONE ELECTRONICS DR CITY: TRENTON STATE: NJ ZIP: 08619 BUSINESS PHONE: 6095867010 MAIL ADDRESS: STREET 1: ONE ELECTRONICS DR CITY: TRENTON STATE: NJ ZIP: 08619 10-Q 1 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended April 30, 1996 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 MAY 21, 1996 Class A Common Stock, $1.00 par value 7,307,112 Class B Common Stock, $1.00 par value 450,177 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- BASE TEN SYSTEMS, INC. AND SUBSIDIARIES INDEX Part I. Financial Information Page Consolidated Balance Sheets -- April 30, 1996 and October 31, 1995 (unaudited) . . . . . . . . . . . . . . . . . 1 Consolidated Statements of Operations -- Three months and six months ended April 30, 1996 and 1995 (unaudited) . . . . . . . . . 2 Consolidated Statement of Shareholders' Equity -- Six months ended April 30, 1996 (unaudited). . . . . . . . . . . . . . 3 Consolidated Statements of Cash Flows -- Six months ended April 30, 1996 and 1995 (unaudited). . . . . . . . . . . . . . . . 4 Notes to Consolidated Financial Statements . . . . . . . . . . . . 5 Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . . . . . . . . 8 Part II. Other Information Item 4: Submission of Matters to a Vote of Security Holders. . . 13 Item 6: Exhibits and Reports on Form 8-K . . . . . . . . . . . . 13 BASE TEN SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) A S S E T S
APRIL 30, 1996 OCTOBER 31, 1995 -------------- ---------------- CURRENT ASSETS: Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,994,000 $ 7,221,000 Accounts receivable (including unbilled receivables of $4,018,000 in 1996 and $3,271,000 in 1995) . . . . . . . . . . . . . . . . . 7,724,000 6,034,000 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,911,000 3,151,000 Current portion of employee loan receivable . . . . . . . . . . . . . . . . . 128,000 108,000 Other current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 533,000 536,000 ------------ ------------ TOTAL CURRENT ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,290,000 17,050,000 PROPERTY, PLANT AND EQUIPMENT. . . . . . . . . . . . . . . . . . . . . . . . . . 4,754,000 4,480,000 EMPLOYEE LOAN RECEIVABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212,000 298,000 OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,678,000 6,177,000 ------------ ------------ $ 22,934,000 $ 28,005,000 ------------ ------------ ------------ ------------ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 973,000 $ 1,246,000 Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,861,000 1,454,000 Income taxes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,038,000 1,038,000 Current portion of capital lease obligation . . . . . . . . . . . . . . . . . 43,000 42,000 ------------ ------------ TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . 3,915,000 3,780,000 LONG-TERM LIABILITIES: Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77,000 83,000 Deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000 90,000 Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 256,000 266,000 Capital lease obligation. . . . . . . . . . . . . . . . . . . . . . . . . . . 3,502,000 3,525,000 ------------ ------------ TOTAL LONG-TERM LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . 3,847,000 3,964,000 COMMITMENTS AND CONTINGENCIES . . . . . . . . . . . . . . . . . . . . . . . . . -- -- SHAREHOLDERS' EQUITY Preferred stock, $1.00 par value, authorized and unissued-1,000,000 shares . . . . . . . . . . . . . . . . . . . . . . . . -- -- Class A common stock, $1.00 par value, 22,000,000 shares authorized; issued and outstanding 7,298,112 shares in 1996 and 7,216,195 shares in 1995. . . . . . . . . . . . 7,298,000 7,216,000 Class B common stock, $1.00 par value, 2,000,000 shares authorized; issued and outstanding 450,177 shares in 1996 and 458,474 shares in 1995. . . . . . . . . . . . . . 450,000 458,000 Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . . . 24,218,000 23,908,000 Deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (16,610,000) (11,179,000) ------------ ------------ 15,356,000 20,403,000 Equity adjustment from foreign currency translation. . . . . . . . . . . . . . . (184,000) (142,000) ------------ ------------ 15,172,000 20,261,000 ------------ ------------ $ 22,934,000 $ 28,005,000 ------------ ------------ ------------ ------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1 BASE TEN SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
SIX MONTHS ENDED THREE MONTHS ENDED APRIL 30 APRIL 30 1996 1995 1996 1995 ---- ---- ---- ---- REVENUES Sales . . . . . . . . . . . . . $ 7,379,000 $ 7,921,000 $ 3,768,000 $5,171,000 Other . . . . . . . . . . . . . 91,000 213,000 27,000 86,000 ----------- ----------- ----------- ---------- 7,470,000 8,134,000 3,795,000 5,257,000 ----------- ----------- ----------- ---------- COSTS AND EXPENSES: Cost of sales . . . . . . . . . 5,193,000 5,530,000 2,735,000 3,186,000 Research and development. . . . 562,000 386,000 237,000 179,000 Selling, general and administrative. . . . . . . . 3,895,000 3,242,000 2,019,000 1,602,000 Write-off of software development costs . . . . . . . 2,429,000 -- 2,429,000 -- Amortization. . . . . . . . . . 561,000 187,000 334,000 140,000 Interest. . . . . . . . . . . . 260,000 282,000 132,000 139,000 ----------- ----------- ----------- ---------- 12,901,000 9,627,000 7,886,000 5,246,000 ----------- ----------- ----------- ---------- EARNINGS/(LOSS) BEFORE INCOME TAXES . . . . . . . . . . . (5,431,000) (1,493,000) (4,091,000) 11,000 INCOME TAXES/(BENEFIT) . . . . . . -- (520,000) 470,000 4,000 ----------- ----------- ----------- ---------- NET EARNINGS/(LOSS). . . . . . . . $(5,431,000) $ (973,000) $(4,561,000) $ 7,000 ----------- ----------- ----------- ---------- ----------- ----------- ----------- ---------- NET EARNINGS/(LOSS) PER COMMON SHARE . . . . . . . . . . . $ (.70) $ (.12) $ (.59) $ .01 WEIGHTED AVERAGE COMMON SHARES OUTSTANDING. . . . . . . . . . . . 7,708,454 7,169,613 7,717,112 7,339,109
See Notes to Consolidated Financial Statements 2 BASE TEN SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY SIX MONTHS ENDED APRIL 30, 1996 (Unaudited)
EQUITY ADJUSTMENT COMMON STOCK FROM -------------------------------------------- ADDITIONAL FOREIGN CLASS A CLASS B PAID-IN CURRENCY TREASURY SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TRANSLATION STOCK ------ ------ ------ ------ ------- ------- ----------- ----- Balance- October 31, 1995 7,216,195 $7,216,000 458,474 $458,000 $23,908,000 $(11,179,000) $(142,000) -- Conversions of Class B Common to Class A Common 628 1,000 (628) (1,000) Exercise of options 81,189 81,000 310,000 (7,669) Issuance of Common Stock 100 Foreign currency translation (42,000) Retirement of Treasury Stock (7,669) (7,000) 7,669 Net loss (5,431,000) --------- ---------- ------- --------- ----------- ------------- ----------- ------ Balance - April 30, 1996 7,298,112 $7,298,000 450,177 $ 450,000 $24,218,000 $(16,610,000) $ (184,000) -- --------- ---------- ------- --------- ----------- ------------- ----------- ------ --------- ---------- ------- --------- ----------- ------------- ----------- ------
See Notes to Consolidated Financial Statements 3 BASE TEN SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
SIX MONTHS ENDED APRIL 30, ------------------------ 1996 1995 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(5,431,000) $ (973,000) ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH USED IN OPERATING ACTIVITIES: Depreciation and amortization 799,000 234,000 Write-off of software development costs 2,429,000 -- Deferred gain on sale of building -- (15,000) Accounts receivable (1,703,000) (1,871,000) Inventories 240,000 (350,000) Other current assets 111,000 (375,000) Accounts payable (280,000) (236,000) Accrued expenses 324,000 621,000 Customers' advance payments 93,000 985,000 Deferred taxes (6,000) -- Deferred compensation (78,000) (65,000) Other assets (1,381,000) (464,000) Other long-term liabilities (9,000) -- Income taxes payable -- (520,000) ------------ ------------ NET CASH USED IN OPERATIONS (4,892,000) (3,029,000) ------------ ------------ CASH FLOWS USED IN INVESTING ACTIVITIES: Additions to property, plant and equipment-net (508,000) (217,000) Decrease in long-term lease obligation - net of current portion -- (18,000) ------------ ------------ NET CASH USED IN INVESTING ACTIVITIES (508,000) (235,000) CASH FLOWS PROVIDED FROM FINANCING ACTIVITIES: Repayment of amounts borrowed (21,000) -- Proceeds from issuance of common stock 384,000 4,773,000 ------------ ------------ NET CASH PROVIDED FROM FINANCING ACTIVITIES 363,000 4,773,000 Effect of exchange rate change on cash (190,000) (8,000) ------------ ------------ NET INCREASE IN CASH (5,227,000) 1,501,000 CASH, beginning of period 7,221,000 1,868,000 ------------ ------------ CASH, end of period 1,994,000 $ 3,369,000 ------------ ------------ ------------ ------------ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for interest $ 261,000 $ 265,000 ------------ ------------ SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Retirement of treasury stock $ 7,000 $ 12,000 ------------ ------------
See Notes to Consolidated Financial Statements 4 BASE TEN SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED APRIL 30, 1996 (Unaudited) A. DESCRIPTION OF BUSINESS Base Ten Systems, Inc. and subsidiaries ("Base Ten" or the "Company") design, develop, manufacture and market complex electronic systems for the defense industry and comprehensive software solutions for the pharmaceutical industry.. B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: 1. In management's opinion, all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the results for the interim periods have been presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The consolidated interim financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1995. The results of operations for the period ended April 30, 1996 are not necessarily indicative of the operating results for the full year. The financial information at the fiscal year ended October 31, 1995 is derived from the audited consolidated financial statements of the Company. 2. BASIS OF PRESENTATION - The Company's consolidated financial statements have been prepared on a historical cost basis. 3. SOFTWARE REVENUE RECOGNITION - The Company evaluates each product and/or order on an individual basis to determine the proper revenue recognition method. Contracts to deliver software which require significant customization and/or modification over an extended period of time are accounted for using the percentage-of-completion method. For products and/or orders which are more standardized in nature, revenue is recognized when the earnings process is complete and title has passed, generally upon delivery. 4. WRITEOFF OF CAPITALIZED SOFTWARE DEVELOPMENT COSTS - A portion of the Company's software development costs since 1991 have been capitalized and included in other non-current assets in accordance with the Statement of Financial Accounting Standard No. 86, Accounting for Costs for Computer Software to be Sold, Leased or otherwise Marketed ("FAS 86"), requiring the amortization of these costs over the estimated economic life of the product. See "Other Assets" below. The Company performs quarterly reviews of the recoverability of its capitalized software costs based on anticipated revenues and cash flows from sales of these products. In the second quarter of fiscal 1996 the Company conducted its regular quarterly review of the recoverability of its capitalized software development costs and determined that neither its PRENVAL nor its uPACS products would achieve sufficient revenues in future periods to justify retention of the related capitalized costs as productive assets. To confirm its determination, the Company reviewed the marketing chronology related to these products. With respect to PRENVAL, it became apparent to the Company in late February 1996, after a discussion with the licensee, that enhancements that are not developed or available for the product were being requested by customers who had a chance to use and test the product during the first quarter of fiscal 1996, and that, as a result, sales would not exceed the amount necessary to generate additional royalties in excess of the minimum required under the license. Thereafter, in May 1996, the Company determined that the licensee had no current plans to market the product in the U.S. as was originally anticipated by the Company. With respect to uPACS, the Com- pany had implemented sales efforts in late 1995 and displayed the pro- duct at certain trade shows in Europe. In December 1995, sales were anticipated for early 1996. However, by early April 1996 it became clear that the anticipated sales would not materialize. The Company concluded that the product, as it then existed, would not generate sufficient sales to recover the capitalized costs, and that only a new product with networking, communications and off-line measurement capabilities was marketable. Accordingly the Company wrote off $2.4 million of such capitalized costs. 5. OTHER ASSETS - Other assets at April 30, 1996 include $2,571,000 of software development costs that remain capitalized in accordance with FAS 86 after giving effect to the foregoing writeoff of unrecoverable development costs. See "Writeoff of Capitalized Software Development Costs" above. Amortization of the remaining capitalized software 5 development costs is computed on an individual product basis and is the greater of (a) the ratio of current gross revenues for a product to the total current and anticipated future gross revenues for that product or (b) the straight-line method over the estimated economic life of the product. 6. STATEMENT OF CASH FLOWS - The Company considers all investments with a maturity date of three months or less at date of acquisition to be cash equivalents. 7. CHANGE IN PRESENTATION - Certain balance sheet items for the interim period in fiscal 1995 have been reclassified to conform to the 1996 presentation. C. INVENTORIES: Inventories are stated at the lower of cost (first-in, first-out method) or market. APRIL 30, 1996 OCTOBER 31, 1995 -------------- ------------------ Raw materials ............ $ 1,208,000 $ 1,557,000 Work in process........... 1,668,000 1,515,000 Finished goods ........... 80,000 95,000 ----------- ------------ 2,956,000 3,167,000 Less advance payments..... 45,000 16,000 ----------- ------------ $ 2,911,000 $ 3,151,000 ----------- ------------ ----------- ------------ D. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are summarized as follows: APRIL 30, 1996 OCTOBER 31, 1995 -------------- ---------------- Machinery and equipment............. $ 9,320,000 $ 8,853,000 Furniture and fixtures ............. 647,000 617,000 Leased Asset - Land and Building.... 3,600,000 3,600,000 Leasehold Improvement 46,000 21,000 ----------- ----------- 13,613,000 13,091,000 Less accumulated depreciation and amortization ................... 8,859,000 8,611,000 ----------- ----------- $ 4,754,000 $ 4,480,000 ----------- ----------- ----------- ----------- 6 E. LONG-TERM CAPITAL LEASE: LEASES. The Company entered into a sale and leaseback arrangement on October 28, 1995. Under the arrangement, the Company sold its building in Trenton, New Jersey and agreed to lease it back for a period of 15 years under terms that qualify the arrangement as a capital lease. The buyer/lessor of the building is a partnership, one of the partners of which is a director and officer of the Company and another is a director. A non-interest bearing security deposit of $550,000 is paid at closing and included in other non-current assets on the balance sheet. Interest is calculated under the effective interest method and depreciation will be taken using the straight line method over the term of the lease. The Company's future minimum lease payments in effect at April 30, 1996 are as follows: FISCAL 1996 $ 280,000 1997 560,000 1998 560,000 1999 560,000 2000 615,000 2001 and thereafter 5,970,000 ---------- 8,545,000 Less: Interest portion 5,000,000 ---------- Present value of net minimum payments $3,545,000 ---------- ---------- F. NET EARNINGS PER SHARE: Loss per share for the periods ended April 30, 1996 and 1995 were calculated using the following number of weighted average common shares outstanding for each period. The stock options and warrants would have an anti-dilutive effect on loss per share for the quarter ended, April 30, 1995 and 1996 and therefore were not included in the calculation of earnings per share. 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OR OPERATIONS GENERAL The Company designs, develops, manufactures and markets complex precision electronic systems for the defense industry and comprehensive software solutions for the pharmaceutical industry. The Company's products are used in safety critical applications requiring consistent, highly reliable outcomes where any deviation from the defined outcome could have catastrophic end-results. The Company developed a core competency in safety critical applications from its historical focus, the design of electronic systems used primarily in weapons management systems. The Company is now applying this expertise to develop PHARMASYST, a manufacturing execution system targeted at the pharmaceutical industry. The defense business generated 85.2% and 84.1% of total revenues for the year ended October 31, 1995 and the six months ended April 30, 1996, respectively. The Company expects that the defense business will remain a significant component of operations. The Company has generally accounted for substantially all its revenues using the percentage of completion method. Under this method, revenues are recognized for each period based upon the portion of a contract completed during such period, with customer invoicing and payments often occuring on a different cycle. As a result, accounts receivable include work that has been completed, but that has not been billed. This approach is applicable for custom development or manufacturing projects. Due to the level of standardization in PHARMASYST, commencing in the second quarter of 1996, the Company will generally recognize revenues from sales of PHARMASYST upon products delivery. The Company will continue to account for any PHARMASYST revenue relating to specific customization requests under the percentage of completion method. Research and development for defense-related projects are performed under development contracts with prime contractors under which the Company generally receives full or partial funding. Funding under these contracts is accounted for as revenues. Research and development for commercial projects are undertaken at the Company's expense. Since 1991, the Company has spent $6.2 million for such development efforts, including $3.2 million for its PHARMASYST products, $1.7 million for its medical screening software and $1.1 million for its ultrasound image archiving system. Development expenditures for PHARMASYST and other commercial products have consisted primarily of salaries of software engineers. Software development expenditures for individual projects are expensed as research and development until a product attains technological feasability. Thereafter, expenditures are capitalized until products attain commercial availability. The Company established technological feasability for PHARMASYST in 1993 and subsequently capitalized $3.2 million in additional expenditures. In addition, an aggregate of $1.7 million and $1.1 million related to the development of its medical screening software and ultrasound image archiving software, respectively, have been capitalized. The amortization period for PHARMASYST is four years. In the second quarter of fiscal 1996 the Company conducted its regular quarterly review of the recoverability of its capitalized software development costs and determined that neither its PRENVAL nor its uPACS products would achieve sufficient revenues in future periods to justify retention of the related capitalized costs as productive assets. To confirm its determination, the Company reviewed the marketing chronology related to these products. With respect to PRENVAL, it became apparent to the Company in late February 1996, after a discussion with the licensee, that enhancements that are not developed or available for the product were being requested by customers who had a chance to use and test the product during the first quarter of fiscal 1996, and that, as a result, sales would not exceed the amount necessary to generate additional royalties in excess of the minimum required under the license. Thereafter, in May 1996, the Company determined that the licensee had no current plans to market the product in the U.S. as was originally anticipated by the Company. With respect to uPACS, the Company had implemented sales efforts in late 1995 and displayed the product at certain trade shows in Europe. In December 1995, sales were anticipated for early 1996. However, by early April 1996 it became clear that the anticipated sales would not materialize. The Company concluded that the product, as it then existed, would not generate sufficient sales to recover the capitalized costs, and that only a new product with networking, communications and off-line measurement capabilities was marketable. Accordingly the Company wrote off $2.4 million of such capitalized costs. 8 SIX MONTHS ENDED APRIL 30, 1996 AND 1995 Total revenues decreased by $664,000, or 8.2%, from $8.1 million in the six months ended April 30, 1995 to $7.5 million in the same period in 1996. Revenues from defense operations declined by $1.5 million or 18.8% from $7.7 million for the six months ended April 30, 1995 to $6.3 million in the same period of 1996. Revenues from commercial operations increased by $912,000, or 488%, from $187,000 during the six months ended April 30, 1995 to $1.1 million for the same period in 1996. The decline in defense revenues resulted from a reduction of $1.9 million, or 64.2% in the amount of contract manufacturing business from $3.0 million to $1.1 million. The reduction was partially offset by an increase in revenues from contracts with a single customer amounting to $422,000, or 18.2%, from $2.3 million to $2.7 million. The increase in commercial revenues resulted from sales of PHARMASYST products in the six months ended April 30, 1996. Commercial product revenues amounted to 2.3% and 14.7% of total revenues during the six months ended April 30, 1995 and 1996, respectively. Cost of sales declined by $336,000, or 6.1%, from $5.5 million in the six months ended April 30, 1995 to $5.2 million in the same period in 1996. The reduction resulted from decline in total defense revenues. Gross margin decreased from 32.0% to 30.5%. The decrease was due to the fixed nature of certain expenses, partially offset by increased sales of relatively high margin PHARMASYST products 9 during 1996. The gross margin of PHARMASYST sales is relatively high because a substantial portion of the development costs of PHARMASYST was capitalized rather than expensed. Such costs will be amortized over a period of four years. Selling, general and administrative expenses increased by approximately $653,000, or 20.1%, from $3.2 million in the six months ended April 30, 1995 to $3.9 million in the same period in 1996 and increased as a percentage of revenues from 39.9% for the six months ended April 1995 to 52.1% for the same period in 1996. The increase consisted of (i) $100,000 in salaries relating to the addition of new sales personnel and $160,000 for salary increases to existing personnel, (ii) $75,000 in advertising and travel relating to the Company's commercial products, (iii) $180,000 in professional fees and (iv) $138,000 in various other costs. Research and development expense increased by $176,000 or 45.6% from $386,000 in the six months ended April 30, 1995 to $562,000 for the same period in 1996. Capitalized software development costs increased by approximately $1.0 million or 90.1% from $1.1 million in 1995 to $2.2 million in 1996. The increase consists primarily of an increase of $940,000 relating to the development of PHARMASYST and $270,000 relating to a weapons control project initiated in 1996, partially offset by a decrease of $360,000 relating to the development of PRENVAL. The Company reviews the commercial feasibility of its capitalized assets on a quarterly basis to determine their projected useful life. Amortization expense increased by $374,000 or 200.0% from $187,000 in the six months ended April 30, 1995 to $561,000 for the same period in 1996. The increase primarily reflects increased sales of PHARMASYST products in 1996. Interest expense decreased by $22,000 due the reduction of the capitalized lease obligation through amortization. 10 LIQUIDITY AND CAPITAL RESOURCES During the first six months of fiscal 1996, the Company used $4.9 million of cash in its operations. The use of cash arose primarily from the Company's net loss of $5.4 million for the period and from increases of $1.7 million in accounts receivable from $6.0 million at October 31, 1995 to $7.7 million at April 30, 1996. The Company spent approximately $1.3 million for the development of its PHARMASYST products during the period, of which $ 1.0 million was capitalized as "other assets." The increase in accounts receivable resulted primarily from increased billings during the last month of the second quarter. The Company's loss for the six months ended April 30, 1996 included noncash expense consisting of a writeoff of capitalized software costs aggregating approximately $2.4 million and additional writeoffs of $350,000 relating to other costs and capitalized items as well as depreciation and amortization expense of $799,000 for the period, including $560,000 amortization of capitalized software development costs. A $407,000 increase in accrued expenses from $1.5 million at October 31, 1995 to $1.9 million at April 30, 1996 and a $240,000 reduction in inventories from $3.2 million to $2.9 million reduced the Company's use of cash in operations, offset in part by a $280,000 decrease in accounts payable from $1.2 million to $973,000. The Company raised approximately $390,000 from the sale of Common Stock in connection with the exercise of options in the six months ended April 30, 1996 and invested $508,000 in property, plant and equipment leading to a net use of cash of $5.2 million from $7.2 million at October 31, 1995 to $2.0 million at April 30, 1996. The Company's current activities and plans for product development and marketing for the balance of fiscal 1996 would require more cash than the Company expects to generate from operations. The Company intends to seek equity financing in the public markets in the third quarter. Should the Company be unable to raise additional funds through such a financing the Company would be forced to reduce its new product developments, marketing efforts, and other costs or seek other sources of capital, including borrowing. The Company currently has no committed lines of credit or other lending arrangements. 11 PART II. OTHER INFORMATION ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of Shareholders of Base Ten Systems, Inc. was held on March 26, 1996 in New York City. Matters voted on at the meeting were the election of a director and the approval of the Company's 1995 Incentive Stock Option Plan. The number of votes cast for, against, or withheld, as well as the number of abstentions and broker non-votes as to each matter, including a separate tabulation with respect to each nominee for office, is as follows: 1. Election of Director Class A Common For Withheld --- -------- Myles M. Kranzler 6,893,521 200,247 2. Approval of 1995 Class A Common and Class B Common ---------------------------------- Incentive Stock Option Plan For Against Abstentions Broker Non-Votes --- -------- ----------- --------- 644,683 81,255 7,595 305,271 ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS - None (b) REPORTS ON FORM 8-K - None. 12 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: June , 1996 BASE TEN SYSTEMS, INC. (Registrant) By: /S/ MYLES M. KRANZLER --------------------------------- Myles M. Kranzler President and Chairman of the Board (Principal Executive Officer) By: /S/ EDWARD J. KLINSPORT --------------------------------- Edward J. Klinsport Executive Vice President and Chief Financial Officer 13 EX-27 2 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FORM THE SIX MONTHS ENDED APRIL 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS OCT-31-1996 FEB-01-1996 APR-30-1996 1,994,000 0 7,724,000 0 2,911,000 13,290,000 4,754,000 0 22,934,000 3,915,000 0 0 0 7,298,000 15,172,000 22,934,000 7,379,000 7,470,000 5,193,000 12,901,000 0 0 0 (5,431,000) 0 (5,431,000) 0 0 0 (5,431,000) (.70) 0
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