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                          SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D. C.  20549

   
                                     FORM 10-K/A
    
                    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
                        OF THE SECURITIES EXCHANGE ACT OF 1934


FOR THE FISCAL YEAR ENDED OCTOBER 31, 1996       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:

                                                 NAME OF EACH EXCHANGE
    TITLE OF EACH CLASS                          ON WHICH REGISTERED

    Class A Common Stock                         Nasdaq National Market
    Class B Common Stock                                 Nasdaq

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.  [    ]

As of December 31, 1996, 7,364,230 shares of Class A Common Stock and 445,121
shares of Class B Common Stock were outstanding, and the aggregate market value
of shares held by unaffiliated stockholders was approximately  $85,599,323 and
$2,566,703, respectively. 

                         DOCUMENTS INCORPORATED BY REFERENCE

        Certain portions of the Proxy Statement for the 1996 Annual Meeting of
       Shareholders are incorporated by reference into Part III of this Report.

===============================================================================
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                                BASE TEN SYSTEMS, INC.
                                     FORM 10-K/A
                         FOR THE YEAR ENDED OCTOBER 31, 1996

    The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Annual Report on Form 10-K for the
fiscal year ended October 31, 1996 as set forth in the pages attached hereto:

                                       PART II

                                                                          Page
     Item 6.  Selected Financial Data has been amended to reflect the
              Company's restated historical financial statements           12

     Item 7.  Management's Discussion and Analysis of Financial
              Condition and Results of Operations has been amended as
              a result of the restatement of the Company's historical
              financial statements                                         13

     Item 8.  Financial Statements and Supplementary Data has been
              amended to refer to the Company's restated financial
              statements                                                   23


                                       PART IV


     Item 14. Exhibits, Financial Statement Schedules and Reports on
              Form 8-K has been amended to include the Company's
              restated historical financial statements                     39

    This Amendment No. 2 to the Company's Annual Report on Form 10-K/A is being
filed as a result of the Company's restatement of its consolidated financial
statements for the years ended October 31, 1996 and 1995.  To the extent this
amended filing is inconsistent with the Company's Annual Report on Form 10K for
the fiscal year ended October 31, 1996 as amended by Amendment No. 1 on Form 10-
K/A (the "original filing ), the original filing is hereby superseded and
amended.  To the extent the original filing is unaffected by this restatement,
the original filing has not been updated or corrected to reflect events
occurring subsequent to the date of the original filing.
    

<PAGE>

                                        PART I
ITEM 1.  BUSINESS

OVERVIEW

    Base Ten Systems, Inc. (the "Company") operates with a Medical Technology
Division and a Government Technology Division and designs, develops,
manufactures and markets complex, precision electronic systems for the defense
industry and comprehensive software solutions for the pharmaceutical and medical
device manufacturing industries. The Company'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 applications from its historical
focus on designing electronic systems used primarily in weapons management
systems for military aircraft. The Company has applied this expertise to develop
PHARMASYST-Registered Trademark-, a computerized manufacturing execution system
("MES") used to automate, monitor, control and document highly regulated
manufacturing processes. 

    PHARMASYST-Registered Trademark- operates on a PC-based system in an open
client / server environment and can be readily integrated with industry standard
server database engines. PHARMASYST is designed and marketed as a standard
application, not a custom solution or toolkit, for implementation into a
customer's existing manufacturing facility. PHARMASYST acts as an electronic
monitor ensuring that the production process complies with a predefined set of
specifications in order to produce a consistent product. The Company believes
that PHARMASYST is the premier commercially available PC-based standardized MES
solution capable of the necessary functionality and supporting documentation
suitable for regulated manufacturing in the pharmaceutical and medical device
industries.  The Company is engaged in a continuing program to reach compliance
with an industry generated standard for Good Automated Manufacturing Practice
(GAMP) as a means of differentiating itself from present and future competition.

    The Company believes that PHARMASYST is applicable to the highly regulated
pharmaceutical and medical device manufacturing industries. The production of
pharmaceuticals is subject to the FDA's current Good Manufacturing Practices
(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 cGMPs. PHARMASYST, through
the Company's program of meeting GAMP requirements, is intended to support the
manufacturer's verification of a compliant production process in a manner which
the Company believes is acceptable to the FDA. 

    PHARMASYST offers four manufacturing applications: dispensing, electronic
batch recording, inventory control, and document management, collectively
encompassing a production process. The Company is currently developing PHARM2,
an MES product integrating all four PHARMASYST applications into a customer's
manufacturing environment, with only the purchased applications activated.
Although no assurances can be given, the Company expects to complete the initial
version of PHARM2 containing all four applications and achieve compliance with
GAMP in the first quarter of calendar 1997.*

    The Company has entered into collaborative relationships with certain
computer system integrators and others that can integrate PHARMASYST with the
products and services they provide. The Company has established a relationship
with STG-Coopers and Lybrand Consulting AG, Walsh Automation, a Canadian systems
integrator, WTI Systems Ltd, an English Systems Integrator, Toyo Engineering
Co., a Japanese developer of turnkey manufacturing facilities, Bailey Controls
Company, a provider of distributed control systems, Intellution, Inc., a
supplier of manufacturing systems for the pharmaceutical industry and the Taisei
Corporation, a $15 billion construction and engineering company in Japan. 

    The Company develops and manufactures weapons management systems and other
defense-related products. Currently, the Company has ongoing development
contracts with McDonnell Douglas Helicopter Systems, McDonnell Douglas
Aerospace, Daimler-Benz AG, Aerospace, and the U.S. Air Force.  Most of these
contracts relate to upgrading weapons systems for existing aircraft fleets. In
1996 the Company entered into a program with McDonnell Douglas Helicopter
Systems to develop helicopter maintenance data recorders. In addition, the
Company 

                                          2


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entered into a contract with McDonnell Douglas Aerospace for an Interference
Blanking Unit used aboard the F-18. A contract for the completion of the product
design and early production for components of a missile system was awarded to
the Company in October, 1996. The  Company has also designed secure
communications devices used by the U.S. Navy and the National Security Agency.
During fiscal 1995 and fiscal 1996, approximately 85% and 90%, respectively, of
the Company's revenues were defense-related. The Company's primary customer in
the years 1994, 1995, and 1996 was Deutsche Aerospace AG (DASA), providing
revenues of 22.2%, 25.0%, and 30.0% of the Company's total revenue respectively.
In addition, the three largest domestic customers in 1996 were McDonnell Douglas
Helicopter Company, McDonnell Douglas Aircraft, and SPD (a Philadelphia
manufacturer of circuit breaker equipment) generating 13.0%, 10.6%, and 7.5% of
total sales respectively.  The Company expects that its defense business will
continue to remain a significant component of its operations with the potential
for substantial production contracts extending over the next ten years. *

MANUFACTURING EXECUTION SYSTEMS


    Manufacturing execution systems are designed to create uniformity in a
production sequence by defining the elements of each production step. MES
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 procedures were followed according to
defined procedures. Paper based systems are generally inadequate in enforcing
strict manufacturing procedures, rendering such systems 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. 

    The Company believes there is a compelling and immediate need for the
pharmaceutical and medical device industries to implement MES that facilitate
the demonstration of compliance with FDA cGMP regulations and that these
industries are actively seeking suppliers and products to aid in compliance. The
products themselves must be developed and proven under rigid controls and
procedures in compliance with currently accepted industry standards for
validation. In addition, the Company believes pharmaceutical and medical device
manufacturers are subject to pressures to improve manufacturing costs in
anticipation of the expiration of U.S. patents and the emergence of competing
generic drugs and pricing pressures imposed by large retail organizations and
Healthcare providers who seek bulk purchases at favorable prices. 

THE COMPANY'S MES SOLUTION

    PHARMASYST enables the customer to specify the individual steps of the
production process. PHARMASYST interfaces 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 PHARMASYST recognize an out-of-specification event, it
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, PHARMASYST will
not authorize commencement of the next production step and can issue a problem
notification to supervisory or quality control personnel. In addition,
PHARMASYST chronologically tracks and electronically records each input,
procedure and output, which provides a powerful tool for the customer to
demonstrate ongoing cGMP compliance. 

    -    Executes workflow instructions, including recipes and equipment
         operating instructions 

    -    Confirms proper execution of procedures 

    -    Monitors material flow throughout the entire manufacturing process 

                                          3


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    -    Verifies testing of intermediate and final products and monitors
         adherence to quality standards 

    -    Authorizes progression to the next production step if all events were
         completed to specification, and 

    -    Provides comprehensive real time documentation for each event.

    PHARMASYST provides a standard set of MES applications, not custom systems
or system design services. The Company is able to provide customers with a fixed
price quotation and estimated delivery schedule based upon an extensive
evaluation of user requirements. The Company believes such specificity provides
a significant advantage over custom MES solutions that have been characterized
by long development and installation schedules and unpredictable costs. 

    The Company commenced sales of PHARMASYST in fiscal 1995 and is installing
applications at facilities operated by Abbott Laboratories Hospital Products
Division, Bayer Inc., Instrument Laboratories and Pfizer Inc. International
Pharmaceuticals Group. The Company has received orders for installations for a
total of 33 sites and has orders from a total of nineteen pharmaceutical
manufacturers including Pfizer Inc. International Pharmaceuticals Group,
Minnesota Mining & Manufacturing, Astra, Taisei, Novo Nordisk, Berlex,
SmithKline Beecham, Federa and Upjohn/Pharmacia. PHARMASYST normally requires
only limited customization for incorporation into existing systems. Based upon
orders to date, the Company estimates that a typical PHARMASYST site
installation costs between $150,000 and $300,000 and requires six to nine months
to install, depending in part on the time necessary for the customer to solidify
its requirements.*

    The Company is in the process of integrating the PHARMASYST applications
into a single MES product, referred to as PHARM2.  PHARM2 will also interface
with more database engines and operating systems than earlier PHARMASYST
applications, providing increased flexibility and limiting the customization
required for an installation. The Company began marketing PHARM2 in April 1996
and expects to complete development of the initial version of PHARM2 containing
all four applications in first quarter calendar 1997.*

*FORWARD LOOKING STATEMENT

    THE FOREGOING CONTAINS FORWARD LOOKING INFORMATION WITHIN THE MEANING OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.  THESE STATEMENTS APPEAR
IN A NUMBER OF PLACES AND CAN BE IDENTIFIED BY AN "ASTERISK" REFERENCE TO A
PARTICULAR SECTION OF THE FOREGOING OR BY THE USE OF SUCH FORWARD-LOOKING
TERMINOLOGY SUCH AS "BELIEVE", "EXPECT", "MAY", "WILL", "SHOULD" OR THE NEGATIVE
THEREOF OR VARIATIONS THEREOF.  SUCH FORWARD LOOKING STATEMENTS INVOLVE CERTAIN
RISKS AND UNCERTAINTIES, INCLUDING THE PARTICULAR FACTORS DESCRIBED ABOVE AS
WELL AS THROUGHOUT THIS REPORT.  IN EACH CASE ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM SUCH FORWARD LOOKING STATEMENTS.  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 (EXPRESSED OR
IMPLIED) WILL NOT BE REALIZED.

OTHER PRODUCTS

    ULTRASOUND IMAGING PRODUCTS.  In 1994, the Company introduced uPACS-TM-, a
system for archiving ultrasound images. That 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, despite anticipated 510(k) premarket clearances
that were subsequently granted in June 1996. The Company is developing a new
system for archiving ultrasound images with networking, communication, and
off-line measurement capabilities. The Company is marketing this new system
under the uPACS name and has received orders for approximately $300,000 of this
new system.

    MEDICAL SCREENING SOFTWARE.  The Company has created three software
programs to aid in the prenatal detection of risk for certain birth defects. The
first two programs are designed to accelerate the computation of risk detection
for neural tube defects (PRENVAL I) and Down's syndrome (PRENVAL IA) in pregnant
women. A portion of the third program was sold and the remainder licensed to the
Johnson & Johnson Clinical Diagnostic Division ("Johnson & Johnson"), located in
Amersham, England. Johnson & Johnson offers this software as PRENATA, a
trademark of Johnson & Johnson, in connection with the sale of its products used
in the detection of 

                                          4


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fetal abnormalities throughout the world, except for the United States. The
Company's agreement with Johnson & Johnson provides for guaranteed minimum
royalties for a period of five years beginning October 1994. The aggregate
minimum royalties of $1.8 million collectable for 1995 through 1999 were earned
in fiscal year 1995. The Company has terminated further self-funded development
efforts of these products because the Company believes that the market and
further revenue potential of the products does not currently justify the cost of
further development.

DEFENSE-RELATED PRODUCTS

    GENERAL.  The Company develops and manufactures electronic systems for
defense applications and provides contract manufacturing services for prime
defense contractors. These products primarily relate to weapons management in
high performance military aircraft and employ the Company's safety critical
technology and software. The Company designs products internally, in conjunction
with defense contractors, and under U.S. government contracts. 

    TORNADO PROGRAM.  Since 1976, the Company has been involved in the design
and production of weapons control systems for the German and Italian versions of
the Tornado aircraft. These systems are designed to aid the operator of a
sophisticated combat aircraft in deploying highly complex weapons. The Tornado
program is a joint program of the governments of Germany, United Kingdom, and
Italy for a multi-role combat aircraft to meet the particular defense missions
of these three countries. The Company's participation in Tornado programs has
also included contracts to supply certain elements of the system to British
Aerospace for sale to the United Kingdom and Saudi Arabia. 

    The most important and complex weapons control system manufactured by the
Company for the Tornado program is the Stores Management System ("SMS"). The SMS
employs a visual display to communicate the current status of weapons on board
the aircraft to the operator. It permits the operator to select appropriate
weapons, to confirm or change the selection of weapons, and to execute other
functions such as weapon jettison and fault detection. All of these actions are
regulated by a weapons programming unit containing multiple microprocessors and
their memories. The SMS has up to seven electronic units, remotely located from
the weapons programming unit, to receive and decode release instructions and
activate switches connected to weapon release mechanisms. 

    The Company manufactures the SMS for the Tornado program under a contract
with Daimler Benz Aerospace (DASA). In fiscal 1993, 1994, 1995, and 1996, sales
under the Tornado program accounted for approximately 17%, 36%, 36% and 37%,
respectively, of the Company's total revenues. In 1995, the Company received
full funding for additional production of weapons control products for the
Tornado program under contracts valued at approximately $6.3 million. This
contract is expected to be completed in early 1997. In the first quarter of
fiscal 1996, initial funding was received for Tornado software upgrades under a
contract valued at $1.8 million extending into 1997. 

  OTHER PROGRAMS.  The Company has designed and manufactured Sidewinder control
systems for the U.S. Air Force A-10 aircraft, the A-4 modernization programs for
the Royal Air Force of New Zealand and certain aircraft flown by the Greek Air
Force, and the F-5 aircraft for delivery to the Taiwan Air Force. 

    Since 1980, the Company as a contract manufacturer has supplied electronic
systems to McDonnell Douglas Helicopter Systems for use aboard the U.S. Army's
Apache helicopter. The Company is also a contract manufacturer for SPD
Technologies, Inc., a circuit breaker manufacturer, and for certain agencies of
the U.S. government.


    The Company has funded research and development of technology used for the
control of air-to-air and air-to-ground missiles such as Sidearm, Stinger and
Mistral and has provided a missile control system for the Stinger missile for
experimental use aboard the U.S. Army's Apache helicopter. Early in the year,
the Company received $225,000 towards the development of a component of an
electronic warfare system deployed on a fighter aircraft for the predetermined
release of chaff and flare to avoid hostile fire.

                                          5


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    NEW PROGRAMS  The Company was notified by McDonnell Douglas Helicopter
Systems  in April 1996 that it has been selected to provide the design,
development, and initial production of a maintenance data recorder (black box)
for the U.S. Army's Apache helicopter. Revenue for this contract will be
recognized in 1996, 1997, and 1998. Follow on production, if awarded to the
Company, is expected to continue beyond the year 2000 assuming government
funding.

    In May, 1996 the Company was notified that it had been selected to provide
the engineering and initial production for an Interference Blanking Unit (IBU)
used aboard the F-18. This project scheduled for completion in 1997 has
potential application for usage aboard other aircraft for both the U.S. and its
allies. If procured for the F-18 alone the IBU could require production runs
beyond the year 2000 providing government funding and strategic defense
decisions continue, neither of which can be assured.

    SECURE COMMUNICATIONS PRODUCTS.  The Company has engaged in the development
and sale of products for secure communications systems to the National Security
Agency and the U.S. Navy. The Company's initial product was a telecommunications
interface known as a TCIA for the transmission of encrypted data over a
conventional T1 telephone line. The TCIA was endorsed by the National Security
Agency in 1991 but has been restricted to government users.

    In 1991, the Company was awarded a contract to manufacture Bus Interface
Units for the U.S. Navy's communication system using the Navy's design. The
Company subsequently created a proprietary device, known as the Bus Interface
Card ("BIC"), to substitute for the Bus Interface Unit, and has since sold over
9,500 of these devices. The BIC connects external signals to a signal bus
through software driven control circuits. The software, programmed to prioritize
signals for processing, was designed by the Navy but includes BIC software which
was designed by the Company. The Company anticipates further contracts for this
product over the next several years, although at a slower rate than in prior
years. The Company also developed a proprietary device known as the Synchronous
Line Interface Card ("SLIC"). The SLIC is suitable for laptop computers and
performs the same functions as the BIC. The Company has received a small
quantity of orders for this device but believes that SLIC may eventually replace
the BIC as the device of choice. 

SALES AND MARKETING

    The Company currently markets PHARMASYST and PHARM2 through a direct sales
force in North America, consisting of four sales people, one of whom serves as
North American sales manager. Outside of North America, the Company has a sales
person in England, Denmark, Belgium and Tokyo.

    The Company's marketing efforts for PHARMASYST and PHARM2 consist primarily
of negotiating with third parties to develop collaborative efforts with the
Company in the sale and marketing of its PHARMASYST products, advertising in
industry periodicals, attending trade shows, and participating in industry
symposiums sponsored by the International Society for Pharmaceutical Engineering
and the Manufacturing Execution Systems Association. In addition, certain of the
Company's customers have agreed to allow their PHARMASYST installations to be
used as reference accounts for potential customers. The Company believes the
ability to demonstrate existing installations will serve as a powerful marketing
tool. 

    The Company currently markets its defense products through four sales
people, one of whom focuses exclusively on McDonnell Douglas, with the others
addressing the remaining significant U.S. defense contractors. In addition,
certain officers of the Company are responsible for maintaining relationships
with specific U.S. and foreign defense contractors. The Company relies on
established relationships with major defense contractors such as Daimler-Benz AG
Aerospace, McDonnell Douglas, Northrop, and various agencies within the U.S.
Department of Defense to develop further business based on past association and
familiarization with existing programs such as Tornado, F-5, Apache Helicopter,
and the A-10 combat aircraft. These opportunities require management attention
and technical support more than sales persons. 

                                          6


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RESEARCH AND DEVELOPMENT

    The Company's commercial product development efforts are currently directed
at the development of PHARM2 and a new image archiving system to be marketed
under the uPACS name. The Company believes that commercial success in the MES
and other markets will depend on its ability to provide product improvements or
version upgrades. Consequently, the Company intends to continue to devote
significant resources to developing product upgrades. 

    The Company's defense-related product development efforts consist of
designing new weapon control systems and upgrades for existing aircraft fleets
based upon specifications provided by defense contractors. Generally, such
development projects are undertaken pursuant to contractual arrangements with
defense contractors, under which the Company receives full or partial funding.
The Company believes its participation in development contracts provides an
advantage in bidding for subsequent production contracts. 

    The Company has developed concepts for certain "regulatory implementation"
software intended to verify in real-time that a computer involved in critical
applications is functioning as intended and that certain critical tasks are
being performed within specified parameters. It has also developed certain
concepts to provide software authors and programmers an environment for
developing safety critical software. 

    During fiscal 1994, 1995 and 1996, the Company capitalized $1.5 million,
$2.3 million and $3.8 million of software development costs, and expensed
approximately $.9 million, $.9 million, and $1.0 million, in research and
development expenditures, respectively. The Company's research and development
staff consists of approximately 62 engineers and designers equally divided
between defense and commercial product development. 

COMPETITION

    The MES software market is intensely competitive and subject to rapid
change. The principal competitive factors in this market include product
functionality and quality, ease and speed of implementation and use, total cost,
process manufacturing expertise, customer service and satisfaction, supported
hardware and software platforms, the underlying technology and architecture of
the product, vendor reputation and the ability and experience to document the
software design life cycle to accepted industry validation standards. The
Company believes that it competes effectively with respect to these factors,
although it may be at a disadvantage against companies with greater financial,
marketing, and technical resources. 

    The Company's competitors for MES software include Consilium, Incode, SAP
AG, Intellution, Inc. and ProPack GmbH. While the Company believes that
PHARMASYST is the premier commercially available, comprehensive standardized
PC-based MES solution capable of the necessary functionality and supporting
documentation suitable for regulated manufacturing found in the pharmaceutical
and medical device manufacturing industries, many of these competitors offer
products that provide specific MES applications, or toolkits that can be used
for internal system development. Consilium offers FlowStream, an MES developed
for the highly regulated pharmaceutical and bulk chemical manufacturing
industries. In addition, the Company competes with system integrators and
internal corporate MIS departments. The Company believes that internal MIS
departments, which are responsible for developing and operating a manufacturer's
management information systems and who are instrumental in the approval process
for PHARMASYST, provide a significant source of competition. 

    Competition among providers of software for manufacturers is likely to
increase substantially for many reasons. A number of companies offering products
developed for discrete manufacturers have announced plans to introduce products
designed more specifically for process manufacturers. Some companies offering
host-based systems for process manufacturers have begun to offer or have
announced plans to introduce products for client/server computing and to
increase the number of hardware platforms on which their software operates. The
Company also expects that competition will increase as a result of software
industry consolidations. In addition, current and potential competitors have
established or may establish cooperative relationships among themselves or with
third parties to increase the ability of their products to address the needs of
the Company's prospective customers. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share. 

                                          7


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    There can be no assurance that the Company will compete successfully with
new or existing competitors or that competitive pressures faced by the Company
will not materially and adversely affect its business, results of operations and
financial condition. 

    The defense business is also highly competitive and subject to rapid
change. The Company competes primarily on its expertise in designing safety
critical applications. The Company competes with large defense contractors and
specific departments of large electronic companies. The Company's competitors
include McDonnell Douglas, Lockheed Martin, Hamilton Standard Company, a
division of United Technologies Corporation, GEC Marconi, Elbit and Smiths
Industries. Many of the Company's competitors are larger and have more resources
to devote to, among other things, internally-funded development efforts that
could provide advantages in competitive bidding. 

MANUFACTURING

    The Company's defense-related operations involve assembling and testing
final products from components and subassemblies purchased from third parties.
The Company also designs software used in the products manufactured pursuant to
third-party requirements. All of the Company's defense-related development and
production activities take place in its Trenton, New Jersey facility. 

    Electronic components, such as transistors, resistors, integrated circuits
and diodes, and subassemblies used in the Company's products, are purchased by
the Company from a large number of suppliers and are generally available from
alternative sources. However, for some components and subassemblies, the Company
relies on a single source of supply. For such components and subassemblies, the
Company attempts to maintain inventory levels sufficient to cover foreseeable
production requirements for a period the Company believes will be sufficient to
locate alternative sources of supply or to develop alternative designs that
avoid reliance on those components or subassemblies. 


    As part of its contract manufacturing services, the Company offers
supporting engineering services to develop a prime contractor's design and solve
technical and manufacturing problems. 

BACKLOG

    A majority of the Company's sales and unbilled orders are with
defense-related customers. Commercial software backlog is related to PHARMASYST
products. Backlog as of October 31, 1996 was approximately $11.6 million, with
$8.3 million scheduled for delivery in the current fiscal year. At fiscal 1996
year end, $4.1 million, or nearly 36% of the backlog, was related to PHARMASYST
product orders with the remainder associated with the defense business.
Proprietary Rights

    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 the
Company's proprietary rights to the same extent as do the laws of the United
States. Under certain circumstances, customers of the Company may be entitled to
limited access of the PHARMASYST source code. Customer access to source code may
increase the possibility of misappropriation or other misuse of the Company's
software. Accordingly, it may be possible for unauthorized third parties to copy
certain portions of the Company's software or to obtain and use information that
the Company regards as proprietary. There can be no assurance that the Company's
means of protecting its proprietary software will be adequate or that
competitors will not independently develop technologies similar to the
Company's. 

    The Company has obtained a patent for a portable memory device that may be
integrated into future PHARMASYST products, a patent for technology relating to
its PRENVAL software, three patents covering elements of its regulatory
implementation software technology, and a patent for a device relating to the
fuzing of 

                                          8


<PAGE>

rockets. In addition, the Company has filed applications for a patent covering
certain aspects of the safety critical technology in PHARMASYST and for several
patents covering elements of its imaging technology. 

    In addition, the Company funded a patent application covering technology
for the detection of various brain abnormalities and, in April 1996, the patent
was granted. Pursuant to certain rights stemming from its funding of the patent
application, the Company plans to negotiate with the owners of the technology
regarding the Company's participation in the commercialization of the
technology. 

    While the Company has received certain patent protection, 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, although there can be no assurance that
third parties will not assert infringement claims in the future. 

REGULATION

    COMMERCIAL PRODUCTS.  The Company's PHARMASYST software products do not
require 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 the FDA's
cGMP regulations and are designed to be integrated into a manufacturer's
production systems. A pharmaceutical manufacturer's systems, including any
PHARMASYST applications used, 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.  The Company is engaged in a
continuing program to reach compliance to Good Automated Manufacturing Practice
(an industry generated standard) to enable fulfillment of its obligations.

    Other products the Company has developed are considered, and the archiving
software for ultrasound images that the Company intends to develop 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 premarket
notification application ("510(k) clearance") or FDA clearance of a premarket
approval application ("PMA"). In June, 1996 the Company received 510(k)
clearance to market several versions of uPACS.  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 the Company will be able to
obtain required clearances for any products it develops on a timely or
cost-effective basis, if at all. 

    DEFENSE-RELATED PRODUCTS.  The Company's United States military contracts
are subject to pricing restrictions and audit procedures. After being selected
as the successful bidder for a government contract, profits for most products
and systems developed for domestic defense programs are subject to fact finding,
with negotiated profits limited to approximately 10% of costs, some of which
costs are not recognized for this purpose. The Company has undergone routine
government audits of its defense contracts from time to time and these audits
have upheld the Company's pricing. Most of the Company's foreign sales involve
defense-related products that are subject to export control through the
Department of State's Office of Munitions Control under the International
Traffic in Arms Regulations ("ITAR") adopted under the Arms Export Control Act.
All articles and services listed on the United States Munitions list, which may
be amended from time to time, fall under these regulations. In order to export
products or services subject to these regulations, the Company must first
acquire licenses from the Department of State for each individual contract.
State Department policies, as supplemented or modified by the Department of
Defense or other applicable government agencies, identify products that cannot
be exported and certain countries to which export is prohibited or limited. ITAR
also imposes certain restraints on foreign customer contracts and defense
product development. Since the Company intends to continue its pursuit of
foreign military sales as a source of revenues, ongoing compliance with ITAR is
necessary. 

    Should government policy dictate that some of the Company's products are of
a sensitive technological character in which the best interests of the United
States will be served by prohibiting their export, the Company could suffer a
serious and immediate loss of business. The Company's principal foreign markets
for defense-related 

                                          9
<PAGE>

products are located in the NATO countries and other nations friendly to the
United States. To date, the United States government has not denied requests by
the Company for licenses to export any of its products or technical data to
these countries except in instances where all United States manufacturers of
similar products would be equally denied. 

EMPLOYEES

    The Company currently employs a total work force of 213 persons, including
62 engineers and designers, 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. 

SECURITY CLEARANCE

    The Company relies on the continuance of its security clearances and
clearances of its employees from agencies of the United States government and
from NATO for its defense products. Loss of these clearances could have an
immediate and adverse effect on the Company's business. The Company has never
experienced any material deficiencies in the manner and method of complying with
prescribed security regulations and expects to continue as an approved facility.

FOREIGN OPERATIONS

    Information on the Company's operations in different geographic areas is
provided in Note G of the Notes to the Consolidated Financial Statements
included elsewhere in this Report. 

ITEM 2.  PROPERTIES.

    The Company's principal facility in the United States is in Trenton, New
Jersey. The Company occupies 82,000 square feet in Trenton for its corporate
headquarters and engineering, manufacturing and support activities. The lease
for such space expires in October 2009. The Company 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.  The Company also leases small office facilities
in Copenhagen, Brussels and Tokyo.

    The Company's headquarters and manufacturing facility in Trenton, 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 repurchase
option first exercisable at $4.3 million during fiscal 1996, declining to $3.5
million during the last five years of the lease.

    Management believes that the Company's facilities are adequate for its
operations and are maintained in good condition.  The Company's facility in
Trenton is subject to a lease described in Note H to the Company's Financial
Statements included elsewhere in this Report.

ITEM 3.  LEGAL PROCEEDINGS

    No material legal proceedings are pending by or against the Company and, to
the knowledge of Base Ten, none are contemplated against the Company by
governmental authorities.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

    No matters were submitted to a vote of the Company's shareholders during
the fourth quarter of fiscal 1996.

                                          10


<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
under the trading symbol  BASEA,  and the Company's Class B Common Stock is
traded in the Nasdaq Over the Counter Market and quoted on its Supplemental List
under the trading symbol  BASEB.  


    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:

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

                      CLASS A COMMON STOCK    CLASS B COMMON STOCK
                           BID PRICE               BID PRICE 
                     --------------------    --------------------
FISCAL 1996:         HIGH        LOW         HIGH         LOW
------------         ----        ---         ----         ---
First quarter      $ 13 1/4    $ 10 1/8    $ 12 5/8    $ 10 1/2
Second quarter       11 1/8      8 7/8       11 1/4       9 1/2
Third quarter        13 1/2      9 15/16     14 3/4      11 3/8
Fourth quarter       13 1/4      10          14          13 1/2

FISCAL 1995:
------------

First quarter      $  8 1/4    $ 6 1/4     $  8         $ 6 5/8
Second quarter        9        $ 6 3/4     $  9 1/8     $ 7 1/2
Third quarter        10 1/8      6 3/4       10 3/4       7
Fourth quarter       11 5/8      9 1/8       12 3/8      10 1/8

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


    As of December 31, 1996, there were approximately 658 record holders of
Class A Common Stock and 158 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.

                                          11


<PAGE>
 

ITEM 6.  SELECTED FINANCIAL DATA

    The following table presents selected financial data for Base Ten and its
subsidiaries.  The financial data for the fiscal years ended October 31, 1994
through October 31, 1996 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

                                    (IN THOUSANDS EXCEPT PER SHARE DATA)
--------------------------------------------------------------------------------------------------------

YEAR ENDED OCTOBER 31,                 1996           1995           1994           1993           1992
                                            (AS RESTATED, SEE NOTE M 
                                                 TO CONSOLIDATED 
                                              FINANCIAL STATEMENTS)
--------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS:

<S>                               <C>            <C>       <C>            <C>            <C>
Revenues                             $  14,891   $ 18,307    $  19,282      $  22,262      $  19,068

Earnings (Loss) from continuing
  operations before income taxes
  and extraordinary item (1) (3)    $  (10,006)  $ (1,851)   $      59      $   1,465      $     695

 Income taxes (benefit)             $   (1,047)  $   (474)   $      24      $     507      $     198
Net earnings (Loss) from
  continuing operations before
  extraordinary item                $   (8,959)  $ (1,377)   $      35      $     958      $     497

Extraordinary Item:
Income tax/benefit from
  utilization of loss carryforward          --         --           --             --      $     198

 Net earnings (Loss)                $   (8,959)  $  (1,377)  $      35      $     958      $     695
--------------------------------------------------------------------------------------------------------
 Net earnings (Loss) per share      $    (1.16)  $    (.20)  $     .03      $     .17      $     .19
--------------------------------------------------------------------------------------------------------
 SUMMARY BALANCE SHEET
--------------------------------------------------------------------------------------------------------
 AS OF OCTOBER 31,                        1996        1995      1994           1993           1992
--------------------------------------------------------------------------------------------------------
 SUMMARY OF OPERATIONS:

 Working capital                    $   13,916   $  13,270   $   5,860      $   6,365      $   1,858

 Total assets                       $   30,348   $  28,005   $  17,609      $  17,255      $  13,054

Long term debt, net of
  current maturities (2)            $   13,478   $   3,525   $   3,601      $   3,212      $   4,675

 Shareholders' equity               $   12,091   $  20,261   $   9,431      $   7,957      $   1,974
--------------------------------------------------------------------------------------------------------

</TABLE>

    (1)  Included in 1992 financial data is a reversal of $.5 million of a
         prior provision and a gain of $.4 million on previously written-off
         marketable securities.
    (2)  Included in  1996, 1995 and 1994 financial data is a long term capital
         lease.
    (3)  Included in 1996 financial data is a write-off of various capitalized
         expenses amounting to $2.4 million and $.6 million of expenses
         incurred in the preparation of a Registration Prospectus which was
         withdrawn (see discussion in Results of Operations).

                                           12


<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

GENERAL

    The Company's Business Plan and, consequently, its operating performance
are predicated on the exploitation of its two major strengths, the development
of safety critical software for the Healthcare industry and the provision of
safety critical software and hardware to the defense industry.

    The Company has been engaged since 1991 in the development of products for
the Regulated Software industry and, most recently, computerized Manufacturing
Execution Systems (MES) for the pharmaceutical and medical device industry. 
Although no assurances can be given, the Company believes the pharmaceutical and
medical device market for computerized Manufacturing Execution Systems is poised
to grow rapidly over the next few years due to the pressure for compliance with
regulations promulgated by the FDA and the International Standards Organization
(ISO 9000) in addition to the need to continuously reduce cost to remain
competitive.

    The Company believes it has developed the premier standardized PC-based
system with the necessary functionality and documented support required by the
pharmaceutical and medical device industry to assist it in reducing cost while
remaining in compliance with FDA and ISO 9000 requirements and, although no
assurances can be given, considers that its continuing investment in this
evolving product area could provide it with a leadership position for this
product with the potential for substantial growth and the expansion of its
product opportunities into other regulated areas such as the food, cosmetic, and
chemical industries.

    The Company has a history of success since 1976 as a supplier of safety
critical hardware and software to the weapons control industry including the
Tornado interdiction and strike aircraft serving as a major weapon system for
the German, Italian and English defense forces and the A-10 Warthog ground
support aircraft which is reported to have performed successfully in the Gulf
War.  This history has enabled the Company to develop technology and personnel
to position itself as a premier provider of products to that industry; a
condition which was well illustrated in 1996 through the successful acquisition
of three significant contracts with the potential for substantial production
work over the next ten to fifteen years assuming government funding is available
and current procurement plans remain unchanged, neither of which can be
assured.*

    The Company, which operates through a Medical Technology Division and a
Government Technology Division, designs, develops, manufactures and markets
complex precision electronic systems for the defense industry and comprehensive
software solutions for the pharmaceutical and medical device manufacturing
industry. Many of the Company's products are used in safety critical
applications requiring consistent, highly reliable outcomes where any deviation
from the defined outcome could have catastrophic results. The Company developed
a core competency in safety critical applications from its historical focus, the
development of electronic systems used primarily in weapons management systems.
The Company is now applying this expertise to develop PHARMASYST, and its next
generation PHARM2, manufacturing execution systems targeted at the
pharmaceutical manufacturing and medical device industry. The defense business
generated 90% of the Company's revenues during 1996 compared with 85% in 1995. 
The Company expects that the defense business will remain a significant
component of operations.*

   
    The Company experienced net losses of $9.0 million in the year ended
October 31, 1996 and $1.4 million in the year ended October 31, 1995. These
losses resulted primarily from reduction of defense related revenues, write-offs
and amortization of software development expenditures incurred in  prior periods
and expenses related to the marketing and sales of commercial products. The
Company anticipates incurring additional losses in the first half of 1997 and
could continue to incur losses in subsequent periods. The Company's ability to
achieve profitable operations is dependent upon, among other things, successful
marketing of its manufacturing execution system products and defense related
design and manufacturing services, cost effective development of both medical
and defense-related products, and successful competition in the markets in which
the Company participates. Failure of the PHARMASYST product to achieve market
acceptance would have a material effect on the Company's business, results of
operations and financial condition.*
    

                                           13
<PAGE>

    During the sales and marketing activity of the latter part of 1996 the
Company has found a need to provide detailed demonstrations of its products
approximating actual customer needs.  In addition, the Company believes that its
Manufacturing Execution Systems should be compliant with industry standards such
as are described under Good Automated Manufacturing Practices (GAMP), an
industry standard, and the Company has found it very beneficial to upgrade its
ability to comply with GAMP and is, therefore, adding additional quality and
project personnel.  These additions create expenses in advance of the revenues
which they are intended to develop and act to increase losses until such
revenues are generated when the generation of such revenues cannot be assured. 
The Company believes its objective of being the leading supplier of
Manufacturing Execution Systems (MES) to the pharmaceutical industry requires
the incurrance of these costs and their consequences.  Since the Company
believes there is a compelling need for pharmaceutical manufacturers to have MES
compliant with cGMP and the Company believes its products already lead the
industry in their ability to comply with customer needs, the Company considers
the additional costs to be a prudent investment, although the Company cannot be
assured that pharmaceutical manufacturers may not find other ways to satisfy
regulatory requirements.*

    The Company believes that its potential for long term growth will depend in
part on the success of its PHARMASYST  products and the ability to convert
engineering contracts now underway in the defense related areas into profitable
long term production contracts.

    The installation of a manufacturing execution system is a complex process
involving integration with existing hardware platforms and  systems. In
addition, the system must undergo rigorous testing after installation and may
require an extended period of modifications to fully comply with customer
requirements some of which may be at Company expense. The Company, from time to
time, agrees to penalty clauses for delivery, some of which may be exercised
with consequent reduction in revenue and negative impact on profitability.

    For use in a manufacturing environment the system may have to undergo
validation in accordance with defined procedures determining its fitness for use
in a regulated environment.  The Company now has one system installed and
validated at a medical device manufacturing plant and is attempting to complete
validation for additional systems.

    PHARMASYST customers are provided the right to cancel at no cost early in
the contract cycle if the parties do not agree on the applicable specifications
for the PHARMASYST software to be installed.  Some deliveries of PHARMASYST
products are overdue, and other deliveries may become overdue. Although
cancellation for late deliveries may occur, and two already have occurred, the
Company does not anticipate the loss of material orders as a result thereof.* 
The Company did not incur any material expense in the cancellation of these two
orders since both involved the provision of standard software under development
as PHARM2, which proceeded without additional cost regardless of the
cancellations.  If the Company had been able to complete the development of
PHARM2 earlier, these two cancellations may have been prevented and the Company
could have recognized additional software revenue of approximately $150,000. 
While the Company cannot predict customer willingness to wait for the completion
of deliveries and other cancellations may occur, the Company does not believe a
material portion of its backlog will be cancelled.*  The Company's primary costs
to date have been in the development of PHARM2 standard software and not in the
customization of that software to specific requirements.  The Company has
devoted substantial resources to the development of its PHARMASYST products
including the development of PHARM2 and has only delivered a limited number of
applications. Substantially, all of the Company's orders for defense-related
products may be canceled at any time, subject to various payment obligations for
prior deliveries. 

    The Company's weapons control products are used to prevent the undemanded
release of a weapon. Its pharmaceutical manufacturing customers would employ
PHARMASYST products for, among other things, quality control and compliance with
cGMP and other regulatory requirements.  The Company maintains product liability
insurance of at least $5 million for commercial products and $30 million for
defense related 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 or that its defense related products resulted in injury to
persons or property.  There can be no assurances that the Company's existing
insurances would be adequate to cover any claims or that the Company will be
able to obtain and maintain adequate insurances in the future.

                                           14


<PAGE>

    The Company has generally accounted for substantially all its revenues
using the percentage-of-completion method. Under this method, revenues are
recognized for each period based upon the portion of a contract completed during
such period, with customer invoicing and payments often occurring on a different
cycle. As a result, accounts receivable and revenues include work that has been
completed, but that has not been billed. This approach is applicable for custom
development or manufacturing projects. In the second quarter of fiscal 1996, the
Company determined that its PHARM2 product had recently become standardized.
Since most orders for this product did not meet the criteria for long-term
contract accounting, the Company determined that it should recognize revenues
from product orders, generally on delivery.

    Research and development for defense-related projects is performed under
development contracts with prime contractors under which the Company generally
receives full or partial funding. Funding under these contracts are accounted
for as revenues. 

    Software development expenditures are expensed as research and development
until a product attains technological feasibility. Thereafter, expenditures are
capitalized until products attain commercial viability. The Company established
technological feasibility for PHARMASYST in 1993 which, at the end of 1996, had
a capitalized value of $4.3 million after allowing for amortization. Development
expenditures for PHARMASYST and other commercial products have consisted
primarily of salaries of software engineers and quality assurance staff plus
applicable allocated overhead. The amortization period for PHARMASYST is a
maximum of four years. 

    In the second quarter of fiscal 1996 the Company reviewed the
recoverability of its capitalized software costs and determined that neither
PRENVAL, nor the product marketed as 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. With respect to PRENVAL, it became apparent to the Company that market
acceptance of the product was less than anticipated. The Company also determined
that the licensee had no current plans to market the product in the U.S. as was
originally anticipated by the Company and that, as a result, sales would not
exceed the amount necessary to generate royalties in excess of the minimum
provided under the license. Effective as of the end of the second quarter of
fiscal 1996, management resolved to suspend further development of PRENVAL.
However, the Company will provide technical and marketing support for the
remainder of the license term.  The Company believes that the use of marketing
and technical staff to support the sale of PRENVAL throughout the balance of the
license term is an effective way to develop the potential for an extension of
the license term and does not represent a material cost to the Company.  With
respect to uPACS, the Company had implemented sales efforts in late 1995 and
displayed the product at certain trade shows in Europe. In December 1995, sales
were anticipated for early 1996. However, by early April 1996 it became clear
that the anticipated sales would not materialize. The Company concluded that the
product, as it existed, would not generate sufficient sales to recover the
capitalized costs, and that only a new product designed for networking with
communications and off-line measurement capabilities would be capable of
producing acceptable sales volume.

   
   The Company has restated its consolidated financial statements for the years
ended October 31, 1996 and 1995.  Subsequent to the issuance of the Company's
1996 consolidated financial statements, the Company's management determined that
certain temporary salary reductions for certain officers of the Company during
fiscal 1995, and loans made to such officers to be repaid by future bonuses,
should have been recorded as an increase to compensation expense with a
corresponding increase to additional paid-in-capital in the Company's 1995
consolidated financial statements.  As a result, the Company's 1996 and 1995
consolidated financial statements have been restated from the amounts previously
reported to record these loans as a charge to operations and as an increase to
additional paid-in-capital in fiscal 1995.  The impact of these adjustments was
to increase the previously reported 1995 net loss by $502,000 and net loss per
common share by $.07.  The restatement had no effect on the Company's cash
position.
    

                                           15


<PAGE>

RESULTS OF OPERATIONS

FISCAL 1996 COMPARED TO FISCAL 1995

   
    The Company incurred a net loss of $9.0 million in 1996 compared to a net
loss of $1.4 million in 1995. Losses in 1996 comprised 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 for uPACS and other operating losses of $7.0 million. The
major portion of the operating loss represents the Company's investment in the
development of markets and infrastructure for  Medical Technology Division
products.  Included in the loss was approximately $.6 million of expenses
incurred in the preparation of a Registration Prospectus which was withdrawn.
    

    Revenues for the twelve months ended October 31,1996 were $14.9 million
compared with $18.3 million in 1995, a decrease of 18.6%. In addition to minimal
revenues from its Medical Technology Division, the decrease is attributable to a
decline in defense spending resulting in fewer opportunities to bid with the
consequent reduction in contract awards. Anticipated orders for the Company's
Bus Interface Unit did not materialize and other orders for build to print
contracts were $2.2 million in 1996 compared with $4.8 million in 1995. New
business in the form of engineering contracts for Maintenance Data Recorders and
Interference Blanking Units received from McDonnell Douglas in the middle of the
year resulted in revenues during the third and  fourth quarters only.

    Engineering contracts for both software and hardware development of defense
related products accounted for approximately 26% of revenues. Production of
proprietary weapons control products for international customers accounted for
approximately 24% of revenues and production of proprietary and build-to-print
defense related products for national customers accounted for approximately 40%
of revenues.  Medical Technology products accounted for approximately 8% of
revenues, with the balance of revenues derived from miscellaneous sources.

    Revenues from the Medical Technology Division products declined from $2.2
million in 1995 to $1.3 million in 1996. In 1995, $1.8 million in revenue was
recognized upon completion of the Company's PRENVAL software sold and licensed
to  Johnson & Johnson Ortho Clinical Diagnostic Systems, with approximately $.4
million in revenue from the Company's PHARMASYST products. The Company began to
recognize revenue only upon delivery of PHARMASYST products at the end of the
fiscal 1996 second quarter and consequently these products produced only minimal
revenue in the third and fourth quarters.

    Cost of sales as a percent of revenues was 73.7% in 1996 compared with
64.5% in 1995. The increase is due primarily to overhead expenses for the
development of PHARMASYST.  These additional expenses, in the absence of
appreciable revenues, increased cost of sales as a percent of revenues.
Increases in staffing  levels for the Medical Technology Division included
project management staff and the indirect costs of the larger development and
testing groups.

    Direct labor increased from $3.3 million in 1995 to $4.9 in 1996 due
primarily to increases in the development and testing  staff dedicated to the
PHARMASYST project.

    Research and development costs increased to $1.0 million from $.9 million
in 1995. These charges which represent investments in defense related products
are separate from the $3.8 million in capitalized costs for the development of
PHARMASYST products in 1996. Capitalized costs in 1995 of $2.3 million 
consisted primarily of development costs for PHARMASYST and uPACS, both Medical
Technology Division products.  Efforts to accelerate the market development of
PHARMASYST and uPACS were recorded as selling, general and administrative
expenses rather than research and development costs.

   
    Selling, general and administrative costs for 1996 increased to $8.5
million compared with $6.3 million in 1995. Included in the 1996 expenses are
the costs of financing totaling $.6 million incurred in the preparation of a
Registration Prospectus in anticipation of a prospective public offering. The
offering was withdrawn in July 1996 because of market conditions.  The Company
did not have comparable costs in 1995.  The largest single increase in selling,
general and administrative expenses for 1996 was in personnel costs rising from
$1.8 million in 1995 to $2.8 million in 1996, an increase of 55.6%. This
increase includes additional sales persons.  Also, additional costs 
    

                                           16
<PAGE>

in 1996, attributable largely to the Medical Technology Division, for  personnel
hiring, travel, advertising, and consulting amounted to an increase of
approximately $.5 million compared to 1995.

    The amortization of capitalized expenses relating primarily to the
development of PHARMASYST and uPACS increased to $1.3 million in 1996 from $.6
million in 1995.

    Interest expense in 1996 was $.7 million representing primarily capitalized
lease costs incurred under a sale and lease back transaction involving sale of
the Company's facility in Trenton, New Jersey in October 1994 and less than
three months interest costs applicable to the $10.0 million convertible
debenture issued in August, 1996. Interest expenses in 1995 of $.6 million
represented the capitalized lease costs and the mortgage loan outstanding during
1995.

    Cost increases in personnel and related costs which were incurred in 1996
were incurred over only a part of the year and may be expected to increase in
1997 as they become applicable to the full year. 

FISCAL 1995 COMPARED TO FISCAL 1994

    Total revenues declined by $975,000, or 5.1%, from $19.3 million in fiscal
1994 to $18.3 million in fiscal 1995. Revenues from defense-related operations
declined by $3.1 million, or 16.6%, from $18.7 million to $15.6 million.
Revenues from commercial operations were $2.2 million in 1995. There were no
commercial revenues in 1994. 

    The decline in defense revenues reflects reduced defense budgets in the
U.S. and Western Europe and was partially offset by a $2.3 million increase in
contract manufacturing revenues related to the commencement of a manufacturing
contract. Defense revenues accounted for 85.2% and 97.0% of total revenues
during 1995 and 1994, respectively. 

    Revenues from commercial operations consisted of royalties generated from
sales of PRENATA and $500,000 of initial sales of PHARMASYST. During 1995, the
Company licensed certain medical screening technology to Johnson & Johnson
Clinical Diagnostic Systems for use in its PRENATA medical screening kit and
entered into a corresponding five year royalty agreement. Using the
percentage-of-completion method, the Company recognized revenues of $1.8 million
in 1995, representing the aggregate minimum royalty payments due under the
agreement. Commercial product revenues accounted for 12.3% of total revenues
during 1995. 

    Cost of sales declined by approximately $1.2 million, or 9.1%, from $13.0
million in 1994 to $11.8 million in 1995. The decline was attributable to the
decline in total revenues. Gross margin increased from 32.6% to 35.5%. This
increase is attributable to approximately $2.2 million of sales of relatively
high margin PRENATA and PHARMASYST products during 1995. 

   
    Selling, general and administrative expenses increased by approximately
$1.2 million, or 24.0%, from $5.1 million in 1994 to $6.3 million in 1995 and
increased as a percentage of revenues from 26.6% to 34.4%. This increase
consisted primarily of (i) $.4 million in salaries relating to the addition of
new sales personnel, (ii) $.1 million in advertising of commercial products and
(iii) $.3 million in travel expenses relating to the addition of new sales
people and increased participation in trade shows. The increase was partially
offset by a $.2 million decrease in employee group insurance expenses relating
to the adoption of a new plan. 
    

    Research and development expenses declined by $24,000, or 2.7%, from
$887,000 in 1994 to $863,000 in 1995 and remained relatively constant as a
percentage of revenues. Capitalization of software development costs increased
by approximately $1.3 million, or 81.3%, from $1.6 million in 1994 to $2.9
million in 1995. This increase consisted primarily of $570,000, $460,000 and
$410,000 in increased capitalization of development costs relating to
PHARMASYST, uPACS and a weapons control system, respectively, partially offset
by lower development costs related to PRENVAL. 

    Interest expense increased by $345,000, or 165.1%, from $.2 million in 1994
to $.5 million in 1995 and increased as a percentage of revenues from 1.1% to
3.0%.  This increase was primarily due to the 1994 mortgage 

                                           17


<PAGE>

interest being replaced in 1995 by capital lease amortization pursuant to the
October 1994 sale and leaseback of the Company's principal facility resulting in
higher levels of borrowings.

    The Company's revenues and operating results are subject to significant
quarterly fluctuations. Factors that could cause such fluctuations include the
time of revenue recognition; changes in customer capital and resource
commitment; changes in product mix; the introduction of new products or product
improvements by the Company or its competitors; FDA regulation requirements and
changes in operating expenses. The timing of revenues from defense-related
programs can be significantly affected by government procurement processes and
disruptions due to political and other events over which the Company has no
control. The timing of revenues from manufacturing execution systems can be
affected by factors outside the Company's control, including long sales cycles
and delays in customer authorization procedures. 

LIQUIDITY AND CAPITAL RESOURCES

    During fiscal 1996, the Company used $9.5 million of cash in its
operations. The use of cash was due primarily to an increase of $1.5 million in
accounts receivable, the Company's expenditure of approximately $3.8 million for
the development of its PHARMASYST products, and the Company's net loss for the
year.

    During fiscal 1996, the Company raised $10.0 million from the sale of a
9.01% convertible debenture  maturing in 2003 and $806,000 from the exercise of
outstanding options. 

    During fiscal 1996, the Company's cash and equivalents increased
approximately $.3 million from $7.2 million at October 31, 1995 to $7.5 million
at October 31, 1996, primarily due to $10.0 million of cash generated by
financing activities, partially offset by $9.5 million of cash used in
operations and $1.1 million of additions to property, plant and equipment.

    The Company's net loss of $9.0 million for the year ended October 31, 1996
included noncash expenses consisting of a write-off of capitalized software
development costs aggregating approximately $2.4 million and additional
write-offs of $.3 million relating to other costs and capitalized items, as well
as depreciation and amortization expense of $1.7 million for the period,
including $1.3 million in amortization of capitalized software development
costs.

    The Company believes that cash generated by operations and existing capital
resources will be sufficient to fund its operations at least through the end of
fiscal 1997 providing it receives substantial orders for its commercial
products.  The Company is relying on the completion of its Medical Technology
Division leading product, PHARM2, during the first quarter of calendar 1997 to
stimulate new orders and permit the delivery of existing orders. Neither the
completion of PHARM2 nor the consequential generation of cash can be assured
either in time or amount or 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, the Company may elect to seek additional sources of
capital and may also elect to reduce the pace of its development of Medical
Technology Division products 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.*

*FORWARD LOOKING INFORMATION

    THE FOREGOING CONTAINS FORWARD LOOKING INFORMATION WITHIN THE MEANING OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.  THESE STATEMENTS APPEAR
IN A NUMBER OF PLACES AND CAN BE IDENTIFIED BY AN "ASTERISK" REFERENCE TO A
PARTICULAR SECTION OF THE FOREGOING OR BY THE USE OF SUCH FORWARD-LOOKING
TERMINOLOGY SUCH AS "BELIEVE", "EXPECT", "MAY", "WILL", "SHOULD" OR THE NEGATIVE
THEREOF OR VARIATIONS THEREOF.  SUCH FORWARD LOOKING STATEMENTS INVOLVE CERTAIN
RISKS AND UNCERTAINTIES, INCLUDING THE PARTICULAR FACTORS DESCRIBED ABOVE IN
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS AS WELL AS THROUGHOUT THIS REPORT.  IN
EACH CASE ACTUAL RESULTS MAY DIFFER MATERIALLY FROM SUCH FORWARD LOOKING
STATEMENTS.  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 (EXPRESSED OR IMPLIED) WILL NOT BE REALIZED.

                                           18


<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                              INDEX TO FINANCIAL STATEMENTS
                                                                            PAGE
                                                                            ----
   
Independent Auditors' Report..................................................22
Consolidated Balance Sheets - October 31, 1996 (as Restated) 
and 1995 (as Restated)........................................................23
Consolidated Statements of Operations  - Years ended 
October 31, 1996, 1995 (as Restated) and 1994.................................24
Consolidated Statements of Shareholders' Equity  - Years 
ended October 31, 1996 (as Restated),  1995 (as Restated)  and 1994...........25
Consolidated Statements of Cash Flows  - Years ended 
October 31, 1996, 1995 (as Restated)  and 1994................................26
Notes to Consolidated Financial Statements....................................27
    

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

   Not Applicable

                                           19


<PAGE>
 

                                        PART III

ITEM 10.  EXECUTIVE OFFICERS OF THE COMPANY

   The executive officers of the Company and other members of senior management
are as follows:

<TABLE>
<CAPTION>


--------------------------------------------------------------------------------------------------
    NAME                     AGE       OFFICES HELD WITH BASE TEN              PERIOD SERVED
--------------------------------------------------------------------------------------------------
<S>                          <C>       <C>                                     <C>
    Myles M. Kranzler        68        Chairman of the Board, President and    1966 to present
                                         Chief Executive Officer
    Edward J. Klinsport      49        President-Government Technology Div.    1994 to present
                                       Executive Vice President                1992 to present
                                       Chief Financial Officer                 1978 to present
                                       Group Vice President                    1985 to 1992
    Alan J. Eisenberg        55        President-Medical Technology Div.       1994 to present
                                       Vice President                          1983 to present

    Richard J. Farrelly      65        Vice President                          1992 to present

    Frank W. Newdeck         51        Vice President                          1991 to present

    Richard G. Kandrac       55        Vice President                          1983 to present
---------------------------------------------------------------------------------------------------
</TABLE>

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

    MR. KRANZLER has been Chairman of the Board, President, Chief Executive
Officer and a director since the Company's inception in 1966.

    MR. KLINSPORT has been the Chief Financial Officer of Base Ten since 1978. 
He has served as Executive Vice President of the Company since October 1992 and
was elected President of the Government Technology Division in November 1994. 
He has also served as a director of the Company since 1985.

    MR. EISENBERG has been employed by the Company since 1980 and became
President of the Company's Medical Technology Division in 1994.  He has been a
Vice President of the Company since 1983 and is responsible for the Company's
software activities.  Mr. Eisenberg has been a director of the Company since
1992.

    MR. FARRELLY has been employed by the Company since 1988 and became a Vice
President in 1992, responsible for corporate development.  Mr. Farrelly was
formerly General Manager of the Reentry Systems Division of General Electric
Aerospace Company.

    MR. NEWDECK has been employed by the Company since 1990 and became a Vice
President in 1991, with responsibilities in the Company's Government Technology
Division.  Prior to joining the Company, Mr. Newdeck was General Manager of the
Network and Information Security Division of Unisys Corporation.

    MR. KANDRAC  has been employed by the Company since 1969 and became a Vice
President in 1983, responsible for manufacturing and purchasing.

    The balance of Part III of this Report is incorporated by reference to the
Company's definitive Proxy Statement to be filed before February 28, 1997 for
its forthcoming Annual Meeting of Shareholders.


                                           20


<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 Report.

    2.   SCHEDULES: The schedules for which provision is made in Regulation S-X
         of the Securities and Exchange Commission are not required under the
         related instructions or are inapplicable and therefore have been
         omitted.

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

    (b)  REPORTS ON FORM 8-K:  The Company filed a Current Report on Form 8-K
         on August 12, 1996 for the sale of $10,000,000 of the Company's 9.01%
         Convertible Subordinated Debentures due August 31, 2003.






                                          21


<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, 1996 and 1995, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended October 31, 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, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
October 31, 1996 in conformity with generally accepted accounting principles.

   
As discussed in Note M, the accompanying consolidated financial statements have
been restated.
    



   
Parsippany, New Jersey
December 23, 1996 (May 16, 1997 as to Note M)
    

                                          22


<PAGE>
 

                                 BASE TEN SYSTEMS, INC. AND SUBSIDIARIES
                                      CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

   
                                                                               OCTOBER 31, 1996    OCTOBER 31, 1995


                                                                                 (AS RESTATED,      (AS RESTATED, 
                                                                                  SEE NOTE M)        SEE NOTE M)
 CURRENT ASSETS:

<S>                                                                       <C>                 <C>
 Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     $  7,465,000      $  7,221,000
 Accounts receivable (including unbilled receivables of $4,162,000 in 
1996 and $3,271,000 in 1995). . . . . . . . . . . . . . . . . . . . . . . . .        7,515,000         6,034,000
 Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        2,935,000         3,151,000
 Current portion of employee loan receivable. . . . . . . . . . . . . . . . .          128,000           108,000
 Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .          386,000           536,000
                                                                                   ------------     -------------
  TOTAL CURRENT ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . .       18,429,000        17,050,000
 PROPERTY, PLANT AND EQUIPMENT. . . . . . . . . . . . . . . . . . . . . . . .        5,071,000         4,480,000
 EMPLOYEE LOAN RECEIVABLE . . . . . . . . . . . . . . . . . . . . . . . . . .          148,000           298,000
 OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        6,700,000         6,177,000
                                                                                   ------------     -------------
                                                                                  $  30,348,000     $  28,005,000
                                                                                   ------------     -------------
                                                                                   ------------     -------------

<CAPTION>

                                    LIABILITIES AND SHAREHOLDERS' EQUITY
 CURRENT LIABILITIES:
<S>                                                                               <C>               <C>
 Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     $  1,472,000      $  1,246,000
 Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        2,994,000         1,454,000
 Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . .                -         1,038,000
 Current portion of capital lease obligation. . . . . . . . . . . . . . . . .           47,000            42,000
                                                                                   ------------     -------------
    TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . .        4,513,000         3,780,000
                                                                                   ------------     -------------
 LONG-TERM LIABILITIES:
 Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . .                -            83,000
 Deferred compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . .           19,000            90,000
 Other long-term liabilities. . . . . . . . . . . . . . . . . . . . . . . . .          247,000           266,000
 Capital lease obligation . . . . . . . . . . . . . . . . . . . . . . . . . .        3,478,000         3,525,000
 Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       10,000,000                 -
                                                                                   ------------     -------------
    TOTAL LONG-TERM LIABILITIES . . . . . . . . . . . . . . . . . . . . . . .       13,744,000         3,964,000
                                                                                   ------------     -------------
 COMMITMENTS AND CONTINGENCIES

 SHAREHOLDERS' EQUITY
Preferred Stock, $1.00 par value, authorized and unissued
  1,000,000 shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .               -                  -
Class A Common Stock, $1.00 par value, 22,000,000 shares 
authorized; issued and outstanding 7,358,964 shares in 1996 and 
7,216,195 shares in 1995. . . . . . . . . . . . . . . . . . . . . . . . . . .        7,359,000         7,216,000
Class B Common Stock, $1.00 par value, 2,000,000 shares 
authorized; issued and outstanding 445,387 shares in 1996 and 
458,474 shares in 1995 (convertible into Class A Common
Stock on a one for one basis) . . . . . . . . . . . . . . . . . . . . . . . .          445,000           458,000
 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . .       25,086,000        24,410,000
 Deficit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      (20,640,000)      (11,681,000)
                                                                                   ------------     -------------
                                                                                     12,250,000       20,403,000
 Equity adjustment from foreign currency translation. . . . . . . . . . . . .         (159,000)         (142,000)
                                                                                   ------------     -------------
    . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       12,091,000        20,261,000
                                                                                   ------------     -------------
    . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    $  30,348,000     $  28,005,000
                                                                                   ------------     -------------
                                                                                   ------------     -------------
    
                            See Notes to Consolidated Financial Statements.

</TABLE>

                                                                     23

<PAGE>

<TABLE>
<CAPTION>


                                                   BASE TEN SYSTEMS, INC. AND SUBSIDIARIES
                                                    CONSOLIDATED STATEMENTS OF OPERATIONS


-----------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,                                                1996              1995             1994

                                                                                (AS RESTATED, SEE
                                                                                      NOTE M)
-----------------------------------------------------------------------------------------------------------------
REVENUE
<S>                                                             <C>               <C>               <C>
  Sales . . . . . . . . . . . . . . . . . . . . . . . . . .     $  14,591,000    $  17,841,000     $  18,698,000
  Other . . . . . . . . . . . . . . . . . . . . . . . . . .           300,000          466,000           584,000
                                                                 -------------    -------------     -------------
                                                                   14,891,000        18,307,000       19,282,000
                                                                 -------------    -------------     -------------

COSTS AND EXPENSE:
  Cost of sales . . . . . . . . . . . . . . . . . . . . . .        10,973,000       11,813,000        12,996,000
  Amortization of software development costs. . . . . . . .         1,278,000          630,000                --
  Research and development. . . . . . . . . . . . . . . . .           998,000          863,000           887,000
  Selling, general and administrative . . . . . . . . . . .         8,509,000        6,298,000         5,131,000
  Write-off of software development costs . . . . . . . . .         2,429,000               --                --
  Interest. . . . . . . . . . . . . . . . . . . . . . . . .           710,000          554,000           209,000
                                                                 -------------    -------------     -------------
    . . . . . . . . . . . . . . . . . . . . . . . . . . . .        24,897,000       20,158,000        19,223,000
                                                                 -------------    -------------     -------------

EARNINGS/(LOSS) BEFORE INCOME TAXES . . . . . . . . . . . .      (10,006,000)      (1,851,000)            59,000
INCOME TAXES/(BENEFIT). . . . . . . . . . . . . . . . . . .       (1,047,000)        (474,000)            24,000
                                                                 -------------    -------------     -------------
NET EARNINGS (LOSS) . . . . . . . . . . . . . . . . . . . .     $ (8,959,000)    $ (1,377,000)         $  35,000
                                                                 -------------    -------------     -------------
                                                                 -------------    -------------     -------------

NET EARNINGS (LOSS) PER COMMON SHARE. . . . . . . . . . . .     $      (1.16)     $     (.2013)        $     .03

WEIGHTED AVERAGE COMMON SHARES 
OUTSTANDING . . . . . . . . . . . . . . . . . . . . . . . .         7,743,000        6,926,000         7,569,000

</TABLE>

                                SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                                                     24


<PAGE>

<TABLE>
<CAPTION>


                                             BASE TEN SYSTEMS, INC. AND SUBSIDIARIES
                                         CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY


                                                                                                              EQUITY
                                                                                                            ADJUSTMENT
                                                                             ADDITIONAL                    FROM FOREIGN
                                CLASS A                   CLASS B             PAID-IN                        CURRENCY     TREASURY
                         SHARES         AMOUNT       SHARES      AMOUNT       CAPITAL         (DEFICIT)    TRANSLATION      STOCK
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE:
<S>                    <C>           <C>           <C>          <C>         <C>             <C>             <C>          <C>
October 31, 1993       4,646,670     $4,647,000    558,111      $558,000    $13,253,000    $(10,339,000)    $(162,000)       --

Conversions of
  Class B Common to
  Class A Common          81,635         82,000    (81,635)      (82,000)            --              --            --        --
Exercise of Options       87,561         88,000         --            --        185,000              --            --   (14,000)
Exercise of Rights           305             --         --            --             --              --            --        --
Exercise of Warrants     204,022        204,000         --            --        936,000              --            --        --
Foreign currency
   translation                --             --         --            --             --              --        40,000        --
Retirement of
 treasury stock          (13,631)       (14,000)        --            --             --              --            --    14,000
Net Earnings/(Loss)           --             --         --            --             --          35,000            --        --
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE:
October 31, 1994       5,006,562      5,007,000    476,476       476,000     14,374,000     (10,304,000)     (122,000)       --

Conversions of
  Class B Common to
  Class A Common          20,896         21,000    (20,896)      (21,000)            --              --            --        --
Exercise of Options      123,131        123,000      5,000         5,000        400,000              --            --   (14,000)
Exercise of Rights       828,542        828,000         --            --      3,444,000              --            --        --
Exercise of Warrants   1,248,701      1,249,000         --            --      5,690,000              --            --        --
Capital Contribution (as 
restated, see Note M)         --             --         --            --        502,000              --            --        --
Foreign currency
  translation                 --             --         --            --             --              --       (20,000)       --
Retirement of
  treasury stock         (11,637)       (12,000)    (2,106)       (2,000)            --              --            --    14,000
Net Earnings/(Loss) 
(as restated, see Note M)     --             --         --            --             --      (1,377,000)           --        --
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE:

October 31, 1995 
(as restated, see 
Note M)                7,216,195     $7,216,000    458,474      $458,000    $24,410,000  $  (11,681,000)    $(142,000)       --
Conversions of
  Class B Common to
  Class A Common           5,418          5,000     (5,418)       (5,000)            --              --            --        --
Exercise of Options      137,351        138,000                                 676,000              --            --    (8,000)
Foreign currency
  translation                 --             --         --            --             --              --       (17,000)       --
Retirement of
  treasury stock              --             --     (7,669)       (8,000)            --              --            --     8,000
Net Earnings/(Loss)           --             --         --            --             --      (8,959,000)           --        --
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE:

October 31, 1996 
(asrestated, see 
Note M)                7,358,964     $7,359,000    445,387      $445,000    $25,086,000  $  (20,640,000)    $(159,000)       --
-----------------------------------------------------------------------------------------------------------------------------------
                                SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

</TABLE>
                                                                     25


<PAGE>

<TABLE>
<CAPTION>


                                                   BASE TEN SYSTEMS, INC. AND SUBSIDIARIES
                                                    CONSOLIDATED STATEMENTS OF CASH FLOWS

   
-------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,                               1996                   1995                  1994
                                                                  (AS RESTATED, SEE NOTE M)
-------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:

<S>                                          <C>                       <C>                     <C>
  Net earnings/(loss)                        $  (8,959,000)          $  (1,377,000)         $     35,000

ADJUSTMENTS TO RECONCILE NET
  EARNINGS TO NET CASH (USED IN)/
  PROVIDED FROM OPERATING ACTIVITIES:

 Depreciation and amortization                   1,743,000               1,106,000               586,000
 Write off of Software Development Costs         2,429,000                      --                    --
 Contribution to Capital                                --                 502,000                    --
 Deferred gain on sale of building                 (19,000)                (17,000)             (282,000)
 Deferred income taxes                             (83,000)               (149,000)             (290,000)
 Accounts receivable                            (1,481,000)               (966,000)              228,000
 Inventories                                       216,000                (740,000)             (269,000)
 Other current assets                              150,000                (237,000)              303,000
 Accounts payable and Accrued expenses           1,766,000                 162,000              (398,000)
 Deferred compensation                             (71,000)                (58,000)              (23,000)
 Other assets                                   (4,126,000)             (3,846,000)           (2,171,000)
 Income taxes payable                           (1,038,000)               (325,000)              314,000
----------------------------------------------------------------------------------------------------------
 NET CASH (USED IN) OPERATIONS                  (9,473,000)             (5,945,000)           (1,967,000)
----------------------------------------------------------------------------------------------------------
 CASH FLOWS FROM INVESTING ACTIVITIES:
 Additions to property, plant and equipment     (1,058,000)               (350,000)             (306,000)

 Proceeds from sale of land and building                --                      --             3,600,000
----------------------------------------------------------------------------------------------------------
NET CASH (USED IN)/PROVIDED FROM 
  INVESTING ACTIVITIES                          (1,058,000)               (350,000)            3,294,000
----------------------------------------------------------------------------------------------------------
 CASH FLOWS FROM FINANCING ACTIVITIES:
 Repayment of amounts borrowed                     (42,000)                (34,000)           (4,711,000)
 Issuance of Long Term Debt                     10,000,000                      --                    --
 Proceeds from the issuance of common stock        806,000              11,725,000             1,399,000
----------------------------------------------------------------------------------------------------------
NET CASH PROVIDED FROM/(USED IN) 
  FINANCING ACTIVITIES                          10,764,000              11,691,000            (3,312,000)
----------------------------------------------------------------------------------------------------------
 Effect of Exchange Rate Changes on Cash            11,000                 (43,000)               50,000
----------------------------------------------------------------------------------------------------------
 NET INCREASE/(DECREASE) IN CASH                   244,000               5,353,000            (1,935,000)
 CASH, beginning of year                         7,221,000               1,868,000             3,803,000
----------------------------------------------------------------------------------------------------------
 CASH, end of year                           $   7,465,000           $   7,221,000          $  1,868,000
----------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH
  FLOW INFORMATION:
Cash paid during the year for interest       $     485,000           $    527,000           $    173,000
----------------------------------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF NON-CASH
  INVESTING AND FINANCING ACTIVITIES:
Retirement of Treasury Stock                 $       8,000           $      14,000          $     14,000
----------------------------------------------------------------------------------------------------------
                                 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    
</TABLE>
                                                    26


<PAGE>

                       BASE TEN SYSTEMS, INC. AND SUBSIDIARIES
                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994

A.   DESCRIPTION OF BUSINESS

     Base Ten Systems, Inc. and subsidiaries ("Base Ten" or the "Company")
designs and manufactures proprietary weapons control systems employing
microprocessors and advanced software for use in military aircraft and builds
custom designed electronic assemblies as a subcontractor to prime government
contractors.  In addition, the Company develops batch processing control,
medical screening and image archiving software and designs and builds
proprietary electronic systems for use in secure communications. 

B.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1.   BASIS OF PRESENTATION - The Company's consolidated financial statements
have been prepared on an historical cost basis.

2.   PRINCIPLES OF  CONSOLIDATION  -  The consolidated financial statements
include the accounts of Base Ten.  All significant intercompany accounts,
transactions and profits have been eliminated.

   

3.   REVENUE RECOGNITION  - For Medical Software Products, the Company evaluates
each product and order on an individual basis to determine the proper revenue
recognition method.  Contracts to deliver software which require significant
customization or modification for an extended period of time are accounted for
under the percentage of completion method.  For the products or orders which are
more standardized in nature, revenue is recognized on delivery.  For products in
the Government Technology Division earnings on long-term contracts are
recognized on the percentage-of-completion or unit-of-delivery basis. Changes in
estimates are accounted for using the cumulative catch up method and are
immaterial in each period presented.
    

     On contracts where the percentage-of-completion method is used, costs and
estimated earnings in excess of progress billings are presented as unbilled
receivables.  Unbilled costs of unit-of-delivery contracts are included in
inventory.  Payments received in excess of costs incurred on long-term contracts
are recorded as customers' advance payments, which are included as a reduction
of inventory on the balance sheet.

4.   INVENTORIES  - Inventories are stated at the lower of cost (first-in,
first-out method) or market.

     Inventoried costs on contracts include direct material, labor and
applicable overhead.  In accordance with industry practice, inventoried costs
include amounts relating to contracts with a long production cycle, some of
which are not expected to be realized within one year.

5.   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  15 years 
     Machinery and equipment  3 to 10 years
     Furniture and fixtures   3 to 20 years

6.   OTHER ASSETS - Included in other non-current assets are software
development costs capitalized in accordance with Statement of Financial
Accounting Standard No. 86, "Accounting for Costs for Computer Software to be
Sold, Leased or Otherwise Marketed" issued by the Financial Accounting Standards
Board.  The Company is required to capitalize certain software development and
production costs once technological feasibility has been achieved.  The cost of
purchased software is capitalized when related to a product which has achieved
technological feasibility or that has an alternative future use.  For the year
ended October 31, 1996, the Company capitalized $3.8 million of software
development costs.  Software development costs incurred prior to achieving
technological feasibility are charged to research and development expense as
incurred.  The Company performs quarterly reviews of the 

                                          27
<PAGE>

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. 
Commencing upon initial product release, these costs are amortized based on the
straight-line method over the estimated life of four years.

     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. With respect to PRENVAL, it became apparent to the Company in late
February 1996, after a discussion with the licensee, that market acceptance of
the product was less than anticipated. Thereafter, in May 1996, the Company
determined that the licensee had no current plans to market the product in the
U.S. as was originally anticipated by the Company and that, as a result, sales
would not exceed the amount necessary to generate royalties in excess of the
minimum provided under the license. Effective as of the end of the second
quarter of fiscal 1996, management resolved to suspend further development of
PRENVAL. However, the Company will provide marketing support for the remainder
of the license term. With respect to uPACS, the Company had implemented sales
efforts in late 1995 and displayed the product at certain trade shows in Europe.
In December 1995, sales were anticipated for early 1996. However, by early April
1996 it became clear that the anticipated sales would not materialize. The
Company concluded that the product, as it then existed, would not generate
sufficient sales to recover the capitalized costs, and that only a new product
with networking, communications and off-line measurement capabilities would be
capable of producing acceptable sales volume.

7.   CASH AND CASH EQUIVALENTS  - The Company considers all investments with a
maturity of three months or less at date of acquisition to be cash equivalents.

8.   RECENTLY ISSUED ACCOUNTING STANDARD - In October 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation," which requires adoption of
the disclosure provisions no later than fiscal years beginning after December
15, 1995 and adoption of the recognition and measurement provisions for
nonemployee transactions no later than after December 15, 1995.  The new
standard defines a fair value method of accounting for stock options and other
equity instruments.  Under the fair value method, compensation cost is measured
at the grant date based on the fair value of the award and is recognized over
the service period, which is usually the vesting period.

     Pursuant to the new standard, companies are encouraged, but are not
required, to adopt the fair value method of accounting for employee stock-based
transactions.  Companies are also permitted to continue to account for such
transactions under Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," but would be required to disclose in a note to the
financial statements pro forma net income and,  if presented, earnings per share
as if the Company had applied the new method of accounting for all grants after
November 1, 1995.

     The accounting requirements of the new method are effective for all
employee awards granted after the beginning of the fiscal year of adoption.  The
Company has not yet determined if it will elect to change to the fair value
method, nor has it determined the effect the new standard will have on net
income and earnings per share should it elect to make such a change.  Adoption
of the new standard will have no effect on the Company's cash flows.

9.   NET EARNINGS/(LOSS) PER SHARE - Earnings per share for fiscal years ended
October 31, 1996, 1995 and 1994 were calculated using the number of weighted
average common shares outstanding.

     Stock options, warrants and rights would have an anti-dilutive effect on
earnings per share for the years ended October 31, 1996 and 1995 and therefore
were not included in the calculation of weighted average shares and were not
material in 1994.

                                          28
<PAGE>

10. USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes.  Actual results could differ from these
estimates.

11. FAIR VALUE OF FINANCIAL INSTRUMENTS - The fair market value of certain
financial instruments, including cash, accounts receivable, accounts payable,
and other accrued liabilities, approximate 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 October 31, 1996 and
1995 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. CHANGE IN PRESENTATION - Certain balance sheet items for fiscal 1995 have
been reclassified to conform to the 1996 presentation.

13. FOREIGN CURRENCY TRANSLATION - The accounts of the consolidated foreign
subsidiaries are translated into United States dollars in accordance with
Financial Accounting Standards Board (FASB) Statement No. 52.  Transaction gains
and losses are immaterial.

C.   INVENTORIES

   
          --------------------------------------------------------------------
           OCTOBER 31,                            1996                1995
          --------------------------------------------------------------------
           Raw materials                     $  1,232,000        $  1,557,000
           Work in progress                     1,383,000           1,515,000
           Finished goods                         369,000              95,000
          --------------------------------------------------------------------
                                                2,984,000           3,167,000
           Less advance payments                   49,000              16,000
          --------------------------------------------------------------------
                                             $  2,935,000        $  3,151,000
          --------------------------------------------------------------------
    

D.   PROPERTY, PLANT AND EQUIPMENT

   
           OCTOBER 31,                            1996                1995
          --------------------------------------------------------------------
           Leasehold  improvement            $     85,000        $     21,000
           Machinery and equipment              9,668,000           8,853,000
           Furniture and fixtures                 705,000             617,000
           Leased asset - land and building     3,600,000           3,600,000
          --------------------------------------------------------------------
                                               14,058,000          13,091,000
           Less accumulated depreciation        8,987,000           8,611,000
          --------------------------------------------------------------------
                                             $  5,071,000        $  4,480,000
          --------------------------------------------------------------------
    


   Maintenance and repairs charged to costs and expenses amounted to $258,000,
$240,000 and $239,000 in fiscal 1996, 1995 and 1994, respectively.

                                          29


<PAGE>


E.   OTHER ASSETS

   
          -------------------------------------------------------------------
           OCTOBER 31,                            1996                1995
          -------------------------------------------------------------------
           Patents (net of amortization)     $  362,000          $  297,000
           Capitalized costs                  4,255,000           3,773,000
           Unamortized bond issue costs         579,000                  --
           Deposit-long term capital lease      550,000             550,000
           Long-term receivable                 770,000           1,150,000
           Other                                184,000             407,000
          -------------------------------------------------------------------
                                           $  6,700,000        $  6,177,000
          -------------------------------------------------------------------
    


F.   INCOME TAXES

   INCOME TAXES  -  Effective November 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109), which requires a change from the deferred  method's  income statement
approach of accounting for income taxes to an asset and liability approach of
accounting for income taxes.  Under the asset and liability approach, deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.  This change had
no effect on the Company's statement of operations.

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

   
          ------------------------------------------------------------------
           YEAR ENDED OCTOBER 31,       1996           1995           1994
          ------------------------------------------------------------------
           Current:
                    Federal      $    (882,000)   $  (325,000)   $  259,000

                    State             (165,000)            --        55,000

                    Foreign                 --             --            --
          ------------------------------------------------------------------
           Total Current            (1,047,000)      (325,000)      314,000
          ------------------------------------------------------------------
           Deferred:

                    Federal                 --       (124,000)     (239,000)

                    State                   --        (25,000)      (51,000)

                    Foreign                 --             --            --
          ------------------------------------------------------------------
           Total Deferred                   --       (149,000)     (290,000)
          ------------------------------------------------------------------
                                 $  (1,047,000)   $  (474,000)   $   24,000
          ------------------------------------------------------------------
    

                                          30


<PAGE>
   A reconciliation of the Company's effective rate to the U.S. statutory rate
is as follows:
   
---------------------------------------------------------------------------
 YEAR ENDED OCTOBER 31,                      PERCENTAGE OF PRE-TAX EARNINGS
                                             ------------------------------
                                             1996         1995        1994
---------------------------------------------------------------------------
 Federal tax (benefit)/provisions at 
applicable statutory rates                   (34.0)%     (34.0%)      34.0%
 Increases (decreases) in income 
taxes resulting from:
     State tax benefit, net of Federal 
     tax effect                               (6.0)       (4.0)        7.0
     Net changes in current and deferred 
     valuation allowances                     31.5         6.9          --
     Other, net                               (2.9)       (5.5)         --
---------------------------------------------------------------------------
                                             (11.4)%     (25.6%)      41.0%
---------------------------------------------------------------------------
    
   The components of the deferred tax assets and liabilities as follows:
   
-------------------------------------------------------------------------
                                        OCTOBER 31,         OCTOBER 31,
                                           1996                1995
-------------------------------------------------------------------------
CURRENT
     Vacation                           $  212,000          $  46,000
     Deferred compensation                   2,000             34,000
     Other                                      --              3,000
-------------------------------------------------------------------------
Total current assets                       214,000             83,000
-------------------------------------------------------------------------
NONCURRENT
     Deferred gain on sale leaseback    $   99,000          $ 101,000
     Depreciation                         (382,000)          (315,000)
     Net operating loss carryforwards    3,666,000            681,000
     Research and development
      and investment tax credits
      carryforwards                        578,000            528,000
-------------------------------------------------------------------------
Total noncurrent assets               $  3,961,000         $  995,000
     Valuation allowance                (4,175,000)        (1,078,000)
-------------------------------------------------------------------------
Net deferred tax assets                         --                 --
-------------------------------------------------------------------------
    
     The research and development and investment tax credits and the net
operating loss carryforward are available to offset future taxable earnings of
the Company.  SFAS No. 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 total current amounts presented above are included in other current
assets on the balance sheet.

The components of earnings/(loss) before income taxes were as follows:

   
---------------------------------------------------------------------------
 YEAR ENDED OCTOBER 31,                 1996           1995           1994
---------------------------------------------------------------------------
 Domestic                          $  (9,040,000) $  (1,845,000) $  79,000

 Foreign                                (966,000)        (6,000)   (20,000)
---------------------------------------------------------------------------
                                  $  (10,006,000) $  (1,851,000) $  59,000
---------------------------------------------------------------------------
    
                                          31


<PAGE>

G.        GEOGRAPHIC AND SEGMENT INFORMATION

     The following tabulation details the Company's operations in different
geographic areas for the years ended October 31, 1994, 1995 and 1996.

<TABLE>
<CAPTION>

   
                                             UNITED
                                             STATES         EUROPE    ELIMINATIONS        CONSOLIDATED
-------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 1994
<S>                                     <C>            <C>            <C>                 <C>
Revenues from unaffiliated sources      $19,268,000    $    14,000    $    --             $19,282,000
Operating profit/loss                   $   288,000    $   (20,000)   $    --             $   268,000
Identifiable assets at October 31,1994  $17,664,000    $   398,000    $(453,000)          $17,609,000
-------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 1995:

Revenues from unaffiliated sources      $17,925,000    $   382,000    $    --             $18,307,000
Operating loss                          $(1,291,000)   $    (6,000)   $    --             $(1,297,000)
Identifiable assets at October 31, 1995 $28,063,000    $   960,000    $(1,018,000)        $28,005,000
-------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 1996:

Revenues from unaffiliated sources      $14,840,000    $    51,000    $    --             $14,891,000
Operating loss                          $(8,330,000)   $  (966,000)   $    --             $(9,296,000)
Identifiable assets at October 31, 1996 $32,690,000    $ 1,039,000    $(3,381,000)        $30,348,000
-------------------------------------------------------------------------------------------------------
    

</TABLE>
                                               32

<PAGE>

   The Company's business is composed of two industry segments:  government
technology and medical technology.  A summary of information relating to these
divisions is presented below for the year ended  October 31, 1996.  Prior to
1995, the Medical Technology Division was considered insignificant and therefore
not presented.

<TABLE>
<CAPTION>

   
------------------------------------------------------------------------------------------------------------------
                                               GOVERNMENT          MEDICAL
                                               TECHNOLOGY        TECHNOLOGY              OTHER       CONSOLIDATED
                                                SEGMENT            SEGMENT
------------------------------------------------------------------------------------------------------------------
 YEAR ENDED OCTOBER 31, 1995:
<S>                                          <C>                 <C>                 <C>
 Revenues                                    $  15,597,000       $  2,244,000        $    466,000   $  18,307,000
------------------------------------------------------------------------------------------------------------------
 Operating profit (loss):                    $     765,000       $ (2,528,000)       $    466,000   $  (1,297,000)
------------------------------------------------------------------------------------------------------------------
 Identifiable assets at October 31, 1995:    $  11,433,000       $  7,003,000        $  9,569,000   $  28,005,000
------------------------------------------------------------------------------------------------------------------
 Depreciation and  amortization:             $     257,000       $    685,000        $    164,000   $   1,106,000
------------------------------------------------------------------------------------------------------------------
 Capital expenditures:                       $     118,000       $    218,000        $     14,000   $     350,000
------------------------------------------------------------------------------------------------------------------
 YEAR ENDED OCTOBER 31, 1996:

 Revenues                                    $  13,329,000       $  1,262,000        $    300,000   $  14,891,000
------------------------------------------------------------------------------------------------------------------
 Operating profit (loss):                    $    (909,000)      $ (8,687,000)       $    300,000   $  (9,296,000)
------------------------------------------------------------------------------------------------------------------
 Identifiable assets at October 31, 1996:    $  12,370,000       $  7,589,000        $ 10,389,000   $  30,348,000
------------------------------------------------------------------------------------------------------------------
 Depreciation and  amortization:             $     376,000       $  1,278,000        $     89,000   $   1,743,000
------------------------------------------------------------------------------------------------------------------
 Capital expenditures:                       $     356,000       $    658,000        $     44,000   $   1,058,000
------------------------------------------------------------------------------------------------------------------
    

</TABLE>

     Operating profit (loss) includes all revenues and expenses of the
reportable segment, except for interest income, dividend income, other income
and exchange losses.  These items are shown as part of the "other."

     Identifiable assets are assets used in the operation of each segment. 
Other identifiable assets consist primarily of cash and assets that are
corporate owned.

     Total Government Technology sales in the amounts of $4,522,000, $4,633,000
and $4,289,000 in fiscal 1996, 1995 and 1994, respectively, were made to a
single European customer.  All sales were export sales and are included in the
United States sales to unaffiliated customers.  In 1996, three domestic
customers accounted for sales of $1,946,000,  $1,589,000 and $1,127,000,
respectively.  As provided in several contracts, customers advance funds to the
Company for the purpose of purchasing inventory. The related advances have been
offset against these inventories.

H.   COMMITMENTS

     CHANGE IN CONTROL.   The Company has agreements with three of its executive
officers 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 a maximum equal to the amount
deductible by the Company under the Internal Revenue Code.

                                           33

<PAGE>

     EMPLOYMENT AGREEMENTS.  The Company has employment agreements with four key
employees. Three of the agreements provide for one year of compensation in the
aggregate of $600,000 plus normal benefits and any amounts due under incentive
compensation plans in the event the employee is terminated without cause.  The
fourth agreement provides for a lump sum payment in the amount of $150,000 in
the event of retirement.

     CONSULTING AGREEMENTS.  The Company has consulting agreements providing two
of its directors  cash compensation in the total amount of $205,000 plus
expenses in fiscal 1997, assuming the agreements are renewed under similar terms
and conditions, for technical marketing and investor relations services. In
addition, these directors have a financial and option advisory agreement
providing for success fees on any acquisition or equity offering introduced by
them during the term of the agreement.

     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 as a capital lease.  The buyer/lessor of the
building was a partnership. Two of the partners are officers and directors of
the Company.  In addition, a non-interest bearing security deposit of $550,000
was paid at closing and 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 over the term of the lease.

     The Company's future minimum lease payments related to the sale-leaseback
arrangement in effect at October 31, 1996 are as follows:

--------------------------------------------------------------------------------
   
     Fiscal
     1997                                       $    560,000
     1998                                            560,000
     1999                                            560,000
     2000                                            615,000
     2001                                            615,000
     2002 and thereafter                           5,354,000
                                                ------------
                                                   8,264,000
     Less interest portion                        (4,739,000)
                                                ------------
     Present value of net minimum payments      $  3,525,000
                                                ------------
                                                ------------
    


I.   LONG-TERM DEBT

     The Company executed an agreement to sell $10.0 million 9.01% Convertible
Subordinate Debentures due August 31, 2003.  Under the terms of the debentures,
the holder can 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
has the right to call the debentures after February 28, 1998, if the Company's
stock price trades at certain levels between 150% - 175% of the closing price or
$15-$17.50 per share.  In addition, the Company's financing costs relating to
this debenture amounted to approximately $.6 million.  These costs are being
amortized over the life of the loan.  In August 1996, the Company received the
proceeds from the above agreement.

J.   DEFERRED COMPENSATION PLANS

     The Company has a non-qualified deferred compensation plan that provides
for compensation payments to a key individual.  Distributions are generally made
five years after amounts are earned.

                                           34


<PAGE>

K.   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 options available for grant under this plan.

     The Company's 1992 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 are 
exercisable over a period not to exceed ten years.  There are no options 
available for grant under this plan.

     The Company's discretionary compensation plan reserves 400,000 shares of 
Class A Common Stock for issuance upon the exercise of options.  
Approximately 34,000 options remain 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, approved by the 
shareholders at the 1996 Annual Meeting of Shareholders, reserves 750,000 
shares of Class A Common Stock for issuance upon the exercise of options.  
Approximately 189,000 options remain 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.

     Information with respect to the aforementioned stock option plans is 
summarized as follows:

------------------------------------------------------------------------------
   
                                        Class A        Class B        Total
------------------------------------------------------------------------------
Outstanding at October 31, 1993
      ($3.00 to $11.59 per share)       589,331        9,946          599,277
Granted ($7.93 per share)               400,170           --          400,170
Exercised ($3.00 to $8.625 per share)   (87,561)          --          (87,561)
Canceled ($8.00 - $8.625 per share)     (31,450)          --          (31,450)
Expired ($10.00 to $11.59)               (2,182)          --           (2,182)
------------------------------------------------------------------------------
Outstanding at October 31, 1994
      ($3.00 to $8.875 per share)       868,308        9,946          878,254
Granted ($6.625 to $11.25 per share)     46,000           --           46,000
Exercised ($3.00 to $8.625 per share)  (104,431)      (5,000)        (109,431)
Canceled ($8.625 per share)             (26,483)          --          (26,483)
------------------------------------------------------------------------------
Outstanding at October 31, 1995
      ($3.00 to $11.25 per share)       783,394        4,946          788,340
Granted ($10.20 to $11.125 per share)   560,700           --          560,700
Exercised ($3.00 to $8.625 per share)   (78,851)          --          (78,851)
Canceled (per share)                     (3,850)          --           (3,850)
------------------------------------------------------------------------------
Outstanding at October 31, 1996
      ($3.00 to $11.125 per share)    1,261,393        4,946        1,266,339
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Exercisable at October 31, 1996         686,407        4,946          691,353
------------------------------------------------------------------------------
------------------------------------------------------------------------------

    

                                  35

<PAGE>

   The Company has issued 895,000 warrants and 522,000 options to consultants 
and three non-management directors at prices ranging from $3.00 to $11.75, 
expiring  from 1997 to 2004.  None of these warrants or options have expired 
to date.  Included in the above are 250,000 warrants issued to consultants 
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 stock at 
the date of the grant.  The remaining options and warrants were issued at fair
market value at the date of grant.  One consultant and one director have 
exercised warrants or options for a total of 34,000 shares during fiscal 1996 
at prices ranging from $4.00 to $7.25 per share.

   The Board of Directors have issued options to various employees to purchase
a total of 229,000 shares of Class A Common Stock.  The options have exercise 
prices ranging from $7.25 to $10.50 per share (fair market value at the date 
of grant), expiring from 2000 to 2006.  Employees have exercised options for 
a total of 24,500 shares during fiscal 1996 at $8.50.

L.    EMPLOYEE BENEFIT PLAN

   In 1986, the Company adopted a benefit plan under section 401(k) of the 
Internal Revenue Code.  In November, 1995, the plan was amended to allow for 
a 1% base annual salary Company matching contribution for each eligible 
employee.  The plan allows all eligible employees to defer up to 17% of their 
pre-tax income through contributions to the plan.

M.    RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS

   

   The Company has restated its consolidated financial statements for the 
years ended October 31, 1996 and 1995.  Subsequent to the issuance of the 
Company's 1996 consolidated financial statements, the Company's management 
determined that certain temporary salary reductions for certain officers of 
the Company during fiscal 1995, and loans made to such officers to be repaid 
by future bonuses, should have been recorded as an increase to compensation 
expense with a corresponding increase to additional paid-in-capital in the 
Company's 1995 consolidated financial statements.  As a result, the Company's
1996 and 1995 consolidated financial statements have been restated from the 
amounts previously reported to record these loans as a charge to operations 
and as an increase to additional paid-in-capital in fiscal 1995.  The impact 
of these adjustments was to increase the previously reported 1995 net loss by 
$502,000 and net loss per common share by $.07.  The restatement had no 
effect on the Company's cash position.
    


                                      36
<PAGE>

   
   A summary of the significant effects of the restatement is as follows 
(dollar amounts in thousands, except per share data):

   ---------------------------------------------------------------------------
                                                     AS              AS
                                                 PREVIOUSLY       RESTATED
                                                  REPORTED       
   ---------------------------------------------------------------------------
   YEAR ENDED OCTOBER 31, 1995:

   Selling, general and administrative expense   $   5,796       $   6,298

   Total operating expenses                         19,656          20,158

   Loss before income tax benefit                   (1,349)         (1,851)

   Net loss                                           (875)         (1,377)

   Net loss per common share                          (.13)           (.20)
   ---------------------------------------------------------------------------
   AT OCTOBER 31, 1995:

   Additional paid-in capital                    $  23,908       $  24,410

   Accumulated deficit                             (11,179)        (11,681)
   ---------------------------------------------------------------------------
   AT OCTOBER 31, 1996:

   Additional paid-in capital                    $  24,584       $  25,086

   Accumulated deficit                             (21,138)        (20,640)

    



                                           37

<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 27th day of May,
1997.
    

                                        BASE TEN SYSTEMS, INC.
<TABLE>
<CAPTION>

<S>                                <C>                                <C>
By:  /s/ Myles M. Kranzler         By:  /s/ Edward J. Klinsport       By:  /s/ Susan M. Klinsport
     ------------------------           -----------------------            ----------------------
     Myles M. Kranzler                    Edward J. Klinsport               Susan M. Klinsport
     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

Myles M. Kranzler, Edward J. Klinsport,         Directors           May 27, 1997
Alan J. Eisenberg, Alexander M. Adelson,
Alan S. Poole*
    


By:       /s/ Edward J. Klinsport            
     -----------------------------------------
     *Edward J. Klinsport, as attorney-in-fact

                                           38


<PAGE>

                                      EXHIBIT INDEX
EXHIBIT
NUMBER    EXHIBIT                                                          PAGE

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). 

4. (a)    Purchase Agreement dated as of August 8, 1996 between the        *
          Registrant and Jessee 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 the Registrant and  * (A)
          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, as amended and   * (A)
          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 (incorporated by reference  * (A)
          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, 1991 between       * (A)
          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).

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

                                           39


<PAGE>

EXHIBIT
NUMBER    EXHIBIT             PAGE

   (g)    Employment Agreement dated as of March 26, 1992 between the      * (A)
          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 between the      * (A)
          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 between the      * (A)
          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 between the      * (A)
          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 Registrant and * (A)
          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 11, 1993 between * (A)
          the Registrant and Alexander M. Adelson.     

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


   (n)    Amended Consulting Agreement made as of February 24, 1992        * (A)
          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 11, 1993       * (A)
          between the Registrant and Bruce D. Cowen.   

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

                                           40


<PAGE>

EXHIBIT
NUMBER    EXHIBIT                                                          PAGE

   (t)    Lease dated October 28, 1994 between the Registrant and CKR      *
          Partners, L.L.C. (incorporated by reference to Exhibit 2(b) to
          Registrant's Current Report on Form 8-K (File No. 0-7100) dated
          November 11, 1994). 

21.  Subsidiaries of the Registrant

23.1 Independent Auditors' Consent.

24.1 Power of Attorney

_______________
*    Incorporated by reference.
(A)  A management contract or compensatory plan or arrangement.

                                           41