-----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, Vm2Bu+FRxxP+R7OE73J/uX2EAWW9IZG2ggm11e9vh8jhawGjEvWErzQM9ifksM5X ayxD811wRSyrDU6OsaJsrg== 0000950116-02-001880.txt : 20020814 0000950116-02-001880.hdr.sgml : 20020814 20020814134300 ACCESSION NUMBER: 0000950116-02-001880 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BASE TEN SYSTEMS INC CENTRAL INDEX KEY: 0000010242 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 221804206 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-07100 FILM NUMBER: 02734073 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 10QSB 1 ten-qsb.txt 10QSB ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-QSB Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarter ended June 30, 2002 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.) 535 E. County Line Road, Suite 16 Lakewood, N.J. 08701 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (732) 370-6895 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 July 12, 2002 Class A Common Stock, $5.00 par value 5,338,812 Class B Common Stock, $5.00 par value 12,667 ================================================================================ BASE TEN SYSTEMS, INC. AND SUBSIDIARIES Index
Part I. Financial Information Page Item 1. Financial Statements Consolidated Balance Sheet - June 30, 2002 (unaudited)......................................... 1 Consolidated Statements of Operations - Three and Six Months ended June 30, 2002 and 2001 (unaudited)......................................................................... 2 Consolidated Statement of Common Stock and Other Shareholders' Equity - Six Months ended June 30, 2002 (unaudited)................................................... 3 Consolidated Statements of Cash Flows - Six months ended June 30, 2002 and 2001 (unaudited)......................................................................... 4 Notes to Consolidated Financial Statements..................................................... 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................................ 8 Item 3. Quantitative and Qualitative Disclosures About Market Risk............................ 10 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K...................................................... 10
BASE TEN SYSTEMS, INC. AND SUBSIDIARIES Consolidated Balance Sheet (unaudited) ($ in thousands, except par value) Assets
June 30, 2002 ------------ Current Assets Cash and cash equivalents....................................... $ 418 Other current assets............................................. 158 Current assets of discontinued operations........................ 75 ------------ Total Current Assets........................................ 651 Equipment, net...................................................... 3 Investment in ConvergenceHealth.com................................. 290 Other assets........................................................ 10 ------------ Total Assets $ 954 ============ Liabilities, Common Stock and Other Shareholders' Equity Current Liabilities: Accounts payable................................................. $ 55 Accrued expenses................................................. 147 ------------ Total Current Liabilities................................... 202 ------------ Commitments and Contingencies Redeemable Convertible Preferred Stock: Series B Preferred Stock, $1.00 par value, 994,201 shares authorized, 0 shares issued and outstanding................... -- Common Stock and Other Shareholders' Equity (Deficit): Class A Common Stock, $5.00 par value, 27,000,000 shares authorized; 5,358,812 shares issued and 5,338,812 outstanding. 26,794 Class B Common Stock, $5.00 par value, 400,000 shares authorized; issued and outstanding 12,667 shares.......................... 63 Additional paid-in capital....................................... 68,481 Accumulated deficit.............................................. (94,370) ------------ 968 Accumulated other comprehensive gain............................. 65 Treasury Stock, 20,000 Class A Common Shares, at cost............ (281) ------------ Total Common Stock and Other Shareholders' Equity........... 752 ------------ Total Liabilities, Common Stock and Other Shareholders' Equity $ 954 ============
See Notes to the Consolidated Financial Statements 1 BASE TEN SYSTEMS, INC. AND SUBSIDIARIES Consolidated Statements of Operations (unaudited) ($ in thousands, except per share data)
Three Months Ended Six Months Ended ------------------ ---------------- June 30, 2002 June 30, 2001 June 30, 2002 June 30, 2001 -------------------------------------------------------------------------- General and administrative expenses..................... $ (112) $ (307) $ (353) $ (487) Other income, net....................................... 1 14 11 89 -------------------------------------------------------------------------- Net loss................................................ (111) (293) (342) (398) ========================================================================== Basic and diluted net loss per share $ (0.02) $ (0.05) $ (0.06) $ (0.07) ========================================================================== Weighted average common shares outstanding - basic and diluted.................................... 5,351,000 5,351,000 5,351,000 5,351,000 --------------------------------------------------------------------------
See Notes to the Consolidated Financial Statements 2 BASE TEN SYSTEMS, INC. AND SUBSIDIARIES Consolidated Statement of Common Stock and Other Shareholders' Equity (unaudited) ($ in thousands)
Total Common Accumulated Stock and Class A Class B Additional Other Other Common Stock Common Stock Paid-In Accumulated Comprehensive Treasury Stock Shareholders' Shares Amount Shares Amount Capital Deficit Loss Shares Amount Equity - ---------------------- ---------- --------- ---------- --------- ---------- ----------- ------------- -------- --------- ---------- Balance at December 31, 2001 5,358,812 $ 26,794 12,667 $ 63 $ 68,481 $(94,028) $ 56 (20,000) $ (281) $ 1,085 ====================== ========= ======== ======== ======== ======== ======== ========= ======== ======= ======== Comprehensive Income (Loss): Net loss -- -- -- -- -- (342) -- -- -- (342) Unrealized loss on securities available for sale -- -- -- -- -- -- 9 -- -- 9 --------- -------- -------- -------- -------- -------- --------- -------- ------- -------- Total Comprehensive Income (Loss) -- -- -- -- -- (342) 9 -- -- (333) - ---------------------- --------- -------- -------- -------- -------- -------- --------- -------- ------- -------- Balance at June 30, 2002 5,358,812 $ 26,794 12,667 $ 63 $ 68,481 $(94,370) $ 65 (20,000) $ (281) $ 752 ====================== ========= ======== ======== ======== ======== ======== ========= ======== ======= ========
See Notes to the Consolidated Financial Statements 3 BASE TEN SYSTEMS, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (unaudited) ($ in thousands)
Six Months Six Months Ended Ended June 30, 2002 June 30, 2001 ===================================================================================================== Cash Flows from Operating Activities: Net loss............................................. $ (342) $ (398) Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities: Depreciation and amortization........................ -- 6 Loss on disposition of assets........................ -- 34 Changes in operating assets and liabilities: Other current assets................................. 4 117 Accounts payable and accrued expenses................ (127) (487) - ----------------------------------------------------------------------------------------------------- Net Cash Used in Operating Activities......................... (465) (728) ===================================================================================================== Cash Flows from Investing Activities: Investment in ConvergenceHealth.com.................. (290) -- - ----------------------------------------------------------------------------------------------------- Net Cash Used in Investing Activities......................... (290) -- ===================================================================================================== Net Decrease In Cash.......................................... (755) (728) Cash, beginning of period..................................... 1,173 2,304 - ----------------------------------------------------------------------------------------------------- Cash, end of period........................................... $ 418 $ 1,576 ===================================================================================================== Supplemental Disclosures of Cash Flow Information: Cash paid during the period for interest............. $ -- $ --
See Notes to the Consolidated Financial Statements 4 BASE TEN SYSTEMS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Six Months Ended June 30, 2002 (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 are limited to administrative matters pending implementation of a strategy for redirection of its business. The Company has incurred significant operating losses and negative cash flows in recent years. In October 2000, Base Ten sold part of its software business and announced its decision to dispose of its remaining software operations, with a view to pursuing alternative revenue generating or strategic opportunities. See Note D below. The assets and liabilities associated with the Company's software operations have been adjusted to reflect their net realizable value upon disposition. All discontinued operations have been reflected in the financial statements for the year 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 audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-KSB for the year ended December 31, 2001. The results of operations for the six months ended June 30, 2002 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 Company's financial position and operating results are reflected in the accompanying statements. B. Description of Business Base Ten was founded in 1966 and became publicly held in 1968. Historically, the Company focused on designing and producing safety critical software products for defense and aerospace programs. In response to declines in defense spending during the early 1990s, Base Ten sought to apply its know how in safety critical technology to develop commercial lines of business. The Company ultimately established separate divisions for its government technology ("GTD") and medical technology ("MTD") operations to address distinct challenges in those sectors. The GTD was sold to Strategic Technology Systems, Inc. in 1997. In October 2000, the Company sold its manufacturing execution software business to ABB Automation, Inc. for $2.0 million and announced its intention to dispose of its remaining businesses and pursue revenue generating or strategic opportunities in sectors requiring less capital resources, technological development and time to market uncertainties. In March 2001, the Company entered into an agreement for the sale of its clinical trials management software business ("Clinical Software") to Almedica Advanced Technology LLC ("AAT"), a subsidiary of Almedica International, Inc. ("Almedica"). See Note D below. In January 2002, the Company entered into an Agreement and Plan of Merger with ConvergenceHealth.com ("Convergence"). See Note E below. C. Summary of Significant Accounting Policies Risks and Uncertainties - The Company's planned redirection of its business will be subject to all of the risks inherent in a technology business, including the potential for significant technological changes in the industry or in customer requirements, ability to attract and retain qualified employees, limited senior management resources, protection of intellectual property rights and potentially long sales and implementation cycles. The Company is involved from time to time in various claims in the normal course of business. During June 2002, a former customer of the Company requested the refund of approximately $87,000 of software license fees and other unspecified costs relating to a 1999 contract. Performance of the contract had been subcontracted to ABB Automation, Inc. in October 2000 in connection with its purchase of the Company's manufacturing execution software. Management believes this claim is without merit and intends to defend the claim vigorously. The Company has elected not to reserve for this claim. In the event the customer pursues this claim through litigation and obtains an adverse judgement against Base Ten, the Company's financial condition could be adversely affected. 5 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 value of its investments in AAT and Convergence, reserves for claims by customers and vendors for contractual or other unfulfilled commitments, deferred tax asset valuation reserves and the value of assets and liabilities to be disposed of, all of which could differ from actual values. D. Disposition of Clinical Software Business The Company's agreement with Almedica and AAT provides for its contribution of the Clinical Software assets to AAT for $75,000 and a 20% ownership interest in AAT. See Note B above. The Clinical Software assets are reflected in the accompanying financial statements at their estimated net realizable value of $75,000, with no value attributed to the interest in AAT to be received by Base Ten in the transaction. The sale of the Clinical Software assets is subject to approval by the Company's shareholders. E. Investment in ConvergenceHealth.com The Company is a party to an Agreement and Plan of Merger dated January 18, 2002, as amended (the "Merger Agreement"), with Convergence for the merger of Convergence into a wholly owned subsidiary of Base Ten (the "Merger"). See Note B above. Convergence is a development stage company seeking to commercialize its Personal Health Application, an interactive web-based resource designed to assist people make healthy lifestyle decisions informed by exposure to alternative and preventative as well as traditional healthcare options. To provide Convergence with needed working capital prior to the Merger, the Company has purchased an aggregate of 1,160,000 shares of Convergence preferred stock for $290,000 since January 2002. Base Ten's investment in Convergence at June 30, 2002 is recorded at its face value of $290,000. In the event the merger with Convergence is not completed or Convergence otherwise fails to execute its business plan, Base Ten could be unable to recoup its investment in Convergence. Subsequent to June 30, 2002, the Company and Convergence amended the Merger Agreement to provide for unsecured working capital loans to Convergence pending completion of the merger. The Company made an initial $125,000 loan on August 1, 2002 and agreed to make additional loans of $50,000 each month from October 2002 until the earlier of January 2003 or completion of the merger. The amendment also restricts the rights of Convergence to terminate the Merger Agreement under certain circumstances without first repaying the Company's loans and repurchasing all or part of its preferred stock investment in Convergence. Consummation of the Merger is subject to various conditions, including approval by both parties' shareholders, delivery by Convergence of its Personal Health Application to at least one unaffiliated sponsor at fair value and completion of a 1-for-1,000 reverse split of the Company's common stock and a related fractional share repurchase (the "Share Combination"). The Share Combination is intended to save administrative costs after the Merger by reducing the Company's shareholder base below 300, enabling it to terminate its reporting obligations as a publicly held small business company. If the Merger is approved by the parties' shareholders and the other closing conditions are satisfied, the Company's subsidiary will merge into Convergence, which will survive the Merger as a wholly owned subsidiary of the Company. At the time of the Merger, the outstanding capital stock of Convergence will be converted into the right to receive Class A common stock of the Company representing 75% of its common shares to be outstanding after its repurchase of fractional shares in the Share Combination. 6 F. Net Income (Loss) Per Share The Company calculates earnings per share in accordance with the provisions of Statement of Financial Accounting Standard No. 128, Earnings Per Share ("FAS 128"). FAS 128 requires the Company to present Basic Earnings Per Share, which excludes dilution, and Diluted Earnings Per Share, which includes potential dilution. The following table sets forth a reconciliation of the numerators and denominators used to calculate income (loss) per share in the Consolidated Statements of Operations. ($ in thousands, except per share data)
==================================================================================================================== Three Months Ended Six Months Ended June 30, 2002 June 30, 2001 June 30, 2002 June 30, 2001 ==================================================================================================================== Loss per common share-basic and diluted: Net loss from operations (numerator) $ (111) $ (293) $ (342) $ (398) - -------------------------------------------------------------------------------------------------------------------- Weighted average shares - basic and diluted (denominator) 5,351,000 5,351,000 5,351,000 5,351,000 - -------------------------------------------------------------------------------------------------------------------- Net loss per common share-basic and diluted $ (0.02) $ (0.05) $ (0.06) $ (0.07) ====================================================================================================================
Stock options, warrants and rights would have an anti-dilutive effect on earnings per share for the three and six month periods ended June 30, 2002 and 2001 and, therefore, were not included in the calculation of diluted earnings per share. G. Income Taxes The Company has net operating loss carryforwards for federal income tax purposes of approximately $78 million, expiring in the years 2005 through 2020. A 100% valuation allowance has been provided against this deferred tax asset. There is no provision for deferred or current income taxes for the six months ended June 30, 2002 and 2001. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations General Base Ten was engaged for its first quarter century in development and manufacturing of safety critical software components for defense and aerospace markets. In response to declines in defense spending during the early 1990s, the Company sought ways to apply its safety critical know how to commercial applications for healthcare and other regulated industries. The Company ultimately established divisions for its government technology ("GTD") and medical technology ("MTD") operations in response to distinct challenges in those sectors. MTD operations were initially focused on development of pharmaceutical manufacturing execution systems ("MES") designed to address increasing cost containment and compliance pressures in that sector. Base Ten later identified the clinical trials market as an additional opportunity to apply its core technology, ultimately developing clinical trials management software ("Clinical Software") designed to support supplies management and compliance with traceability requirements. Contraction of Business GTD Sale. In 1997, the Company opted to concentrate on its MTD products both though internal development and acquisitions. As part of that strategy, Base Ten completed the sale of its GTD assets and a related management restructuring at the end of 1997. MES Sale. After the sale of the GTD assets, substantial resources were marshaled to refine, expand and deploy the Company's MTD offerings. These efforts were hindered by unanticipated difficulties integrating its MES software with the wide variety of legacy computer systems deployed in pharmaceutical manufacturing facilities. The Company's inability to overcome these obstacles by standardizing its MES products and providing migration paths resulted in project termination by a major customer during the first quarter of 2000. Although Base Ten reallocated resources to other projects requiring less substantial customization, it continued to encounter problems in MES integration with customer legacy systems. As a result, Base Ten sold its MES assets for $2 million in October 2000. As part of the transaction, the purchaser agreed to employ members of the MES staff and assume the Company's unsatisfied commitments under MES related license agreements. In June 2002, a former MES customer advised Based Ten of a non-performance claim under its license agreement. Despite its perceived lack of merit, the claim could adversely affect the Company if successfully pursued by the customer. Pending Clinical Software Sale. Base Ten also encountered various technological and marketing difficulties in the introduction of its Clinical Software offerings, including two software suites acquired from Almedica International, Inc. ("Almedica") in June 1999. Neither the internally developed nor acquired offerings generated adequate sales to cover associated development and marketing expenses, contributing to the Company's operating losses aggregating $48.5 million from 1998 through 2000. The Company determined that the Clinical Software business, if retained, would continue to operate at a loss and ceased efforts to build the Clinical Software business in December 2000. In March 2001, Base Ten entered into an agreement with Almedica and Almedica Advanced Technology, LLC ("Almedica LLC") for the sale and deployment of the Clinical Software business. The agreement provides for the Company's contribution of its Clinical Software assets to Almedica LLC for $75,000 plus a 20% interest in Almedica LLC. The sale of the Clinical Software assets is subject to various conditions, including approval by the Company's shareholders. Redirection of Business Beginning in November 2000, the Company concentrated on identifying revenue generating or strategic opportunities requiring less capital resources, technological development and time to market uncertainties than its MTD business (the "Business Redirection"). We focused these efforts for most of 2001 on exploring a business combination with ConvergenceHealth.com, a privately held Nevada corporation that has developed interactive web-based resources designed to assist people make healthy lifestyle decisions informed by exposure to alternative and preventative as well as traditional healthcare options ("Convergence"). Although Convergence has generated only marginal revenues and has incurred substantial losses to date, its initial offering promises to address major priorities of corporate sponsors by encouraging employees participating in their health plans to adopt wellness lifestyles that can increase productivity and reduce healthcare costs. Based on that prospect, the Company entered into a merger agreement with Convergence in January 2002 and plans to seek shareholder approval for the merger (the "Convergence Merger") and related initiatives after completing regulatory review procedures for clearance of solicitation materials. 8 To reduce administrative costs following the Convergence Merger, the agreement covering the transaction provides for Base Ten to terminate its reporting obligations as a publicly held small business company by completing a 1-for-1,000 reverse split of its common stock and repurchasing fractional shares for cash at their market price immediately prior to the Convergence Merger (the "Share Combination"). If the Convergence Merger is approved by the parties' shareholders and other closing conditions are satisfied, a subsidiary of Base Ten will merge into Convergence, which will survive the transaction as a wholly owned subsidiary of the Company. At the time of the Convergence Merger, the outstanding capital stock of Convergence will be converted into the right to receive newly issued shares of the Company's Class A common stock that will represent 75% of the common shares to be outstanding after the repurchase of fractional shares in the Share Combination. To provide Convergence with working capital pending completion of the Convergence Merger, Base Ten has purchased a total of 1,160,000 shares of Convergence preferred stock for $290,000 since January 2002. Base Ten's investment in Convergence at June 30, 2002 is recorded at its face value of $290,000. In the event the merger with Convergence is not completed or Convergence otherwise fails to execute its business plan, Base Ten could be unable to recoup its investment in Convergence.Part of the investment is subject to put and call obligations if the Convergence Merger is not completed for specified reasons. Subsequent to June 30, 2002, the Company and Convergence amended the Merger Agreement to provide for unsecured working capital loans to Convergence pending completion of the merger. The Company made an initial $125,000 loan on August 1, 2002 and agreed to make additional loans of $50,000 each month from October 2002 until the earlier of January 2003 or completion of the merger. The amendment also restricts the rights of Convergence to terminate the Merger Agreement under certain circumstances without first repaying the Company's loans and repurchasing all or part of its preferred stock investment in Convergence. If the Convergence Merger is completed, the Company's operations will be conducted solely through Convergence. The business plan for Convergence contemplates substantial capital expenditures to fund its ongoing operations without any assurance of deriving revenues from operations. The Company anticipates that the costs for Convergence to refine, market and deploy its services will contribute to recurring losses at the rate of approximately $50,000 per month following the Convergence Merger. Achieving profitable operations could be adversely affected by delays or inefficiencies in the development cycle, inadequate marketing resources, lack of sponsor or consumer acceptance of its products, competition and changing technology. Results of Continuing Operations Three Months Ended June 30, 2002 and 2001. The Company incurred losses from continuing operations aggregating $111,000 in the second quarter of 2002 and $293,000 in the corresponding quarter of 2001. The losses were primarily from general and administrative expenses allocable to continuing operations, which decreased to $112,000 in the second quarter of 2002 from $307,000 in the same quarter last year. The decrease resulted primarily from a $132,000 decrease in outside professional fees and a reduction of $52,000 in personnel and related costs in the second quarter of 2002 compared to the same quarter last year. The impact of these cost reductions was partially offset by a decline in other income to $1,000 in the second quarter of 2002 from $14,000 in the prior period, primarily from lower interest income on investments. Six Months Ended June 30, 2002 and 2001. The Company incurred losses from continuing operations aggregating $342,000 in the first six months of 2002 and $398,000 in the corresponding period in 2001. The losses were primarily from general and administrative expenses allocable to continuing operations, which decreased to $353,000 in the first six months of 2002 from $487,000 in the same period last year. The decrease in overhead resulted primarily from reductions of $67,000 in personnel and related costs, $17,000 in office costs and $14,000 in travel costs for the first six months of 2002 from interim 2001 levels, which included non-recurring charges of $35,000 from a writedown of fixed assets. Results of continuing operations also reflect a decline in other income to $1,000 in the first six months of 2002 from $14,000 in the prior period, primarily from lower interest income on investments. Results of Discontinued Operations The Company ceased all revenue generating operations at the end of 2000. Accordingly, it recognized no gain or loss from discontinued operations for the three and six month periods ended June 30, 2002 and 2001. 9 Liquidity and Capital Resources General. Base Ten has incurred significant operating losses and negative cash flows in recent years. In view of its determination to dispose of the Clinical Software business and pursue revenue generating or strategic opportunities, the Company's consolidated financial statements included in this Report account for the assets and liabilities associated with its software operations based on their net realizable value upon disposition. The expected value for the Company's Clinical Software business reflects the terms of its agreement with Almedica LLC. There can be no assurance that, in the event of liquidation, the Company would realize the recorded value for all of its assets. Liquidity. The Company's working capital decreased from $1,072,000 at December 31, 2001 to $449,000 at June 30, 2002. Cash and cash equivalents decreased from $1,173,000 at December 31, 2001 to $418,000 at June 30, 2002. The decrease reflects the Company's net loss for the six months ended June 30, 2002 and its investment of $290,000 in Convergence. See "Business Redirection" above. Capital Resources. In May 2000, the Nasdaq inquired about the Company's ability to meet the Nasdaq SmallCap Market continuing listing requirements of $2.0 million in net tangible assets, $35.0 million in market capitalization and $0.5 million of net income. To facilitate the Nasdaq's review, Base Ten submitted its plan for achieving and sustaining compliance. Although the Company satisfied the tangible net asset requirement, its Class A common stock was delisted from the Nasdaq SmallCap Market in December 2000 for failure to meet its $1.00 minimum bid requirement. In addition to reduced liquidity in the outstanding common stock and related risks to the Company's shareholders, this has impaired its ability to implement a Business Redirection through equity transactions requiring an established trading market for the shares issuable in the transaction. Forward Looking Statements This Report includes forward looking statements within the meaning of Section 21E of the Securities Exchange Act relating to the Company's prospects, plans and objectives. Those statements are generally prefaced by words like "believe," "plan," "expect" or "anticipate." All forward looking statements involve various degrees of risk and uncertainty. Factors that may cause actual and anticipated results to differ materially include the risks that (1) the Company's planned redirection of its business may fail to reverse its history of losses; (2) general economic or business conditions may be less favorable than expected; (3) conditions in the financial markets may prevent the Company from raising the capital needed to execute its business plan for contract manufacturing operations; and (4) other factors mentioned elsewhere in this Report may adversely affect the Company's financial performance and the market value of its common stock. Item 3: Quantitative and Qualitative Disclosures About Market Risk Not applicable. 10 Part II. Other Information Item 6: Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit Number: Exhibit ------- ------- 10.1 Amendment Number 3 to the Amended and Restated Agreement and Plan of Merger among Base Ten Systems, Inc., Newco B10, Inc. and ConvergenceHealth.com 99.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted under Section 906 of the Sarbanes-Oxley Act of 2002. 99.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted under Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K: 1. The Company filed a Current Report on Form 8-K on June 20, 2002, announcing Amendment No. 2 to the Amended and Restated Agreement and Plan of Merger with ConvergenceHealth.com, NewCo B10 Inc. and Base Ten Systems, Inc. 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 13, 2002 Base Ten Systems, Inc. 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) 11 EX-10 3 ex10-1.txt EXHIBIT 10.1 Exhibit 10.1 ================================================================================ Amendment No. 3 to Amended and Restated Agreement and Plan of Merger among Base Ten Systems, Inc. Newco B10, Inc. and ConvergenceHealth.com August 1, 2002 12 AMENDMENT NO. 3 TO AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER This AMENDMENT NO. 3 ("Amendment No. 3") TO AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER dated as of January 18, 2002 (the "Original Merger Agreement") is entered into as of August 1, 2002 by and among Base Ten Systems, Inc., a New Jersey corporation having its principal office at 535 East County Line Road, Suite 16, Lakewood, New Jersey 08701 ("Base Ten"), Newco B10, Inc., a Nevada corporation wholly-owned by Base Ten having its principal office at 535 East County Line Road, Suite 16, Lakewood, New Jersey 08701 ("Newco," and together with Base Ten, the "Purchasers"), and ConvergenceHealth.com, a Nevada corporation having its principal office at 774 Mays Boulevard, Suite 386, Incline Village, Nevada 89451 (the "Company," and together with the Purchasers, the "Parties"). WHEREAS, the Parties amended the Original Merger Agreement pursuant to (a) an Amended and Restated Agreement and Plan of Merger dated as of February 1, 2002 (the "Amended and Restated Merger Agreement"), (b) an Amendment No. 1 to the Amended and Restated Agreement and Plan of Merger dated as of March 7, 2002 ("Amendment No. 1") and (c) an Amendment No. 2 to the Amended and Restated Agreement and Plan of Merger dated as of June 18, 2002 ("Amendment No. 2"); WHEREAS, the Original Merger Agreement, as amended by the Amended and Restated Merger Agreement, Amendment No. 1 and Amendment No. 2 are referred to herein collectively as the "Merger Agreement"; WHEREAS, the Parties desire to further amend the terms of the Merger Agreement pursuant to this Amendment No. 3 to provide for (a) certain loans by Base Ten to the Company, (b) the elimination of certain rights of the Company to terminate the Merger Agreement and abandon the transactions contemplated thereby (the "Transactions"), (c) conditions to the Company's entitlement to reinstate the eliminated rights in certain events and (d) certain related modifications to the provisions of the Merger Agreement; WHEREAS, Section 8.2 of the Merger Agreement provides for its amendment only by a written instrument executed by all the Parties; WHEREAS, the Board of Directors of each of the Parties has duly approved this Amendment No. 3 and the transactions contemplated hereby; and WHEREAS, unless otherwise defined in this Amendment No. 3, capitalized terms contained herein have the respective meanings set forth in the Merger Agreement. NOW, THEREFORE, in consideration of the premises and mutual covenants and agreements set forth in this Amendment No. 3, the Parties hereby agree as follows: SECTION 1. Initial Loan to the Company. Concurrent with the execution of this Amendment No. 3, Base Ten shall provide an unsecured demand loan of $125,000 to the Company (the "Initial Loan") on the terms and subject to delivery to Base Ten of a promissory note in the form of Exhibit A hereto, duly executed on behalf of the Company (the "Initial Note"). 13 SECTION 2. Subsequent Loans to the Company. In the event the Transactions are not consummated on or prior to September 30, 2002, Base Ten shall provide the Company with an additional unsecured demand loan in the aggregate principal amount of $50,000 for each month during the four-month period commencing September 30, 2002, and ending January 31, 2003, in which the Transactions are not consummated (the "Subsequent Funding Period"); provided that (a) the Merger Agreement has not theretofore been terminated in accordance with its terms, as amended hereby, and (b) the Company is not in default of its undertakings in Section 5.12 and Section 5.13(a) of the Merger Agreement. Each loan required during the Subsequent Funding Period (each, a "Subsequent Loan") shall be funded within five business days of end of each month in the Subsequent Funding Period during which the Closing does not occur (each, a "Funding Date"). Each Subsequent Loan shall be on substantially the terms and subject to delivery to Base Ten of a promissory note in the principal amount of the Subsequent Loan and in substantially the form of the Initial Note, duly executed on behalf of the Company (each, a "Subsequent Note"). In the event any Subsequent Loan required hereunder is not made by Base Ten within five business days after the applicable Funding Date and the Company is not in default of its undertakings in Section 5.12 and Section 5.13(a) of the Merger Agreement, the Company may elect, upon written notice to Base Ten, to terminate the Merger Agreement, subject to and conditioned upon its contemporaneous repurchase of 800,000 BT Purchased Shares at a repurchase price of $100,000. In that event, without demand or other notice from Base Ten, the Initial Loan and any outstanding Subsequent Loans shall be payable, together with all interest thereon in accordance with the terms of the Initial Note and any Subsequent Notes, 90 days after the termination date. SECTION 3. Cash Equivalents. Section 6.2(n) of the Merger Agreement is hereby amended to reduce the $400,000 cash maintenance condition required thereby to an amount equal to $400,000 minus the aggregate principal amount of the Initial Loan and all Subsequent Loans outstanding at the Effective Time. SECTION 4. Shareholder Proxies. The effectiveness of this Amendment No. 3 shall be subject to receipt from Byron Gehring and Kenneth Waltzer, each a shareholder and an officer of the Company (the "Principals"), of their irrevocable proxies in the form of Exhibit B hereto, duly executed by the Principals (the "Proxies"). In connection with the Proxies, the Company represents and warrants that approval of the Merger requires the receipt of affirmative votes from holders of a majority of the shares entitled to vote at the Company Meeting. SECTION 5. Updated Representations. The references to "December 31, 2000" in Section 3.8 and Section 4.8 of the Merger Agreement are hereby amended to read "December 31, 2001." SECTION 6. Events of Termination. Section 7.1(b), Section 7.1(c) and Section 7.1(d) of the Merger Agreement (the "Company Termination Rights") are hereby deleted in their entirety, subject to reinstatement pursuant to Section 7 hereof. Except as otherwise provided in Section 7 and Section 8 hereof, the Company hereby waives its right to terminate the Merger Agreement pursuant to Section 7.1(f) thereof based on Base Ten's failure to fulfill the condition set forth in Section 6.2(a) thereof pertaining to its representations and warranties under Article III of the Merger Agreement, except for its representations and warranties in Section 3.8 thereof ("Company Termination for Adverse Development"). The Certificate required by Section 6.2(f) shall be modified accordingly. Any Company Termination for Adverse Development shall be subject to and conditioned upon the Company's contemporaneous repurchase of 800,000 BT Purchased Shares at a repurchase price of $100,000. In that event, without demand or other notice from Base Ten, the Initial Loan and any outstanding Subsequent Loans shall be payable, together with all interest thereon in accordance with the terms of the Initial Note and any Subsequent Notes, 90 days after the termination date. SECTION 7. Conditional Reinstatement of Company Termination Rights. In the event the Company obtains third-party financing prior to consummation of the Transactions, it may elect, upon written notice to Base Ten, to reinstate the Company Termination Rights, terminate the Merger Agreement and deliver revocations of the Proxies by the Principals, subject to and conditioned upon its contemporaneous (a) repayment in full of the Initial Loan and any outstanding Subsequent Loans, together with all interest thereon in accordance with the terms of the Initial Note and any Subsequent Notes, (b) repurchase of all 1,160,000 BT Purchased Shares at a repurchase price of $290,000 and (c) payment of a break-up to Base Ten in the amount of $100,000. 14 SECTION 8. Additional Company Termination Rights. In the event the Transactions are not consummated on or prior to September 30, 2003 and neither Party has theretofore terminated the Merger Agreement in accordance with its terms, as amended hereby, the Company may elect, upon written notice to Base Ten, to reinstate the Company Termination Rights, terminate the Merger Agreement and deliver revocations of the Proxies by the Principals. SECTION 9. Remedies on Termination. Section 7.3 of the Merger Agreement shall be deemed to be amended to reflect the termination remedies provided herein. SECTION 10. Releases from Principal Shareholders. Base Ten will use its best efforts to obtain general releases from Jesse Upchurch, the Constance J. Upchurch Family Trust and Almedica International, Inc., providing for the release of Base Ten and its successors, directors and officers from any claims or liabilities arising from the conduct of its business prior to the Closing. SECTION 11. Miscellaneous. (a) Waivers, Amendments to be in Writing. No waiver, amendment, modification or supplement of this Amendment No. 3 will be binding upon a Party unless such waiver, amendment, modification or supplement is set forth in writing and is executed by such Party. (b) Successors and Assigns. Except as otherwise expressly provided in this Amendment No. 3, all covenants and agreements set forth in this Amendment No. 3 by or on behalf of the Company and Base Ten will bind and inure to the benefit of the respective successors and assigns of the Company and Base Ten, whether so expressed or not. Notwithstanding the foregoing, neither this Amendment No. 3 nor any of the rights, interests or obligations hereunder may be assigned by either party without the prior written consent of the other party. (c) Governing Law. This Amendment No. 3 will be governed by and construed in accordance with the domestic laws of the State of New Jersey, without giving effect to any choice of law or conflict rule of any jurisdiction that would cause the laws of any other jurisdiction to be applied. In furtherance of the foregoing, the internal law of the State of New Jersey will control the interpretation and construction of this Amendment No. 3, even if under any choice of law or conflict of law analysis, the substantive law of some other jurisdiction would ordinarily apply. (d) Jurisdiction. Each of the Parties hereby (i) irrevocably submits to the jurisdiction of the state courts of, and the federal courts located in, the State of New Jersey in any action or proceeding arising out of or relating to, this Amendment No. 3, (ii) waives, and agrees to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Amendment No. 3 or the subject matter hereof may not be enforced in or by such court, and waives and agrees not to seek any review by any court of any other jurisdiction which may be called upon to grant an enforcement of the judgment of any such court. (e) Ratification; Interpretation. Except as expressly modified by this Amendment No. 3, the Merger Agreement shall remain in full force and effect, and the terms and provisions thereof are hereby ratified and affirmed in all respects. Without limiting the generality of the foregoing, the parties agree that in the event of a conflict between any provision of the Merger Agreement and this Amendment No. 3, the provisions of this Amendment No. 3 shall control. 15 (f) Severability of Provisions. If any provision of this Amendment No. 3 is held to be invalid for any reason whatsoever, then such provision will be eemed severable from the remaining provisions of this Amendment No. 3 and will in no way affect the validity or enforceability of any other provision of this Amendment No. 3. (g) Counterparts. The Parties may execute this Amendment No. 3 in separate counterparts (no one of which need contain the signatures of all Parties), each of which will be an original and all of which together will constitute one and the same instrument. (h) Headings. The headings used in this Amendment No. 3 are for the purpose of reference only and will not affect the meaning or interpretation of any provision of this Amendment No. 3. IN WITNESS WHEREOF, the Parties have executed this Amendment No. 3 as of August 1, 2002. CONVERGENCEHEALTH.COM By: ______________________________ Kenneth Waltzer, Chief Medical Officer BASE TEN SYSTEMS, INC. By: _____________________________ Edward J. Klinsport, Chief Executive Officer NEWCO B10, INC. By: _______________________________ Kenneth W. Riley, President 16 Exhibit A FORM OF PROMISSORY NOTE ----------------------- THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY NOT BE TRANSFERRED UNTIL (I) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") SHALL HAVE BECOME EFFECTIVE WITH RESPECT THERETO OR (II) RECEIPT BY THE COMPANY AT THE PAYEE'S SOLE COST AND EXPENSE OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED TRANSFER AND THAT SUCH ISSUANCE IS NOT IN VIOLATION OF ANY APPLICABLE STATE SECURITIES LAWS. THIS LEGEND SHALL BE ENDORSED UPON ANY NOTE ISSUED IN EXCHANGE FOR THIS NOTE. CONVERGENCEHEALTH.COM DEMAND PROMISSORY NOTE $_________ ____________, 2002 Incline Village, Nevada (c) FOR VALUE RECEIVED, CONVERGENCEHEALTH.COM, a Nevada corporation (the "Company" or "Maker") promises to pay to the order of Base Ten Systems, Inc. (the "Payee" or the "holder of this Note") the principal amount of $__________, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, together with interest as set forth in Section 1 of this Note, at such times and in such amounts as set --------- forth in Section 2 of this Note, at the Payee's address designated in Section 5 of this Note or at such other place as --------- the Payee shall have notified the Company in writing at least ninety (90) days before such payment is due. This Note is issued pursuant to the terms of an Amendment No. 3 of even date herewith to the Agreement and Plan of Merger dated as of January 18, 2002 among the Payee, its subsidiary and the Company (as amended and restated, the "Merger Agreement"). 1. Interest. Interest on the principal amount hereof shall accrue at the rate of 10% per annum, compounded monthly, from the date hereof until the principal hereof is paid in full. Interest as aforesaid shall be calculated on the basis of actual number of days elapsed over a year of 360 days and shall be payable as set forth in Section 2 of this Note. 2. Payment. The principal balance of this Note, plus all accrued and unpaid interest thereon, shall be due in full on the date occurring on the earlier of (a) termination of the Merger Agreement by the Company under conditions requiring payment hereof as specified therein, (b) 90 days after termination of the Merger Agreement by the Company under conditions requiring payment hereof 90 days after such termination or (b) ninety (90) days following written demand from Payee, provided that no demand shall be made during the pendency of the transactions contemplated by the Merger Agreement. All payments in respect of this Note shall be made to the Payee without set-off counterclaim and free and clear of and without any deductions of any kind. 17 3. Miscellaneous. A. This Note is not subject to offset and may not be changed orally, but only by an agreement in writing signed by the Maker and the Payee. The Maker hereby waives diligence, presentment, protest and notice of any protest, demand, dishonor and nonpayment in the enforcement of this Note. No failure by the Payee to exercise any right or remedy hereunder, whether before or after a default, shall constitute a waiver thereof, and no waiver of any past default shall constitute waiver of any future or other default. B. This Note and the rights evidenced hereby shall inure to the benefit of the holder of this Note and its assigns. This Note shall be construed in accordance with and governed by the laws of the State of New Jersey without regard to conflict of laws considerations. It is the intent of the parties that this Note be enforced to the fullest extent permitted under of the laws and public policy of the State of New Jersey. C. All notices, requests, consents and demands shall be made by registered mail, return receipt requested, and shall be deemed effective seven-two (72) hours after deposit in the United State mail, and properly addressed with postage prepaid, as follows: To PAYEE -------- Base Ten Systems Attn: Kenneth Riley, CFO 535 East County Line Road, #16 Lakewood, NJ 08701 To MAKER -------- ConvergenceHealth.com Attn: Byron Gehring 774 Mays Blvd., #10 PMB #386 Incline Village NV 89451 IN WITNESS WHEREOF, this Note has been executed and delivered on the date specified above by the duly authorized representative of the Company. CONVERGENCEHEALTH.COM By: ______________________________ Name: Byron Gehring Title: Chief Executive Officer 18 Exhibit B FORM OF PROXY ------------- IRREVOCABLE PROXY The undersigned, a stockholder and director of ConvergenceHealth.com, a Nevada corporation (the "Company"), does hereby appoint Andrew G. Sycoff and Edward J. Klinsport and each of them as Proxies with full power of substitution in each of them, in the name, place and stead of the undersigned, to vote all of the shares of the Company's Common Stock, Series A-1 Preferred Stock, Series A-2 Preferred Stock, and Series A-3 Preferred Stock that the undersigned would be entitled to vote if personally present at any meeting of the stockholders of the Company (however such meeting is called and regardless of whether such meeting is a special or annual meeting of the stockholders of the Company) or upon the solicitation of consents of the stockholders of the Company in accordance with and solely with respect to the following instructions: The undersigned hereby instructs said proxies or their substitutes to vote FOR the approval of the transactions contemplated in the Agreement and Plan of Merger dated as of January 18, 2002 among Base Ten Systems, Inc., Newco B10, Inc. and the Company, as amended and restated (the "Merger Agreement"). This Proxy is coupled with an interest and is revocable only under the limited conditions therefor set forth in the Merger Agreement. Dated: August 1, 2002 By:_______________________ 19 EX-99 4 ex99-1.txt EXHIBIT 99.1 Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED UNDER SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 This Certification is to accompany the Quarterly Report of Base Ten Systems, Inc. (the "Company") on Form 10-QSB for the period ending June 30, 2002 as filed with the Securities and Exchange Commission (the "Report"). I, Edward J. Klinsport, Chairman and Chief Executive Officer of the Company, certify, to the best of my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) Information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Edward J. Klinsport Edward J. Klinsport Chief Executive Officer August 13, 2002 20 EX-99 5 ex99-2.txt EXHIBIT 99.2 Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED UNDER SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 This Certification is to accompany the Quarterly Report of Base Ten Systems, Inc. (the "Company") on Form 10-QSB for the period ending June 30, 2002 as filed with the Securities and Exchange Commission (the "Report"). I, Kenneth W. Riley, Chief Financial Officer of the Company, certify, to the best of my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) Information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Kenneth W. Riley Kenneth W. Riley Chief Financial Officer August 13, 2002 21 -----END PRIVACY-ENHANCED MESSAGE-----