Base Ten Annual Report.

TRENTON, N.J.--(BUSINESS WIRE)--Feb. 21, 1995--Dear Shareholders, In our Fiscal 1993 Annual Report we outlined our continuing strategy of introducing new products in the fields of medical diagnostics and pharmaceutical manufacturing using Base Ten's expertise and reputation as leaders in "safety critical" software. Safety criticality and its iterations are cornerstones of the new domestic and internationally regulatory environment. Implementation of this strategy has evolved from our strong financial condition and our Government Technology Division that continues to provide a consistent source of capital from its earnings and an extraordinary support system.

This Annual Report will provide you, our shareholders, with our progress over the past year and reasons why we are confident that your Company's investment in state-of-the-art products in its pipeline will result in significant revenue growth and earnings over the next decade.

Financial Results & Conditions

For the year ended Oct. 31, 1994, net income was $35,000, or 34 cents per share, vs. net income of $958,000, or 18 cents per share, in the prior year. The decrease in net income per share was the result of our increased rate of company sponsored investment in our medical technology products now that the company is firmly established as a supplier of medical software.

The company's financial condition is excellent overall and quite liquid. During this past year we completed the sale and leaseback of our building in Trenton, N.J. The proceeds of the sale were used to retire the company's bank debt.

In early November we completed a successful rights offering with over 96% of the outstanding rights converted into common shares with net proceeds to the company of over $4.25 million. Our balance sheet is very strong and we have the opportunity to invest aggressively in our growth. Key indicators of our financial strength adjusted for the proceeds from the rights conversion are as follows:

Medical Software Developments

The most important development of the year was the signing of a five-year agreement with Kodak Clinical Diagnostics Division, a Johnson & Johnson company for the sale and licensing of PRENVAL(TM) III, a software program for fetal abnormality detection. This agreement which applies worldwide, except for the United States, establishs without doubt our creditability as a provider of safety critical software for the medical industry and provides Base Ten with its initial revenue and profit stream from its Family of PRENVAL(TM) software products.

                                    October 31,
                                1994          1993
              (Dollar's in millions except for Book Value per share)

Cash                             $ 6.1         $ 3.8
Current assets                   $14.0         $11.8
Current liabilities              $ 3.9         $ 5.5
Long-term debt                      --         $ 3.2
Shareholders' equity             $13.7         $ 8.0
Working capital                  $10.1         $ 6.4
Book value per share             $ 2.5         $ 1.53
Current ratio                    3.6:1         2.1:1

During the year we submitted over 2,000 perspective clinical samples to the FDA in support of our Premarket Approval (PMA) application for PRENVAL(TM) I. Our PMA application is under active review at the FDA. While we cannot predict the timing of FDA actions, we anticipate a favorable resolution in early 1995.

The near term accomplishment most likely to provide significant revenue and profitability growth is the company's PHARMASYST(TM) system, a Manufacturing Execution System (MES) being actively marketed to the pharmaceutical industry. Our system also offers significant potential to the chemical, food and beverage and consumer packaged goods markets. The worldwide market for Manufacturing Execution Systems includes as many as 50,000 batch processing sites according to Advanced Manufacturing Research's current market analysis.

We believe that our PHARMASYST(TM) system is technically superior to our competitors' and will result in a faster payback. Although prices will vary to the requirements of our customers' application, we are confident that larger systems will sell for up to a million dollars per system. In fiscal 1995 our efforts will be devoted to investing aggressively in sales and marketing to gain market share while developing variation to our system to exploit market requirements.

Early in January we announced the signing of our first U.S. contract for PHARMASYST(TM) with Miles Inc., a division of Bayer AG. Our system will initially be used for a material tracking system in Miles' Berkeley California facility. We anticipate significant additional opportunities in the Miles pharmaceutical manufacturing group upon successful installation.

We have continued development of our Ultrasound Picture Archiving and Communication System (uPACS), a software system related to innovative techniques for recognizing anatomical changes from normal and for clarifying ultrasound images to single pixel format for ease in analysis. A patent application has been filed to protect our intellectual property. Our development includes a methodology for digitizing, recording, and permanently storing ultrasound images on CD-ROMs. There is enormous economic value in such a system because it replaces expensive Polaroid film for image storage and because it exchanges the awkward and time consuming filing and accessing of images using hard copy photos with the ultimate convenience of electronic storage and the instant access of CD-ROMs. This system will be introduced for sale during fiscal 1995.

Patent Developments

In August, the U.S. Patent Office officially granted the company the patent for MED-DOS(TM) technology. MED-DOS(TM) technology is the basis of a shell operating system for medical computer platforms. Its purpose is to aid in the implementation of the newly required regulatory software guidelines being imposed by the FDA and other international agencies.

In October the U.S. Patent Office officially granted the company a patent for an Automatic Teller Machine system. This patent covers a method of operation using a personalized normal PIN number and an emergency PIN number. If the user enters the emergency PIN number the system actuates a silent alarm. The system simultaneously simulates a normal transaction so as not to alert a thief or potential thief that the alarm has been actuated.

When we decided to expand the company into the commercial marketplace we embraced, as a fundamental element of our strategy, the pursuit of a broad intellectual property position to protect our interests. Since October of 1992 we have applied for more than 15 patents and trademarks. We were granted three U.S. patents in 1994 with the remainder pending in the U.S. and international patent offices.

Government Technology

In December the company received initial funding on a production contract for weapons control systems with a value of between $5.2 and $6 million depending on test equipment and documentation orders. This contract, along with other business booked in the last several months, raised the company's backlog in its Government Technology Division to greater than $12.4 million.

Success through a Well Defined Strategy

Base Ten's future success will be based on the continued implementation of our business strategy. Our strategy is simple ... introduce new products in the fields of medical diagnostics and pharmaceutical manufacturing using our expertise and reputation as leaders in "safety critical" software. My commitment to you is that your Management and Board will stay focused on our goal of building the company and increasing shareholder value. You are encouraged to read the 10K following this letter for further information about our business.

After years of faithful service during which he provided valuable financial and management counseling to Management and the Board of Directors, Robert G. Kales has decided not to stand for reelection this year. He has our deep respect and gratitude for his contribution and the good wishes of the many friends he made during his tenure.

Cordially,

M.M. Kranzler Chairman and CEO 

CONTACT: Base Ten

Miles Kranzler, 609/586-7010

or

Strategic Growth

Richard Cooper, 212/826-9622