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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, 2001 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.)
528 Primrose Court
Belle Mead, N.J. 08502
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 359-1867
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 17, 2001
Class A Common Stock, $5.00 par value 5,338,812
Class B Common Stock, $5.00 par value 12,623
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Base Ten Systems, Inc.
And Subsidiaries
Index
Part I. Financial Information Page
Item 1. Financial Statements
Consolidated Balance Sheet - June 30, 2001 (unaudited)......................................... 1
Consolidated Statements of Operations - Three and Six Months ended June 30, 2001
and 2000 (unaudited)......................................................................... 2
Consolidated Statement of Common Stock and Other Shareholders' Equity -
Six months ended June 30, 2001 (unaudited)................................................... 3
Consolidated Statements of Cash Flows - Six months ended June 30, 2001
and 2000 (unaudited)......................................................................... 4
Notes to Consolidated Financial Statements..................................................... 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................................................ 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk............................ 11
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K...................................................... 12
Base Ten Systems, Inc. and Subsidiaries
Consolidated Balance Sheet
(Unaudited)
($ in thousands, except par value)
Assets
June 30,
2001
-----------------
Current Assets:
Cash and cash equivalents....................................... $ 1,576
Other current assets............................................. 264
Current assets of discontinued operations........................ 75
-----------------
Total Current Assets........................................ 1,915
Equipment, net...................................................... 3
Other assets........................................................ 10
Non current assets of discontinued operations....................... --
-----------------
Total Assets $ 1,928
=================
Liabilities, Common Stock and Other Shareholders' Equity
Current Liabilities:
Accounts payable................................................. $ 61
Accrued expenses................................................. 456
-----------------
Total Current Liabilities................................... 517
-----------------
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 12,623 shares.......................... 63
Additional paid-in capital....................................... 68,481
Accumulated deficit.............................................. (93,699)
-----------------
1,639
Accumulated other comprehensive gain............................. 53
Treasury Stock, 20,000 Class A Common Shares, at cost............ (281)
-----------------
Total Common Stock and Other Shareholders' Equity........... 1,411
-----------------
Total Liabilities, Common Stock and Other Shareholders' Equity $ 1,928
=================
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, 2001 June 30, 2000 June 30, 2001 June 30, 2000
--------------------------------------------------------------------------
General and administrative expenses..................... $ (307) $ (925) $ (487) $ (1,671)
Other income (expense), net............................. 14 (157) 89 (438)
--------------------------------------------------------------------------
Net loss from continuing operations..................... (293) (1,082) (398) (2,109)
Discontinued operations:
Loss from discontinued operations....................... -- (1,294) -- (2,872)
--------------------------------------------------------------------------
Net loss from discontinued operations................... -- (1,294) -- (2,872)
--------------------------------------------------------------------------
Net loss................................................ (293) (2,376) (398) (4,981)
==========================================================================
Basic and diluted net loss per share:
Continuing operations............................. $ (0.05) $ (0.21) $ (0.07) $ (0.41)
Discontinued operations........................... -- (0.25) -- (0.56)
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Net loss per share...................................... $ (0.05) $ (0.46) $ (0.07) $ (0.97)
==========================================================================
Weighted average common shares outstanding - basic
and diluted.................................... 5,351,000 5,120,000 5,351,000 5,119,000
--------------------------------------------------------------------------
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
Stock and
Accumulated Other
Class A Class B Additional Other Share-
Common Stock Common Stock Paid-In Accumulated Comprehensive Treasury Stock holders'
Shares Amount Shares Amount Capital Deficit Gain Shares Amount Equity
- ----------------------- ---------- ---------- ---------- ---------- ---------- ----------- ------------- -------- --------- --------
Balance at
December 31, 2000 5,358,812 $26,794 12,623 $ 63 $ 68,481 $(93,301) $ 34 (20,000) $(281) $ 1,790
======================= ========== ========== ========== ========== ========== =========== ============= ======== ========= ========
Comprehensive
Income (Loss):
Net loss -- -- -- -- -- (398) -- -- -- (398)
Unrealized gain on --
securities
available
for sale -- -- -- -- -- -- 19 -- 19
---------- ---------- ---------- ---------- ---------- ----------- ------------- -------- --------- --------
Total Comprehensive
Income (Loss) -- -- -- -- -- (398) 19 -- -- (379)
- ----------------------- ---------- ---------- ---------- ---------- ---------- ----------- ------------- -------- --------- --------
Balance at
June 30, 2001 5,358,812 $26,794 12,623 $ 63 $ 68,481 $(93,699) $ 53 (20,000) $(281) $ 1,411
======================= ========== ========== ========== ========== ========== =========== ============= ======== ========= ========
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, 2001 June 30, 2000
- -----------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net loss............................................. $ (398) $ (4,981)
Adjustments to Reconcile Net Loss to Net Cash Used in Operating
Activities:
Net loss from discontinued operations................ -- 2,872
Depreciation and amortization........................ 6 1,245
Deferred gain on sale of building.................... -- (10)
Unrealized gain on investments....................... 19 --
Loss on disposition of assets........................ 34 194
Changes in operating assets and liabilities:
Accounts receivable.................................. -- (325)
Other current assets................................. 98 35
Other assets......................................... -- 25
Accounts payable, accrued expenses and deferred revenue (487) 479
- -----------------------------------------------------------------------------------------------------
Net Cash Used in Operating Activities......................... (728) (466)
- -----------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Additions to property, plant and equipment........... -- (96)
Proceeds from note receivable........................ -- 329
- -----------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Investing Activities........... -- 233
- -----------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Repayment of amounts borrowed........................ -- (66)
Proceeds from issuance of common stock............... -- 6
- -----------------------------------------------------------------------------------------------------
Net Cash (Used in) provided by Financing Activities........... -- (60)
- -----------------------------------------------------------------------------------------------------
Cash Flows from Discontinued Operations:
Net cash used in operating activities................ -- (2,872)
- -----------------------------------------------------------------------------------------------------
Net Cash used in Discontinued Operations...................... -- (2,872)
- -----------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash....................... -- 7
- -----------------------------------------------------------------------------------------------------
Net Decrease In Cash.......................................... (728) (3,158)
Cash, beginning of period..................................... 2,304 5,843
- -----------------------------------------------------------------------------------------------------
Cash, end of period........................................... $ 1,576 $ 2,685
- -----------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for interest............. $ -- $ 241
4
Base Ten Systems, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Six Months Ended June 30, 2001
(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
its strategy for redirection of its business within the electronics or
other technology sectors. 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 G below. The assets
and liabilities associated with the Company's software operations have been
adjusted to reflect their net realizable value upon disposition.
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-KSB for the year ended December 31, 2000. The results of operations
for the six months ended June 30, 2001 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.
Certain reclassifications reflecting discontinued operations 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.
Historically, the Company focused on designing and producing safety
critical products for defense and space 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
("MES") business to ABB Automation, Inc. ("ABB") for $2.0 million and
announced its intention to dispose of its clinical software ("Clinical
Software") business. In March 2001, Base Ten entered into an agreement for
the sale of the Clinical Software business to Almedica Advanced Technology
LLC ("AAT"), a subsidiary of Almedica International, Inc. ("Almedica"). See
Notes D and G below.
The Company owns a minority interest in uPACs LLC ("uPACs"), which
developed an ultrasound archiving communications system to digitize, record
and store images on CD-ROM media as an alternative to film and video
storage. Efforts to commercialize uPACs ceased in the first quarter of
2000, and the accompanying financial statements reflect no value for the
investment.
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 incurred significant losses from these operations and has
determined to redirect its business to pursue alternative revenue
generating or strategic opportunities in the electronics or other
technology sectors. The redirected 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, claims by current and former customers for contractual or
5
other unfulfilled commitments, ability to attract and retain qualified
employees, limited financial, technical and managerial resources,
protection of intellectual property rights and potentially long sales and
implementation cycles.
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 Clinical Software assets and uPACs,
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. Acquisitions
Almedica Technology Group Acquisition and Disposition - In June 1999, the
Company acquired all of the outstanding stock of Almedica Technology Group
Inc., a wholly-owned subsidiary of Almedica engaged in developing and
distributing clinical studies software for the pharmaceutical industry. The
stock of the subsidiary was acquired in exchange for 3,950,000 shares of
the Company's Class A common stock (790,000 shares after adjustment for a
reverse stock split in September 1999). At the time of the purchase, the
Class A common stock traded for $0.90625 per share ($4.53125 after
adjustment for the reverse stock split). The acquisition was accounted for
under the purchase method of accounting. The purchase price was allocated
to the assets acquired from Almedica (the "Clinical Assets") based on their
estimated fair values. Management estimated the value of certain intangible
assets to be $4.1 million as of the purchase date.
In October 2000, Base Ten announced its decision to dispose of its Clinical
Software business, including the Clinical Assets. In March 2001, the
Company entered into an agreement with Almedica and AAT to contribute the
Clinical Software assets to AAT in exchange for $75,000 and a 20% ownership
interest in AAT. 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 ATT to be received
by Base Ten in the transaction. The sale of the Clinical Software assets is
subject to various conditions, including approval by the Company's
shareholders.
E. Redeemable Convertible Preferred Stock
In July 2000, the holders of the Company's Series B preferred stock
converted 5,000 of their shares into 250,000 shares of Class A common
stock. The Company also repurchased their remaining shares of Series B
preferred stock and 269,560 Class A common stock purchase warrants 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 was recorded on the repurchase of the Series B preferred
stock during July 2000.
F. Net Income (Loss) Per Share
The Company calculates earnings (loss) 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 accompanying Consolidated Statements of Operations.
6
(dollars in thousands, except per share data)
- -------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, 2001 June 30, 2000 June 30, 2001 June 30, 2000
- --------------------------------------------------------------------------------------------------------------------
Loss per common share-basic:
Net loss from continuing operations $ (293) $ (1,082) $ (398) $ (2,109)
Net loss from discontinued operations -- $ (1,294) -- $ (2,872)
- --------------------------------------------------------------------------------------------------------------------
Net loss to common shareholders (numerator) $ (293) $ (2,376) $ (398) $ (4,981)
- --------------------------------------------------------------------------------------------------------------------
Weighted average shares - basic (denominator) 5,351,000 5,120,000 5,351,000 5,119,000
- --------------------------------------------------------------------------------------------------------------------
Net loss per common share-basic $ (0.05) $ (0.46) $ (0.07) $ (0.97)
- --------------------------------------------------------------------------------------------------------------------
Loss per common share - diluted:
Net loss from continuing operations $ (293) $ (1,026) $ (398) $ (2,108)
Net loss from discontinued operations -- $ (1,578) -- $ (2,872)
- --------------------------------------------------------------------------------------------------------------------
Net loss to common shareholders (numerator)
$ (293) $ (2,376) $ (398) $ (4,980)
- --------------------------------------------------------------------------------------------------------------------
Weighted average shares 5,351,000 5,120,000 5,351,000 5,119,000
Effect of dilutive options / warrants -- -- -- --
- --------------------------------------------------------------------------------------------------------------------
Weighted average shares-fully diluted 5,351,000 5,120,000 5,351,000 5,119,000
(denominator)
- --------------------------------------------------------------------------------------------------------------------
Net loss per common share-diluted $ (0.05) $ (0.46) $ (0.07) $ (0.97)
- --------------------------------------------------------------------------------------------------------------------
Stock options, warrants and rights would have an anti-dilutive effect on
earnings per share for the periods ended June 30, 2001 and 2000 and,
therefore, were not included in the calculation of diluted earnings per
share.
G. Discontinued Operations
Sale of MES Software to ABB
In October 2000, the Company sold its MES business to ABB for $2.0 million.
Assets transferred to ABB as part of the transaction included patents,
copyrights, trademarks and tradenames, data, contracts, accounts
receivable, equipment and software deployed in the Company's MES business.
Sale of Base Ten Systems NV to Kris Adriaenssens
Effective November 1, 2000, the Company transferred 100% of the shares of
Base Ten Systems NV, its Belgian subsidiary, to Kris Adriaenssens, a
consultant to Base Ten, in exchange for consulting services. At the time of
the transaction, the subsidiary had no operations or employees. The assets
of the subsidiary at the sale date consisted primarily of office equipment
and automobiles, and its liabilities included obligations under leases of
office space, equipment and automobiles.
Sale of Clinical Software to Almedica Advanced Technology LLC
In March 2001, Base Ten entered into an agreement to sell its Clinical
Software business to AAT, subject to shareholder approval. See Note D
above.
The following table presents the results of operations for the Company's
discontinued product lines for the three months and six months ended June
30, 2001 and 2000:
7
($ in thousands, except per share data)
Three months Three months Six months Six months
ended June 30, ended June 30, ended June 30, ended June 30,
2001 2000 2001 2000
----------------------------------------------------------------------
License and related revenue.................... $ -- $ 37 $ -- $ 159
Services and related revenue...................... -- 759 -- 1,608
----------------------------------------------------------------------
-- 796 -- 1,767
----------------------------------------------------------------------
Cost of revenues.................................. -- 885 -- 2,019
Research and development.......................... -- 257 -- 787
Selling and marketing............................. -- 614 -- 1,272
General and administrative........................ -- 500 -- 919
Other (income) expense............................ -- (166) -- (358)
----------------------------------------------------------------------
-- 2,090 -- 4,639
----------------------------------------------------------------------
Loss from discontinued operations................. -- (1,294) -- (2,872)
----------------------------------------------------------------------
H. 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, 2001 and 2000.
I. Contingencies
The Company has recorded a good faith deposit of $100,000 as Other Current
Assets. This amount was paid into escrow during the first quarter of 2001
in conjunction with the Company's discussions to purchase certain operating
assets from Genesis Manufacturing, Inc. ("Genesis"). Base Ten withdrew from
the discussions in February 2001, but the disposition of the deposit
remains in litigation between Base Ten and Genesis. The Company's
management believes the deposit will be returned to Base Ten, but the
ultimate resolution of the funds cannot be assured.
8
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 to address 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.
In 1997, the Company opted to concentrate on its MTD products both
though internal development and acquisitions. At the end of that year, as part
of this strategy, Base Ten completed the sale of its GTD assets and a related
management restructuring. During the last three years, substantial resources
were marshaled in MTD operations to refine, expand and deploy the Company's
commercial software offerings.
Despite the perceived potential for its MES offerings, Base Ten
encountered unanticipated difficulties integrating its MES software with the
wide variety of legacy computer systems deployed in pharmaceutical manufacturing
facilities. Its 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. The
purchaser also agreed to employ members of the MES staff and assume the
Company's unsatisfied commitments under MES related license agreements.
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 during
the last three years. The Company anticipates that the Clinical Software
business, if retained, would continue to operate at a loss.
Redirection of Business
In response to Base Ten's limited financial, technical and marketing
resources available to commercialize its Clinical Software products, the Company
announced its decision in October 2000 to discontinue its remaining MTD
operations and pursue revenue generating or strategic opportunities in sectors
requiring less capital resources, technological development and time to market
uncertainties. Areas of opportunity could include emerging technology or other
markets currently under-served where demand can be expected to exceed supply
during the foreseeable future. Successful execution of the Company's business
redirection strategy will depend not only on factors within its control,
including technical competence, high quality workmanship and timely delivery at
reasonable prices, but also on general economic conditions, availability of
skilled technicians and other factors partially or entirely beyond its control.
As part of its business redirection, Base Ten has reduced its work
force through a staff reduction plan and attrition. The Company has also sold or
closed its operations in Trenton and Parsippany, New Jersey, California, England
and Belgium, resulting in the elimination of annual rent obligations aggregating
approximately $830,000. In addition, during March 2001, Base Ten entered into an
agreement with Almedica International Inc. ("Almedica") and its wholly owned
limited liability company ("Almedica LLC") to contribute the Clinical Software
assets to Almedica LLC in exchange for $75,000 and a 20% ownership interest in
Almedica LLC. The sale of the Clinical Software assets is subject to various
conditions, including approval by the Company's shareholders.
9
Results of Continuing Operations
General. In view of the Company's determination in the fourth quarter
of 2000 to dispose of its Clinical Software businesses following the MES sale
and pursue other revenue generating or strategic opportunities, its consolidated
financial statements included in this Report account separately for continuing
operations comprised of general overhead, rent and other infrastructure costs
not attributable to discontinued operations.
Three Months Ended June 30, 2001 and 2000. The Company incurred losses
from continuing operations aggregating $293,000 in the second quarter of 2001
and $1,082,000 in the corresponding quarter of 2000. The losses were primarily
from general and administrative expenses allocable to continuing operations,
which decreased to $307,000 in the second quarter of 2001 from $925,000 in the
same quarter last year. The decrease resulted from reductions of $237,000 in
personnel and related costs, $157,000 in office expenses and $104,000 in outside
professional services. Results of continuing operations also reflect other
income of $14,000 in the second quarter of 2001 versus $157,000 of other
expenses in the prior period primarily from foreign exchange losses and interest
on capital leases.
Six Months Ended June 30, 2001 and 2000. The Company incurred losses
from continuing operations aggregating $398,000 in the six months ended June 30,
2001 and $2,109,000 in the corresponding period of 2000. The losses were
primarily from general and administrative expenses allocable to continuing
operations, which decreased to $487,000 in the six months ended June 30, 2001
from $1,671,000 in the same period last year. The decrease resulted from
reductions of $388,000 in personnel and related costs, $328,000 in office
expenses and $322,000 in outside professional services. Results of continuing
operations also reflect other income of $89,000 in the six months ended June 30,
2001 versus $438,000 of other expenses in the prior period primarily from
foreign exchange losses and interest on capital leases.
Results of Discontinued Operations
General. The consolidated financial statements of the Company included
in this Report account for its MTD business as discontinued operations in view
of the sale of its MES assets and agreement for the sale of its Clinical
Software assets. Accordingly, all items of income and expense attributable to
the software operations for all periods presented in the consolidated financial
statements are aggregated and identified on a net basis as gain or loss from
discontinued operations. Individual items of income and expense from
discontinued operations are set forth in Note G to the consolidated financial
statements accompanying this Report.
Three Months Ended June 30, 2001 and 2000. 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 months ended June 30,
2001. During the quarter ended June 30, 2000, the Company recognized a loss of
$1.3 million from discontinued operations, comprised of $885,000 in costs of
revenues, $257,000 in research and development costs, $614,000 in sales and
marketing expenses and $500,000 of general and administrative charges. These
expenses were partially offset by revenue of $796,000 and other income of
$166,000.
Six Months Ended June 30, 2001 and 2000. The Company recognized no gain
or loss from discontinued operations for the six months ended June 30, 2001.
During the corresponding period last year, Base Ten recognized a loss of $2.9
million from discontinued operations, comprised of $2.1 million in costs of
revenues, $787,000 in research and development costs, $1.3 million in sales and
marketing expenses and $919,000 in general and administrative charges. These
expenses were partially offset by revenue of $1.8 million and other income of
$358,000.
Liquidity and Capital Resources
General. The accompanying consolidated financial statements 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 view of the Company's determination to dispose of its Clinical
Software business and pursue revenue generating or strategic opportunities, its
consolidated financial statements account for the assets and liabilities
associated with its software operations based on their net realizable value upon
disposition. The expected value of the Company's Clinical Software business
reflect the terms of its agreement with Almedica. There can be no assurance
that, in the event of liquidation, the Company would realize the recorded value
for all of its assets.
10
Liquidity. The Company's working capital decreased from $1.7 million at
December 31, 2000 to $1.4 million at June 30, 2001. As part of the planned
redirection of its business, Base Ten entered into agreements during the first
quarter of 2001 for the termination of lease obligations for offices and
facilities in New Jersey and Belgium.
The Company has recorded a good faith deposit of $100,000 as Other
Current Assets. This amount was paid into escrow during the first quarter of
2001 in conjunction with the Company's discussions to purchase certain operating
assets from Genesis Manufacturing, Inc. ("Genesis"). Base Ten withdrew from the
discussions in February 2001, but the disposition of the deposit remains in
litigation between Base Ten and Genesis. The Company's management believes the
deposit will be returned to Base Ten, but the ultimate resolution of the funds
cannot be assured.
Capital Resources. In July 2000, holders of the 5,000 shares of the
Company's Series B preferred stock converted their shares into 250,000 shares of
Class A common stock. In addition, the Company purchased their remaining shares
of Series B preferred stock, as well as 269,560 Class A common stock purchase
warrants, 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.
In December 2000, the Company's Class A common stock was delisted from
the Nasdaq SmallCap Market for failure to meet its $1.00 minimum bid
requirement. In addition to reduced liquidity in the outstanding common stock
and related risks to Base Ten's shareholders, the Company's ability to finance
the planned redirection of its business through equity transactions could be
substantially impaired.
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.
11
Part II. Other Information
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) Reports on Form 8-K: None
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 10, 2001
Base Ten Systems, Inc.
(Registrant)
By: /s/ EDWARD J. KLINSPORT
-------------------------------------
Edward J. Klinsport
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ KENNETH W. RILEY
-------------------------------------
Kenneth W. Riley
Chief Financial Officer
(Principal Financial Officer)
12