================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-K
                                    ---------

                  Annual Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934


For the Fiscal Year Ended December 31, 1998           Commission File No. 0-7100
-------------------------------------------           --------------------------

                             BASE TEN SYSTEMS, INC.
                             ----------------------
             (Exact name of registrant as specified in its charter)


     New Jersey                                      22-1804206
     ----------                                      ----------
(State or other jurisdiction of                   (I.R.S. Employer
incorporation or organization)                    Identification No.)

                             One Electronics Drive
                           Trenton, New Jersey 08619
                           -------------------------
              (Address of principal executive offices) (Zip Code)

       Registrant's telephone number, including area code: (609) 586-7010

           Securities registered pursuant to Section 12(g) of the Act:

                                                   Outstanding at
            Title of each class                    March 26, 1999
            -------------------                    --------------

           Class A Common Stock                      21,204,264
           Class B Common Stock                        71,144

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 (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes X    No
                                       --

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of  Regulation  S-K under the  Securities  Exchange Act of 1934 is not contained
herein, and will not be contained, to the best of the Registrant's knowledge, in
definitive proxy or information statements incorporated in Part III of this Form
10-K or any amendments to this Form 10-K (X).

As of March  26,  1999,  21,204,264  shares of Class A Common  Stock and  71,144
shares of Class B Common Stock were outstanding,  and the aggregate market value
of shares held by unaffiliated  stockholders was  approximately  $15,457,000 and
$163,000, respectively.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Certain portions of the Proxy Statement for the 1999 Annual Meeting of
    Shareholders are incorporated by reference into Part III of this Report.

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<PAGE>

                                     PART I

Item 1.  Business
-----------------


*Forward Looking Statement

    The following contains forward-looking information within the meaning of The
Private  Securities   Litigation  Reform  Act  of  1995.  Such  forward  looking
statements and  paragraphs  may be identified by an "asterisk"  ("*") or by such
forward  looking  terminology  as "may",  "will",  "believe",  "anticipate",  or
similar words or variations  thereof.  Such forward looking  statements  involve
certain risks and uncertainties including the particular factors described below
in this Business discussion as well as throughout this annual report and in each
case actual results may differ materially from such forward looking  statements.
Successful  marketing of  BASE10(TM)ME,  BASE10(TM)CS and BASE10(TM)FS and their
future  contribution to Company revenues depends heavily on, among other things,
successful   early   completion  of  current  test  efforts  and  the  necessary
corrections to the software  permitting  timely  delivery to customers,  none of
which can be assured.  Other  important  factors  that the Company  believes may
cause actual results to differ  materially from such forward looking  statements
are  discussed  in the "Risk  Factors"  sections in the  Company's  Registration
Statement  on Form S-3 (File No.  333-46095)  as well as  current  and  previous
filings with the  Securities  and  Exchange  Commission.  In  assessing  forward
looking statements  contained herein,  readers are urged to read carefully those
statements and other filings with the Securities  and Exchange  Commission.  The
Company  does not  undertake  to publicly  update or revise its forward  looking
statements even if experience or future changes make it clear that any projected
results or events (expressed or implied) will not be realized.


Overview
--------

    Base Ten Systems, Inc. (the "Company" or "Base Ten") was founded in 1966 and
became publicly traded in 1968. Through its earlier history, the Company's focus
was designing and producing products for defense and space programs ranging from
airborne  telemetry  installed  in the  Apollo  spacecraft  to high  performance
weapons  controllers  used during  operation Desert Storm through its Government
Technology  Division  ("GTD").  As the  "cold  war"  came to an end,  management
recognized  that  declines  in U.S. and NATO  spending  required  that Base Ten
develop commercial lines of business.

    As an outgrowth of strategic  planning work begun in 1990,  management began
looking at new business lines  leveraging  its  experience in developing  safety
critical  technology  applications.  With the promise of significant growth, the
pharmaceutical   and  medical  device  markets  emerged  as  likely  targets  of
opportunity for the "new" Base Ten. Specifically,  the development and marketing
of software solutions for the manufacture of pharmaceuticals and medical devices
addressed a totally unserved market niche.  The Company  established the Medical
Technology Division ("MTD") to address the differing development, manufacturing,
marketing, and sales needs of the commercial sector.

    Losses  resulting  from reduced  revenues from the shrinking  defense market
coupled with considerable  product  development and marketing expense in the MTD
produced  increasing  operating  losses  for Base Ten as a whole.  In 1997,  the
decision was reached to sell the defense related business and focus  exclusively
on the opportunities  offered in the medical  technology market. On December 31,
1997, following shareholder approval,  Base Ten completed the sale of the GTD to
Strategic  Technology  Systems,  Inc.  ("Strategic").  On January  29,  1998 the
Company  elected to change its fiscal  year to an  accounting  period  January 1
through December 31.

    Since the establishment of the MTD, Base Ten has been designing, developing,
and marketing  comprehensive  software  solutions  for  regulated  manufacturing
industries,  and most recently,  computerized  Manufacturing  Execution  Systems
("MES") for the pharmaceutical and medical device industries. Management focused
on the MES markets,  as it believes there is a strong  potential for growth over
the next few years.  Factors  contributing to this decision  include the growing
pressure on the Company's  customer base to comply with regulations  promulgated
by the  Food  and  Drug  Administration  ("FDA"),  the  International  Standards
Organization  ("ISO 9000"),  and other industry standards such as Good Automated
Manufacturing Practices ("GAMP"). In addition, increasing competitive influences
brought on by a) recent business combinations  occurring in the customer market,
and b) the rise in purchasing power among HMOs and other benefit programs,  have
underscored the need for manufacturers to be even more cost efficient.*

    Base  Ten's  products  are used in safety  critical  applications  requiring
consistent,  highly reliable outcomes where an out-of-specification  event could
have a catastrophic  result.  The Company  developed a core competency in safety
critical  programs  based on 20 plus years of  experience  designing  electronic
applications used primarily in weapons management systems for military aircraft.
Base Ten has applied this expertise to the development of its MES products.  The
Company's premier product was PHARMASYSTTM.  It was a computerized manufacturing
execution system designed  specifically for the pharmaceutical,  medical device,
biotechnology,  and  chemical  industry.  Based  upon  the  technology  used  in
PHARMASYSTTM,  the Company developed the BASE10TMME product line (formerly known
as PHARM2TM).  In addition,  the assets of the FlowStream product, a similar MES
offering,  were  purchased from  Consilium,  Inc., in February 1998, and renamed
BASE10TMFS (refer to Note D to the Consolidated Financial  Statements).  Lastly,
the  clinical  supplies  market,  a subset of the  pharmaceutical  manufacturing
segment,  was  identified as an attractive  business  opportunity.  In September
1998, using software similar to BASE10TMME, the Company introduced BASE10TMCS.

    BASE10TMME  operates on a PC-based  system  using  distributed  WindowsTM NT
client-server  architecture.  BASE10TMFS  uses a  distributed  HP-UX or  Digital
VAX/VMS  client-server   architecture,   object-oriented   design,   application
programming,  and a relational database. They are both fully scalable and may be
implemented in a single operation, department, or across an entire supply chain.
The advantages of gradual integration are maximized  user-level  performance and
the  ability to adjust  quickly to  ever-changing  demands.  An  intuitive  user
interface  eases the task of data  entry and  retrieval  with  icons,  selection
boxes,  and an intelligent form designer.  In addition,  Base Ten's MES products
are not custom  solutions  or tool  kits.  They are  designed  and  marketed  as
standard   applications,   for   implementation   into  a  customer's   existing
manufacturing facility.  Both MES products act as electronic monitors,  ensuring
that the production  process complies with a predefined set of specifications in
order to produce a  consistent  product.  Base Ten is  engaged  in a  continuous
program to maintain compliance with an industry generated standard for GAMP as a
means of differentiating itself from present and future competition.*

    BASE10TMCS, a Clinical Supplies Materials Management System, is an analog of
BASE10TMME.  It was designed for pre-approval  product testing and is based on a
distributed  Windows NT client-server  platform for application  within Phase II
and III  clinical  trials.  BASE10TMCS  helps to ensure that a secure and steady
flow  of  the  trial  product  is  available  for  distribution.  The  effective
management of patient pack supply is critical for obtaining  regulatory approval
as well as for meeting or exceeding  time to market  goals.  In an  increasingly
competitive  global market,  where the pressure to launch new drugs is mounting,
the need for an automated  material  management system like BASE10TMCS is clear.
It  allows  rapid   fulfillment  of  requests,   full  support  of  traceability
requirements, while maintaining full compliance with FDA procedures.  Historical
operations data is stored in a relational database which can be readily accessed
to  support  a  new  drug  application,   real-time  production  analyses,   and
ultimately, timely scale-up to commercial production. *

    The Company  believes that BASE10TMME,  BASE10TMFS and BASE10(TM)CS  address
many of the unique challenges faced by these regulated  industries.  For a large
number of companies,  managing,  controlling,  and documenting the manufacturing
process and pre-approved  product testing process, in real-time,  while reducing
costs,  and remaining in compliance  have been  difficult.  Base Ten's  products
offer  state-of-the-art  software solutions that reduce paperwork,  human error,
and the time  required to review,  approve,  and  analyze  batch  records.  More
importantly,  since  customers and prospects have indicated that compliance with
industry standards is imperative, efforts have been focused on ensuring that the
products are also in compliance with the FDA current Good Manufacturing Practice
("cGMP"), ISO 9000, and GAMP*.

    To  appreciate  the  advantages of Base Ten's  products,  it is important to
understand the functions that a  manufacturing  execution  system is designed to
perform. MES are software programs designed to create uniformity in a production
sequence by defining  the elements of each  production  step.  They  essentially
institute  a  checklist  to be  followed,  defining  the  raw  material  inputs,
equipment  operating  instructions,  and  procedures  to be followed in order to
maintain  consistency  in  an  end  product.  Historically,  manufacturers  have
implemented  MES using paper forms that  follow a batch  through the  production
sequence,  requiring signatures to verify that defined procedures were followed.
Paper-based  systems are  susceptible  to human errors,  leading to an increased
possibility of corrupted  batches.  The production of certain products effecting
health and  safety,  such as  pharmaceuticals  and  consumer  products,  require
greater  production  process  control to decrease the possibility of a corrupted
end product.  To obtain greater control and increase  efficiency,  manufacturers
have incorporated  custom computer solutions into their MES. These solutions are
expensive,  time  consuming to implement,  address only limited  procedures  and
generally do not possess the  flexibility  for  expansion or the addition of new
technologies.

    Base  Ten  believes  there  is a  compelling  and  immediate  need  for  the
pharmaceutical  and medical  device  industries  to implement  MES that are cost
effective, are flexible, and facilitate the demonstration of compliance with FDA
cGMP regulations. It is also believed that these industries are actively seeking
suppliers and products to aid in compliance.  Base Ten's manufacturing execution
systems are designed to enable these companies to meet their needs in a way that
is consistent  with how they  presently do business.  The Company's MES products
enable the customer to specify the individual  steps of the production  process.
They interface with  Manufacturing  Resource  Planning  ("MRP") and  Supervisory
Control  and Data  Acquisition  ("SCADA")  systems,  information  databases  and
stand-alone  production machinery such as scales,  blenders and ovens, directing
the  execution  of  the  production  process  and  continuously  monitoring  the
compliance of each step with the manufacturer's defined  specifications.  Should
they   recognize  an   out-of-specification   event,   they  can  adapt  to  the
out-of-specification  event by  selecting  a  previously  defined  and  approved
alternative  procedure  in order to allow the process to continue in a compliant
manner. If a remedial  alternative is not available,  the Base Ten products will
not authorize  commencement  of the next production step and can issue a problem
notification  to  supervisory  or  quality  control   personnel.   In  addition,
BASE10(TM)ME,   BASE10(TM)FS,   and  BASE10(TM)CS   chronologically   track  and
electronically  record  each  input,  procedure  and  output,  which  provides a
significant tool for the customer to demonstrate ongoing cGMP compliance. *

    Base Ten's products  provide a standard set of MES  applications,  and not a
set of tools that the customer must learn to use in order to develop a solution.
An  intelligent  MES software set was created that is both  flexible and robust.
Fully integrated modules, that are linked to a system's database, are the key to
rapid  implementation.  Base Ten's standard MES products can be configured  with
the   appropriate   modules  to  meet  a   customer's   specific   requirements.
Additionally,  the features and functions required to support FDA cGMP are built
into the standard  base product. 

    The  Company  believes  that  BASE10TMME,  BASE10TMFS,  and  BASE10TMCS  are
applicable  to  the  highly   regulated   pharmaceutical   and  medical   device
manufacturing  industries.  The production of  pharmaceuticals is subject to FDA
cGMP,   which  mandate   compliance   with  technical   requirements   involving
manufacturing production processes.  During its inspections,  the FDA frequently
verifies  whether a  manufacturer  is in compliance  with cGMP.  These  software
products,  through Base Ten's program of meeting GAMP requirements,  is intended
to support the manufacturer's  verification of a compliant production process in
a manner which Base Ten believes is acceptable to the FDA. *


Partnerships
------------

       The Company has entered into  collaborative  relationships  with industry
recognized  engineering firms and system integrators that can implement,  and/or
validate  our  products.  The Company has  established  partnerships  with Walsh
Automation,  a Canadian systems integrator;  WTI Systems Ltd, an English systems
integrator;  Toyo Engineering Co., a Japanese developer of turnkey manufacturing
facilities;  KPMG LLP and Foster Wheeler,  providers of services and integration
to  the  pharmaceutical  industry;   Taisei  Corporation,   a  construction  and
engineering company in Japan and Euriware, a European based integrator.

    In addition,  Base Ten has  established  strategic and technology  alliances
that  enhance  its  product  portfolio  and  technology  offerings.  Some of the
partnerships include, but are not limited to the following: Microsoft, a leading
technology  software  provider;  Intellution,  a leading supplier of Supervisory
Control  and  Data   Acquisition/Batch   Control  and  Execution  software;  and
Documentum,  a leading supplier of Document Management  software.  Additionally,
the Company has partnered with Compaq,  Novasoft,  Beckman  Coulter,  and SAP to
offer the  Integrated  Pharmaceutical  Supply  Chain  Consortium  utilizing  the
BusinessBus  technology.  This is a new solution set for complex  pharmaceutical
manufacturing   environments   based  on  industry   standard   message  queuing
technology.  It provides for seamless  integration  of disparate  enterprise and
manufacturing   applications   without  custom  coding  interfaces  and  without
modifying   original   code.  In  addition,   the  Company  has  embarked  on  a
certification effort with SAP to provide official recognition of the interfacing
between the two software products.*

    These  relationships  have not yet produced  significant  revenues,  however
additional product development is necessary before the anticipated  benefits are
fully recognized. Base Ten believes that such relationships are necessary if the
Company is to achieve its market  potential.  Through the  announcement of these
alliances,  Base Ten has benefited by gaining increased exposure for its product
line.  Seminars,  conducted  jointly with  partners,  highlight the benefits and
demonstrate  the  applicability  and  ease  of use of its  products.


Other Products
--------------

    Ultrasound  Imaging Products.  Base Ten introduced  uPACS(TM),  a system for
archiving  ultrasound images, in 1994. The system digitizes records,  and stores
ultrasound  images on  CD-ROMs  as an  alternative  to  existing  film and video
storage  systems.  In April 1996,  the Company  determined  that uPACS was not a
commercially  viable  product in its current state of  development,  despite the
fact that it expected  to receive FDA  clearance  of a  pre-market  notification
application ("510(k) clearance"), which was ultimately granted in 1996.

    The Company  continued  development  efforts of  uPACS(TM),  and in May 1997
entered  into an  agreement  whereby it became a minority  owner of uPACS LLC, a
limited  liability  company (the "LLC").  Under the terms of the  agreement  the
Company made a capital  contribution  to the LLC of its rights to its  uPACS(TM)
technology. In exchange for such capital contribution, the Company received a 9%
interest  in the LLC. A then  outside  investor,  who is  currently  a principal
shareholder of the Company,  made a total capital  contribution of $3 million in
return for a 91% interest in the LLC. See Note M to the  Consolidated  Financial
Statements  for  further  information  on this  arrangement.  During  the fourth
quarter  of 1998,  the  Company  determined  that it did not  have the  required
resources to devote to both its core  manufacturing  execution software business
and the uPACS(TM) business, and as a result,  initiated a search for a potential
buyer  of the  LLC  and  its  technology.  


Government Technology Division
------------------------------

    As  discussed  above in the  "Overview",  on December  31,  1997,  following
shareholder approval,  the Company,  completed the sale of the GTD to Strategic.
Strategic  was a  newly  formed  corporation  managed  and  partially  owned  by
individuals  who were,  prior to the GTD Sale,  members of the Company's  senior
management  (the  "Management  Group").  Members  of the  Management  Group were
significantly involved in the business and development of the GTD while employed
by the Company and left the Company's employ to join Strategic concurrently with
the GTD Sale.  Strategic acquired  substantially all of the net operating assets
of the GTD in  exchange  for  certain  consideration  pursuant  to the terms and
conditions  set forth in an Asset  Purchase  Agreement  between  the Company and
Strategic dated October 27, 1997.


Sales and Marketing
-------------------

    The Company  offers a portfolio of software  products and service  solutions
for use in the pharmaceutical,  clinical supplies (a subset of pharmaceuticals),
fine chemicals,  and medical products  industries.  During 1998 Base Ten's sales
and  marketing  efforts  were  focused on MES and  clinical  supplies  materials
management applications for the FDA-regulated industries.  The Company currently
markets its products  through a direct sales force in North  America and Europe.
The  sales  staff is  currently  based,  domestically  at Base  Ten's  corporate
headquarters in New Jersey,  and in California,  and abroad in England,  Germany
and Belgium. The Company's sales force conducts presentations and demonstrations
to  management  and end users at the  customer  site as part of the direct sales
effort.

    Base Ten  supplements  its direct sales  efforts with a variety of marketing
initiatives including public relations activities, telemarketing, advertising in
industry periodicals,  trade shows, industry symposiums and workshops,  and user
group conferences. In addition, the company's website, is actively being used as
a sales and marketing tool. While it is a valuable  communications  conduit,  it
has also been useful in making initial  company and product  introductions.  The
website has also proven to be an effective  and  efficient  way to run annotated
product demos for potential customers.*


Research and Development
------------------------

    Base Ten's research and  development  efforts are currently  directed at the
continued evolution of its existing products and clinical supplies  applications
that will utilize ActiveX components and browser based client technologies.  The
future  generation  of Base Ten's  software will feature a rich function set and
support rapid user  customizations,  including  connectivity with other systems.
The Company  believes  that this path ensures its  leadership  in the market for
world class cGMP manufacturing applications. *

    During  fiscal 1996 and 1997 the Company  capitalized  $4.1 million and $3.4
million, respectively, of software development costs almost all of which was for
development of PHARMASYSTTM and BASE10TMME,  the Company's core MES software. 

    In fiscal years 1996, 1997, and 1998, Base Ten expensed  approximately  $0.4
million,  $0.1  million,  and  $2.0  million,   respectively,  in  research  and
development  expenditures.  The development  staff consists of  approximately 34
development,  project and quality engineers supported by test and administrative
staff.


Competition
-----------

    During 1998, the Company competed in the MES and Clinical  Supplies software
markets. Base Ten faces three major sources of competition: paper-based systems,
commercial  vendors of software  products  that develop one or more elements for
pharmaceutical manufacturing, and in-house computer programs.

    The  Company's   competitors  include  POMS,  ProPack  GmbH,  SAP  AG,  Elan
Informatique,  and Courbon.  Several of the competitors  offer products that are
either  toolkits,  requiring  significant  customization,  or that  provide only
specific  pieces  of MES  applications,  and/or  that  focus on  other  vertical
markets.  Base Ten believes  that the majority of Enterprise  Resource  Planning
("ERP") vendors will choose to partner or acquire the MES-specific functionality
in a Best-of-Breed  manner rather than developing it in-house,  although one has
stated  otherwise.  In addition,  the Company  feels that it gains a competitive
advantage by staying focused on the FDA-regulated  vertical industries at a time
when other players are branching out into different  markets.  Another source of
competitive  advantage comes from its continued development of functionality and
support for the evolving Clinical Supplies business. *

    Base  Ten  believes  that  the  internal   Information  System  departments,
responsible  for  supporting  year 2000 ("Y2K")  initiatives  and ERP  projects,
provide a source of  competition  for product  sales.  In addition,  the Company
competes with system  integrators and internal corporate MIS departments for the
services business.

    Competition  among  providers  of software  for  manufacturers  is likely to
increase  for many  reasons.  A number  of  companies  have  announced  plans to
introduce  component-based  products rather than developing an application for a
particular operating system. These applications are assembled from compatible or
wrapped  components  and have to exist,  operate,  and  integrate in a component
run-time  environment.  Base Ten  needs to  support a  standardized  information
infrastructure   that  would  enable   integration   and   interoperability   to
complementary  software  applications such as ERP Systems,  Document  Management
Systems ("DMS"), and Laboratory  Information  Management Systems ("LIMS").  This
effort will benefit our customers by reducing implementation  complexity,  time,
and cost.  Plant  investments are being driven by enterprise  needs,  therefore,
systems that simply automate existing production  management  activities are not
compelling enough to clear the investment hurdle. To demonstrate its competitive
advantage,  Base Ten needs to excel at, and reduce,  the cost of  non-production
activities.   The  Company's   success  depends  upon  its  ability  to  compete
effectively with commercial competitors. *

    Despite the Company's belief that it ranks ahead of the known competition in
suitability for pharmaceutical manufacturing,  there can be no assurance that it
will compete  successfully with new or existing  competitors or that competitive
pressures  faced by Base  Ten  will not  materially  and  adversely  affect  its
business and financial results. *


Proprietary Rights
------------------

    While the Company has received  certain  patent  protection for its Base Ten
products, there can be no assurances that any additional patents will be issued,
that the scope of any patent protection will be adequate, or that any current or
future issued  patents will be held valid if  challenged.  The Company  believes
that its products and technology do not infringe any existing proprietary rights
of others.

    The Company  regards its software as proprietary  and attempts to protect it
with  copyrights,  trademarks,  trade secret law, and contractual  arrangements.
However,  existing  copyright laws offer only limited  practical  protection for
software.  Furthermore,  the  laws  of some  foreign  countries  do not  protect
proprietary  rights to the same  extent,  as do the laws of the  United  States.
There can be no assurance that the means of protecting its proprietary  software
will be adequate or that competitors will not independently develop technologies
similar to that of the Company.

    Under  certain  circumstances,  customers  of Base  Ten may be  entitled  to
limited access of the BASE10TMME source code. Customer access to source code may
increase the products'  possibility of misappropriation or other misuses of Base
Ten's software.  Accordingly,  it may be possible for unauthorized third parties
to copy certain portions of Base Ten's software or to obtain and use information
that the Company  regards as  proprietary.  In  addition,  the Company has filed
applications  for a patent  covering  certain  aspects  of the  safety  critical
technology.


Regulation
----------

    Base Ten's software  products do not require  pre-marketing FDA clearance or
approval at this time although the Company anticipates that such approval may be
required in the future.  However,  those  products  are  intended to  facilitate
compliance by pharmaceutical  manufacturers with FDA cGMP and are designed to be
integrated  into  a   manufacturer's   production   systems.   A  pharmaceutical
manufacturer's systems, including any BASE10(TM)ME, BASE10TMFS, and BASE10(TM)CS
application,  must be capable of sufficiently documenting the production of each
batch of product to be in compliance with cGMP.  Further,  the manufacturer must
be able to demonstrate to the FDA that its systems have that capability  under a
variety  of  circumstances.  Base Ten is  engaged  in a  continuous  program  to
maintain compliance with GAMP.*

    Other  products  Base Ten has developed  are  considered,  and the archiving
software  for  ultrasound   images  that  the  Company  is  supporting  will  be
considered, "medical devices" under FDA regulations. Before such products may be
marketed  in  the  U.S.,  they  must  receive  FDA  clearance  of  a  pre-market
notification  application  ("510(k) clearance") or FDA clearance of a pre-market
approval application ("PMA"). Obtaining such clearance can take substantial time
and can require  substantial  expenditures.  Many other  countries  regulate the
manufacture,  marketing  and use of medical  devices in ways similar to the U.S.
There  can be no  assurance  that  Base  Ten  will be able  to  obtain  required
clearances for any products it develops on a timely or cost-effective  basis, if
at all.*


Employees
---------

    The Company currently  employs a total work force of 133 persons,  including
43 engineers,  plus additional  contract labor. None of the Company's  employees
are  covered  by  collective  bargaining  agreements.   The  Company  has  never
experienced  any labor  disruptions or work stoppages and considers its employee
relations to be good.


Product Liability Insurance
---------------------------

     Base Ten maintains product  liability  insurance of at least $5 million for
its products in the event a claim is made that the Company's  products failed to
prevent  defects  in  pharmaceutical   products  which  resulted  in  injury  to
consumers.  There can be no  assurances  that the Company's  existing  insurance
would be adequate to cover any claims or that the Company will be able to obtain
and maintain  adequate  insurance in the future.  The Company and Strategic have
agreed to each obtain insurance protecting the other from liabilities that could
occur because of defense products now in the field manufactured by the GTD while
part of the Company.


Foreign Operations
------------------

    Information on operations in different  geographic areas is provided in Note
J to the Consolidated Financial Statements.

<PAGE>

Executive Officers of the Company
---------------------------------

    The current executive officers of the Company are as follows:

<TABLE>
<CAPTION>


Name                      Age       Offices Held with Base Ten                     Period Served
----                      ---       --------------------------                     -------------
<S>                        <C>      <C>                                            <C>
Thomas E. Gardner          51       Chairman of the Board, President and           1997 to present
                                    Chief Executive Officer


Alexander M. Adelson       64       Vice Chairman of the Board                     1998 to present


C. Richard Bagshaw         59       Executive Vice President                       1997 to present


William F. Hackett         48       Senior Vice President, CFO and
                                    Secretary                                      1997 to present


Harvey I. Cohen            47       Senior Vice President and                      1998 to present
                                    Chief Technology Officer


Stephen A. Cloughley       38       Senior Vice President                          1998 to present

</TABLE>


    A  summary  of the  business  experience  and  background  of the  Company's
officers is set forth below.

    Mr. Gardner has been President and Chief Executive Officer since November 1,
1997,  a Director  since  December  31, 1997 and  Co-Chairman  of the Board from
December  31,  1997 to April  1998.  In April 1998,  Mr.  Gardner was  appointed
Chairman of the Board.

    Mr.  Adelson has been a Director since 1992. He served as Vice Chairman from
1997 until December 31, 1997, Co-Chairman of the Board from December 31, 1997 to
April 1998 and since April 1998, serves as Vice Chairman.  From 1992 to 1998 Mr.
Adelson also provided investment and financial advisory services to the Company.

    Mr.  Bagshaw  was  President  and  General  Manager of Syntex PR of Humacao,
Puerto Rico,  a  subsidiary  of Syntex  Pharmaceuticals,  Palo Alto,  California
subsequently  acquired  by  Roche  Holdings  in 1995.  From  1991 to 1996 he was
responsible for strategy development and implementation for corporate partnering
and talent upgrade.

    Mr.  Hackett  was a  Senior  Manager  for the  Princeton  Data  Division  of
Bloomberg  Financial  Markets from 1991 to 1997  responsible for the collection,
analysis, and distribution of information and product development.

    Mr. Cohen joined Base Ten in 1980, as senior  software  engineer  developing
alarm reporting and missile control systems.  In 1993, Mr. Cohen became actively
involved in Base Ten's move to the  industrial  systems market and he was one of
the original developers of the company's MES concepts.  Mr. Cohen is currently a
Senior Vice President of New Product Development and Chief Technology Officer.

    Mr.  Cloughley  joined  the  Company in  February  1994 as head of sales for
Europe.  In 1996, he transferred to the corporate offices in Trenton to head the
marketing  department.  More recently,  he has become Senior Vice President,  in
charge of Corporate Strategy & Marketing.


Item 2.  Properties
-------------------

     The  Company's  principal  office in the United  States is in Trenton,  New
Jersey.  Base Ten  leases an 82,000  square  foot  facility,  which  houses  its
corporate headquarters and development and support activities. The lease for the
building expires in October 2009. Base Ten occupies  approximately 42,000 square
feet of this  property.  Strategic  occupies the  remaining  approximate  40,000
square feet,  pursuant to a five-year  sublease with the Company.  Base Ten also
leases approximately 3,000 square feet of space in Camberley, England for use as
administrative  offices and software development  facilities.  The lease for the
office space in the Camberley  facility expires in March 2003. In addition,  the
Company leases office facilities in California, Brussels, and Munich.

     Base  Ten's  facility  in New Jersey  was  subject to a sale and  leaseback
transaction  completed in October 1994. The Company's  fifteen year lease on the
facility  includes  a limited  repurchase  option  exercisable  at $4.3  million
through  October 1999,  $3.9 million from October 1999 through October 2004, and
then declining to $3.5 million during the last five years of the lease. See Note
K to the Consolidated Financial Statements.

    Management believes that the Company's facilities are currently adequate for
its operations.


Item 3.  Legal Proceedings
--------------------------

    The Company is involved from time to time in various claims and  proceedings
including  employee  claims  in the  normal  course of  business  none of which,
individually  or in the aggregate,  in the opinion of  management,  would have a
material  adverse effect on the consolidated  financial  position and results of
operations of the Company.


Item 4.  Submission of Matters to a Vote of Security Holders
------------------------------------------------------------

    On November 10, 1998, the Company held a Special Meeting of Shareholders. At
the meeting,  the following were approved by the shareholders:  (1) an amendment
to the Certificate of  Incorporation  to increase the authorized  Class A Common
Stock from 40 million to 60 million shares,  (2) the sale and issuance of Series
B Redeemable Convertible Preferred Stock (subject to the execution of definitive
agreements),  (3) the issuance of Class A Common Stock Purchase  Warrants to the
Series A Redeemable Convertible Preferred Stockholders that would receive Series
B  Redeemable   Convertible   Preferred  Stock,  (4)  the  modification  of  the
outstanding $10 million 9.01% Convertible  Subordinated Debenture,  (5) the sale
and  issuance of up to  6,666,666  shares of Class A Common  Stock at a purchase
price of $3.00 per share,  and  Warrants to purchase up to  1,000,000  shares of
Class A Common  Stock,  (6) the  amendment to the 1998  Directors'  Stock Option
Plan, and (7) the amendment to the 1998 Stock Option and Stock Award Plan.

    The sale and issuance of Series B  Redeemable  Convertible  Preferred  Stock
("Series B Preferred Shares") was issued to the Series A Redeemable  Convertible
Preferred  Stockholders  in the form of an even exchange for Series A Redeemable
Convertible  Preferred Stock ("Series A Preferred Shares") on March 5, 1999. The
terms of the Series B  Preferred  Shares are  similar to the Series A  Preferred
Shares,  except that: (a) the Series B Preferred  Shares have a conversion price
of $4.00,  whereas the  conversion  price of the Series A  Preferred  Shares was
equal to the  lesser  of (i)  $16.25  or (ii) the  Weighted  Average  Price  (as
defined) of the Class A Common Stock prior to the  conversion  date; and (b) the
Series B Preferred  Shares,  as a result of the conversion price of $4.00,  will
not provide the holder with the option to receive a  subordinated  8% promissory
note, as the Series A Preferred  Shares provide.  See Note N to the Consolidated
Financial Statements.

    The  issuance  of Class A Common  Stock  Purchase  Warrants  to the Series A
Preferred  Stockholders  that received Series B Preferred Stock provide for the
issuance of 80,000 Class A Common Stock Purchase Warrants for each $1 million of
principal  amount of the Series A Preferred  Shares  outstanding on November 10,
1998 in addition to certain other Series A Preferred Shares which were converted
at $4.00 per share  between  September 1, 1998 and November 10, 1998 on the date
of exchange.  These  purchase  warrants are four-year  warrants  exercisable  at
$3.00, and provide for mandatory exercise upon the occurrence of certain events.

    The modification of the $10 million 9.01% Convertible Subordinated Debenture
authorized  a  decrease  in the  conversion  price  from  $12.50  to $4.00  upon
conversion of the outstanding debenture.

    In November 1998, the Company sold 6,666,666  shares of Class A Common Stock
at a purchase  price of $3.00 per share for aggregate  proceeds of  $20,000,000.
For each $1 million of Class A Common Stock  purchased,  the purchaser  received
seven-year  warrants  to  purchase  50,000  shares  of  Class  A  Common  Stock,
exercisable at $3.00 per share; a total of 1,000,000  warrants were,  therefore,
issued to the purchaser.  The placement agent also received warrants to purchase
up to $250,000 shares of Class A Common Stock.


<PAGE>


                                     PART II


Item 5.  Market for the Company's Common Stock and Related Shareholder Matters
------------------------------------------------------------------------------

    The Company's  Class A Common Stock is listed on the NASDAQ  National Market
System under the trading symbol BASEA. The Company's Class B Common Stock, which
traded under the symbol BASEB,  was de-listed  from the NASDAQ  SmallCap  Market
over the  counter  market  in the  second  quarter  of  1998.  See Note O to the
Consolidated Financial Statements.

    The following table sets forth the high and low sale prices of the Company's
Class A Common  Stock and Class B Common  Stock as  reported  by NASDAQ  for the
periods indicated:

<TABLE>
<CAPTION>

                                        Class A Common Stock                       Class B Common Stock
                                              Bid Price                                  Bid Price        
                                              ---------                                  ---------        
                                      High               Low                      High              Low   
                                      ----               ---                      ----              ---   
<S>                                 <C>             <C>                       <C>               <C> 
Fiscal 1997:
------------
First quarter..................     $  12 1/4       $   10                    $   14 3/4        $  12
Second quarter.................        11 1/2            9 3/4                    14 3/4           12 3/4
Third quarter..................        10 7/8            9 7/8                    14 1/4           11 1/2
Fourth quarter.................        16                9 3/4                    16               10 1/2

November - December 1997.......     $  14 1/8       $    9 5/8                $   13            $  11
------------------------

Fiscal 1998:
------------
First quarter..................     $  10 1/2       $    5                    $   10 1/2        $   7
Second quarter.................         6 5/8            2 1/16                    7 7/8            7 1/8
Third quarter..................         5 3/16           1 9/16                     N/A               N/A
Fourth quarter.................         4                1 15/16                    N/A               N/A

</TABLE>

    As of March 26, 1999, there were approximately 715 record holders of Class A
Common Stock and 119 record holders of Class B Common Stock.

    Base Ten has not paid cash  dividends  on its Common  Stock since 1985.  The
present  policy of the Board of  Directors  is to retain any future  earnings to
provide for the Company's growth.



<PAGE>


Item 6. Selected Financial Data
-------------------------------

    The following  table presents  selected  financial data for Base Ten and its
consolidated  subsidiaries.  The  financial  data  for the  fiscal  years  ended
December  31,  1998,  October 31, 1997 and 1996 and the two month  period  ended
December  31, 1997 have been  derived from the  Company's  audited  Consolidated
Financial  Statements  included  elsewhere  in this Report and should be read in
conjunction with those Consolidated Financial Statements and related Notes.

<TABLE>
<CAPTION>

                     Base Ten Systems, Inc. and Subsidiaries
                  (dollars in thousands except per share data)


                                                  Two-Months
                                      Year Ended     Ended     Year Ended  Year Ended   Year Ended  Year Ended
                                        Dec 31,     Dec 31,      Oct 31,     Oct 31,      Oct 31,     Oct 31,
                                         1998        1997         1997        1996         1995        1994
                                         ----        ----         ----        ----         ----        ----
<S>                                  <C>          <C>         <C>          <C>         <C>          <C>   
 Summary of Operations:
 Revenues                            $   7,550    $     181  $    2,512   $    1,262  $    2,710   $      584
 Loss from continuing operations
     before income tax benefit(1)    $ (19,020)   $  (3,714)  $ (15,980)   $  (9,097)  $  (2,616)   $    (125)
     (2)
 Income taxes (benefit)              $       --   $       --  $       --   $    (684)  $    (707)   $      24
 Net loss from continuing operations $ (19,020)   $  (3,714)  $ (15,980)   $  (8,413)  $  (1,909)   $    (149)
 Net earnings (loss) from            $       --   $    (222)  $  (6,027)   $    (546)  $     532    $     184
     discontinued operations
 Net earnings (loss)                 $ (19,020)   $  (3,936)  $ (22,007)   $  (8,959)  $  (1,377)   $      35
                                     ----------   ----------  ----------   ----------  ----------   ----------
 Net (loss) per common share
     continuing operations           $   (2.09)   $    (.45)  $   (2.03)   $   (1.09)  $    (.28)   $    (.02)
     Discontinued operations         $      --    $    (.03)  $   ( .76)   $    (.07)  $     .08   $      .05
                                     ----------   ----------  ----------   ----------  ----------   ----------
 Net earnings (loss) per share       $   (2.09)   $    (.48)  $   (2.79)   $   (1.16)  $    (.20)   $     .03
                                     ----------   ----------  ----------   ----------  ----------   ----------

<CAPTION>

 Summary Balance Sheet

 As of :                                Dec 31,      Dec 31,     Oct 31,      Oct 31,     Oct 31,      Oct 31,
                                         1998         1997        1997         1996        1995         1994
                                         ----         ----        ----         ----        ----         ----
<S>                                  <C>          <C>         <C>          <C>         <C>          <C>    
 Working capital (3)                 $  15,482   $    6,080  $    2,671   $   14,115  $   13,270   $    5,860
 Total assets                        $  33,821   $   24,413  $   21,217   $   30,397  $   28,005   $   17,609
 Long term debt, net of current      $  13,341   $   18,916  $   18,925   $   13,478  $    3,525   $    3,601
     maturities (4)
 Redeemable Preferred Stock          $  12,914   $    6,155          --           --          --           -- 
 Shareholders' equity (deficiency)   $   2,372   $   (6,054) $   (4,982)   $  12,140  $   20,261   $    9,431

</TABLE>

(1) Included  in 1996  financial  data is a  write-off  of  capitalized software
    cost of $2.4 million.

(2) Included in fiscal year October 31, 1997 financial  data is  $2.7  million 
    of expense relating to the fair market value of options and warrants issued
    to non-employee consultants (see discussion in Results of Operations - 
    Continuing Operations).

(3) Included  in  fiscal  1997  is  the   reclassification  of  the  assets  and
    liabilities of GTD as net assets held for sale.

(4) Included in 1994 to 1998 financial information is a long-term financing 
    obligation.


<PAGE>


Item 7.  Management's Discussion and Analysis of Financial Condition and Results
of Operations
--------------------------------------------------------------------------------

General
-------

    As discussed in Part 1, Item 1, on December 31, 1997,  following approval by
shareholders,  the Company sold the GTD (the "GTD Sale") to Strategic Technology
Systems, Inc.  ("Strategic).  On January 29, 1998, the Company elected to change
its fiscal year to an accounting period from January 1 through December 31. This
Annual Report on Form 10-K,  for the fiscal year ended  December 31, 1998,  does
not include, except as indicated herein, the operations of the GTD.

    Strategic  was a newly formed  corporation  managed and  partially  owned by
individuals  who were,  prior to the GTD Sale,  members of the Company's  senior
management  (the  "Management  Group").  Members  of the  Management  Group were
significantly involved in the business and development of the GTD while employed
by the Company and left the Company's employ to join Strategic concurrently with
the GTD Sale.  Strategic  acquired  substantially all of the operating assets of
the GTD in exchange  for certain  consideration  and the  assumption  of certain
liabilities, pursuant to the terms and conditions set forth in an Asset Purchase
Agreement between the Company and Strategic dated October 27, 1997.

    In February 1998, the Company purchased certain assets from Consilium,  Inc.
Refer to Note D to the  Consolidated  Financial  Statements and the  "Continuing
Operations Overview" below for more information about this acquisition.

    The Company's initial MES product was  PHARMASYST(TM),  which was introduced
in 1993.  Utilizing the  PHARMASYST(TM)  technology,  the Company  developed and
released  the  BASE10(TM)ME  product  line.  In June  1998,  Base  Ten  released
BASE10(TM)ME  version  2.3.  The  Company  followed in  September  1998 with the
release  of  BASE10(TM)CS,  which is an analog  of  BASE10(TM)ME,  designed  for
pre-approval product testing.


Cost Reduction Measures
-----------------------

    As a result of the purchase of the FlowStream product line in February 1998,
the Company  experienced an increase in headcount of  approximately 32 employees
bringing the total headcount for Base Ten to  approximately  165 employees as of
the  acquisition  date.  Base Ten also  experienced  a slight ramp up during the
first and second  quarters of 1998 in headcount,  independent  of the FlowStream
product  line  acquisition,  primarily  in the areas of  development,  sales and
marketing and administration.

    During the second  quarter of 1998,  the Company  initiated  cost  reduction
measures.  Costs were primarily reduced by downsizing the Company's workforce by
approximately  20%. 


Discontinued Operations
-----------------------

    As discussed in Part 1, Item 1, the consolidated financial statements of the
Company have been restated in order to account for the  operations of the GTD as
discontinued operations in view of the GTD Sale. In the restatement,  all assets
and  liabilities  of the GTD at October 31, 1997 and  December  31, 1997 and all
items of income and expense  attributable  to GTD's  operations  for all periods
presented have been  eliminated  from  consolidation  and accounted for on a net
basis as assets  held for sale and  discontinued  operations.  Accordingly,  the
following  discussion  of the Company's  financial  condition and the results of
operations  excludes  the  results  of the  discontinued  operations,  except as
otherwise indicated.


Continuing Operations Overview
------------------------------

    Since 1991, Base Ten, through its then existing Medical Technology  Division
has been engaged in the design,  development,  and  marketing  of  comprehensive
software  solutions  for  the  regulated  manufacturing  industries,   and  most
recently,  computerized  manufacturing  execution systems for the pharmaceutical
and medical device  industries.  Management  believes that the demand for MES in
these  markets is poised for  significant  growth over the next few years due to
several factors.  For one, there is growing  pressure on the Company's  customer
base to comply with  regulations  promulgated  by the FDA,  ISO 9000,  and other
industry standards such as GAMP. In addition,  increasing competitive influences
brought on by a) recent business combinations  occurring in the customer market,
and b) the rise in purchasing power among HMOs and other benefit programs,  have
underscored the need for manufacturers to be even more cost efficient.*

    The Company's acquisition of certain assets from Consilium, Inc. in February
1998 broadened the Company's  reach into these  industries  with the addition of
the  FlowStream   product   ("BASE10(TM)FS");   a  UNIX-based  MES  targeted  at
pharmaceutical, medical device and specialty chemical customers.

    The Company  believes that its products are premier,  standardized  PC-based
systems running on Microsoft  Windows-NT  (BASE10(TM)ME  and  BASE10(TM)CS)  and
HP-UX  or  Digital  VAX/VMS  (BASE10(TM)FS)  with  requisite  functionality  and
documented  support required by the pharmaceutical and medical device industries
to assist in reducing costs while  remaining FDA, ISO 9000, and GAMP  compliant.
The Company will continue to pursue a leadership position in this market. *

    The Company has received  indications  from  customers  and  prospects  that
compliance with industry standards is imperative to sales. As such, efforts have
been focused on  compliance  with  certain  industry  standards  and the Company
believes that both  BASE10(TM)ME  and  BASE10(TM)FS  are compliant with FDA, ISO
9000,  and GAMP.  As described  above,  there is a need for  pharmaceutical  and
medical device  manufacturers to have MES products compliant with cGMP. Further,
the Company  considers the additional costs of compliance with ISO 9000 and GAMP
to be prudent investments.*

    Personnel are in place to address product development and enhancement, sales
and  marketing,  and  customer  support.  Management  believes  absorbing  these
expenses in advance of revenue  generation is essential to  facilitating  market
emergence and near term growth of the Company. *

    For use in a manufacturing  environment,  a system  generally has to undergo
validation in accordance with defined procedures determining its fitness for use
in a regulated environment. The Company currently has two PHARMASYST(TM) systems
installed and  validated,  one at a medical device  manufacturing  plant and the
other  at  a  pharmaceutical   manufacturing   plant.  There  are  14  validated
BASE10(TM)FS   installations   at  various   customer   sites.   One  additional
PHARMASYST(TM)  product  and four  BASE10(TM)ME  products  are  believed to have
completed  customer testing  necessary for validation.

    Software  development  expenditures are expensed as research and development
until  a  product  attains  technological  feasibility.  At  December  31,  1998
PHARMASYST(TM)  and its successor,  BASE10(TM)ME had a capitalized value of $2.9
million  after  allowing  for   amortization.   Development   expenditures   for
PHARMASYST(TM),  BASE10(TM)ME  and  other  commercial  products  have  consisted
primarily of salaries of software  engineers  and quality  assurance  staff plus
applicable allocated overhead.


Results of Discontinued Operations
----------------------------------

    As discussed  above,  the GTD was sold on December 31, 1997, and as such its
results of operations  are not included in the  Company's  results of operations
for  fiscal  year  1998.  During  1997,  the GTD was  engaged  primarily  in the
development of the Interference Blanking Unit based on a contract awarded to the
GTD in  May  1996.  In  addition,  the  GTD  completed  the  development  of the
Maintenance  Data  Recorder  development  contract  awarded  in  April  1996 and
continued the  development of the  electronics  for the SLAM-ER  missile project
which the GTD was awarded in late 1996.

<PAGE>

Fiscal 1998 Compared to Fiscal 1997
-----------------------------------

    Continuing Operations
    ---------------------

    Revenues
    --------

    Company  revenues  increased  to $7.6  million in 1998 from $2.5  million in
1997. The increase is due to an increase in license and related revenues of $1.5
million, and service and maintenance revenues of $3.5 million. Revenues for 1998
were derived 36% from  licenses and related  revenues,  and 64% from service and
related revenues, as compared to 1997 when revenue was derived 49% from licenses
and related  revenues and 51% from service and related  revenues.  Revenues from
FlowStream  licenses,  services and  maintenance  during 1998 accounted for $2.7
million of the $5.1 million increase in 1998.


    Cost of Revenues
    ----------------

    Cost of  revenues in 1998 was $9.6  million  compared  with $6.4  million in
1997. Cost of revenues increased as a result of increased sales of the Company's
MES products and increased labor charges associated with the Company's increased
service and  maintenance  related  revenues.  These  increased costs were partly
offset  by   decreased   amortization   of   software   development   costs  for
PHARMASYST(TM)  and  BASE10(TM)ME  of $2.6  million in 1998 from $3.0 million in
1997.


    Research and Development Costs
    ------------------------------

    Research  and  development  costs  increased  significantly  in 1998 to $2.0
million from $0.1 million in 1997. This increase relates to additional personnel
and related  expenses  being  dedicated  to  developing  future  versions of the
Company's products. 


    Sales and Marketing Expenses
    ----------------------------

    The Company's sales and marketing expenses  increased  significantly in 1998
to $5.0  million  compared  with  $2.7  million  in 1997.  The  rise was  mainly
attributable  to salaries  and  related  expenses  resulting  from the hiring of
additional  personnel  and  increased  sales  commissions  which  resulted  from
increased revenues.


    General and Administrative Expenses
    -----------------------------------

    Company  general and  administrative  expenses  increased to $8.9 million in
1998 from $7.7 million in 1997. Costs rose primarily as a result of increases in
administrative salary and related expenses,  legal,  professional and consulting
fees and  integration  costs related to the addition of the  FlowStream  product
line.  These  increases were partly offset by a decrease of $2.4 million expense
related to the fair market value of options and warrants  issued to non-employee
consultants  for services  rendered  during 1997.  The fair market value in each
year was determined using the Black-Scholes option pricing model.


    Other Income and Expense
    ------------------------

     Other expense  decreased from $1.5 million in 1997 to $1.0 million in 1998.
In 1998,  other  expense is  primarily  comprised  of  interest  expense of $1.6
million, partially offset by $0.5 million of interest income and $0.1 million of
other income. In the 1997 period, other expense was comprised of $1.6 million of
interest expense,  partially offset by $0.1 million of interest income. Interest
expense  remained  consistent in the 1998 period as a result of similar  average
levels of debt.  Interest  income  increased  in the 1998  period as a result of
higher cash balances  available to earn interest.  Other income increased in the
1998 period  largely  due to rental  income  earned on the  sublease of building
space to Strategic,  which was not present in the 1997 period,  partially offset
by foreign currency exchange losses.


<PAGE>


    Continuing Losses
    -----------------

    The Company incurred a net loss from continuing  operations of $19.0 million
in 1998 compared to a $16.0 million net loss from continuing operations in 1997.
The increased loss in 1998 was largely  attributable to increases in:  headcount
and related  expenses,  legal,  professional and consulting fees and integration
costs related to the addition of the FlowStream  product.  These  increases were
partly offset by a decrease of $2.4 million  expense  related to the fair market
value of options and warrants  issued to  non-employee  consultants for services
rendered during 1997.

    The  Company  expects  losses in 1999.  The  Company's  ability  to  achieve
profitable  operations is dependent upon, among other things,  the completion of
current  development and testing  activities for BASE10(TM)ME and  BASE10(TM)CS,
timely delivery and successful installation and validation of its systems by its
customers,  and  successful  competition  in the  markets  in which the  Company
participates. *


Readiness for the Year 2000
---------------------------

    Year 2000 Issues
    ----------------

    Generally,  in today's business environment,  some computers,  software, and
other  equipment  include  programming  code  in  which  calendar  year  data is
abbreviated  to only two digits.  As a result of this design  decision,  some of
these systems could fail to operate or fail to produce  correct  results if "00"
is interpreted to mean 1900,  rather than 2000. This problem (the "Y2K Problem")
is widely  expected  to  increase  in  frequency  and  severity as the year 2000
("Y2K") approaches. The Company, in anticipating Y2K, has kept the potential for
this problem in mind when  purchasing  new  computers,  software  and  equipment
during  the past  year.  The  Company  has also  considered  this  problem  when
developing new products for sale to customers.

    Company  Readiness.  The Y2K Problem could affect computers,  software,  and
other  equipment  used,  operated,  or maintained  by the Company.  Accordingly,
during the second  quarter of 1998, the Company formed an internal Y2K committee
whose goal is to minimize any disruptions of the Company's business and to limit
the  Company's  liabilities  resulting  from the Y2K Problem.  As a result,  the
Company has reviewed its internal computer programs and systems,  as well as the
software that the Company  develops and sells to customers,  to determine if the
programs and systems will be Y2K compliant.

     Information  Technology  Systems.  During the first  quarter  of 1998,  the
Company,  in  anticipation  of the year 2000,  replaced its  existing  financial
accounting  software system,  which the Company deems to be a  business-critical
system, with a system which is vendor-certified Y2K compliant.

    The Company believes that it has identified  substantially  all of the major
computers, software applications,  and related equipment used in connection with
its  internal  operations  that must be replaced  or  upgraded  to minimize  the
possibility  of a material  disruption  to its business.  The Company  presently
believes that computer  systems  which are not currently  Y2K-compliant  will be
replaced or upgraded in the normal replacement cycle prior to 2000.

    Systems Other than Information  Technology Systems. In addition to computers
and related systems, the operation of office and facilities  equipment,  such as
fax machines,  photocopiers,  telephone  switches,  security systems,  and other
common  devices  may be affected by the Y2K  problem.  The Company is  currently
assessing the potential effect of, and costs of remediating,  the Y2K Problem on
its office and facilities  equipment,  however,  it currently  believes that the
risk of business interruption due to this equipment is minimal.

    Software Sold to Customers.  The Company believes that it has  substantially
identified  and resolved all potential Y2K Problems with its latest MES software
release,  version  2.3 of  BASE10(TM)ME,  as well as with  version 3.4 and later
versions of  BASE10(TM)FS.  However,  management  also  believes  that it is not
possible to determine with complete  certainty  that all Y2K Problems  affecting
the  Company's  software  products  have been  identified  or  corrected  due to
complexity  of these  products and the fact that these  products  interact  with
other third party vendor products and operate on computer  systems which are not
under the Company's control.

    Certain  customers  have earlier  versions of the  Company's  MES  software,
PHARM2(TM)  (prior to version  2.3) and  PHARMASYST(TM)  which have not yet been
tested  by the  Company  for Y2K  compliance.  All of the  customers  that  have
purchased these earlier versions have had substantial  customization done, which
dictates  that  Y2K  testing  and  modifications  must be done on a case by case
basis.  These  customers  have been  notified of the Company's  willingness  and
ability to provide Y2K test  specifications  and/or manpower to help bring their
version of the Company's  software into Y2K compliance.  It is a small number of
customers  that still  operate  with these  earlier  versions,  and the  Company
believes  that it can bring these  earlier  versions of the  Company's  software
product into Y2K compliance without any material financial or human resources.

    Also, some customers have earlier versions of BASE10(TM)FS (prior to version
3.4) which have not been tested for Y2K compliance.  However,  the Company has a
standard  upgrade path in place for bringing all of these earlier  versions into
Y2K compliance.  The upgrade has been made available and customers are currently
planning the timing of when they will perform the upgrade.  The Company believes
that this  upgrade  can be provided  with  minimal  use of  financial  and human
resources, due to the standardized nature of this upgrade path.

    Costs of  Compliance.  The  Company  currently  believes  that its  computer
systems will be Y2K compliant in a timely manner,  and estimates the total costs
to the Company of  completing  any  required  replacements  or upgrades of these
internal  systems  will not have a  material  adverse  effect  on the  Company's
business or results of operations, although no assurances can be given. Costs to
be incurred are expected to be immaterial  and are  currently  estimated at less
than  $100,000.

    Third Party Suppliers.  The Company has initiated  communications with third
party  suppliers of the major  computers,  software,  and other  equipment used,
operated,  or maintained by the Company to identify and, to the extent possible,
to resolve issues involving the Y2K Problem. While the majority of the Company's
significant  suppliers  are  software  industry  leaders and have  committed  to
upgrades to resolve any Y2K Problems, the Company has limited or no control over
the actions of these third party suppliers. Thus, while the Company expects that
it will be able to resolve any  significant  Y2K  Problems  with these  systems,
there can be no  assurance  that these  suppliers  will  resolve  any or all Y2K
Problems with these systems  before the  occurrence of a material  disruption to
the business of the Company or any of its customers.  Any failure of these third
parties to resolve Y2K Problems with their systems in a timely manner could, but
is not currently  expected to, have a material  adverse  effect on the Company's
business, financial condition, and results of operations.

    Most Likely  Consequences  of Year 2000  Problems.  The  Company  expects to
identify and resolve all Y2K Problems that could have a material  adverse effect
on its business operations prior to the year 2000. However,  management believes
that it is not  possible  to  determine  with  complete  certainty  that all Y2K
Problems  affecting  the Company  will be  identified  or  corrected.  It is not
possible to accurately predict how many Y2K Problem-related  failures will occur
or the severity, duration, or financial consequences of these perhaps inevitable
failures. As a result,  management expects that the Company,  under a worst-case
scenario,  could suffer the following consequences:  (a) a significant number of
operational  inconveniences  and  inefficiencies for the Company and its clients
that may  divert  management's  time  and  attention  and  financial  and  human
resources  from its  ordinary  business  activities;  and (b) a small  number of
serious   system   failures   related  to  older   versions  of  the   Company's
PHARMASYST(TM) and PHARM2(TM)  products that may require  significant efforts by
the Company  and/or its  customers  to prevent or  alleviate  material  business
disruptions.

     Contingency Plans. The Company is currently developing contingency plans to
be  implemented  as part of its effort to identify and correct Y2K Problems that
may affect its internal systems, software and third party suppliers. The Company
currently expects to complete its contingency  plans during mid-1999.  Depending
on the systems affected,  these plans could include  accelerated  replacement of
affected  third party  equipment or software (the timing of which would occur in
the third quarter of 1999), the hiring of additional  personnel and/or increased
work hours for Company personnel to correct, on an accelerated schedule, any Y2K
Problems that arise with the earlier versions of  PHARMASYST(TM)  and PHARM2(TM)
software sold to customers,  and/or similar  approaches to any Y2K Problems that
may occur.  If the  Company is required to  implement  any of these  contingency
plans,  it could,  but is not  currently  expected  to, have a material  adverse
effect on the Company's financial condition and results of operations.

    Based on the  Company's  current  analysis of the Y2K Problem,  as described
above,  the Company  does not believe  that the Y2K Problem will have a material
adverse effect on the Company's business or results of operations.

    Disclaimer.  The  discussion  of the  Company's  efforts,  and  management's
expectations,  relating to Y2K compliance are  forward-looking  statements.  The
Company's  ability to achieve Y2K compliance and the level of incremental  costs
associated  therewith,  could be adversely  impacted by, among other things, the
resources  needed to bring older  versions of the Company's  PHARMASYST(TM)  and
PHARM2(TM) software into Y2K compliance,  the third-party  supplier's ability to
modify its proprietary  software,  and unanticipated  problems identified in the
ongoing compliance review.


<PAGE>

Fiscal 1997 Compared to Fiscal 1996
-----------------------------------

    Continuing Operations
    ---------------------

    Revenues
    --------

    Company  revenues  in 1997  increased  to $2.5  million  compared  with $1.3
million in 1996 due to increases in deliveries of the then PHARM2(TM)product.


    Cost of Revenues
    ----------------

    Cost of  revenues in 1997 was $6.4  million  compared  with $4.4  million in
1996.  Cost of revenues  increased due to labor and overhead  component  cost of
inventory increases  primarily due to additional  software  development and test
personnel in both the New Jersey and United Kingdom facilities.  Amortization of
software  development costs for PHARMASYST(TM)  and BASE10(TM)ME  increased from
$1.3 million in 1996 to $3.0 million in 1997.  Also, in 1996,  the Company wrote
off a $2.4 million balance of capitalized costs related to its non-MES products,
PRENVAL and uPACS, upon concluding that sufficient revenues and cash flows would
not be generated to recover the capitalized costs for either product.


    Research and Development Costs
    ------------------------------

    Research and  development  costs decreased from $0.4 million in 1996 to $0.1
million in 1997, as most resources were utilized for completion and  maintenance
of current versions of the Company's software during 1997.


    Sales and Marketing Expenses
    ----------------------------

    Sales  and  marketing  costs  increased  from $2.0  million  in 1996 to $2.7
million in 1997 due partially to an increase of $0.3 million in consulting  fees
and increases in sales commissions and personnel costs.


    General and Administrative Expenses
    -----------------------------------

    General and administrative  expenses in 1997 were $7.7 million compared with
$3.1  million  in  1996.   There  were  increases  in  almost  all  general  and
administrative  expense  categories,  the  largest of which was  inclusion  of a
non-cash  expense of $2.7  million  which  represents  the fair market  value of
options and warrants  issued to non-employee  consultants  for service  rendered
during fiscal 1997. The fair market value was determined using the Black-Scholes
option  pricing  model. 


    Other Income and Expense
    ------------------------

    Other expense in 1997 was $1.5 million compared to $0.4 million in 1996, and
was   comprised  of  interest   expense  of  $1.6  million  and  $0.7   million,
respectively,  offset partially by interest and other income of $0.1 million and
$0.3  million,  respectively.  The  increase in interest  expense was related to
interest on the $10 million  convertible  debenture  issued in 1996 and the $5.5
million  convertible  debenture  issued  in 1997.  The $10  million  convertible
debenture,  which had an annual interest rate of 9.01%, was outstanding for less
than three months in 1996  compared  with a full year in 1997.  The $5.5 million
convertible  debenture,  issued in 1997 with an annual  interest rate of 8%, was
outstanding for five months in 1997.


    Continuing Losses
    -----------------

    The Company incurred a loss from continuing operations before taxes of $16.0
million in 1997  compared to $9.1 million in 1996.  The 1996 loss was reduced to
$8.4  million by an income tax benefit of $.7  million.  A major  portion of the
loss in 1997  compared to 1996 was  attributable  to the $1.7 million  increased
amortization,  as well as certain cost  overruns  and related  penalties of $1.0
million,  and the $2.7  million  expense  related  to the fair  market  value of
options and warrants  issued to non-employee  consultants for services  rendered
during 1997. The increases in labor and overhead costs and interest expense also
contributed to the loss.

    The 1996 loss  included a write off of various  capitalized  expenses in the
sum  of  $2.4  million  representing   development  of  the  Company's  prenatal
abnormality detection software, PRENVAL, and early development costs of uPACS as
well as other  operating  losses  including  interest and  amortization of $ 2.0
million.  The major  portion of the  operating  loss  represented  the Company's
continuing  investment in the development of markets and  infrastructure for the
MES business.


    Discontinued Operations
    -----------------------

    The GTD incurred a net loss of $6.0  million in 1997  compared to a net loss
of $0.5 million in 1996. The GTD loss in 1997  consisted  primarily of operating
losses incurred because of reduced revenues without the corresponding  reduction
in operating expenses, and, a loss of $1.2 million on the GTD Sale.

    GTD revenues in 1997 were $10.0 million compared with $13.3 million in 1996.
The  decrease  in  revenues  was  directly  attributable  to the  difficulty  in
obtaining new business due to delays in government procurement and stretched out
deliveries of existing programs.  The GTD cost of sales in 1997 was $9.3 million
compared  with  $10.3  million  in 1996.  Selling,  general  and  administrative
expenses for 1997 were $4.1 million compared with $3.4 million in 1996.


Liquidity and Capital Resources
-------------------------------

    Company  working  capital  increased  to $15.5  million  at fiscal  year end
December 31, 1998 from $6.1 million at December 31, 1997.  The Company had $17.4
million of cash and cash  equivalents at December 31, 1998, up from $9.1 million
at December 31, 1997. The increase in cash during the fiscal year ended December
31, 1998  resulted  from the  realization  of capital  provided  from  financing
activities of $28.9 million,  partially  offset by the use of cash in operations
of $17.1 million, the use of cash in investing activities of $3.4 million.

    In 1998 cash used in operations has been affected  primarily by the net loss
of $19.0  million,  an increase of $0.8  million in  accounts  receivable  and a
reduction of $0.8 million in accounts payable and accrued  expenses.  These uses
of cash have been partially  offset by  amortization  and  depreciation  of $3.3
million and  non-cash  compensation  expense  resulting  from  issuance of stock
options and warrants of $0.3 million,  included in the  aforementioned  net loss
amount.

    Investing   activities  in  1998  have  been  comprised   primarily  of  the
acquisition of assets related to the FlowStream  product of  approximately  $2.1
million,  additions  to plant and  equipment  of $0.6  million and  additions to
capitalized software of $0.7 million.

    Cash  from  financing  activities  for  1998  resulted  primarily  from  two
transactions: (i) the net receipt in January 1998 of $9.4 million related to the
second  installment  of an  investment  by the  Company's  Series  A  Redeemable
Convertible  Preferred  Stockholders  which had been finalized in December 1997,
and (ii) the November 13, 1998 sale and issuance of 6,666,666  shares of Class A
Common  Stock  for  net  proceeds  of  $18.8  million.  Refer  to  Note N to the
Consolidated Financial Statements for further discussion of these transactions.

       The Company's  financial  statements have been prepared on the basis that
it will  continue  as a going  concern.  The Company  has  incurred  significant
operating losses and negative cash flows in recent years.  Also, at December 31,
1998 the  Company  was below the $4 million  minimum  net  tangible  assets,  as
defined,  required for its current listing on the NASDAQ National Market System.
In March 1999, the Company's shareholders' equity was increased by approximately
$9.6 million  through the  conversion of its $10 million  convertible  debenture
into common stock. Coincident with that debt conversion,  the Company's Series A
Redeemable  Convertible  Preferred  Stock was converted into Series B Redeemable
Convertible  Preferred  Stock.  These Preferred  Stocks have certain  Redemption
Events,  which if such events occurred,  would provide the holder with the right
to require the Company to purchase  their shares for cash which would  adversely
affect  the  Company.  (See Note N to the  Consolidated  Financial  Statements.)
Accordingly, where these rights exist such Redeemable Securities are categorized
outside of  shareholders'  equity  and,  thus,  do not qualify as equity for the
purposes of the NASDAQ minimum net tangible asset  requirement.  Also,  security
holders  may  have  other  rights/claims  in  connection  with  the  March  1999
transactions described above.

       To further  increase the  Company's  net tangible  assets and in order to
help further ensure the Company's  compliance with NASDAQ listing  requirements,
management is in the process of negotiating with  participants in the March 1999
debt conversion and Preferred Stock exchange to obtain waivers of any redemption
or recession rights.  These waivers,  if obtained,  would eliminate the holders'
cash  redemption   rights.   This  would  qualify  all  related  securities  for
classification  in permanent  stockholders'  equity and  increase the  Company's
qualifying net tangible  assets.  If such waivers are obtained,  then management
believes that the Company's  current  liquidity  would be sufficient to meet its
cash needs for its existing business through fiscal 1999. However,  there can be
no assurance that management's efforts in this regard will be successful.

       If  management  is not  successful  in  obtaining  such  waivers,  and it
continues  to incur  operating  losses it could fall below the minimum net asset
requirement needed to qualify for ongoing listing on NASDAQ.  Management's plans
in this case include,  among other  things,  attempting to improve (i) operating
cash  flow  through  increased  license  sales  and  service  revenue,  and (ii)
increasing the level of anticipated streamlining of its selling,  administration
and  development  functions.  However there is no assurance that such plans,  if
implemented, will be sufficient. Further, recently there have been announcements
of potential  changes in senior  management,  which increase the  uncertainty of
whether existing management plans will be executed.

       Also, the Company is considering certain  significant  acquisitions which
depending  on net  liabilities  assumed,  if  any,  and on the  success  of cost
reduction  efforts  to  bring  the  acquisitions  to  break-even,   may  require
additional  funding.  (See  Note U to  the  Consolidated  Financial Statements.)
However, there can be no assurance that such acquisitions will occur, or whether
additional funds required, if any, would be available to Base Ten.

       If current cash and working capital reduced by cash used in operations in
1999 is not  sufficient  to satisfy  the  Company's  liquidity  and  minimum net
tangible asset  requirements,  the Company will seek to obtain additional equity
financing.  Additional  funding  may not be  available  when  needed or on terms
acceptable  to the  Company.  If the Company were  required to raise  additional
financing for the matters  described above and/or to continue to fund expansion,
develop and enhance  products and service,  or otherwise  respond to competitive
pressures,  there is no assurance  that adequate funds will be available or that
they will be available  on terms  acceptable  to the Company.  Such a limitation
could  have a  material  adverse  effect on the  Company's  business;  financial
condition  or  operations  and  the  financial  statements  do not  include  any
adjustment that could result therefrom.

    During 1998 the Company  eliminated  $5.5 million of  long-term  debt as the
convertible debenture holders converted these $5.5 million, 8.0% debentures into
1,490,805  shares of Class A Common  Stock.  Subsequent to year end, on March 5,
1999, the holder of the $10 million,  9.01% convertible debenture converted this
debenture  into  2,500,000  shares  of  Class A  Common  Stock  which  increased
shareholders'  equity by approximately  $9.6 million including a non-cash charge
of approximately $5.5 million. As a result of these debenture  conversions,  the
Company will realize an annual interest  expense savings of  approximately  $1.3
million.  For  further  discussion  of  these  debentures  see  Note  L  to  the
Consolidated Financial Statements.

       On November 10, 1998, the shareholders  approved the sale and issuance of
Series B  Convertible  Preferred  Stock  (subject to the execution of definitive
agreements)  and the issuance of Class A Common Stock  Purchase  Warrants to the
Series  A  Convertible  Preferred  Stockholders  that  would  receive  Series  B
Convertible  Preferred  Stock.  The sale and  issuance  of Series B  Convertible
Preferred  Stock  ("Series B  Preferred  Shares")  to the  Series A  Convertible
Preferred  Stockholders  occurred  in March  1999 and was in the form of an even
exchange for Series A Convertible Preferred Stock ("Series A Preferred Shares").
The terms of the Series B Preferred Shares are similar to the Series A Preferred
Shares,  except that: (a) the Series B Preferred  Shares have a conversion price
of that number of shares  determined by dividing the Mandatory  Redemption Price
by $4.00,  as defined in the Series A  Preferred  Stock  Agreement,  whereas the
conversion price of the Series A Preferred Shares was equal to the lesser of (i)
$16.25 or (ii) the  Weighted  Volume  Average  Price (as defined) of the Class A
Common Stock prior to the conversion date limited to 3,040,000  shares;  (b) the
Series B Preferred  Shares,  as a result of the  conversion price of $4.00,
does not  provide  the  holder  with the  option to  receive a  subordinated  8%
promissory note, as the Series A Preferred  Shares provides;  and (c) there will
be no dividend  payment due based on the price of the Class A Common  Stock,  as
the Series A Preferred Shares provides.  As a result of the exchange of Series A
Preferred Shares for Series B Preferred Shares, preferred stock dividends are no
longer required to be paid by the Company.

    The  issuance  of Class A Common  Stock  Purchase  Warrants  to the Series A
Preferred  Stockholders that received Series B Preferred Shares provided for the
issuance of 80,000 Class A Common Stock Purchase Warrants for each $1 million of
principal  amount of the Series A Preferred  Shares  outstanding on November 10,
1998 in addition to certain other Series A Preferred Shares which were converted
at $4.00 per share  between  September  1, 1998 and  November  10,  1998.  These
purchase warrants are four-year  warrants  exercisable at $3.00, and provide for
mandatory exercise upon the occurrence of certain events.

    During  1998,  5,798  shares of Series A  Convertible  Preferred  Stock were
converted to 1,917,806 shares of Class A Common Stock.

    Subsequent to year-end, on March 5, 1999, the outstanding shares of Series A
Convertible  Preferred  Stock were exchanged for Series B Convertible  Preferred
Stock.

    For further  discussion  of the Series A and B  Preferred  Shares and Common
Stock see Note N and Note O to the Consolidated Financial Statements.

      As discussed  elsewhere in this Annual Report on Form 10-K, the Company is
a 9% shareholder in uPACS LLC, a limited liability company which has developed a
system for  archiving  ultrasound  images  with  networking,  communication  and
off-line  measurement  capabilities.  During  the fourth  quarter  of 1998,  the
Company determined that it did not have the required resources to devote to both
its core manufacturing  execution software business and the uPACS(TM)  business,
and as a result,  initiated  a search for a  potential  buyer of the LLC and its
technology.  At December  31,  1998,  the LLC had  substantially  exhausted  its
capital resources and, as of the filing date of this annual report on Form 10-K,
a buyer had not yet been located.  The Company currently intends to fund the LLC
operation  during  the  search  for  a  buyer.  The  Company   anticipates  such
contributions to total $500,000.

    On March 16, 1999, the Company's  Board of Directors  agreed to proceed with
negotiations  with the acquisition of Almedica  Technology Group  (Almedica),  a
wholly owned subsidiary of Almedica International,  Inc. in a stock transaction.
Almedica  develops  clinical  label and  materials  management  software for the
pharmaceutical  industry  essential to the  management of clinical  trials.  The
acquisition,  which is subject to the  negotiation  of final  terms and  related
execution of a definitive agreement,  is expected to close before the end of May
1999. The Company currently anticipates cash outlays related to this acquisition
of Almedica to be approximately  $0.5 - $1.0 million for fiscal 1999. * See Note
U to the Consolidated Financial Statements for more information.

    On March 16, 1999, the Company's Board of Directors approved the commencment
of preliminary discussions which could lead to an acquisition of Select Software
Tools,  plc  (NASDAQ:  SLCTY)  (Select)  in  a  stock  transaction.  Also,  in
connection with these preliminary discussions with Select, the Company agreed to
loan Select up to $1.0 million. The acquisition is subject to the negotiation of
final terms and execution of a definitive purchase  agreement,  and the approval
of Select  stockholders.  On March 26, 1999,  the Company loaned $0.7 million to
Select under a promissory note. If the Select  acquisition  occurs,  the Company
currently  expects  cash  outlays  related  to the  acquisition  of Select to be
approximately $5 million for fiscal 1999, including the $0.7 million loan. *

    The Company believes that Select took certain  restructuring  actions in the
second  half of 1998 and early  1999 in an effort to  significantly  reduce  its
expense base. The Company and Select have initially  identified  additional cost
reductions  which are  intended  to bring  Select to  break-even  by  closing or
shortly  after the date of  acquisition  by Base Ten. If the Select  acquisition
occurs,  depending on net  liabilities  of Select  assumed by the Company at the
date of acquisition, if any, and on the success of these cost reduction efforts,
in bringing  Select to net positive  cash flow,  the Company may need to acquire
additional funding in 1999.* See Note U to the Consolidated Financial Statements
for more information.

    The  Company  is  currently  evaluating  its  selling,   administrative  and
development functions with the intention of further streamlining  operations and
reducing  operating  expenses.  The Company  anticipates that decisions based on
this  evaluation  will be made in the first half of 1999.  Ensuing  actions  may
result in certain  nonrecurring  charges during 1999; the extent of such charges
is not yet quantifiable.

    Possible Change Of Control.  On March 17, 1999, Drew Sycoff,  a principal of
Andrew Garrett & Company,  suggested to Thomas E. Gardner,  the Chief  Executive
Officer  of the  Company,  on  behalf  Mr.  Sycoff's  clients,  including  Jesse
Upchurch,  the beneficial owner of more than 40% of the combined voting power of
the Company,  that Mr. Gardner should consider  resigning and that if he were to
resign, that Mr. Sycoff would be able to negotiate a transition. In a subsequent
conversation  on the same day, Mr. Gardner  offered Mr. Sycoff an opportunity to
present his  viewpoints  to the Board of Directors and offered to call a special
meeting of the Board if Mr. Sycoff wanted an early meeting. Mr. Sycoff indicated
that the matter was not  urgent and such  presentation,  if one were to be made,
could wait at least until  after the annual  meeting of  shareholders  which was
then  anticipated to be held in May, 1999. On April 1, 1999, at a meeting of the
board of directors of the Company, the board gave to Mr. Gardner its unqualified
continuing  support.  However,  on April 2,  1999 Mr.  Sycoff,  on behalf of his
clients, demanded Mr. Gardner's resignation,  and the resignations of the entire
board of directors. Mr. Sycoff also indicated that unless the Board of Directors
resigned before the annual meeting of  shareholders,  he would, on behalf of the
shareholders  whom he represented,  commence a proxy contest with respect to the
annual election of directors.  The Company does not yet know the impact, if any,
that such change in control  would have on the  Company's  ability to consummate
the Almedica acquisition or on the preliminary discussions regarding Select.

    The Company is relying on its leading products,  BASE10(TM)ME,  BASE10(TM)CS
and BASE10(TM)FS to stimulate new orders.  Neither the additional development of
the  Company's  MES products  nor the  consequential  generation  of cash can be
assured,  either in time or amount, nor is there any assurance that such amounts
will be sufficient for the Company's needs. In the absence of such orders or the
promise thereof,  neither of which can be assured, as well as in connection with
its expected  capital needs for the year 2000 and beyond,  the Company may elect
to seek  additional  sources of capital and may also elect to reduce the pace of
its development of its products and/or establish other cost reduction  measures,
which could  adversely  impact the Company.  In the event the Company  elects to
seek  additional  capital  there can be no assurance  that such funds or capital
would be available on the terms or in the amounts needed. *

<PAGE>

Item 8.  Financial Statements and Supplementary Data
----------------------------------------------------

<TABLE>
<CAPTION>

                          Index to Financial Statements
                                                                                                              Page
<S>                                                                                                            <C> 

Report of Independent Accountants.......................................................................       F-1
Independent Auditors' Report............................................................................       F-2
Consolidated Balance Sheets - December 31, 1998, December 31, 1997 and October 31, 1997 ................       F-3
Consolidated Statements of Operations  - Years ended December 31, 1998 and October 31, 1997 and
   1996 and the Two Month Transition Period from November 1, 1997 through December 31, 1997.............       F-4
Consolidated Statements of Shareholders' Equity (Deficiency) - Years ended December 31, 1998 and
   October 31, 1997 and 1996 and the Two Month Transition Period from November 1, 1997 through
   December 31, 1997....................................................................................       F-5
Consolidated Statements of Cash Flows  - Years ended December 31, 1998 and October 31, 1997
    and 1996 and the Two Month Transition Period from November 1, 1997 through December 31, 1997........       F-7
Notes to Consolidated Financial Statements..............................................................       F-8

</TABLE>

Item 9.  Changes in and Disagreements with Accountants on Accounting and 
Financial Disclosure
-------------------------------------------------------------------------


         On March 13,  1998,  the Company  engaged  PricewaterhouseCoopers  LLP,
("PricewaterhouseCoopers")  independent  certified  public  accountants,  as the
Company's  auditors  for the 1998 fiscal  year.  During the  Company's  two most
recent fiscal years and the subsequent  interim period preceding March 13, 1998,
neither the Company (nor anyone acting on the Company's  behalf)  consulted with
PricewaterhouseCoopers  regarding the application of accounting  principles to a
specified  transaction,  either  completed  or  proposed;  or the  type of audit
opinion  that might be  rendered  on the  Company's  financial  statements,  and
neither  a written  report  nor oral  advice  was  provided  to the  Company  by
PricewaterhouseCoopers;  or matters which would require  disclosure  pursuant to
Items 304(a)(1)(iv) and 304(a)(1)(v) of Regulation S-K.

         On  March  3,  1998,  the  Company  dismissed  Deloitte  &  Touche  LLP
("Deloitte  & Touche") as the  principal  accountant  to audit the  Registrant's
financial  statements.  The  reports  of  Deloitte  &  Touche  on the  Company's
financial  statements  for the past two fiscal  years did not contain an adverse
opinion or a disclaimer of opinion,  nor were such reports qualified or modified
as to uncertainty, audit scope or accounting principles. The decision to dismiss
Deloitte & Touche was approved by the Company's Board of Directors.

         During the two most  recent  fiscal  years and the  subsequent  interim
period  preceding  March 3, 1998,  there were no  disagreements  with Deloitte &
Touche on any matter of accounting principles or practices,  financial statement
disclosure,  or auditing scope or procedure which, if not resolved to Deloitte &
Touche's satisfaction,  would have caused Deloitte & Touche to make reference to
the subject matter of the disagreement in connection with its report. During the
two most recent fiscal years and the subsequent  interim period  preceding March
3, 1998,  Deloitte & Touche did not advise the  Company of any matters set forth
in Item  304(a)(1)(v) of Regulation S-K. Deloitte & Touche furnished the Company
with a letter addressed to the Securities and Exchange  Commission  stating that
it agreed with this  disclosure,  which was filed as an exhibit to the Company's
Current Report on Form 8-K, dated March 3, 1998.


<PAGE>

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant
------------------------------------------------------------

    Information concerning the Company's executive officers is set forth in Part
I, Item 1, under the caption "Executive Officers," and is incorporated herein by
reference.  The  information  called  for by Item 10  concerning  the  Company's
directors  will be included in the Company  Proxy  Statement for its 1999 Annual
Meeting of  Shareholders,  under the caption,  "Election of  Directors,"  and is
incorporated herein by reference.


Item 11.  Executive Compensation
--------------------------------

    The information called for by Item 11 concerning Executive Compensation will
be included in the  Company's  Proxy  Statement  for its 1999 Annual  Meeting of
Shareholders,  under the caption,  "Executive Compensation," and is incorporated
herein by reference.


Item 12.  Security Ownership of Certain Beneficial Owners and Management
------------------------------------------------------------------------

    The  information  called for by item 12 concerning  beneficial  ownership of
certain beneficial owners and management will be included in the Company's Proxy
Statement  for its 1999  Annual  Meeting  of  Shareholders,  under the  caption,
"Security  Ownership  of  Certain  Beneficial  Owners  and  Management,"  and is
incorporated herein by reference.


Item 13.  Certain Relationships and Related Transactions
---------------------------------------------------------

    The information called for by Item 13 concerning  certain  relationships and
related  transactions  will be included in the Company's Proxy Statement for its
1999 Annual Meeting of  Shareholders  under the caption,  "Certain  Transactions
with Related Parties," and is incorporated herein by reference.


<PAGE>

                                     PART IV


Item 14.  Exhibits, Financial Statements and Reports on Form 8-K
----------------------------------------------------------------

         (a)  Financial Statements and Schedules:

         1.   Financial Statements: The Financial Statements listed in the Index
              under  Item 8 are  included  in this  Annual  Report  at the pages
              indicated.

         2.   Financial Statement  Schedules:  The financial statement schedules
              for which  provision is made in  Regulation  S-X have been omitted
              because  the  required  information  is  either  presented  in the
              Financial Statements or the Notes thereto or is not applicable.

         3.   Exhibits:  See the  Exhibit  Index on pages 38  through 40 of this
              Annual Report.

         (b)  Reports on Form 8-K:  The Company  filed a Current  Report on Form
              8-K, on November 20, 1998, for the sale of 6,666,666 shares of its
              Class A Common  Stock at a  purchase  price of $3.00 per share for
              aggregate proceeds of $20,000,000.


<PAGE>
                        Report of Independent Accountants





The Board of Directors and Shareholders
Base Ten Systems, Inc.
Trenton, New Jersey 08619


    In our opinion, the accompanying consolidated balance sheets and the related
consolidated  statements  of  operations,  of  changes in  shareholders'  equity
(deficit)  and of cash flows  present  fairly,  in all  material  respects,  the
financial  position of Base Ten Systems,  Inc. and its  subsidiaries at December
31, 1998 and  December  31, 1997 and the  results of their  operations  and cash
flows for the year ended December 31, 1998 and the two-months ended December 31,
1997  in  conformity  with  generally  accepted  accounting  principles.   These
financial  statements are the  responsibility of the Company's  management;  our
responsibility  is to express an opinion on these financial  statements based on
our audits.  We  conducted  our audits in  accordance  with  generally  accepted
auditing  standards  which  require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the  amounts  and  disclosures  in  the  financial  statements,   assessing  the
accounting  principles  used and  significant  estimates  made by management and
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for our opinion expressed above. The financial
statements of Base Ten Systems,  Inc., and its subsidiaries for the years
ended  October 31, 1997 and 1996 were audited by other  independent  accountants
whose report dated February 6, 1998  expressed an  unqualified  opinion on those
statements.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note A to the
financial statements,  the Company has suffered recurring losses from operations
and has  redeemable  preferred  stock that  raise  substantial  doubt  about its
ability to continue as a going  concern.  Management's  plans in regard to these
matters are also  described in Note A. The  financial  statements do not include
any adjustments that might result from the outcome of this uncertainty.




PRICEWATERHOUSECOOPERS LLP



Florham Park, New Jersey
April 12, 1999

               See Notes to the Consolidated Financial Statements

                                      F-1


<PAGE>


                          Independent Auditors' Report




The Board of Directors and Shareholders
Base Ten Systems, Inc.
Trenton, New Jersey 08619


    We have audited the  consolidated  balance sheets of Base Ten Systems,  Inc.
and subsidiaries as of October 31, 1997 and the related consolidated  statements
of operations,  shareholders' equity (deficiency) and cash flows for each of the
years in the period ended October 31, 1997 and 1996. These financial  statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express an opinion on these financial statements based on our audits.

    We conducted  our audits in  accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

    In our opinion,  the  consolidated  financial  statements  referred to above
present fairly,  in all material  respects,  the financial  position of Base Ten
Systems,  Inc. and  subsidiaries as of October 31, 1997 and the results of their
operations  and  their  cash  flows for each of the  years in the  period  ended
October 31,  1997 and 1996 in  conformity  with  generally  accepted  accounting
principles.





DELOITTE & TOUCHE LLP

Parsippany, New Jersey
February 6, 1998

                                      F-2

<PAGE>

<TABLE>
<CAPTION>
                                               Base Ten Systems, Inc. and Subsidiaries
                                                     Consolidated Balance Sheets
                                               (dollars in thousands, except par value)
                                                                Assets
                                                                           December 31,        December 31,         October 31,
                                                                               1998                1997                 1997
                                                                          --------------- ------------------- ------------------
<S>                                                                              <C>                 <C>                <C>    
Current Assets:
   Cash and cash equivalents.........................................            $17,437             $ 9,118            $ 1,502
   Accounts receivable, net..........................................              2,372               1,583              1,808
   Net assets held for sale..........................................                  -                   -              5,338
   Other current assets..............................................                639                 530              1,044
                                                                          --------------- ------------------- ------------------
         Total Current Assets........................................             20,448              11,231              9,692
                                                                          --------------- ------------------- ------------------

Property, plant and equipment, net...................................              5,026               4,346              4,305
Note receivable......................................................              1,975               1,975                  -
Other assets.........................................................              6,372               6,861              7,220
                                                                          --------------- ------------------- ------------------
         Total Assets                                                            $33,821             $24,413            $21,217
                                                                          =============== =================== ==================

<CAPTION>

                            Liabilities, Redeemable Convertible Preferred Stock, and Shareholders' Equity (Deficiency)
<S>                                                                              <C>                 <C>                <C>    
Current Liabilities:
   Accounts payable..................................................             $  984             $  282              $  962
   Accrued expenses..................................................              3,152              4,106               5,653
   Deferred revenue..................................................                756                709                 352
   Current portion of financing obligation...........................                 74                 54                  54
                                                                          --------------- ------------------ -------------------
         Total Current Liabilities...................................              4,966              5,151               7,021
                                                                          --------------- ------------------ -------------------
Long-Term Liabilities:
   Long-term debt....................................................             10,000             15,500              15,500
   Financing obligation..............................................              3,341              3,416               3,425
   Other long-term liabilities.......................................                228                245                 253
                                                                          --------------- ------------------ -------------------
         Total Long-Term Liabilities.................................             13,569             19,161              19,178
                                                                          --------------- ------------------ -------------------

<PAGE>

                                               Base Ten Systems, Inc. and Subsidiaries
                                                     Consolidated Balance Sheets
                                               (dollars in thousands, except par value)
                                                                Assets
<CAPTION>
                                                                           December 31,        December 31,        October 31,
                                                                               1998                1997                1997
                                                                          --------------- ------------------- ------------------
<S>                                                                              <C>                 <C>                <C>    

Commitments and Contingencies - (Note K)

Redeemable Convertible Preferred Stock
   Series A Preferred Stock, $1.00 par value, 997,801 shares 
      authorized; issued and outstanding 14,942 shares at 
      December 31, 1998 and 9,375 shares at December 31, 1997;
      aggregate liquidation value of $14,942                                                            
      at December 31, 1998..........................................              12,914           14,684                    -
Less: Subscription Receivable.......................................                  -            (8,529)                   -
                                                                          --------------- ------------------ -----------------
                                                                                  12,914            6,155                    -
Shareholders' Equity (Deficiency)
      Class A Common Stock, $1.00  par  value, 
      60,000,000 shares authorized;
      issued and outstanding 18,659,748 shares at 
      December 31, 1998; 7,828,719 shares at December 31, 1997,
      and 7,768,952 shares at October 31, 1997......................              18,660            7,829               7,769

   Class B Common Stock, $1.00 par value, 2,000,000 shares
      authorized; issued and outstanding 71,410 shares
      at December 31, 1998 and 445,121 shares at                                                                 
      December 31, 1997 and October 31, 1997........................                  71              445                 445
   Additional paid-in capital.......................................              52,885           32,388              29,458
   Accumulated Deficit..............................................             (68,767)         (46,583)            (42,647)
                                                                          --------------- ------------------ ------------------
                                                                                   2,765           (5,921)             (4,975)

   Accumulated other comprehensive income (loss)....................               (196)             (133)                 (7)
   Treasury Stock, 100,000 Class A Common Shares, at cost...........               (282)                -                   -
                                                                          --------------- ------------------ ------------------
         Total Shareholders' Equity (Deficiency)....................              2,372            (6,054)            (4,982)
                                                                          --------------- ------------------ -------------------
         Total Liabilities, Redeemable Convertible Preferred Stock,
            and Shareholders' Equity (Deficiency)..................            $ 33,736         $  24,413           $ 21,217
                                                                          =============== ================== ===================

</TABLE>

               See Notes to the Consolidated Financial Statements
                                       F-3

<PAGE>


<TABLE>
<CAPTION>


                                               Base Ten Systems, Inc. and Subsidiaries
                                                Consolidated Statements of Operations
                                            (dollars in thousands, except per share data)

                                                                                     Two
                                                                      Year ended   months ended    Year ended    Year ended
                                                                     December 31,  December 31,    October 31,   October 31,
                                                                        1998         1997             1997        1996
                                                                     ------------ ------------  -------------- -----------

 <S>                                                                   <C>        <C>             <C>            <C>      

 License and related revenue................................           $   2,727   $       --     $   1,221      $    454
 Services and related revenue...............................               4,823          181         1,291           808
                                                                     ------------ ------------ ------------- -------------
                                                                           7,550          181         2,512         1,262

 Cost of revenues...........................................               9,639        1,457         6,387         4,423
 Research and development...................................               2,002           25           147           404
 Selling and marketing......................................               5,003          569         2,736         2,049
 General and administrative.................................               8,944        1,647         7,743         3,073
                                                                     ------------ ------------ ------------- -------------
                                                                          25,588        3,698        17,013         9,949
                                                                     ------------ ------------ ------------- -------------

 Loss from continuing operations before other income (expense) and
    income tax benefit......................................            (18,107)      (3,517)      (14,501)        (8,687)
                                                                     ------------ ------------ ------------- -------------

 Other income (expense), net................................               (982)        (197)       (1,479)          (410)
                                                                     ------------ ------------ ------------- -------------

 Loss from continuing operations before income tax benefit..             (19,020)      (3,714)      (15,980)        (9,097)
                                                                     ------------ ------------ ------------- -------------

 Income tax benefit.........................................                  --           --            --           684

                                                                     ------------ ------------ ------------- -------------
 Net loss from continuing operations........................            (19,020)      (3,714)      (15,980)        (8,413)
                                                                     ------------ ------------ ------------- -------------

 Discontinued operations:
 Loss from operations of Government Technology Division, net of
    income tax benefit of $363 in 1996......................                  --        (222)       (4,854)          (546)
 Loss on sale...............................................                  --           --       (1,173)            --
                                                                     ------------ ------------ ------------- -------------
 Loss from discontinued operations..........................                  --        (222)       (6,027)          (546)
                                                                     ------------ ------------ ------------- -------------

 Net loss...................................................         $  (19,020)  $   (3,936)   $  (22,007)        (8,959)
                                                                     ============ ============ ============= =============
 Less:   Dividends on Redeemable Convertible 
         Preferred Stock....................................             (1,740)           --            --            --
         Accretion on Redeemable Convertible
         Preferred Stock....................................             (1,424)           --            --            --
                                                                     ------------ ------------ ------------- -------------
 Net loss available for common shareholders.................         $  (22,184)  $   (3,936)   $  (22,007)        (8,959)
                                                                     ============ ============ ============= =============

 Basic and diluted loss per share:
 Continuing operations......................................          $   (2.09)  $    (0.45)    $   (2.03)    $    (1.09)
 Discontinued operations....................................                  --       (0.03)        (0.76)         (0.07)
                                                                     ------------ ------------ ------------- -------------
 Net loss per share.........................................          $   (2.09)  $    (0.48)    $   (2.79)    $    (1.16)
                                                                     ============ ============ ============= =============
 Weighted average common shares outstanding - 
   basic and diluted........................................         10,618,000    8,258,000     7,895,000      7,743,000
                                                                     ============ ============ ============= =============

</TABLE>

               See Notes to the Consolidated Financial Statements
                                       F-4


<PAGE>


                     Base Ten Systems, Inc. and Subsidiaries
          Consolidated Statements of Shareholders' Equity (Deficiency)
                             (dollars in thousands)
<TABLE>
<CAPTION>

                                            Class A                   Class B            Additional
                                          Common Stock              Common Stock           Paid-In
                                       Shares       Amount       Shares       Amount       Capital
--------------------------          ------------ ------------ ------------ ------------ ------------ 
                                   <S>          <C>               <C>       <C>            <C>
Balance
October 31, 1995 ..............    7,216,195    $    7,216        458,474   $        458   $   24,410
Conversions:
    Common B to
    Common A ..................        5,418             5         (5,418)            (5)        --   
Exercise of options ...........      137,351           138           --             --            676
Retirement of
treasury stock ................         --            --           (7,669)            (8)        --   
Comprehensive
Income (Loss):
    Net loss ..................         --            --             --             --           --   
    Foreign currency
    translation ...............         --            --             --             --           --   
    Unrealized gain on
    securities available
    for sale ..................         --            --             --             --           --   
Total Comprehensive
Income (Loss):.................       
===============================   ==========    ==========   ============   ============   ==========
Balance
October 31, 1996 ..............    7,358,964         7,359        445,387            445       25,086
===============================   ==========    ==========   ============   ============   ==========
===============================   ==========    ==========   ============   ============   ==========
Conversions:
    Common B to
    Common A ..................          266          --             (266)          --           --   
Exercise of
options .......................       93,230            93           --             --            506
Exercise of
warrants ......................      305,000           305           --             --          1,017
Issuance of
Common Stock:
    Interest payments .........       11,492            12           --             --             99
Compensation
related to warrants
and options issuance ..........         --            --             --             --          2,750
Comprehensive 
Income (Loss):
    Net loss ..................         --            --             --             --           --   
    Foreign currency
    translation ...............         --            --             --             --           --   
    Unrealized gain on
    securities available
    for sale ..................         --            --             --             --           --   
Total
Comprehensive Income (Loss):...         --            --             --             --           --   

<PAGE>
===============================   ==========    ==========   ============   ============   ==========
Balance
October 31, 1997 ..............    7,768,952         7,769        445,121            445       29,458
===============================   ==========    ==========   ============   ============   ==========
===============================   ==========    ==========   ============   ============   ==========
Exercise of options ...........       50,584            51           --             --            445
Issuance of
Common Stock:
    Interest payments .........        9,183             9           --             --            102
Common Stock Warrants,
net of subscription
receivable of $851 ............         --            --             --             --          1,840
Compensation related to 
warrants and options issuance..         --            --             --             --            543
Comprehensive
Income (Loss):
    Net loss ..................         --            --             --             --           --   
    Foreign currency
    translation ...............         --            --             --             --           --   
    Unrealized loss on
    securities available
    for sale ..................         --            --             --             --           --   
Total Comprehensive
Income (Loss): ................         --            --             --             --           --   
===============================   ==========    ==========   ============   ============   ==========
Balance at
December 31, 1997 .............    7,828,719    $    7,829        445,121   $        445   $   32,388
===============================   ==========    ==========   ============   ============   ==========

<PAGE>

<CAPTION>
                                                 Accumulated                                    
                                                    Other                                    Total
                                    Accumulated  Comprehensive     Treasury Stock         Shareholders'
                                      Deficit      Income (Loss)    Shares      Amount      Equity
<S>                                   ------------ ------------- ----------- ------------ ------------
                                   <C>          <C>               <C>       <C>            <C>
Balance
October 31, 1995 ..............   $    (11,681)  $     (142)          --     $       --    $   20,261
Conversions:
    Common B to
    Common A ..................           --           --             --             --          --
Exercise of options ...........           --           --             --               (8)        806
Retirement of
treasury stock ................           --           --             --                8         --
Comprehensive
Income (Loss):
    Net loss ..................         (8,959)        --             --             --        (8,959)
    Foreign currency
    translation ...............           --            (17)          --             --           (17)
    Unrealized gain on
    securities available
    for sale ..................           --             49           --             --            49
Total Comprehensive
Income (Loss):.................           --           --             --             --        (8,927)
===============================   ============   ==========    ===========   ============   ==========
Balance
October 31, 1996 ..............        (20,640)        (110)          --             --        12,140
===============================   ============   ==========    ===========   ============   ==========
===============================   ============   ==========    ===========   ============   ==========
Conversions:
    Common B to
    Common A ..................           --           --             --             --           --
Exercise of
options .......................           --           --             --             --           599
Exercise of
warrants ......................           --           --             --             --         1,322
Issuance of
Common Stock:
    Interest payments .........           --           --             --             --           111
Compensation
related to warrants
and options issuance ..........           --           --             --             --         2,750
Comprehensive
Income (Loss):
    Net loss ..................        (22,007)        --             --             --       (22,007)
    Foreign currency
    translation ...............           --              9           --             --             9
    Unrealized gain on
    securities available
    for sale ..................           --             94           --             --            94
Total
Comprehensive Income (Loss):...           --           --             --             --       (21,904)
===============================   ============   ==========    ===========   ============   ==========
Balance
October 31, 1997 ..............        (42,647)          (7)          --             --        (4,982)
===============================   ============   ==========    ===========   ============   ==========
===============================   ============   ==========    ===========   ============   ==========
Exercise of options ...........           --           --             --             --           496
Issuance of
Common Stock:
    Interest payments .........           --           --             --             --           111
Common Stock Warrants,
net of subscription
receivable of $851 ............           --           --             --             --         1,840
Compensation related to 
warrants and options issuance..           --           --             --             --           543
Comprehensive
Income (Loss):
    Net loss ..................         (3,936)        --             --             --        (3,936)
    Foreign currency
    translation ...............           --            (45)          --             --           (45)
    Unrealized loss on
    securities available
    for sale ..................           --            (81)          --             --           (81)
Total Comprehensive
Income (Loss):.................           --           --             --             --        (4,062)
===============================   ============   ==========    ===========   ============   ==========
Balance at
December 31, 1997 .............   $    (46,583)  $     (133)          --     $       --     $  (6,054)
===============================   ============   ==========    ===========   ============   ==========

</TABLE>

               See Notes to the Consolidated Financial Statements
                                       F-5
<PAGE>


<TABLE>
<CAPTION>
                     Base Ten Systems, Inc. and Subsidiaries
      Consolidated Statements of Shareholders' Equity (Deficiency) (con't)
                             (dollars in thousands)



                                                                               
                                                                               
                                   Class A                   Class B           
                                 Common Stock              Common Stock        
                             Shares       Amount       Shares       Amount     
<S>                          <C>        <C>             <C>       <C>          
Balance
at December 31, 1997 .....    7,828,719   $    7,829      445,121    $      445
==========================   ==========   ==========   ==========    ==========
Conversions:
    Common B to
    Common A .............      567,980          568     (378,657)         (379)
    Preferred A to
    Common A .............    1,917,806        1,918         --            --   
    Debenture to
    Common A .............    1,490,805        1,491         --            --   
Exercise of options ......      150,232          150        4,946             5
    Issuance of
    Common Stock:
    Private placement ....    6,666,666        6,666         --            --   
    Interest payments ....       30,755           31         --            --   
    Employee stock
    purchase plan ........        6,785            7         --            --   
Compensation related
to warrants and
options issuance .........         --           --           --            --   
Dividends on
Redeemable Preferred
Stock ....................         --           --           --            --   
Accretion on
Redeemable Preferred
Stock ....................         --           --           --            --   
Collection of Common
Stock Warrants
Subscription Receivable ..         --           --           --            --   
Treasury stock
purchase .................         --           --           --            --   
Comprehensive
Income (Loss):
    Net loss .............         --           --           --            --   
    Foreign currency
    translation ..........         --           --           --            --   
    Unrealized gain on
    securities available
    for sale .............         --           --           --            --   
Total Comprehensive
Income (Loss):............         --           --           --            --   
==========================   ==========   ==========   ==========    ==========
Balance at
December 31, 1998 ........   18,659,748   $   18,660       71,410    $       71
==========================   ==========   ==========   ==========    ==========


<PAGE>

<CAPTION>


                                                          Accumulated                                           
                               Additional                   Other                                  Total       
                                 Paid-In    Accumulated  Comprehensive    Treasury Stock        Shareholders'   
                                 Capital      Deficit       Income        Shares        Amount     Equity       
                              ============ ============ ============== ========== ============ ==============
<S>                          <C>           <C>           <C>                <C>     <C>            <C>         
Balance                                                                                                         
at December 31, 1997 .....   $   32,388    $  (46,583)   $     (133)         --     $       --     $   (6,054)  
==========================   ==========    ===========   ==========    ==========  =========== ============== 
Conversions:
    Common B to
    Common A .............         (189)         --            --            --             --           --
    Preferred A to
    Common A .............        3,016          --            --            --             --          4,934
    Debenture to
    Common A .............        3,680          --            --            --             --          5,171
Exercise of options ......          525          --            --            --             --            680
    Issuance of
    Common Stock:
    Private placement ....       12,127          --            --            --             --         18,793
    Interest payments ....          157          --            --            --             --            188
    Employee stock
    purchase plan ........            8          --            --            --             --             15
Compensation related
to warrants and
options issuance .........          322          --            --            --             --            322
Dividends on 
Redeemable Preferred
Stock ....................         --          (1,740)         --            --             --         (1,740)
Accretion on 
Redeemable Preferred
Stock ....................         --          (1,424)         --            --             --         (1,424)
Collection of Common
Stock Warrants
Subscription Receivable ..          851          --            --            --             --            851
Treasury stock purchase...         --            --            --        (100,000)          (281)        (281)
Comprehensive
Income (Loss):
    Net loss .............         --         (19,020)         --            --             --        (19,020)
    Foreign currency
    translation ..........         --            --             (55)         --             --            (55)
    Unrealized gain on
    securities available
    for sale .............         --            --              (8)         --             --             (8)
Total Comprehensive
Income (Loss):............         --            --            --            --             --        (19,083)
==========================   ==========    ==========    ==========    ==========   ============   ==========
Balance at
December 31, 1998 ........   $   52,885    $  (68,767)   $     (196)     (100,000)  $       (282)  $    2,372
==========================   ==========    ==========    ==========    ==========   ============   ==========

</TABLE>

               See Notes to the Consolidated Financial Statements
                                      F-6


<PAGE>

<TABLE>
<CAPTION>

                     Base Ten Systems, Inc. and Subsidiaries
                      Consolidated Statements of Cash Flows
                             (dollars in thousands)

                                                                                  Two Months
                                                              Year Ended             Ended           Year Ended       Year Ended
                                                             December 31,         December 31,       October 31,      October 31,
                                                                 1998                 1997               1997            1996
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>                <C>             <C>               <C>          
Cash Flows from Operating Activities:
    Net loss                                                   $    (19,020)      $   (3,936)     $   (22,007)      $   (8,959)
Adjustments to Reconcile Net Loss to Net Cash Used in
Operating Activities of Continuing Operations:
         Depreciation and amortization                                3,295              360            3,703            4,172
         Stock-based compensation                                       322              543            2,750               --
         Deferred gain on sale of building                              (19)             (3)              (19)             (19)
         Deferred income taxes                                           --               --               --              (83)
Changes in operating assets and liabilities,  excluding 
 effects of discontinued business:
    Accounts receivable                                                (789)             225            2,008           (1,481)
    Other current assets                                               (117)             433              305              366
    Accounts payable and accrued expenses                              (802)          (1,657)           3,792            1,766
    Income taxes payable                                                 --               --               --           (1,038)
-------------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Operations                                         (17,130)          (4,035)          (9,468)          (5,276)
===============================================================================================================================
Cash Flows from Investing Activities:                                                         
    Additions to property, plant and equipment                         (592)            (244)            (617)          (1,058)
    Additions to capitalized software costs and other assets           (724)            (148)          (3,360)          (4,126)
    Purchase of assets related to FlowStream product                 (2,099)               --              --               --
-------------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities                                (3,415)            (392)          (3,977)          (5,184)
===============================================================================================================================
Cash Flows from Financing Activities:                                                         
    Repayment of amounts borrowed                                       (53)             (14)             (59)            (113)
    Proceeds from issuance of long-term debt                             --               --            5,500           10,000
    Proceeds from issuance of redeemable preferred stock              9,380            7,995               --               --
    Proceeds from issuance of common stock                           19,592              607            2,032              806
    Proceeds from sale of discontinued business                          --            3,500               --               --
-------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided from Financing Activities                          28,919           12,088            7,473           10,693
===============================================================================================================================
Effect of Exchange Rate Changes on Cash                                 (55)             (45)               9               11
===============================================================================================================================
Net (Decrease)/Increase In Cash                                       8,319            7,616           (5,963)             244
Cash, beginning of year                                               9,118            1,502            7,465            7,221
-------------------------------------------------------------------------------------------------------------------------------
Cash, end of year                                                $   17,437        $   9,118        $   1,502        $   7,465
===============================================================================================================================
Supplemental Disclosures of Cash Flow Information:
    Cash paid during the year for interest                       $    1,401        $      88        $     937        $     485
===============================================================================================================================
Supplemental Disclosures of Non-Cash Investing and
Financing Activities:
    Retirement of treasury common stock                          $      --         $     --         $      --        $       8
Treasury stock purchase obligation                               $      281        $     --         $      --        $      -- 
===============================================================================================================================

</TABLE>

               See Notes to the Consolidated Financial Statements

                                      F-7

<PAGE>

                     Base Ten Systems, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
          Years Ended December 31, 1998, October 31, 1997 and 1996 and
                       Two Months Ended December 31, 1997


A. Basis of Presentation and Liquidity
--------------------------------------

       The Company's  financial  statements have been prepared on the basis that
it will  continue  as a going  concern.  The Company  has  incurred  significant
operating losses and negative cash flows in recent years.  Also, at December 31,
1998 the  Company  was below the $4 million  minimum  net  tangible  assets,  as
defined,  required for its current listing on the NASDAQ National Market System.
In March 1999, the Company's shareholders' equity was increased by approximately
$9.6 million  through the  conversion of its $10 million  convertible  debenture
into common stock. Coincident with that debt conversion,  the Company's Series A
Redeemable  Convertible  Preferred  Stock was converted into Series B Redeemable
Convertible  Preferred  Stock.  These Preferred  Stocks have certain  Redemption
Events,  which if such events occurred,  would provide the holder with the right
to require the Company to purchase  their shares for cash which would  adversely
affect  the  Company.  (See Note N to the  Consolidated  Financial  Statements.)
Accordingly, where these rights exist such Redeemable Securities are categorized
outside of  shareholders'  equity  and,  thus,  do not qualify as equity for the
purposes of the NASDAQ minimum net tangible asset  requirement.  Also,  security
holders  may  have  other  rights/claims  in  connection  with  the  March  1999
transactions described above.

       To further  increase the  Company's  net tangible  assets and in order to
help further ensure the Company's  compliance with NASDAQ listing  requirements,
management is in the process of negotiating with  participants in the March 1999
debt conversion and Preferred Stock exchange to obtain waivers of any redemption
or recession rights.  These waivers,  if obtained,  would eliminate the holders'
cash  redemption   rights.   This  would  qualify  all  related  securities  for
classification  in permanent  stockholders'  equity and  increase the  Company's
qualifying net tangible  assets.  If such waivers are obtained,  then management
believes that the Company's  current  liquidity  would be sufficient to meet its
cash needs for its existing business through fiscal 1999. However,  there can be
no assurance that management's efforts in this regard will be successful.

       If  management  is not  successful  in  obtaining  such  waivers,  and it
continues  to incur  operating  losses it could fall below the minimum net asset
requirement needed to qualify for ongoing listing on NASDAQ.  Management's plans
in this case include,  among other  things,  attempting to improve (i) operating
cash  flow  through  increased  license  sales  and  service  revenue,  and (ii)
increasing the level of anticipated streamlining of its selling,  administration
and  development  functions.  However there is no assurance that such plans,  if
implemented, will be sufficient. Further, recently there have been announcements
of potential  changes in senior  management,  which increase the  uncertainty of
whether existing management plans will be executed.

       Also, the Company is considering certain  significant  acquisitions which
depending  on net  liabilities  assumed,  if  any,  and on the  success  of cost
reduction  efforts  to  bring  the  acquisitions  to  break-even,   may  require
additional  funding.  (See  Note U to  the  Consolidated  Financial Statements.)
However, there can be no assurance that such acquisitions will occur, or whether
additional funds required, if any, would be available to Base Ten.

       If current cash and working capital reduced by cash used in operations in
1999 is not  sufficient  to satisfy  the  Company's  liquidity  and  minimum net
tangible asset  requirements,  the Company will seek to obtain additional equity
financing.  Additional  funding  may not be  available  when  needed or on terms
acceptable  to the  Company.  If the Company were  required to raise  additional
financing for the matters  described above and/or to continue to fund expansion,
develop and enhance  products and service,  or otherwise  respond to competitive
pressures,  there is no assurance  that adequate funds will be available or that
they will be available  on terms  acceptable  to the Company.  Such a limitation
could  have a  material  adverse  effect on the  Company's  business;  financial
condition  or  operations  and  the  financial  statements  do not  include  any
adjustment that could result therefrom.


B.  Description of Business
---------------------------

      Base Ten Systems,  Inc. and subsidiaries  ("Base Ten" or the "Company") is
engaged in the development of software  applications for the  pharmaceutical and
medical device  industries.  The Company's  product lines include  manufacturing
execution systems (MES),  medical screening and image processing  software.  The
Company's  primary focus is its  manufacturing  execution  systems which include
BASE10(TM)ME  (formerly  PHARM2(TM)),  BASE10(TM)FS  and  BASE10(TM)CS.  The MES
products  are  designed  to reduce  time and costs  associated  with  regulatory
compliance, manage the elements of production materials,  equipment,  personnel,
process  instructions,  as well as  allow  rapid  fulfillment  of  requests  and
traceability for clinical supplies.

      For the periods ended October 31, 1997 and December 31, 1997,  the Company
was also engaged,  through its Government  Technology  Division ("GTD"),  in the
design and manufacture of electronic  systems employing safety critical software
for the defense industry.  Effective  December 31, 1997, the GTD was sold by the
Company. See Note S to the Consolidated Financial Statements.


C.  Summary of Significant Accounting Policies
----------------------------------------------

1.   Principles of Consolidation - The consolidated financial statements include
     the accounts of Base Ten and its wholly owned subsidiaries. All significant
     inter-company accounts, transactions and profits have been eliminated.

2.   Discontinued  Operations - As discussed  more  thoroughly  in Note S to the
     Consolidated  Financial  Statements,  the results of operations and the net
     assets of the Government  Technology Division have been reported separately
     as  discontinued  operations for all periods  presented and net assets held
     for sale at October 31, 1997 in the accompanying financial statements.

3.   Change of Fiscal Reporting Period - In January 1998, the Board of Directors
     approved  a change of the  Company's  fiscal  year end from  October  31 to
     December 31.

4.   Risks and  Uncertainties  - The  Company  operates in the  publicly  traded
     software industry,  which is highly  competitive and rapidly changing.  The
     Company  has had a history of  significant  losses from  operations  and is
     subject to all of the risks  inherent in a technology  business,  including
     but not limited to: potential for significant  technological changes in the
     industry or customer  requirements,  potential for emergence of competitive
     products with new  capabilities or  technologies,  ability to manage future
     growth,  ability to attract and retain qualified  employees,  dependence on
     key personnel, limited senior management resources, success of its research
     and  development,  protection of intellectual  property rights, potentially
     long sales and  implementation  cycles and ongoing  satisfaction  of NASDAQ
     minimum net tangible asset requirements for continued listing.

     The  preparation  of financial  statements  in  accordance  with  generally
     accepted  accounting  standards  requires  management to make estimates and
     assumptions  that affect the amounts  reported in the financial  statements
     and accompanying  notes.  Significant  estimates  include the allowance for
     doubtful accounts receivable, the total costs to be incurred under software
     license agreements  requiring  significant  customizations or modifications
     and the useful lives of computer  software costs.  Actual costs and results
     could differ from these estimates.

5.   Revenue   Recognition  -  The  Company  licenses   software  under  license
     agreements  and  provides  services  including  maintenance,  training  and
     consulting.  In general,  software  license  revenues are  recognized  upon
     shipment of the software to the  customer  where there are no  significant
     customizations or modifications required.  Revenues on all software license
     transactions in which there are significant customizations or modifications
     are  recognized  on the  percentage  of completion  basis.  Progress  under
     percentage  of completion  method is measured  based on  management's  best
     estimate  of the cost of work  completed  in  relation to the total cost of
     work  to  be  performed  under  the  contract.   Maintenance  revenues  for
     maintaining,  supporting and providing  periodic  upgrades are deferred and
     recognized ratably over the maintenance period which is generally one year.
     Revenues  from  training and  consulting  services are  recognized  as such
     services are performed and are on a time and material basis.

                                      F-8

<PAGE>


     On January  1, 1998,  the  Company  adopted  Statement  of  Position  97-2,
     "Software  Revenue  Recognition"  ("SOP 97-2").  SOP 97-2 which  supersedes
     Statement  of Position  91-1,  "Software  Revenue  Recognition",  generally
     requires  revenue earned on multiple  element  software  arrangements to be
     allocated to each element based on  vendor-specific  objective  evidence of
     the relative fair values of the elements.  Absent vendor-specific  evidence
     of fair  value  of all  elements  in a  multiple-element  arrangement,  all
     revenue from the  arrangement  is deferred  until such  evidence  exists or
     until all  elements are  delivered.  The adoption of SOP 97-2 has not had a
     material impact on the Company's results of operations.

     In March 1998, the AICPA issued  Statement of Position  98-4,  "Deferral of
     the  Effective  Date of a  Provision  of SOP 97-2" ("SOP  98-4").  SOP 98-4
     deferred,  until the Company's  fiscal year beginning  January 1, 1999, the
     application of certain passages in SOP 97-2, which limit what is considered
     vendor-specific  objective  evidence  necessary  to  recognize  revenue for
     software  licenses  in   multiple-element   arrangements  when  undelivered
     elements  exist.  In December 1998, the AICPA issued  Statement of Position
     98-9, "Modification of SOP 97-2, Software Revenue Recognition, With Respect
     to Certain  Transactions"("SOP  98-9").  SOP 98-9  further  deferred  those
     passages  deferred by SOP 98-4 until the  Company's  fiscal year  beginning
     January 1, 2000.  SOP 98-9 also amends  certain  passages of SOP 97-2 which
     address the  allocation  of  discounts  in multiple  element  arrangements.
     Management has not determined the impact,  if any, that the  application of
     SOP 98-9 will have on its  consolidated  financial  position  or results of
     operations.

6.   Property,  Plant and Equipment - Property,  plant and equipment are carried
     at cost and  depreciated  over estimated  useful lives,  principally on the
     straight-line method. The estimated useful lives used for the determination
     of depreciation and amortization are:

                  Leased asset - building 30 years  
                  Leasehold  improvements 5 to 10 years  
                  Furniture, fixtures and equipment 3 to 10 years

     Maintenance  and repairs are charged to expense as  incurred;  expenditures
     for  leasehold  improvements  are  generally  capitalized.   Upon  sale  or
     retirement of an asset, the related costs and accumulated  depreciation are
     removed from the accounts and any gain or loss is recognized.

7.   Research,  Development  and Computer  Software  Costs - In accordance  with
     Statement of Financial  Accounting  Standards No. 86, "Accounting for Costs
     for Computer Software to be Sold, Leased or Otherwise Marketed" ("FAS 86"),
     the Company capitalizes certain software development costs for new products
     once it is determined  that  technological  feasibility is achieved.  Costs
     incurred prior to the determination of technological  feasibility and costs
     associated with maintenance of existing  products are expensed as incurred.
     The cost of  purchased  software is  capitalized  when related to a product
     which has achieved  technological  feasibility  or that has an  alternative
     future  use.  Commencing  upon  initial  product  release,  these costs are
     amortized based on the straight-line  method over the estimated useful life
     of not greater than four years.

8.   Long-Lived   Assets  -  The  Company  accounts  for  long-lived  assets  in
     accordance  with  the  provisions  of  Statement  of  Financial  Accounting
     Standards No. 121, "Accounting for Impairment of Long-Lived Assets and Long
     Lived  Assets  to be  Disposed  Of"  ("FAS  121").  FAS 121  requires  that
     long-lived  assets and certain  identifiable  intangibles  be reviewed  for
     impairment  whenever events or changes in  circumstances  indicate that the
     carrying  amount of an asset may not be recoverable.  The Company  performs
     quarterly reviews of the  recoverability of its capitalized  software costs
     and other long lived  assets based on  anticipated  revenues and cash flows
     from sales of these products.  The Company considers historical performance
     and future estimated results in its evaluation of potential  impairment and
     then compares the carrying amount of the asset to the estimated future cash
     flows expected to result from the use of the asset.  If the carrying amount
     of the asset exceeds estimated expected undiscounted future cash flows, the
     Company  measures the amount of the  impairment  by comparing  the carrying
     amount of the asset to its fair  value.  The  estimation  of fair  value is
     generally  measured by discounting  expected  future cash flows at the rate
     the  Company  utilizes  to  evaluate  potential  investments.  The  Company
     estimates  fair  value  based  on the  best  information  available  making
     whatever estimates, judgments and projections are considered necessary. The
     Company has evaluated its long-lived assets and determined that no material
     impairment of these assets existed at December 31, 1998.

                                      F-9

<PAGE>

     In the second  quarter of fiscal  1996 the  Company  conducted  its regular
     quarterly review of the  recoverability  of its capitalized  software costs
     and  determined  that neither  PRENVAL nor uPACS would  achieve  sufficient
     revenues in future periods to justify retention of the related  capitalized
     costs.  Accordingly  the Company wrote off the $2.4 million balance of such
     capitalized costs to cost of revenues.

9.   Cash and Cash  Equivalents - The Company  considers all investments with an
     original maturity of three months or less at date of acquisition to be cash
     equivalents.

10.  Earnings  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.

11.  Fair Value of  Financial  Instruments  - The fair  value of certain
     financial  instruments,   including  cash,  accounts  receivable,  accounts
     payable, and other accrued liabilities, approximates the amount recorded in
     the balance sheet  because of the  relatively  current  maturities of these
     financial instruments.  The fair market value of long term debt at December
     31, 1998,  December 31, 1997 and October 31, 1997  approximates the amounts
     recorded in the balance sheet based on information available to the Company
     with respect to interest rates and terms for similar financial instruments.

12.  Foreign  Currency  Translation - The accounts of the  consolidated  foreign
     subsidiaries  are translated  into United States dollars in accordance with
     Statement  of  Financial  Accounting  Standard  No. 52,  "Foreign  Currency
     Translation"  ("FAS 52"). All balance sheet  accounts have been  translated
     using the  current  rate of exchange at the balance sheet date.  Results of
     operations  have  been  translated   using  the  average  rates  prevailing
     throughout the year. Translation gains or losses resulting from the changes
     in the  exchange  rates from  year-to-year  are  accumulated  in a separate
     component  of  shareholders'  equity.  Transaction  gains  and  losses  are
     immaterial.

13.  Income Taxes - Deferred income taxes are determined based on the tax effect
     of the differences  between the financial statement and tax bases of assets
     and  liabilities.  Deferred tax assets and  liabilities  are  classified as
     either current or noncurrent based generally on the  classification  of the
     related asset or liability.

14.  Investments - The Company  accounts for its investments  using Statement of
     Financial  Accounting Standard No. 115, "Accounting for Certain Investments
     in Debt and Equity  Securities"("FAS  115").  This  standard  requires that
     certain debt and equity  securities  be adjusted to market value at the end
     of each  accounting  period.  Unrealized  market value gains and losses are
     charged to earnings if the  securities  are traded for  short-term  profit.
     Otherwise,  such  unrealized  gains and losses are charged or credited to a
     separate component of shareholders' equity.

     Management   determines  the  proper   classifications  of  investments  in
     obligations with fixed maturities and marketable  equity  securities at the
     time of purchase and reevaluates such designations as of each balance sheet
     date.  At December  31, 1998,  December 31, 1997 and October 31, 1997,  all
     securities  covered  by FAS 115 were  designated  as  available  for  sale.
     Accordingly,  these  securities are stated at fair value,  with  unrealized
     gains and losses reported in a separate component of shareholders'  equity.
     Securities  available for sale at December 31, 1998,  December 31, 1997 and
     October 31,  1997,  consisted of common stock with a cost basis of $50,000,
     $50,000  and  $150,000,  respectively  and are  included  in other  current
     assets.  Differences  between  cost and  market  of  $54,000,  $62,000  and
     $143,000 were included as a component of "accumulated  other  comprehensive
     income" in shareholders' equity, as of December 31, 1998, December 31, 1997
     and October 31, 1997, respectively.

15.  Segment  Information - On January 1, 1998, the Company adopted Statement of
     Financial Accounting  Standards No. 131,  "Disclosures about Segments of an
     Enterprise  and  Related  Information"  ("FAS  131").  FAS  131  supersedes
     Statement of Financial  Accounting  Standards No. 14, "Financial  Reporting
     for Segments of a Business  Enterprise"  ("FAS 14") replacing the "industry
     segment" approach with the "management"  approach.  The management approach
     designates the internal  organization that is used by management for making
     operating  decisions  and  assessing  performance  as  the  source  of  the
     Company's  reportable  segments.  FAS 131 also requires  disclosures  about
     products and services,  geographic areas and major customers.  The adoption
     of FAS 131 did not affect  results of operations or the financial  position
     but did affect the disclosure of segment information.

                                      F-10
<PAGE>

16.  Comprehensive Income - On January 1, 1998, the Company adopted Statement of
     Financial  Accounting Standards No. 130, "Reporting  Comprehensive  Income"
     ("FAS 130").  FAS 130 establishes  standards for reporting and presentation
     of  comprehensive  income  and its  components  in a full set of  financial
     statements.  Comprehensive income consists of net income and net unrealized
     gains  (losses)  on  securities  and  is  presented  in  the   consolidated
     statements of shareholders'  equity. The Statement requires only additional
     disclosures in the consolidated  financial  statements;  it does not affect
     the  Company's  financial  position  or results of  operations.  Prior year
     financial  statements have been reclassified to conform to the requirements
     of FAS 130.

17.  Reclassifications - Certain  reclassifications have been made to prior year
     financial statements to conform to the current year presentation.


D.  Acquisition
---------------

      On February  19, 1998,  the Company  acquired  certain  assets and assumed
certain liabilities of Consilium, Inc. ("Consilium"),  a software developer that
specialized in manufacturing execution systems for the pharmaceutical,  chemical
and  semi-conductor  industries.  The assets purchased related to the FlowStream
product line of  Consilium,  which was sold to the  pharmaceutical  and chemical
markets.  Under the terms of the  agreement,  the Company  paid  Consilium  $1.5
million in cash and included assumed certain  FlowStream-related  liabilities of
Consilium,  which  together  with  transaction  costs  in cash of  approximately
$600,000,  resulted in a total purchase cost of $3.0 million. The agreement also
provides  for  additional  payments  based  upon a  percentage  of the excess of
targeted  sales of the  FlowStream  product,  as  defined,  for the years  ended
December 31, 1998 and 1999,  respectively.  No additional payments were required
for 1998.  The cash portion of the  acquisition  was financed with the Company's
available  cash  balance.  This  acquisition  was  accounted for by the purchase
method of accounting.

      The purchase  price was  allocated to the assets  acquired  based on their
estimated fair values.  Equipment and furniture were purchased at estimated fair
value and are being  depreciated  over  estimated  lives of three to ten  years.
Other  intangible  assets acquired are being amortized on a straight-line  basis
over their estimated lives of three to seven years.

<PAGE>

Unaudited Pro-forma Results
---------------------------

      The  following  unaudited  pro-forma  information  presents the results of
operations of the Company as if the  acquisition  had taken place on November 1,
1996 (dollars in thousands, except per share data):

<TABLE>
<CAPTION>


                                                            Two Months
                                              Year Ended      Ended        Year Ended
                                              December 31,   December 31,  October 31,
                                                 1998          1997           1997
                                                 ----          ----           ----
<S>                                              <C>          <C>         <C>  

Revenue                                          $ 8,259      $ 1,044     $ 7,839
Net loss                                         (19,869)      (4,969)    (28,207)
--------                                         --------      -------    --------
Net loss per common share - basic and         
diluted                                          $ (2.17)     $ (0.60)    $ (3.57)
Weighted average common shares - basic and    
diluted                                       10,618,000    8,258,000   7,895,000
                                              ----------    ---------   ---------
</TABLE>
                                      F-11
<PAGE>

      These  pro-forma  results of operations have been prepared for comparative
purposes  only and do not purport to be  indicative of the results of operations
which  actually  would have  resulted had the  acquisition  occurred on the date
indicated, or which may result in the future.


E.  Accounts Receivable
-----------------------

      Accounts  receivable  are  comprised  of billed  receivables  arising from
recognized  and deferred  revenues and  unbilled  receivables  which result from
consulting  services.  All of the unbilled receivables are expected to be billed
during the  following  year.  The Company  does not require  collateral  for its
receivables.  Reserves are maintained for potential credit losses. The principle
components of accounts receivables are as follows (dollars in thousands):

<TABLE>
<CAPTION>

                                          December 31,     December 31,     October 31,
                                              1998             1997            1997
                                              ----             ----            ----
<S>                                     <C>              <C>              <C>
Billed receivables                      $     2,456      $       537      $       504
Unbilled receivables                            236            1,186            1,444
                                                ---            -----            -----

                                              2,962            1,723            1,948
Less:  Allowance for doubtful accounts          320              140              140
                                                ---              ---              ---

                                        $     2,372      $     1,583      $     1,808
                                        ===========      ===========      ===========

</TABLE>

      Bad debt expense amounted to $449,000 for the year ended December 31, 1998
and  $140,000 for the year ended  October 31,  1997.  There was not any bad debt
expense  recorded  during the two month period  ended  December 31, 1997 and the
year ended October 31, 1996.

F.  Property, Plant and Equipment
---------------------------------

     Property, plant and equipment at December 31, 1998 and 1997 and October 31,
1997 includes the following amounts (dollars in thousands):

<TABLE>
<CAPTION>


                                       December 31,     December 31,     October 31,
                                           1998             1997            1997
                                           ----             ----            ----
<S>                                  <C>              <C>             <C>
Leasehold improvements               $       343      $       156     $       149
Furniture, fixtures and equipment          5,160            4,255           4,018
Land and building                          3,600            3,600           3,600
                                           -----            -----           -----
                                           9,103            8,011           7,767
Less:  Accumulated depreciation            4,077            3,665           3,462
                                           -----            -----           -----

                                     $     5,026      $     4,346     $     4,305
                                     ===========      ===========      ===========

</TABLE>


    Depreciation expense amounted to $412,000, $203,000, $530,000, and $462,000,
in fiscal 1998, the two month period December 31, 1997, fiscal 1997, and  fiscal
1996, respectively.

<PAGE>

G.  Other Assets
----------------

      Other assets at December  31, 1998 and 1997 and October 31, 1997  includes
the following amounts (dollars in thousands):

<TABLE>
<CAPTION>


                                                 December 31,          December 31,         October 31,
                                                    1998                   1997                 1997
                                                    ----                   ----                 ----
<S>                                             <C>                  <C>                    <C>
Patents, net                                    $        356         $          395         $       404
Capitalized software costs, net                        2,943                  4,548               4,815
Debenture issue costs, net                               393                    971               1,032
Deposit-long term financing obligation                   550                    550                 550
Long-term receivable                                     --                     397                 419
Other acquired intangibles, net                        2,130                   --                    --
                                                ------------         --------------         -----------
                                                                                                     --
                                                $      6,372         $        6,861         $     7,220
                                                ============         ==============         ===========

</TABLE>

                                      F-12

<PAGE>

     Accumulated  amortization  related to the patents at December  31, 1998 and
1997 and October 31, 1997 was $37,000, $28,000 and $19,000, respectively.

     Accumulated  amortization  related  to the  capitalized  software  costs at
December 31, 1998 and 1997 and October 31, 1997 was  $7,052,000,  $4,778,000 and
$4,363,000,   respectively.   Amortization  of  capitalized  software  costs  of
$2,274,000, $415,000, $2,951,000 and $1,278,000 are included in cost of revenues
for the year ended December 31, 1998, the two months ended December 31, 1997 and
the years ended October 31, 1997 and 1996, respectively.

     Accumulated  amortization  related to the debenture issue costs at December
31,  1998 and 1997 and October 31, 1997 was  $207,000,  $282,000  and  $221,000,
respectively.

      Accumulated  amortization and expense related to the acquired intangibles
at December 31, 1998 was $351,000.

H.  Income Taxes
----------------

      The provision  (benefit) for income taxes includes the following  (dollars
in thousands):

<TABLE>
<CAPTION>

                              Year Ended          Two Months Ended      Year Ended        Year Ended
                           December 31, 1998     December 31, 1997  October 31, 1997    October 31, 1996
                           -----------------     -----------------  ----------------    ----------------
<S>                             <C>               <C>               <C>                <C> 
Current:
              Federal           $         --      $         --      $         --       $       (882)
              State                       --                --                --               (165)
              Foreign                     --                --                --                 --
                                ------------      ------------      ------------       --------------
Total Current                   $         --      $         --      $         --       $     (1,047)
                                ============      ============      ============       ==============
Deferred:
              Federal           $      5,192      $      1,179      $      6,373       $         --
              State                    1,507               342               972                 --
              Foreign                     --                --                --                 --
                                ------------      ------------      ------------       --------------
Total Deferred                         6,699             1,521             7,345                 --
                                ------------      ------------      ------------       --------------
Valuation Allowance                   (6,699)           (1,521)           (7,345)                --
                                ------------      ------------      ------------       --------------
Net                             $         --      $         --      $         --       $     (1,047)
                                ============      ============      ============       ==============

</TABLE>

      The provision  (benefit) for income taxes is allocated between  continuing
and discontinued operations as summarized below (dollars in thousands):

<TABLE>
<CAPTION>

                              Year Ended          Two Months Ended      Year Ended        Year Ended
                           December 31, 1998     December 31, 1997  October 31, 1997    October 31, 1996
                           -----------------     -----------------  ----------------    ----------------
<S>                         <C>                   <C>               <C>                   <C>
Continuing                  $        --           $         --      $        --           $   (684)
Discontinued                         --                     --               --               (363)
                            ------------          ------------      ------------       --------------
         Total              $        --           $         --      $        --           $ (1,047)
                            ============          ============      ============       ==============

</TABLE>

<PAGE>

      A  reconciliation  of the Company's  effective rate to the U.S.  statutory
rate is as follows:

<TABLE>
<CAPTION>


                                                                    Percentage of Pre-Tax Earnings
                                                        --------------------------------------------------------
                                                                        Two
                                                          Year Ended    Months       Year Ended    Year Ended
                                                         December 31,   Ended       October 31,    October 31,
                                                             1998     December 31,     1997          1996
                                                                         1997
                                                         ------------ ------------  ------------    ----------
<S>                                                         <C>          <C>          <C>           <C>      
Federal tax (benefit)/provisions at applicable statutory    (34.0%)      (34.0%)      (35.0%)       (34.0%)
rates
Increases (decreases) in income taxes resulting from:
    State tax benefit, net of Federal tax effect              (6.0)        (6.0)       --            (6.0)
    Net changes in current and deferred valuation                                               
      allowances                                              40.0         40.0        35.0          31.5
    Other, net                                                 --          --          --            (2.9)
                                                              -----        -----       -----         -----
                                                               --          --          --           (11.4%)
                                                            ========       =====       =====        =======

</TABLE>
                                      F-13

<PAGE>

         The  components  of the  deferred  tax  assets and  liabilities  are as
follows (dollars in thousands):

<TABLE>
<CAPTION>


                                               Year Ended    Two Months Ended     Year Ended
                                              December 31,     December 31,       October 31,
                                                  1998            1997               1997
<S>                                              <C>               <C>              <C> 
Current
   Vacation                                      $ 154             $ 221            $ 136
   Other                                           605                56               16
                                                 ------            -----            ------

Total current assets                               759               277              152
                                                 ------            -----            ------

Noncurrent
   Deferred gain on sale leaseback                                              
                                                 $  91         $      91         $    90
   Compensation                                  1,255             1,100           1,100
   Depreciation and amortization                  (107)              (78)             86
   Net operating loss carryforward              17,210            10,963           9,560
   Research and development
      carryforward                                 519               519             519
                                               --------         ---------         -------

Total non-current assets                        18,968            12,751          11,355

   Valuation allowance                         (19,727)          (13,028)        (11,507)
                                               --------         ---------         --------
Net deferred tax assets                       $     --         $      --         $   --
                                               ========         =========         ========

</TABLE>

       At December 31, 1998, the Company had incurred net operating loss ("NOL")
carryforwards  for federal income tax purposes of  approximately  $43.7 million,
which  expire  in  the  years  2004  through  2018.   Research  and  development
carryforwards  of $0.5 million expire in the years 1999 through 2005. As certain
changes in the  Company's  ownership  occur there is a limitation  on the annual
amount of such NOL carryforwards and credits which can be utilized. Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes" ("FAS 109")
requires that a valuation  allowance be created and offset  against the deferred
tax assets if, based on existing facts and circumstances, it is more likely than
not that some  portion or all of the deferred  asset will not be  realized.  The
valuation  allowance  will be adjusted when the credits are realized or when, in
the  opinion of  management,  sufficient  additional  positive  evidence  exists
regarding the likelihood of their realization.  The reductions,  if any, will be
reflected as a component of income tax expense.

      The components of loss before income taxes were as follows:

<TABLE>
<CAPTION>

                                    Year Ended       Two Months Ended      Year Ended        Year Ended
                                 December 31, 1998   December 31, 1997  October 31, 1997  October 31, 1996
                                 -----------------   -----------------  ----------------  ----------------
<S>                                 <C>            <C>                 <C>               <C>           
Domestic                            $ (16,679)     $     (3,803)       $  (20,632)       $   (9,040)
Foreign                                (2,341)             (133)           (1,375)             (966)
                                       ------              ----            ------              ---- 

                                    $ (19,020)     $     (3,936)       $  (22,007)       $  (10,006)
                                    =========      ============        ==========        ========== 

</TABLE>


<PAGE>

I.  Accrued Expenses
--------------------

      Accrued  expenses  at  December  31,  1998 and 1997 and  October  31, 1997
includes the following amounts (dollars in thousands):

<TABLE>
<CAPTION>


                                          December 31,       December 31,        October 31,
                                              1998               1997                1997
                                              ----               ----                ----
<S>                                        <C>               <C>                  <C>
 Wages & benefits                          $    1,221        $    2,013           $    2,283
 Discontinued operations                           --                --                1,480
 Accrued contract costs and warranty              394             1,151                1,151
 Accrued Interest                                 301               339                  225
 Other                                          1,236               603                  514
                                           ----------        ----------           ----------
                                           $    3,152        $    4,106           $    5,653
                                           ==========        ==========           ==========

</TABLE>

                                      F-14
<PAGE>

J.  Segment Information
-----------------------

      The Company is organized and operates as a single  segment.  The following
tabulation  details the Company's  operations in different  geographic areas for
the year ended December 31, 1998,  the two-month  period ended December 31, 1997
and the years ended October 31, 1997 and 1996 (dollars in thousands):

<TABLE>
<CAPTION>

                                               United States         Europe          Eliminations       Consolidated
                                               -------------         ------          ------------       ------------
<S>                                           <C>                <C>                <C>                 <C> 
Year Ended December 31, 1998:
-----------------------------

Revenues from unaffiliated sources            $4,019             $       3,531      $         --        $       7,550
                                              ------             -------------      -------------       -------------

Identifiable assets at December 31, 1998      $39,350            $       1,353      $     (6,882)       $     33,821
                                              -------            -------------      -------------       ------------


Two-Months Ended December 31, 1997:
-----------------------------------

Revenues from unaffiliated sources            $    82            $          99      $         --       $         181
                                              -------            -------------      -------------      -------------

Identifiable assets at December 31, 1997     $ 27,568            $       1,137      $     (4,291)      $      24,413
                                             --------            -------------      -------------      -------------


Year Ended October 31, 1997:
----------------------------

Revenues from unaffiliated sources            $2,510             $           2     $          --        $      2,512
                                              ------             -------------     --------------       ------------

Identifiable assets at October 31, 1997       $24,979            $       1,205     $      (4,967)       $     21,217
                                              -------            -------------     --------------       ------------


Year Ended October 31, 1996:
----------------------------

Revenues from unaffiliated sources            $ 1,211            $          51     $          --        $      1,262
                                              -------            -------------     -----------          ------------

Identifiable assets at October 31, 1996       $32,739            $       1,039     $      (3,381)       $     30,397
                                              -------            -------------     -------------        ------------

</TABLE>

      In fiscal  year  1998,  one  customer  accounted  for sales  amounting  to
$1,655,000 and four  customers  accounted for sales of $136,000 in the two-month
period ended December 31, 1997. In fiscal year 1997,  three customers  accounted
for sales of $1,221,000 and in fiscal year 1996 one customer accounted for sales
of $883,000.


<PAGE>

K.  Commitments and Contingencies
---------------------------------


Employment Agreements
---------------------

       At December  31, 1998,  the Company had  employment  agreements  with six
executives.  One of these  agreements  was  cancelled  pursuant to a  subsequent
resignation.  The remaining  agreements  provide for up to one year of severance
payments in the aggregate of $897,000  plus normal  benefits and any amounts due
under  incentive  compensation  plans in the event the  employee  is  terminated
without  cause.  In addition,  subsequent to year end, the Company  entered into
similar  agreements  with four  additional  executives  with aggregate  benefits
amounting to $238,000.

      At December 31, 1998, the Company also had agreements  with three of these
executives  providing  severance  payments  if  the  executive's  employment  is
terminated  within  three  years after a change in control of the Company (i) by
the Company for reasons  other than death,  disability,  or cause or (ii) by the
executive  for good reason.  The amount of the  severance  payment is 2.99 times
total average  compensation  and cost of employee  benefits for each of the five
years prior to the change in control,  subject to the amount  deductible  by the
Company under the Internal Revenue Code.


Consulting Agreements
---------------------

      The Company has a consulting agreement providing one of its directors cash
compensation in an annual amount of $257,500 plus expenses.  In fiscal 1998, the
Company  terminated this agreement in accordance with the termination  provision
in the  agreement.  The agreement  provided the  consultant the right to receive
warrants,  subject to prior  approval of the Board of Directors  and  subsequent
shareholder  approval.  The terms of the agreement termination provided that any
warrants  issued  pursuant to this  agreement  would  terminate  in the ordinary
course, pursuant to their respective terms.


Financing Obligation and Leases
-------------------------------

      The Company  entered into a sale and leaseback  arrangement on October 28,
1994. Under the arrangement,  the Company sold its main building in Trenton, New
Jersey  and  agreed to lease it back for a period of 15 years  under  terms that
qualify the arrangement. The Company also has an option to purchase the building
at the end of the lease and accordingly,  has accounted for this sale leaseback
as a financing  transaction.  The buyer/lessor of the building was a partnership
in which two of the partners are former  officers and  directors of the Company.
In addition,  a non-interest  bearing  security  deposit of $550,000 was paid at
closing  which is included  in other  non-current  assets on the balance  sheet.
Interest is calculated  under the effective  interest method and depreciation is
taken  using the  straight-line  method.  Subsequent  to October 31,  1997,  the
Company  sub-leased a portion of the building in connection with the sale of the
Government Technology Division which is approximately $240,000 per year for five
years.  The  Company's  future  minimum  gross  lease  payments  related  to the
sale-leaseback  arrangement  in  effect  at  December  31,  1998 are as  follows
(dollars in thousands):

                                      F-15

<PAGE>

Year Ending December 31,
----------------------------------------------- ------------------
1999                                                     $    569
2000                                                          615
2001                                                          615
2002                                                          615
2003                                                          615
2004 and thereafter                                         3,963
----------------------------------------------- ------------------
                                                            6,992
Less interest portion                            
                                                          (3,577)
----------------------------------------------- ------------------
Present value of net minimum payments                   $   3,415
----------------------------------------------- ==================

      At December  31, 1998 and 1997 and October 31,  1997,  the gross amount of
the  building  and the  related  accumulated  depreciation  recorded  under  the
financing obligation  were as follows (dollars in thousands):

<TABLE>
<CAPTION>


                                          December 31,       December 31,        October 31,
                                              1998               1997                1997
                                              ----               ----                ----
<S>                                        <C>               <C>                  <C>     
 Land and building                         $    3,600        $    3,600           $    3,600
 Less:    Accumulated depreciation                500               380                  360
                                                  ---               ---                  ---
                                           $    3,100        $    3,220           $    3,240
                                           ==========        ==========           ==========

</TABLE>

         The  Company  also has several  noncancelable  operating  leases  that
expire over the next ten years.  These leases  generally  require the Company to
pay all executory  costs such as maintenance  and insurance.  Rental expense for
operating leases during fiscal years 1998, 1997 and 1996 were $423,000, $307,000
and $259,000 respectively. Rental expense for operating leases for the two-month
period ended December 31, 1997 was $51,000.  Future minimum lease payments under
noncancelable  operating  leases  as  of  December  31,  1998  are  (dollars  in
thousands):


Year Ending December 31,
------------------------------------ -------------
1999                                      $   545
2000                                          386
2001                                          291
2002                                          218
2003                                          139
2004 and thereafter                           728
------------------------------------ -------------
Total minimum lease payments             $  2,307
------------------------------------ =============


Legal Proceedings
-----------------

      The  Company  is  involved  from  time  to  time  in  various  claims  and
proceedings including employee claims in the normal course of business,  none of
which, individually or in the aggregate, in the opinion of management, will have
a material adverse effect on the consolidated financial position of the Company.


<PAGE>

L.  Long Term Debt
------------------

$ 10 Million Convertible Subordinate Debenture
----------------------------------------------

      In  August  1996  the  Company  sold  $10.0  million   9.01%   Convertible
Subordinate  Debentures  due August 31,  2003 in a private  offering.  Under the
terms of the  debentures  the  holder  could  convert  the  debentures  into the
Company's Class A Common Stock at $12.50 per share, 125% of the closing price on
August 9, 1996. The Company had the right to call the debentures  after February
28,  1998  if  the  Company's   Class  A  Common  Stock  price  traded   between
$15.00-$17.50 per share.

                                      F-16

<PAGE>

    On November 10, 1998, the shareholders  approved a proposal to authorize the
Company to decrease the conversion price from $12.50 to $4.00 per share of Class
A Common Stock upon  conversion of the  debenture.  Subsequent  to year-end,  on
March 5, 1999,  the holder  converted  this debenture into 2.5 million shares of
Class A Common Stock.


$ 5.5 million Convertible Debenture
-----------------------------------

    On May 30, 1997,  the Company sold 55 Units  ("Units") at $100,000 per Unit,
for an aggregate of $5,500,000, to two accredited purchasers ("Purchasers") in a
private  offering (the  "Offering").  Each Unit consisted of (i) an 8% five-year
convertible  debenture  ("Convertible  Debenture")  in the  principal  amount of
$100,000  convertible into shares of the Company's Class A Common Stock and (ii)
a warrant  ("Warrant")  to acquire  1,800  shares of Class A Common  Stock.  The
number of shares of Class A Common Stock that was issuable  upon  conversion  of
the  Convertible  Debentures  was  variable.  The  number of  shares  were to be
calculated  at the  time of  conversion  and  were to be the  lesser  of (i) the
product obtained by multiplying (x) the lesser of the average of the closing bid
prices for the Class A Common  Stock for the (A) five or (B) thirty  consecutive
trading  days  ending  on the  trading  day  immediately  preceding  the date of
determination  by (y) a conversion  percentage  equal to 95% with respect to any
conversions  occurring  prior to February  24, 1998 and 92% with  respect to any
conversions occurring on or after February 24, 1998 and (ii) $13.50 with respect
to any conversions occurring prior to May 30, 1998 or $14.00 with respect to any
conversions  occurring on or after May 30, 1998. These prices were  subsequently
revised to $13.05 and $13.53  pursuant to an  agreement  between the holders and
the Company in consideration of the holders'  willingness to grant the Company a
waiver to sell the GTD. The Convertible Debentures were not convertible prior to
December 16, 1997.  From  December 16, 1997 until  February 23, 1998 one-half of
the  Convertible  Debentures  could have been  converted and after  February 23,
1998, the  Convertible  Debentures were fully  convertible.  The Warrants may be
exercised  at any time  through May 30, 2002 at an exercise  price of $12.25 per
share. The Company  received net proceeds of  approximately  $4,950,000 from the
sale of the Units after deduction of fees and expenses  related to the Offering.
During 1998, the $5.5 million  Convertible  Debentures were fully converted into
1,490,805 shares of Class A Common Stock.


M.  Other Arrangements
----------------------

       In May 1997 the Company  entered  into an  agreement  whereby it became a
minority owner of uPACS(TM) LLC, a limited liability company (the "LLC").  Under
the terms of the agreement the Company made a capital contribution to the LLC of
its  rights  to  its  uPACS(TM)  technology  which  is a  system  for  archiving
ultrasound  images  with  networking,  communication  and  off-line  measurement
capabilities. In exchange for such capital contribution,  the Company received a
9% interest in the LLC. A then  outside  investor,  who is currently a principal
shareholder of the Company,  made an initial capital  contribution of $2 million
and later made a further capital  contribution of $1 million in return for a 91%
interest in the LLC. In  connection  with the  formation  of the LLC the Company
entered  into a services  and license  agreement  whereby the Company  agreed to
complete the  development  of the uPACS(TM)  technology and undertake to market,
sell, and distribute  systems using the uPACS(TM)  technology.  The LLC will pay
the Company its expenses in  connection  with such services and the Company will
pay royalties to the LLC in connection  with the sale of systems using the uPACS
technology.  At such time as the LLC has distributed to the outside  investor an
aggregate  amount equal to $4.5  million of its net cash flow the Company  would
become a 63% owner of the LLC and the outside  investor would own a 37% interest
in the LLC.

       During the fourth quarter of 1998, the Company determined that it did not
have the required resources to devote to both its core  manufacturing  execution
software  business  and the  uPACS(TM)  business,  and as a result,  initiated a
search for a potential  buyer of the LLC and its  technology.  At  December  31,
1998, the LLC had  substantially  exhausted its capital resources and, as of the
filing  date of this  annual  report  on Form  10-K,  a buyer  had not yet  been
located.  The Company  currently  intends to fund the LLC  operation  during the
search for a buyer. 

                                      F-17

<PAGE>

N.    Redeemable Convertible Preferred Stock
--------------------------------------------

    On  December  4,  1997,  the  Company  entered  into a  securities  purchase
agreement  to sell  19,000 of Series A, $1.00 par value,  Convertible  Preferred
Stock ("Series A Preferred  Stock") and common stock warrants for gross proceeds
of  $19,000,000.  The  closing  of the  Series A  Preferred  Stock and  warrants
occurred in two tranches.  On December 9, 1997,  the Company issued 9,375 shares
of Series A Preferred Stock and 375,000 warrants. An additional 346,000 warrants
were issued to consultants valued at approximately  $1,011,000.  The transaction
resulted in net proceeds of $6,984,000, net of offering costs of $1,380,000. The
Company allocated the net proceeds of the Series A Preferred Stocks and warrants
based upon their  relative fair values  resulting in $6,155,000  assigned to the
Series A Preferred  Stock and  $829,000 to the  warrants.  On December 31, 1997,
9,675 shares of Series A Preferred Stock and 385,000 warrants were issued to the
holders  of the  Series  A  Preferred  Stock,  net of  cash  offering  costs  of
approximately  $245,000,  resulting in net proceeds of  $9,380,000.  The company
allocated  the net  proceeds  of the Series A Preferred  Stock and the  warrants
based upon their  relative fair values  resulting in $8,529,000  assigned to the
Series A  Preferred  Stock and  $851,000 to the  warrants.  Such  proceeds  were
received on January 2, 1998,  and are recorded as  subscriptions  receivable  at
December 31, 1997.

       The  Series A  Preferred  Stock is  convertible  at any time into Class A
common shares at the Mandatory Redemption Price divided by the lesser of (a) the
volume weighted average price for any two trading days selected by the holder in
the twenty days prior to  conversion,  except that the holder may not accept the
lowest weighted average price  ("variable  conversion  price"),  and (b) $16.25.
Such lesser conversion price is limited to 3,040,000 shares. The most beneficial
conversion price at issuance was $12.16 which exceeded the market price value of
the common stock. Any Series A Preferred Stock unconverted  outstanding  because
of  the  share  limitation  can  be  exchanged  at  the  holder's  option  for a
subordinated  8%  promissory  note  maturing  when the Series A Preferred  Stock
matures.  The Company has the right,  at any time,  to redeem all or any part of
the outstanding  Series A Preferred Stock or subordinated notes at 130% of their
original purchase price.

    The Series A Preferred Stock has a term of three years from the closing date
or  December  31,  2000.  On the  maturity  date,  the  Company  must redeem the
outstanding  preferred stock at its Mandatory Redemption Price, which is the sum
of purchase price, accrued but unpaid dividends and other contingent payments as
provided under the terms of the preferred  stock  agreement.  The portion of the
Mandatory  Redemption  Price  constituting  such other  contingent  payments  is
payable in cash whereas the purchase price and accrued but unpaid  dividends are
payable in cash or common stock at the option of the Company.  Accordingly,  the
Company is accreting the carrying  value of the preferred  stock to the purchase
price and recognizing the accretion  charges to retained  earnings  (accumulated
deficit) over the three year period from issuance to maturity.  The accretion in
1998 aggregated  approximately $1,424,000 or approximately $356,000 per quarter.
If the Company  elects to settle the  redemption in common stock,  the Mandatory
Redemption  Price is 1.25  times  the  purchase  price  and  would  result in an
additional charge in the period of redemption.

       Holders of the  Series A  Preferred  Stock have the right to require  the
Company to purchase  their shares for cash upon the  occurrence  of a Redemption
Event.  Redemption  Events  include:  a) suspension of trading or delisting from
specified  stock exchanges of the common stock into which the Series A Preferred
Stock is  convertible;  b) failure by the Company to register,  within 180 days,
the common  stock into which the Series A  Preferred  Stock is  convertible;  c)
failure to issue common stock upon exercise of conversion  rights by a preferred
shareholder, or d) failure to pay any amounts due to preferred shareholders. The
cash purchase price upon  occurrence of a Redemption  Event is the greater of a)
1.25 times the Mandatory  Redemption Price, or b) the Mandatory Redemption Price
divided by the product of the effective conversion price and the market value of
the common  shares.  Any remaining  accretion to the actual cash purchase  price
would be recorded upon a Redemption Event.

      The Series A Preferred Stock is mandatorily redeemable upon the occurrence
of a Redemption Event and,  accordingly,  is classified as Redeemable  Preferred
Stock, rather than as a component of Shareholders' Equity (Deficit).

      The Series A Preferred Stock pays a cumulative  dividend of 8.0% per annum
in cash or stock at the option of the  Company,  or as noted  above,  during any
quarter  in which the  closing  bid price for the Class A common  stock was less
than $8.00 for any ten  consecutive  trading  days.  An  equivalent  payment was
payable to any holder of Series A Preferred  Stock which was subject  during any
quarter to a standstill period following a Company  underwritten public offering
or which was non-convertible  because of the limitations on the number of common
shares issuable upon  conversion.  Such dividends and payments were payable only
prior to conversion and payable in cash or additional  Series A Preferred Stock
at the Company's option;  however, if the Company elected to pay the dividend in
Series A Preferred  Shares,  the amount of such payment  would have been 125% of
the cash amount.  In 1998, the Company  elected to satisfy these  dividends with
shares of Series A Preferred Stock.

                                      F-18

<PAGE>

      The Series A  Preferred  Stock has a  liquidation  preference  as to their
principal amount and any accrued and unpaid dividends.  The Company has reserved
3,800,000  shares of common stock for conversion of Series A Preferred Stock and
exercise of the common stock warrants.

      The holders of the Series A Preferred Stock have the same voting rights as
the holders of Class A common stock,  calculated as if all outstanding shares of
Series A Preferred  Stock had been converted into shares of Class A common Stock
on the record date for  determination  of  shareholders  entitled to vote on the
matter presented.

      The 760,000 warrants issued to the holders of Series A Preferred Stock are
exercisable for five years at $16.25 per share. The holder may also elect to pay
the  exercise  price by receiving a reduced  number of common  shares in lieu of
paying the cash  exercise  price.  The warrant  agreements  also  provide for an
adjustment  of the warrant  exercise  price upon the issuance of common stock or
equivalents  with an exercise price below the current market price of the common
stock.  This adjustment does not apply to the issuance of options under existing
plans or  shares  issued  upon the  exercise  of  options,  warrants  or  rights
outstanding  when the warrants were issued.  The adjustment  does apply to other
transactions where the Board of Directors  determines an adjustment is necessary
to equitably  protect the rights of the holder.  The 346,000  warrants issued to
consultants  are  excercisable  for five years and have exercise  prices ranging
from  $10.31 to $15.63  and bear  similar  terms to the  warrants  issued to the
holders of Series A Preferred Stock.

      On November 10, 1998, the  shareholders  approved the sale and issuance of
Series B Convertible  Preferred Stock ("Series B Preferred  Shares") (subject to
the execution of definitive agreements) and the issuance of Class A Common Stock
Purchase  Warrants to the Series A  Preferred  Stockholders  that would  receive
Series B Preferred  Shares.  The sale and issuance of Series B Preferred  Shares
would be to the Series A Convertible  Preferred  Stockholders  in the form of an
even exchange for Series A Preferred Shares. The terms of the Series B Preferred
Shares are similar to the Series A Preferred Shares, except that: (a) the Series
B  Preferred  Shares  would  have a  conversion  price of that  number of shares
determined by dividing the Mandatory Redemption Price by $4.00, as defined above
in Series A  Preferred  Stock,  whereas  the  conversion  price of the  Series A
Preferred  Shares  is equal to the  lesser of (i)  $16.25  or (ii) the  Weighted
Volume  Average  Price (as  defined)  of the Class A Common  Stock  prior to the
conversion date limited to 3,040,000 shares;  (b) the Series B Preferred Shares,
as a result of the conversion price of $4.00,  would not provide the holder with
the  option to  receive a  subordinated  8%  promissory  note,  as the  Series A
Preferred Shares  provides;  and (c) there will be no dividend payment due based
on the price of the  Class A Common  Stock,  as the  Series A  Preferred  Shares
provides.

       The  issuance of Class A Common Stock  Purchase  Warrants to the Series A
Preferred Stockholders that would receive Series B Preferred Shares provides for
the  issuance  of 80,000  Class A Common  Stock  Purchase  Warrants  for each $1
million of  principal  amount of the Series A Preferred  Shares  outstanding  on
November 10, 1998 in addition to certain  other Series A Preferred  Shares which
were  converted  at $4.00 per share  between  September 1, 1998 and November 10,
1998. These purchase warrants are four-year  warrants  exercisable at $3.00, and
provide for mandatory exercise upon the occurrence of certain events.

      During 1998,  5,798 shares of Series A  Convertible  Preferred  Stock were
converted to 1,917,806 shares of Class A Common Stock and 1,740 shares of Series
A  Preferred  Stock  were  issued  as  dividends   resulting  in  14,942  shares
outstanding at December 31, 1998.

      Subsequent  to  year-end,  on  March 5,  1999,  the  outstanding  Series A
Preferred  Stock and warrants were exchanged for Series B Preferred  Stock.  See
Note N to the Consolidated Financial Statements.


O.  Equity Transactions
-----------------------

Common Stock

       On April 16, 1998, the shareholders amended the Company's  Certificate of
Incorporation  to modify  certain  terms of the Class A Common Stock and Class B
Common Stock.  The  modifications to the terms of the Class A and Class B Common
Stock  increased the exchange  ratio for conversion of Class B Common Stock into
Class A Common Stock from 1:1 to 1:1.5; changed the voting rights of the Class A
Common  Stock and the Class B Common  Stock  with  respect  to the  election  of
directors  so that the  directors  of the Company  will be elected by holders of
Class A Common Stock and Class B Common Stock voting together as a single class;
made the  voting  rights  of both  classes  the same so that  they have the same
voting power;  eliminated a separate  class vote of Class B Common Stock holders
on certain corporate transactions;  and changed the dividend restriction so that
Class A Common Stock and Class B Common Stock receive the same dividends.


                                      F-19

<PAGE>

       In December 1997, the National  Association of Securities  Dealers,  Inc.
("NASD"),  notified  the Company  that it proposed to de-list the Class B Common
Stock  from  Nasdaq  SmallCap  Market  because  the number of holders of Class B
Common Stock  appeared to have fallen below 300 beneficial  owners.  The Company
proposed the amendments to alleviate  certain negative impact of such de-listing
of the Class B Common  Stock,  and the NASD  granted to the  Company a temporary
exception,  until May 1, 1998,  in order to permit the  Company to effect  these
amendments.  Following the close of business on May 1, 1998,  the Class B Common
Stock was no longer listed on the Nasdaq SmallCap Market.

       Also on April 16, 1998, the  shareholders  approved the adoption of three
equity  plans and an increase  in the  authorized  Class A Common  Stock from 22
million shares to 40 million shares.

       On  November  10,  1998,  the  shareholders  approved  an increase in the
authorized  Class A Common  Stock from 40  million to 60 million  shares and the
sale and  issuance  of up to  6,666,666  shares  of  Class A  Common  Stock at a
purchase  price of $3.00 per share,  and  Warrants to  purchase up to  1,000,000
shares of Class A Common Stock at an exercise price of $3.00 per share.

       In order to provide additional capital to the Company, the Company agreed
to sell  6,666,666  shares of Class A Common Stock at a purchase  price of $3.00
per share for aggregate proceeds of $20,000,000.  For each $1 million of Class A
Common Stock purchased,  the purchaser received  seven-year warrants to purchase
50,000 shares of Class A Common Stock,  exercisable  at $3.00 per share; a total
of 1,000,000 warrants were,  therefore,  issued to the purchaser.  The placement
agent also received  warrants to purchase up to 250,000 shares of Class A Common
Stock.

                                      F-20
<PAGE>

P. Earnings Per Share
---------------------

      The following is a reconciliation  of the numerators and denominators used
to calculate  loss per share in the  Consolidated  Statements of Operations  (in
thousands, except per share data):

<TABLE>
<CAPTION>
                                                                    Two Months
                                                   Year Ended         Ended         Year Ended      Year Ended
                                                  December 31,      December 31,     October 31,     October 31,
                                                      1998              1997            1997            1996
                                                      ----              ----            ----            ----
<S>                                               <C>              <C>             <C>              <C>     
Loss per common share-basic:

Net loss                                          $     (19,020)   $    (3,936)    $    (22,007)    $     (8,959)
Less: Dividends on Redeemable 
      Convertible Preferred Stock                        (1,740)            --               --               --
      Accretion on Redeemable 
      Convertible Preferred Stock                        (1,424)            --           --                   --
                                                         ------          -----          -------            -----

Net loss to common shareholders (numerator)       $     (22,184)   $    (3,936)    $    (22,007)    $     (8,959)
                                                         ------          -----          -------            -----
Weighted average shares - basic (denominator)        10,618,000      8,258,000        7,895,000        7,743,000
                                                         ------          -----          -------            -----
        Net loss per common share-basic           $       (2.09)   $     (0.48)    $      (2.79)    $     (1.16)
                                                         ======          =====          =======            =====

Loss per common share-fully diluted:

Net loss                                          $     (19,020)   $    (3,936)    $    (22,007)    $     (8,959)
Less: Dividends on Redeemable 
      Convertible Preferred Stock                        (1,740)            --               --               --
      Accretion on Redeemable 
      Convertible Preferred Stock                        (1,424)            --               --               --
                                                         ------          -----          -------            -----
Net loss to common shareholders (numerator)       $     (22,184)   $    (3,874)    $    (22,007)    $     (8,959)
                                                         ------          -----          -------            -----
Weighted average shares                              10,618,000      8,258,000        7,895,000        7,743,000
Effect of dilutive options / warrants                        --             --               --               --
                                                         ------          -----          -------            -----
Weighted average shares-fully diluted                10,618,000      8,258,000        7,895,000        7,743,000
(denominator)
                                                         ------          -----          -------            -----
       Net loss per common share-diluted          $       (2.09)   $     (0.48)    $      (2.79)    $     (1.16)
                                                         ======          =====          =======            =====

</TABLE>

      Stock options,  warrants and rights would have an anti-dilutive  effect on
earnings per share for the years ended  December 31, 1998,  October 31, 1997 and
1996 and the two month period ended December 31, 1997 and,  therefore,  were not
included in the calculation of fully diluted earnings per share.


Q. Stock Option Plans, Warrants and Rights
------------------------------------------

      The Company's 1990 Incentive Stock Option Plan reserves  484,000 shares of
either Class A or Class B Common Stock for purchase upon the exercise of options
that may not be  granted  at less than the fair  market  value as of the date of
grant and that are exercisable over a period not to exceed ten years.  There are
no further shares available for option under this plan.

      The Company's 1992 Incentive Stock Option Plan reserves  700,000 shares of
Class A Common Stock for  purchase  upon the exercise of options that may not be
granted  at less  than  fair  market  value as of the date of grant and that are
exercisable  over a period not to exceed ten years.  There are no further shares
available for option under this plan.

      The Company's  Discretionary Deferred Compensation Plan reserves 1,150,000
shares of Class A Common Stock for issuance upon the exercise of options.  There
are no options  available for grant under this plan.  Options may not be granted
at less than fair market value as of the date of grant and are exercisable  over
a period not to exceed ten years.

      The Company's 1995 Incentive Stock Option Plan reserves  750,000 shares of
Class A Common Stock for issuance upon the exercise of options.  Options may not
be  granted  at less  than  fair  market  value as of the date of grant  and are
exercisable  over a  period  not to  exceed  ten  years.  There  are no  options
available for grant under this plan.

<PAGE>

      The Company's Base Ten Stock Option Plan reserves 80,000 shares of Class A
Common Stock for  purchase  upon the exercise of options that may not be granted
at less than fair market value as of the date of grant and that are  exercisable
over a period not to exceed ten years.  There are no options available for grant
under this plan.

      The Company's  1998 Stock Option and Stock Award Plan  reserves  3,000,000
shares of Class A Common  Stock  for  purchase  upon the  exercise  of  options.
Options  may not be  granted  at less than fair  market  value as of the date of
grant and are  exercisable  over a period  not to exceed  ten  years.  This plan
allows for the  re-issuance  of any canceled or expired  options.  Approximately
590,000 options remain available for grant under this plan.

                                      F-21

<PAGE>

      A summary of the status of the Company's aforementioned stock option plans
as of October  31,  1996 and 1997 and  December  31,  1997 and 1998 and  changes
during the periods ending on those dates is presented below:

<TABLE>
<CAPTION>

                                                         Class A                       Class B
                                             -------------------------------------------------------------
                                                            Weighted -                  Weighted -        Total
                                             Number of        Average       Number of    Average        Number of
                                              Shares       Exercise Price     Shares    Exercise Price    Shares
                                              ------       --------------     ------    --------------    ------
<S>                                          <C>               <C>            <C>           <C>         <C>      
Outstanding at October 31, 1995              1,265,394         $ 7.82         4,946         $ 3.00      1,270,340
Granted                                        307,700          10.79            --                       307,700
Exercised                                    (103,351)           7.06            --                     (103,351)
Canceled                                       (3,850)          11.15                                     (3,850)
                                               ------           -----                                     ------ 
Outstanding at October 31, 1996              1,465,893         $ 8.85         4,946         $ 3.00      1,470,839
                                             =========         ======         =====         ======      =========
Granted                                        574,650          11.33            --                       574,650
Exercised                                     (78,130)           6.81            --                      (78,130)
Canceled                                      (57,750)           9.73            --                      (57,750)
                                              -------            ----                                    ------- 
Outstanding at October 31, 1997              1,904,663         $ 9.66         4,946         $ 3.00      1,909,609
                                             =========         ======         =====         ======      =========

Granted                                             --             --            --             --             --
Exercised                                     (50,584)           9.67            --                      (50,584)
Canceled
                                             ---------         ------         -----         ------      ---------
Outstanding at December 31, 1997             1,854,079           9.65         4,946         $ 3.00      1,859,025
                                             =========         ======         =====         ======      =========
Granted                                      2,546,100           2.94            --                     2,546,100
Exercised                                    (125,232)           3.84       (4,946)           3.00      (130,178)
Canceled                                     (404,324)           9.15                                   (404,324)
                                             ---------         ------         -----         ------      ---------
Outstanding at December 31, 1998             3,870,623           5.47            --             --      3,870,623
                                             =========         ======         =====         ======      =========
Exercisable at December 31, 1998             1,942,823         $ 7.62            --           $ --      1,942,823
                                             =========         ======         =====         ======      =========

</TABLE>

<PAGE>

      The  following  tables  summarizes  information  about the  stock  options
outstanding at December 31, 1998:

<TABLE>
<CAPTION>

                                           Options Outstanding                       Options Exercisable
                              -----------------------------------------------  --------------------------------
                                             Weighted-Average
                                  Number        Remaining                          Number
                               Outstanding     Contractual   Weighted-Average  Exercisable at  Weighted-Average
                               at December   Life (in years) Exercise Price     December 31,   Exercise Price
  Range of Exercise Prices       31, 1998                                           1998
--------------------------      ---------     -------------- ----------------  --------------  ----------------
       <S>                      <C>                <C>         <C>                  <C>          <C>    
       $ 2.00 - $ 4.00          1,958,027          9.51        $    2.21            525,227      $    2.30
       $ 5.13 - $ 8.00            622,620          8.09        $    5.65            247,620      $    6.43
       $ 8.06 - $10.88            866,976          5.51        $    9.67            866,976      $    9.67
       $11.13 - $14.50            423,000          7.34        $   11.69            303,000      $   11.91

</TABLE>


      The Company's 1998 Employee Stock Purchase Program authorizes the issuance
of up to  1,000,000  shares of Class A Common  Stock  for  purchase  by  Company
employees.  Shares are  purchased  at 85% of the fair  market  value on standard
quarterly  purchase dates as defined in the plan.  Approximately  993,000 shares
were available for issuance and purchase at December 31, 1998.

      At December 31, 1998, the Company has outstanding  3,264,089  warrants and
754,000  options to  consultants  and five  non-management  directors  at prices
ranging  from  $2.00 to $18.00,  expiring  from 1999 to 2008.  In 1998,  100,000
warrants and 87,000 options expired.  Included in the above are 125,000 warrants
issued to a consultant for services  related to the promotion and selling of the
Company's  Stock at an exercise  price which was less than the fair market value
of the Common  Stock at the date of grant.  The  remaining  options and warrants
were issued at fair market value at the date of grant.

                                      F-22

<PAGE>

      The Company has adopted the  disclosure-only  provisions  of  Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation"
("FAS 123") for its stock options plans for employees. Had compensation cost for
these plans been  determined  under FAS 123, the  Company's  net loss would have
been increased to $20,192,000 and  $24,898,000  with a net loss per common share
of $2.20 and $3.22 for years ended  December  31,  1998 and  October  31,  1997,
respectively.  There  were no  options  granted in the  two-month  period  ended
December 31,  1997.  For  purposes of this  calculation,  the fair value of each
option  grant  was   estimated  on  the  grant  date  using  the   Black-Scholes
option-pricing  model with the  following  assumptions:  expected  volatility of
between  43-77  percent;  weighted  average risk free  interest  rate of between
5.08-6.35  percent;  and weighted  average  expected lives of 1 to 5 years.  All
options  granted  to date under the stock  option  plans for  employees  have an
exercise  price equal to the market  price of the  Company's  stock on the grant
date.

      In addition,  the Company has recorded charges to earnings for years ended
December 31, 1998 and October 31, 1997 of $322,000 and $2,750,000  respectively,
representing  the value of the options and warrants issued to  consultants.  The
Company  also  incurred  a charge of  $543,000  in the  two-month  period  ended
December 31, 1997 as a result of extending option expriation dates to terminated
employees of the GTD. These charges have been computed  using the  Black-Scholes
option-pricing model.


R.  Employee Benefit Plan
-------------------------

      The Company has a 401(k) plan which allows all eligible employees to defer
up to 17% of their pre-tax  income through  contributions  to the plan. The plan
allows  for a 1% base  annual  salary  Company  matching  contribution  for each
eligible employee.  The Company's contribution was $51,000 for fiscal year 1998,
$23,000 for the  two-month  period  ended  December  31, 1997 and  $34,000,  and
$26,000 in fiscal years 1997 and 1996, respectively.


S.  Discontinued Operations
---------------------------

      On  October 27, 1997 the Company entered into an agreement to sell the GTD
to  Strategic  Technology  Systems,  Inc.  ("Strategic").  The sale  between the
Company  and  Strategic  was  closed on  December  31,  1997.  Accordingly,  the
operating  results of the Government  Technology  Division have been  segregated
from  continuing  operations  and  reported  as a  separate  line  item  on  the
consolidated statements of operations for all periods presented.

      Results of operations of the GTD are as follows:

<TABLE>
<CAPTION>

                                           Two Month Ended      Year Ended        Year Ended
                                          December 31, 1997  October 31, 1997  October 31, 1996
                                          -----------------  ----------------  ----------------
<S>                                       <C>                <C>               <C>              
Net revenues                              $        --        $       9,981     $     13,329
Cost and expenses                                 222               14,835           14,238

</TABLE>


<PAGE>

      The net loss on disposal of $1,173,000 for the year ended October 31, 1997
included a provision for estimated  losses of the GTD of $1,068,000  through the
date of  sale.  The  actual  expenses  of the GTD  through  the date of the sale
exceeded the provision for estimated losses by $222,000.

      In accordance with the agreement between the Company and Strategic, and in
consideration  for the  value  of the net  assets  sold,  the  Company  received
$3,500,000 in cash, and an unsecured  promissory  note in a principal  amount of
$1,975,000. The note has a five year term bearing interest at a rate of 7.5% per
annum.  Principal  payments  under the note  amortize  over a three year  period
beginning on the second  anniversary of the closing which was December 31, 1997.
The terms of the note also provide for  accelerated  payments of  principal  and
interest pending the occurrence of certain events.

      The Company also received a warrant from  Strategic  exercisable  for that
number  of  shares  of the  voting  common  stock as  equals  5% of  issued  and
outstanding  shares of common  stock and common  stock  equivalents  immediately
following  and giving  effect to any  initial  underwritten  public  offering by
Strategic,  with respect to which there can be no  assurance.  In the event that
Strategic is sold, merged or liquidated prior to its initial underwritten public
offering, the Company will receive 15% of the gross proceeds of such transaction
that are in  excess of $7  million,  and the  warrant  described  above  will be
canceled.

      The Company has  subleased to Strategic  approximately  30,000 square feet
plus allowed the use of 10,000  square feet of common areas for a period of five
years at an annual rental of $240,000 for the first three years and $264,000 per
year for the last two years of the sublease.

                                      F-23

<PAGE>

T.  Comprehensive Income (Loss)
-------------------------------

      The accumulated  balances for each classification of comprehensive  income
(loss) are as follows (dollars in thousands):

<TABLE>
<CAPTION>


                                                                                    Accumulated
                                                                   Unrealized          Other
                                                   Foreign         Gains on        Comprehensive
                                                Currency Items     Securities         Income (loss)
                                                --------------     ----------         -------------
<S>                                                <C>             <C>             <C>           
Balance October 31, 1996                           $    (159)      $      49       $       (110)
FY 1997 change                                             9              94                103

Balance October 31, 1997                                (150)            143                 (7)
                                                   ==========      =========        ============
1997 Transition Period change                            (45)            (81)              (126)

Balance December 31, 1997                               (195)             62               (133)
                                                   ==========      =========        ============
FY 1998 change                                           (55)             (8)               (63)

Balance December 31, 1998                          $    (250)      $      54       $       (196)
                                                   ==========      =========        ============

</TABLE>


U.  Subsequent Events
---------------------

    Equity Transactions
    -------------------

         Subsequent  to year-end,  on March 5, 1999,  the  outstanding  Series A
Preferred Shares were exchanged for Series B Preferred Shares. See Note N to the
Consolidated  Financial  Statements.  As a  result,  15,203  shares  of Series B
Preferred  Stock,  with a principal amount of $15,203,000 were exchanged for the
outstanding  shares  of Series A  Preferred  Stock.  In  addition,  632,000  new
Warrants  were  issued  to the  Series B  Preferred  Stockholders,  and  720,000
Warrants were issued to replace  certain  original  Warrants  issued in December
1997.  The Series B  Preferred  Stock and  Warrants  will be  recorded  at their
estimated  fair value.  The Company is in the  process of  finalizing  such fair
values and the amounts, if any, of noncash charges or credits.

         At the November 10, 1998 shareholders' meeting, a proposal was approved
to  authorize  the Company to decrease the  conversion  price of the $10 million
Convertible  Subordinated  Debenture  from  $12.50 to $4.00 per share of Class A
Common Stock upon  conversion  of the  debenture.  On March 5, 1999,  the holder
converted  this $10 million  debenture into 2.5 million shares of Class A Common
Stock  which  increased   shareholders'  equity  by approximately  $9.6  million
including a non-cash charge of approximately $5.5 million.

                                      F-24

<PAGE>

       The following  unaudited pro-forma condensed balance sheet represents the
effect of the  conversion  of the $10  million  of  convertible  debentures  and
write-off  of  $393,000 in  unamortized  debenture  issuance  costs as if it had
occurred as of December 31, 1998, the effective date of the definitive agreement
as described above.  This unaudited  pro-forma  condensed balance sheet has been
prepared for comparative purposes only (dollars in thousands).

<TABLE>
<CAPTION>

                                                   Actual as of    Pro-forma as
                                                   December 31,    of December
                                                       1998          31, 1998
                                                     (Audited)     (Unaudited)
                                                     ---------     -----------
<S>                                                 <C>              <C>
Total current assets                                    20,448           20,448
                                                    ----------      -----------
Property, plant and equipment, net                       5,026           5,026
Note receivable                                          1,975           1,975
Other assets                                             6,372           5,979
                                                    ----------      ----------
Total Assets                                        $   33,821      $    33,428
                                                    ==========      ===========
Current liabilities                                 $    4,966      $     4,966
                                                    ----------      -----------
    Long-term debt                                      10,000               --
    Other long-term liabilities                          3,569            3,569
                                                    ----------      -----------
Total long-term liabilities                             13,569            3,569
                                                    ----------      -----------
Redeemable Preferred Stock                              12,914           12,914
                                                    ----------      -----------
Shareholders' equity                                     2,372           11,979
                                                    ----------      -----------
Total liabilities, redeemable
   preferred stock and shareholders' equity         $   33,821      $    33,428
                                                    ==========      ===========
</TABLE>

    Almedica Technology Group Acquisition
    -------------------------------------

       On March 16, 1999,  the  Company's  Board of Directors  agreed to proceed
with negotiations for the acquisition of Almedica Technology Group (Almedica), a
wholly owned subsidiary of Almedica International,  Inc. in a stock transaction.
Almedica  develops  clinical  label and  materials  management  software for the
pharmaceutical  industry  essential to the  management of clinical  trials.  The
acquisition,  which is subject to the  negotiation  of final  terms and  related
execution  of a  definitive  agreement,  is expected to close  before the end of
May  1999. Unaudited selected financial  information for Almedica for the years
ended August 31, 1998 and 1997 are as follows (dollars in thousands):

<TABLE>
<CAPTION>


                                           Year Ended         Year Ended
                                        August 31, 1998     August 31, 1997
                                          (unaudited)         (unaudited)
                                          -----------         -----------
<S>                                        <C>               <C>
 Sales                                     $    1,815        $    1,604
 Net income                                      (560)             (578)
                                                -----             ----- 
 Total assets                                   1,195             1,397
 Stockholders' equity                             145               456
                                                -----             -----

</TABLE>

<PAGE>

    Select Software Tools Acquisition
    ---------------------------------

     On  March  16,  1999,  the  Company's  Board  of  Directors   approved  the
commencement  of  preliminary  discussions  which could lead to an acquistion of
Select Software Tools, plc (NASDAQ:  SLCTY)  ("Select") in a stock  transaction.
Also, in connection with these preliminary  discussions with Select, the Company
agreed to loan  Select up to $1.0  million.  The  acquisition  is subject to the
negotiation of final terms and execution of a definitive purchase agreement, and
the approval of Select stockholders.

     On March 26, 1999, the Company loaned $700,000 to Select under a promissory
note.  Unaudited selected  financial  information for Select for the nine months
ended  September  30, 1998 and the year ended  December  31, 1997 are as follows
(dollars in thousands):

<TABLE>
<CAPTION>

                                       Nine Months Ended      Year Ended
                                       September 30, 1998  December 31, 1997
                                          (unaudited)         (unaudited)
                                          -----------         -----------
<S>                                        <C>               <C>
 Sales                                     $   19,439        $   25,012
 Net loss                                     (12,074)           (8,080)
                                              -------            ------ 
 Total assets                                  17,618            21,891
 Stockholders' equity                            (246)           11,677
                                                 ----            ------
 
</TABLE>

                                     F-25

<PAGE>

      The Company believes that Select took certain restructuring actions in the
second  half of 1998 and early  1999 in an effort to  significantly  reduce  its
expense base. Select has informed the Company that they have identified  certain
possible  additional  cost  reductions  which are  intended  to bring  Select to
break-even by closing or shortly after the date of  acquisition  by Base Ten. If
the Select acquisition occurs,  depending on net liabilities of Select,  assumed
by the Company at the date of  acquisition,  if any, and on the success of these
cost reduction efforts, in bringing Select to net positive cashflow, the Company
may need to acquire  additional funding in 1999.  However,  no assurances can be
given  that the  acquisition  will  occur and,  if it does,  whether  additional
required funds would be available to Base Ten when needed.


                                      F-26

<PAGE>


                                   Signatures


    Pursuant  to the  requirements  of  Section  13 or 15(d)  of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its  behalf by the  undersigned,  thereunto  duly  authorized,  this 15th day of
April, 1999.


                             Base Ten Systems, Inc.

<TABLE>
<CAPTION>


<S>                              <C>                             <C>
By:    THOMAS E. GARDNER       By:     WILLIAM F. HACKETT      By:    WILLIAM F. HACKETT
---------------------------      --------------------------      --------------------------
       Thomas E. Gardner               William F. Hackett             William F. Hackett
    Chief Executive Officer          Chief Financial Officer        Principal Accounting Officer

</TABLE>

    Pursuant to the  requirements  of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant in the capacities and on the date indicated.

                                     Title                            Date

                                   Directors                      April 15, 1999
Alexander M. Adelson
Thomas E. Gardner
Alan S. Poole
Carl W. Schafer
William Sword



By:  WILLIAM F. HACKETT        
---------------------------------------------
     William F. Hackett, as attorney-in-fact



<PAGE>

<TABLE>
<CAPTION>

                                  Exhibit Index
       Exhibit Number             Exhibit                                                     Page
       --------------             ------                                                      ----
<S>               <C>          <C>                                                             <C>
2.               (a)           Asset Purchase Agreement between Registrant and                 * (A)
                               Strategic  Technology  Systems,  Inc.
                               dated   October  27,   1997,   (incorporated   by
                               reference to Exhibit 2.1 of Registrant's  Current
                               Report  on  Form  8-K  (File  No.  0-7100)  dated
                               November 17, 1997).

                 (b)           Asset Purchase Agreement dated as of February 19,               *
                               1998 by and among  Base Ten   FlowStream,  Inc.,
                               Base  Ten  Systems,  Inc.  and  Consilium,   Inc.
                               (incorporated  by  reference  to Exhibit  2(b) to
                               Registrants' Current Report on Form 8-K (File No.
                               0-7100) dated March 6, 1998).

3.               (a)           Restated Certificate of Incorporation, as amended,              *
                               of Registrant  (incorporated by reference to        
                               Exhibit 4(a) to Amendment No. 1 to Registrant's
                               Registration  Statement on Form S-8 
                               (File No. 2-84451) filed on July 31, 1990).

                 (b)           Certificate   of   Amendment   of  the   Restated               *
                               Certificate of Incorporation dated  September 1,
                               1992   (incorporated   by  reference  to  Exhibit
                               4(b)(2)  to  Amendment  No.  3  to   Registrant's
                               Registration  Statement  on Form  S-1  (File  No.
                               33-48404) filed on September 3, 1992).

                 (c)           Amended  By-Laws of the Registrant  (incorporated               *
                               by reference to Exhibit 4(d)(2) to  Registrant's
                               Registration  Statement  on Form  S-8  (File  No.
                               33-60454) filed on April 1, 1993).

                 (d)           Certificate of Amendment of Restated  Certificate               *
                               of  Incorporation   filed  December  2,  1997,
                               (incorporated  by  reference  to Exhibit  99.3 of
                               Registrant's Current Report on Form 8-K (File No.
                               0-7100) dated October 27, 1997).

                 (e)           Amended  By-laws of Registrant  dated October 13,               *
                               1997  (incorporated  by  reference  to   Exhibit
                               10(ee) to Registrant's Annual Report on Form 10-K
                               (File  No.  0-7100)  for the  fiscal  year  ended
                               October 31, 1997).

                 (f)           Amendment to Certificate of  Incorporation  filed               *
                               on March 31, 1998 (incorporated by  reference to
                               Exhibit 3(d) to  Registrants'  Current  Report on
                               Form 8-K (File No. 0-7100) dated April 23, 1998).

                 (g)           Amendment to Certificate of  Incorporation  filed               *
                               on April 21, 1998 (incorporated by  reference to
                               Exhibit 3(e) to  Registrants'  Current  Report on
                               Form 8-K (File No. 0-7100) dated April 23, 1998).

                 (h)           Certificate   of  Amendment  of   Certificate  of               *
                               Incorporation  dated  June 30,  1998 filed  with
                               the  Treasurer of the State of new Jersey on July
                               9, 1998  (incorporated  by  reference  to Exhibit
                               3(g) to  Registrants'  Current Report on Form 8-K
                               (File No. 0-7100) dated January 13, 1999).

                 (i)           Certificate   of  Amendment  of   Certificate  of               *
                               Incorporation  dated  September  30, 1998  filed
                               with the  Treasurer of the State of New Jersey on
                               October 13, 1998  (incorporated  by  reference to
                               Exhibit 3(h) to  Registrants'  Current  Report on
                               Form 8-K  (File No.  0-7100)  dated  January  13,
                               1999).

                 (j)           Certificate   of  Amendment  of   Certificate  of               *
                               Incorporation  dated  November  18,  1998  filed
                               with the  Treasurer of the State of new Jersey on
                               November 19, 1998  (incorporated  by reference to
                               Exhibit 3(i) to  Registrants'  Current  Report on
                               Form 8-K  (File No.  0-7100)  dated  January  13,
                               1999).

                 (k)           Certificate   of  Amendment  of   Certificate  of               *
                               Incorporation dated January 11, 1999  filed with
                               the  Treasurer  of the  State  of new  Jersey  on
                               January 11, 1999  (incorporated  by  reference to
                               Exhibit 3(j) to  Registrants'  Current  Report on
                               Form 8-K  (File No.  0-7100)  dated  January  13,
                               1999).

                 (l)           Form of  Certificate  of  Amendment  of  Restated               *
                               Certificate  of  Incorporation  providing    for
                               designation,   preferences   and  rights  of  the
                               Convertible Preferred Shares, Series B (Exhibit A
                               to the  Exchange  Agreement  dated as of December
                               31, 1998)  (incorporated  by reference to Exhibit
                               10(yy) to Registrants' Current Report on Form 8-K
                               (File No. 0-7100) dated January 13, 1999).

                 (m)           Certificate   of  Amendment  of   Certificate  of
                               Incorporation  dated March 3, 1999 filed with the
                               Treasurer  of the  State of New  Jersey  on March
                               4, 1999.

                 (n)           Certificate  of Correction to the  Certificate of
                               Amendment    of    Restated     Certificate    of
                               Incorporation    providing    for    designation,
                               preferences   and   rights  of  the   Convertible
                               Preferred  Shares,   Series  B,  filed  with  the
                               Treasurer of the State of New Jersey on March 18,
                               1999.



4.               (a)           Purchase Agreement filed as of August 8, 1996                   *
                               between  the  Registrant  and Jesse L.  Upchurch
                               (incorporated  by  reference  to Exhibit 4 (a) to
                               Registrant's Current Report on Form 8-K (File No.
                               0-7100) dated August 12, 1996).

10.              (a)           1980 Deferred Compensation  Agreement between                   * (A)
                               the  Registrant  and  certain   executive  
                               officers  (incorporated  by  reference to Exhibit
                               10.3 to  Registrant's  Registration  Statement on
                               Form S-1 File No.  2-70259  filed on December 16,
                               1980).

                 (b)           1981  Incentive  Stock Option Plan of Registrant,               * (A)
                               as amended and restated on January  12, 1990
                               (incorporated  by  reference  to Exhibit  4(c) to
                               Amendment  No.  1  to  Registrant's  Registration
                               Statement on Form S-8 (File No. 2-84451) filed on
                               July 31, 1990).

                 (c)           1992   Stock    Option    Plan   of    Registrant               * (A)
                               (incorporated by reference to Exhibit 10(ai) to 
                                Amendment No. 3 to Registrant's  Registration
                               Statement on Form S-1 (File No.
                               33-48404) filed on September 3, 1992).

                 (d)           Change in Control  Agreement  dated  October  23,               * (A)
                               1991  between  Registrant  and  Myles  M.  
                               Kranzler  (incorporated  by  reference to Exhibit
                               10(e) to Registrant's  Annual Report on Form 10-K
                               (File  No.  0-7100)  for the  fiscal  year  ended
                               October 31, 1991).


<PAGE>


                            Exhibit Index (Continued)
       Exhibit Number                                                 Exhibit                  Page
       --------------                                                 -------                  ----
                 (e)           Change in Control Agreement dated October 23,                   * (A)
                               1991 between  Registrant and James A. Eby
                               (incorporated  by reference to Exhibit 10(f)
                               to Registrant's  Annual Report on Form 10-K (File
                               No. 0-7100) for the fiscal year ended October 31,
                               1991).

                 (f)           Change in Control  Agreement  dated  October  23,               * (A)
                               1991  between  Registrant  and  Edward  J.  
                               Klinsport  (incorporated  by reference to Exhibit
                               10(f) to Registrant's  Annual Report on Form 10-K
                               (File  No.  0-7100)  for the  fiscal  year  ended
                               October 31, 1991).

                 (g)           Employment  Agreement  dated as of March 26, 1992               * (A)
                               between  the   Registrant  and  Myles  M.  
                               Kranzler  (incorporated  by  reference to Exhibit
                               28(b) to Registrant's  Current Report on Form 8-K
                               (File No. 0-7100) filed on April 10, 1992).

                 (h)           Employment  Agreement  dated as of March 26, 1992               * (A)
                               between  the  Registrant  and  James A.  Eby
                               (incorporated  by reference  to Exhibit  28(c) to
                               Registrant's Current Report on Form 8-K (File No.
                               0-7100) filed on April 10, 1992).

                 (i)           Employment  Agreement  dated as of March 26, 1992               * (A)
                               between  the  Registrant  and  Edward  J.  
                               Klinsport  (incorporated  by reference to Exhibit
                               28(d) to Registrant's  Current Report on Form 8-K
                               (File No. 0-7100) filed on April 10, 1992).

                 (j)           Employment  Agreement  dated as of March 26, 1992               * (A)
                               between  the   Registrant   and  Alan  J.  
                               Eisenberg  (incorporated  by reference to Exhibit
                               28(e) to Registrant's  Current Report on Form 8-K
                               (File No. 0-7100) filed on April 10, 1992).

                 (k)           Amended Agreement dated July 28, 1992 between the               * (A)
                               Registrant   and   Alexander    Adelson   
                               (incorporated  by reference to Exhibit  10(ar) to
                               the   Registrant's   Registration   Statement  on
                               Amendment   No.  3.  to  Form  S-2  on  Form  S-1
                               (Registration No. 33-48404) filed on September 3,
                               1992).

                 (l)           Modification  of Amended  Agreement dated January               * (A)
                               11, 1993 between the Registrant and
                               Alexander M. Adelson.

                 (m)           Amended Modification of Amended Agreement dated                 * (A)
                               January  28,  1994  between  the
                               Registrant and Alexander M. Adelson.

                 (n)           Amended Consulting  Agreement made as of February               * (A)
                               24, 1992 between the  Registrant  and Bruce
                               D. Cowen  (incorporated  by  reference to Exhibit
                               10(as) to the Registrant's Registration Statement
                               on  Amendment  No.  3.  to Form  S-2 on Form  S-1
                               (Registration No. 33-48404) filed on 
                               September 3, 1992).

                 (o)           Modification of Amendment Agreement dated January               * (A)
                               11, 1993 between the Registrant and Bruce D. 
                               Cowen.

                 (p)           Consulting  Agreement  dated  March 1,  1994                    * (A)
                               between  the Registrant and Bruce D. Cowen.  

                 (q)           Option Agreement dated as of November 9, 1992                   *
                               between the Registrant and Donald M. Daniels
                               (incorporated  by  reference  to Exhibit
                               10(as) to the Registrant's  Annual Report on Form
                               10-K (File No.  0-7100) for the fiscal year ended
                               October 31, 1992).

                 (r)           Option Agreement dated as of June 5, 1992 between               * 
                               the    Registrant    and   Strategic   Growth
                               International, Inc. (incorporated by reference to
                               Exhibit 10(at) to the Registrant's  Annual Report
                               on Form 10-K  (File No.  0-7100)  for the  fiscal
                               year ended October 31, 1992).

                 (s)           Acquisition  Agreement  dated  October  28,  1994               * 
                               between the Registrant and CKR  Partners, L.L.C.
                               (incorporated  by  reference  to Exhibit  2(a) to
                               Registrant's Current Report on Form 8-K (File No.
                               0-7100) dated November 11, 1994).

                 (t)           Lease  dated   October   28,  1994   between  the               *
                               Registrant    and   CKR   Partners,    L.L.C.  
                               (incorporated  by reference  to Exhibit  10(b) to
                               Registrant's Current Report on Form 8-K (File No.
                               0-7100) dated November 11, 1994).

                 (u)           Operating  Agreement  between the  Registrant and               *
                               Jesse   L.   Upchurch   dated   May  1,   1997  
                               (incorporated  by  reference  to  Exhibit  (u) of
                               Registrant's Current Report on Form 8-K (File No.
                               0-7100) dated May 1, 1997).

                 (v)           License  and  Services   Agreement   between  the               *
                               Registrant and uPACS, L.L.C. dated May 1,  1997,
                               (incorporated  by reference  to Exhibit  10(v) of
                               Registrant's  Current  Report  Form 8-K (File No.
                               0-7100) dated May 1, 1997).

                 (w)           Compensation   Agreement  among  uPACS,   L.L.C.,               * (A)
                               Andrew Garret,  Inc. and Andrew Sycoff  dated
                               May  1,  1997,   (incorporated  by  reference  to
                               Exhibit 10(w) of  Registrant's  Current Report on
                               Form 8-K (file No. 0-7100) dated May 1, 1997).

                 (x)           Securities   Purchase   Agreement   between   the               *
                               Registrant and certain purchasers dated  May 30,
                               1997,  (incorporated by reference to Exhibit 99.1
                               of Registrant's  Current Report on Form 8-K (File
                               No. 0-7100) dated May 30, 1997).

                 (y)           Convertible   Term   Debenture   issued   by  the               *
                               Registrant to certain  purchasers dated May  30,
                               1997,  (incorporated by reference to Exhibit 99.2
                               of Registrant's  Current Report on Form 8-K (File
                               No. 0-7100) dated May 30, 1997).

                 (z)           Stock  Purchase  Warrant issued by the Registrant               *
                               to  certain  purchases  dated  May  30,    1997,
                               (incorporated  by  reference  to Exhibit  99.3 of
                               Registrant's Current Report on Form 8-K (File No.
                               0-7100) dated May 30, 1997).

                 (aa)          Registration   Rights   Agreement   between   the               *
                               Registrant and certain purchasers dated  May 30,
                               1997,  (incorporated by reference to Exhibit 99.4
                               of Registrant's  Current Report on Form 8-K (File
                               No. 0-7100) dated May 30, 1997).

                 (bb)          Securities   Purchase   Agreement   between   the               *
                               Registrant   and  certain   purchasers   dated  
                               December 4, 1997,  (incorporated  by reference to
                               Exhibit 99.1 of  Registrant's  Current  Report on
                               Form 8-K (File No.  0-7100) filed dated  December
                               9, 1997).

                 (cc)          Registration   Rights   Agreement   between   the               *
                               Registrant   and  certain   purchasers   dated  
                               December 4, 1997,  (incorporated  by reference to
                               Exhibit 99.1 of  registrant's  Current  Report on
                               Form 8-K  (File  No,  0-7100)  dated May 30 filed
                               December 9, 1997).

                 (dd)          Common   Stock   Purchase   Warrant   issued   by               *
                               Registrant   and  certain   purchasers   dated  
                               December 4, 1997  (incorporated  by  reference to
                               Exhibit 99.4 of Registrant's  Current Report Form
                               8-K (File No. 07100) dated December 9, 1997).

                 (ee)          Warrant   Agreement   between    Registrant   and               * (A)
                               Strategic Growth  International  dated April 
                               15, 1997  (incorporated  by  reference to Exhibit
                               10(ee) to Registrant's Annual Report on Form 10-K
                               (File  No.  0-7100)  for the  fiscal  year  ended
                               October 31, 1997).

                 (ff)          Consultant  Agreement between  Registrant and RTS               * (A)
                               Research  Lab,  Inc.,  dated  June 9,    1997
                               (incorporated  by reference to Exhibit  10(ff) to
                               Registrant's Annual Report on Form 10-K (File No.
                               0-7100)  for the fiscal  year ended  October  31,
                               1997).

                 (gg)          Warrant Agreement between Registrant and                        * (A)
                               Strategic Growth  International,  Inc. dated  
                               June 20, 1997  (incorporated  by reference to 
                               Exhibit 10(gg) to  Registrant's  Annual
                               Report on Form 10-K (File No. 0-7100) for the 
                               fiscal year ended October 31, 1997).

                 (hh)          Option Agreement between  Registrant and David C.               * (A)
                               Batten dated October 13, 1997   (incorporated
                               by  reference to Exhibit  10(hh) to  Registrant's
                               Annual Report on Form 10-K (File No.  0-7100) for
                               the fiscal year ended October 31, 1997).

                 (ii)          Option Agreement  between  Registrant and Alan S.               * (A) 
                               Poole dated  October 13, 1997  (incorporated
                               by  reference to Exhibit  10(ii) to  Registrant's
                               Annual Report on Form 10-K (File No.  0-7100) for
                               the fiscal year ended October 31, 1997).

                 (jj)          Employment   Agreement  between   Registrant  and               * (A)
                               Thomas E.  Gardner  dated  October  17, 1997 
                               (incorporated  by reference to Exhibit  10(jj) to
                               Registrant's Annual Report on Form 10-K (File No.
                               0-7100)  for the fiscal  year ended  October  31,
                               1997).

                 (kk)          Change of Control  Agreement  between  Registrant               * (A)
                               and Thomas E. Gardner dated October  17, 1997
                               (incorporated  by reference to Exhibit  10(kk) to
                               Registrant's Annual Report on Form 10-K (File No.
                               0-7100)  for the fiscal  year ended  October  31,
                               1997).

                 (ll)          Performance-Based  Stock Option Agreement between               * (A) 
                               Registrant  and  Thomas  E.  Gardner   dated
                               October 17, 1997  (incorporated  by  reference to
                               Exhibit 10(ll) to  Registrant's  Annual Report on
                               Form 10-K (File No.  0-7100)  for the fiscal year
                               ended October 31, 1997).

                 (mm)          Service-Based   Stock  Option  Agreement  between               *
                               Registrant  and Thomas E. Gardner dated  October
                               17, 1997  (incorporated  by  reference to Exhibit
                               10(mm) to Registrant's Annual Report on Form 10-K
                               (File  No.  0-7100)  for the  fiscal  year  ended
                               October 31, 1997).

                 (nn)          Separation  and  Consulting   Agreement   between               * (A)
                               Registrant  and  Myles  M.  Kranzler  dated  
                               October 20, 1997  (incorporated  by  reference to
                               Exhibit 10(nn) to  Registrant's  Annual Report on
                               Form 10-K (File No.  0-7100)  for the fiscal year
                               ended October 31, 1997).

                 (oo)          Omnibus  Convertible Term Debenture Holder Waiver               *
                               and Consent  Regarding Sale of the  
                               Government Technology  Division and Amendment No.
                               1 to  Convertible  term  Debenture
                               between  Registrant  and RGC  International  
                               Investors,  LDC and the Tail Wind  Fund,
                               LTD.,  dated  October  20,  1997  (incorporated  
                               by  reference  to Exhibit  10(oo) to
                               Registrant's Annual Report on Form 10-K (File No.
                               0-7100) for the fiscal year ended
                               October 31, 1997).

                 (pp)          Employment  Agreement  between  Registrant and C.               * (A)
                               Richard  Bagshaw  dated  November  26,   1997
                               (incorporated  by reference to Exhibit  10(pp) to
                               Registrant's Annual Report on Form 10-K (File No.
                               0-7100)  for the fiscal  year ended  October  31,
                               1997).

                 (qq)          Promissory   Note   from   Strategic   Technology               *
                               Systems, Inc., to Registrant dated  December 31,
                               1997 (incorporated by reference to Exhibit 10(gg)
                               to Registrant's  Annual Report on Form 10-K (File
                               No. 0-7100) for the fiscal year ended October 31,
                               1997).

<PAGE>

                 (rr)          Warrant   Agreement   between    Registrant   and               * 
                               Strategic  Technology  Systems,   Inc.,  dated  
                               December 31, 1997  (incorporated  by reference to
                               Exhibit 10(rr) to  Registrant's  Annual Report on
                               Form 10-K (File No.  0-7100)  for the fiscal year
                               ended October 31, 1997).

                 (ss)          Transition   Agreement  between   Registrant  and               *
                               Strategic  Technology  Systems,   Inc.,    dated
                               December 31, 1997  (incorporated  by reference to
                               Exhibit 10(ss) to  Registrant's  Annual Report on
                               Form 10-K (File No.  0-7100)  for the fiscal year
                               ended October 31, 1997).

                 (tt)          Sublease   between   Registrant   and   Strategic               *
                               Technology  Systems,  Inc.,  dated December  31,
                               1997 (incorporated by reference to Exhibit 10(tt)
                               to Registrant's  Annual Report on Form 10-K (File
                               No. 0-7100) for the fiscal year ended October 31,
                               1997).

                 (uu)          Fifth  Amendment to Lease between  Registrant and               *
                               CKR PARTNERS,  L.L.C.,  dated December  31, 1997
                               (incorporated  by reference to Exhibit  10(uu) to
                               Registrant's Annual Report on Form 10-K (File No.
                               0-7100)  for the fiscal  year ended  October  31,
                               1997).

                 (vv)          Consulting   Agreement  between   Registrant  and               * (A) 
                               Edward J. Klinsport  dated December 31, 1997
                               (incorporated  by reference to Exhibit  10(vv) to
                               Registrant's Annual Report on Form 10-K (File No.
                               0-7100)  for the fiscal  year ended  October  31,
                               1997).

                 (ww)          Stock  Purchase  Agreement  dated as of November                *
                               12,  1998 by and  between  Base Ten  
                               Systems,  Inc. and Jesse L.  Upchurch  
                              (incorporated  by reference to Exhibit 3(d) to
                               Registrants' Current Report on Form 8-K (File No.
                               0-7100) dated November 20, 1998).

                 (xx)          Exchange  Agreement dated as of December 31, 1998               *
                               by and between Base Ten  Systems,   Inc. and the
                               holders of the outstanding  Series A, Convertible
                               Preferred  Stock  (incorporated  by  reference to
                               Exhibit 10(xx) to Registrants'  Current Report on
                               Form 8-K  (File No.  0-7100)  dated  January  13,
                               1999).

                 (yy)          Form of  Certificate  of  Amendment  of  Restated               *
                               Certificate  of  Incorporation  providing    for
                               designation,   preferences   and  rights  of  the
                               Convertible preferred Shares, Series B (Exhibit A
                               to the  Exchange  Agreement  dated as of December
                               31, 1998)  (incorporated  by reference to Exhibit
                               10(yy) to Registrants' Current Report on Form 8-K
                               (File No. 0-7100) dated January 13, 1999).

                 (zz)          Form of Common Stock Purchase Warrant Certificate               *
                               (Exhibit B to the  Exchange  Agreement  dated as
                               of December 31, 1998)  (incorporated by reference
                               to Exhibit 10(zz) to Registrants'  Current Report
                               on Form 8-K (File No.  0-7100)  dated January 13,
                               1999).

                 (aaa)         Form of Common Stock Purchase Warrant Certificate               *
                               Exhibit C to the  Exchange  Agreement  dated as
                               of December 31, 1998)  (incorporated by reference
                               to Exhibit 10(aaa) to Registrants' Current Report
                               on Form 8-K (File No.  0-7100)  dated January 13,
                               1999).

                 (bbb)         Irrevocable  Consent  dated  December 22, 1998 by               *
                               the holder of the  Company's  9.01%  Convertible
                               Subordinated    Debentures    (incorporated    by
                               reference  to  Exhibit  10(bbb)  to  Registrants'
                               Current  Report  on Form 8-K  (File  No.  0-7100)
                               dated January 13, 1999).

                 (ccc)         Offer  Letter  by the  Registrant  to C.  Richard               (A)
                               Bagshaw dated November 26, 1997.

                 (ddd)         Change   in   Control   Agreement   between   the               (A)
                               Registrant  and C. Richard  Bagshaw dated January
                               13, 1998.

                 (eee)         Offer  Letter by the  Registrant  to  William  F.               (A)
                               Hackett dated December 8, 1997.

                 (fff)         Change   in   Control   Agreement   between   the               (A)
                               Registrant  and William F. Hackett  dated May 26,
                               1998.
     
<PAGE>

21.                            Subsidiaries of the Registrant.

23.1                           Consent of Independent Accountants.

23.2                           Independent Auditors' Consent.

24.1                           Power of Attorney.

27.1                           Financial Data Schedule for the fiscal year-
                               ended December 31, 1998, submitted to the 
                               Securities and Exchange Commission in electronic
                               format.

27.2                           Restated Financial Data Schedule for the two 
                               month period from November 1, 1997 to 
                               December 31, 1997 submitted to the Securities and
                               Exchange Commission in electronic format.

</TABLE>


---------------

*     Incorporated by reference.

(A)   A management contract or compensatory plan or arrangement.