<PAGE> 1
- -----------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------------------------
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
______________________________________________________________
Commission File No.: 0-10854
___________________________________________________________
ORS AUTOMATION, INC.
(Exact name of registrant as specified in its charter)
DELAWARE I.R.S. Employer Identification
(State or other jurisdiction of No. 13-27956-75
incorporation or organization)
402 Wall Street, Princeton, New Jersey
(Address of principal executive offices)
08540 (609) 924-1667
(Zip Code) (Registrant's Telephone Number)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: None
Name of each exchange on which registered: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($.01 par value per share)
Check whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the past 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
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure
will be contained, to the best of registrants knowledge, in definitive
proxy or information statements incorporated by reference in Part III
of this Form 10-KSB or any amendment to this Form 10-KSB. /X/
State issuer's revenues for its most recent fiscal year: $1,175,584
As of March 1, 1998, the aggregate market value of the voting stock
held by non-affiliates of the registrant was: $66,861.
Check whether the issuer has filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of
1934 subsequent to the distribution of securities under a plan confirmed
by a court. Yes /X/ No
As of March 1, 1998, 8,082,443 shares of the registrants Common Stock
and 12,000,000 shares of Class A Common Stock were outstanding.
Transitional Small Business Disclosure Format: Yes No /X/
<PAGE> 2
Part I
Item 1. Description of Business
(a) State of Incorporation; Offices and Facilities
ORS Automation, Inc. ("ORS" or the "Company"), the registrant, was
incorporated under the laws of the State of Delaware in 1968 and commenced
operations in 1972. The Company's executive offices and production facilities
are located at 402 Wall Street, Princeton, New Jersey 08540.
(b) Nature of Business
The Company is primarily engaged in the production and sale of
microcomputer-based vision products for automatic identification, inspection,
control of industrial processes and visual sensing systems for use with
industrial automation equipment.
(c) Corporate Developments
On September 9, 1986 the Company filed for voluntary bankruptcy
under Chapter 11 of the U.S. Bankruptcy code in the United States Bankruptcy
Court for the District of New Jersey, Trenton, New Jersey, Case Number
86-05524 and continued to operate as Debtor in Possession. On December 31,
1986, Affiliated Manufacturers Inc., a major customer, acquired a controlling
interest in the Company. A Fourth Amended Plan of Reorganization was filed by
Affiliated Manufacturers Inc. with the Bankruptcy Court in February 1991 and
subsequently confirmed by the Court on April 8, 1991.
On September 1, 1992 a Final Decree officially closing the Chapter
11 bankruptcy case was issued by the United States Bankruptcy Court for the
District of New Jersey.
On January 17, 1997, Mr. Benson Austin, Chairman of the Board, Chief
Executive Officer and Treasurer of the Company, and Chairman of the Board,
Chief Executive Officer and principal shareholder of Affiliated Manufacturers,
Inc., passed away. Mr. Austin, held his positions with the Company since 1987.
Mr. Edward Kornstein, the President of the Company, has succeeded Mr. Austin
as Chairman of the Board, Chief Executive Officer and Treasurer. In February
1997, Mr. Walter Sherman resigned as Director and Mr. Howard Imhof was elected
to the Board of Directors.
(d) Company's Technology
ORS's area of business is machine vision technology which evolved
out of digital image processing research conducted in the past decade. With
lower costs and greatly increased speeds made possible by advances in
micro-electronics, machine vision became practical for industrial use.
ORS vision systems are specifically oriented toward the recognition
of visual patterns to determine an object's identity, position and quality.
This information is used in conjunction with computer-based automation to
control processes, machines and production quality. The principal vision
products produced by ORS are comprised of a range of proprietary software
processing algorithms, signal processors, and peripheral equipment. Where
possible, these products utilize commercially available hardware components
(e.g. television cameras, analog to digital converters, display devices and
microcomputers).
With these capabilities, ORS's products currently in production are
used to provide guidance information to automatic precision machinery.
2
<PAGE> 3
(e) Products
Since 1986, ORS Automation, Inc., has concentrated its resources in
refining and expanding guidance applications for screen printers used in the
manufacture of electronic circuit boards and micro-circuit printing on ceramic
substrates. The resulting units have high processing speeds with the
flexibility to make them cost-effective in the factory environment. It is
believed that the Company's technical expertise combined with its proven
industrial "solution" experience would place the Company in a strong
competitive position wherever electronic circuitry is being manufactured for
use in apparatuses, devices, or appliances. The principal product of the
Company in this area is "i-lign", which automatically and precisely positions
patterned materials for further processing such as printing, and for other
processing with various machine tools.
The Company intends to expand the market niches in which it has
demonstrated technical and marketing capability, namely alignment systems and
machine control applications. The factory-ready nature of the Company's
products will be emphasized and its experience in automation in the
electronics industry, will, to the extent possible, draw on successful
instances of real applications to provide a cost-justified return to both
equipment manufacturers and end user customers.
(f) Manufacturing
The Company assembles its vision and control products entirely from
electronics and other components purchased from nonaffiliated supply sources.
The major components of the products (cameras, display devices,
microcomputers, controls, mechanical assemblies and cabinets) are available
from various sources. To these, ORS adds its proprietary software and
interfaces.
(g) 1997 Sales & Recent Backlog
The Company sells its products principally to manufacturers of
automation equipment for the electronics industry. Sales of $1,175,584 were
down 4.6% from 1996 sales of $1,232,421. Two customers accounted for
approximately all of the total sales for the period.
As of March 1, 1998 the Company had unfilled orders for products
totaling $609,210. This total backlog, of which approximately 81% is based on
a purchase order from one customer, is scheduled to be delivered in 1998. This
compares with the backlog of $514,298 on March 1, 1997. The increase in
backlog reflects sales of applications for the ORS technology developed in
1996 and 1997 and now coming into acceptance as well as new product offerings
based upon the library of experience ORS has built.
(h) Patents and Trademarks
The Company holds United States Patent No. 3,877,019, titled
"Photo-measuring Materials Device for Computer Storage of Photographic and
Other Materials", granted April 8, 1975; No. 3,908,078, titled "Method and
Apparatus for Digital Recognition of Objects Particularly Biological
Materials", granted September 23, 1975; No. 4,613,269, titled "Robotic
Acquisition of Objects By Means Including Histogram Techniques", granted
September 23, 1986 and No. 4,642,813, titled "Electro-Optical Quality Control
Inspection of Elements on a Product", granted February 10, 1987. Although the
registrant relies primarily on its technological know-how and expertise in the
field of machine vision, some products are nevertheless based, in part, on the
technology underlying these patents. No assurance can be given as to the
validity and scope of the protection provided by these patents.
3
<PAGE> 4
The Company holds and uses several registered trademarks. "ORS" is
used as a general identifying symbol in respect of its Products. "i-bot" is
used in conjunction with systems when adapted for use with industrial robots
and the related electronic grippers. "FLEXVISION" identifies a flexible image
computer. The alignment products are identified by "i-lign" and circuit board
inspection systems are identified by "i-flex". The Company has also
copyrighted critical software.
(i) Product Development
During fiscal years 1997 and 1996 the Company expended approximately
$223,000 and $250,000 respectively, on software and product development
activities. The product development in 1997 concentrated on making the user
interface to the ORS software independent, so that each customer can easily
customize his own application without heavy involvement from the ORS software
staff.
The language options were redesigned to allow a user to change the
language of the screen presentations to his own translations without having to
work with ORS software personnel. This further increases potential application
in the international market.
The alignment and control software were upgraded to 32 bit versions
to prepare for a shift to the Windows NT operating system in the future.
Improvements were made to the alignment software allowing the use of multiple
reference points, instead of the traditional two, to increase system accuracy.
The control software developed in 1996 was modified to increase its robustness
and reliability. Sales of programmable machine control packages increased to
16.7% of total sales in 1997 as compared to 15% of total sales in 1996.
(j) Competition
The Company believes that there are now a substantial number of
competitors in the automatic machine vision identification, inspection and
control markets in which the Company's products compete. Recently several of
these competitors have merged to improve their market position. There are
several products now available that perform functions similar to those
performed by existing ORS products and those that the Company intends to
produce. Presently the field appears to be dominated by a few companies, the
most prominent being Cognex, Acuity Imaging, Allen-Bradley, Electro Scientific
Industries and Omron Electronics. These companies possess financial resources
and research and development staffs far greater than those of the Company.
(k) Employees
At December 31, 1997, the Company had 8 employees. The Company also
engages consultants from time to time to provide specialized expertise in
areas in which it is uneconomical to utilize full-time employees. The Company
enjoys good relations with its employees.
Item 2. Description of Property
The Company leases 7,695 square feet of office and engineering space
at 402 Wall Street, Princeton, New Jersey 08540. The lease, which had been on
a month-to-month basis at the base rent of $4,008 per month was renegotiated
for the three year period commencing on September 1, 1997 and ending August
31, 2000 at the following base rents:
9/01/97 - 8/31/98 $3,848 per month
9/01/98 - 8/31/99 $4,008 per month
9/01/99 - 8/31/00 $4,168 per month
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The monthly base rent does not include tenant's share of operating expenses
which currently amount to $2,245 per month. The Company does not anticipate
any difficulty in extending the lease if it so desires.
Item 3. Legal Proceedings
There are no known legal actions in which the Company is a party.
Item 4. Submission of Matters to a Vote of Security Holders
None
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
On October 15, 1986, the Company's common stock was delisted from NASDAQ
for failure to meet the minimum capital and surplus requirements of the NASD
By-Laws. Since there are no market makers for the Company's stock, trading, if
any, has been sporadic. As of December 31, 1997 there were 534 holders of
record of the Company's common stock.
The Company has neither declared nor paid any dividends on its
shares of Common Stock or Preferred Stock since its inception. Any decision as
to the future payment of dividends will depend on the earnings and financial
position of the Company and such other factors as the Board of Directors deems
relevant. The Company anticipates that it will retain earnings, if any, in
order to finance the development and expansion of its business.
Item 6. Management's Discussion and Analysis or Plan of Operation
The following table presents selected financial data for the
Company for the Company's past two years.
For The Year Ended December 31,
<TABLE>
<CAPTION>
Results of Operations 1996 1995
- ------------------------- ---------- ---------
<S> <C> <C>
Operating Revenues $ 1,175,584 $ 1,232,421
Income From Operations 92,833 97,032
Net Income 58,985 54,114
Net Income per Share of
Common Stock 0.00 0.00
Financial Position at
December 31,
Total Assets $ 725,244 $ 648,308
Total Liabilities 763,310 738,950
Shareholder's Deficit (38,066) (90,642)
</TABLE>
5
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As discussed in Note 1 to the financial statements, continuation of the
Company as a going concern and realization of its assets and liquidation of
its liabilities in the ordinary course of business are dependent upon, among
other things, the ability of the Company to maintain adequate financing and to
continue to achieve profitable continuing operations. The Company has been
existing, and will continue to, on its current cash flow only. To date the
Company has been unable to obtain any bank financing and there is no assurance
that if financing is required, it will be available to the Company.
The cost of the components for the Company's products (primarily
electronic components) has been decreasing in recent years, whereas the
capacity and capability of such items have been increasing. However, as the
Company increases its software emphasis, product development labor costs will
likely increase in the future, but the labor component included in product
costs will decrease. Therefore, the Company must increase the sales of its
products and improve margins in order to generate sufficient cash to continue
operations.
Results of Operations
Comparing the results of operations of 1997 with 1996, sales of
$1,175,584 decreased approximately 4.6% from 1996 sales of $1,232,421.
Approximately 82.7% of the sales in 1997 were related to "i-lign" and "u-lign"
vision alignment products compared with 85% of sales in 1996. One customer,
Affiliated Manufacturers, Inc., ("AMI"), which has a controlling interest in
the Company, accounted for approximately 27% of the total sales in 1997
compared with 36% of total sales in 1996.
The gross profit increased from 32.1% of sales in 1996 to 34.1% of sales
for the year ended December 31, 1997. Administrative, Marketing and General
expenses increased approximately 3.3% to $308,210 for the year ended December
31, 1997 as compared to $298,365 for the year ended December 31, 1996. This
increase was primarily due to increased travel expenses to service an overseas
customer.
Software and product development expense decreased 10.8% to approximately
$223,000 in 1997 compared to approximately $250,000 in 1996. The Company
expects to continue product development at the current rate, to enhance its
current products and for the development of new products.
The income from operations for the year ended December 31, 1997 was
$92,833, as compared to income from operations of $97,032 for the year ended
December 31, 1996. In 1997, the Company had "Other Expenses" of $33,848 as
compared to "Other Expenses" of $42,918 in 1996. The Company reserved an
additional amount of $6,409 for inventory obsolescence in 1997. As a result,
the Company had a net income of $52,576 for the year ended December 31, 1997,
as compared to net income of $54,114 for year ended December 31, 1996.
Liquidity and Capital Resources
On May 10, 1993, August 10, 1993, November 10, 1993, February 10, 1995,
May 10, 1994 and August 10, 1994, payments totaling $45,500, $31,500, $42,000,
$63,000, $73,500 and $42,500, respectively, were due to the Internal Revenue
Service and various State taxing authorities pursuant to the bankruptcy
reorganization plan approved on April 8, 1991. On December 27, 1996, payments
totaling $45,500 were made to the Internal Revenue Service and various State
taxing authorities. As the Company required cash on hand for operating capital
and to implement new product development other payments were not made on the
due dates. These payments were deferred as permitted in the Reorganization
Plan. The Company has had discussions with the Internal Revenue Service
regarding settling its outstanding tax obligations.
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In 1997, operating activities provided $268,228, investing activities
used $6,991 for the purchase of equipment, compared to cash provided by
operations of $163,186, cash used in investing activities of $8,395, and cash
used in financing activities of $45,500 for the payment of priority tax
claims in 1996. As a result, the Company had a net increase in cash of
$261,237 which resulted in cash on hand at December 31, 1997 of $429,690. The
increase of cash in 1997 was due largely to the efficient collection of
accounts receivable. The Company plans to use the increase in cash to settle
outstanding federal tax obligations, which settlement is currently being
discussed with the Internal Revenue Service.
Since emerging from bankruptcy proceedings in 1991, payments to the
Internal Revenue Service, State taxing authorities, unsecured creditors and
the buyout of shareholders holding less than 1,000 shares totaled $405,175,
which has made it very difficult for the Company to invest in and expand its
business.
Item 7. Financial Statements and Supplementary Data
Financial Statements and schedules filed herewith are listed in the table
of contents to the financial statements on page F-2.
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None
Part III
Item 9. Directors and Executive Officers of the Registrant
The directors and executive officers of the Company are:
<TABLE>
<CAPTION>
Name Positions with registrant Has served as
and age as of March 1, 1998 director since
<S> <C> <C>
Edward Kornstein Chairman of the Board 1991
Chief Executive Officer
and Treasurer, 68
William Trautman Director, 58 1987
Howard W. Imhof Director, 55 1997
Patricia Newbill Secretary, 65 ----
</TABLE>
Edward Kornstein, Chairman of the Board, Chief Executive Officer,
Treasurer and Director. Mr. Kornstein has been President of the Company since
February 1987, Director since 1991, and Chairman of the Board and Treasurer
since 1997. From 1978 to 1987, he held various management positions in the
Company. Prior to Joining the Company, Mr. Kornstein was the owner of Kortron,
a consulting firm, and previously held executive and management positions with
Optel Corporation and RCA.
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<PAGE> 8
William E. Trautman, Director. Mr. Trautman is Senior Vice-President
of A.T. Kearney, a global management consulting firm and General Principal in
Dupont, White and Stone, a NASD broker dealer. Previously, he held senior
executive positions with several companies including Boyden Company, Moore &
Schley Securities, Seatrain Lines, Inc., XM World Trade, Litton Industries and
Ford Motor Company.
Howard W. Imhof, Director. Mr. Imhof is President, Chief Operating
Officer and Director of Affiliated Manufacturers, Inc. and was elected to the
Board of Directors in February, 1997. Previously he has served as chief
operating officer, chief executive officer, and in other international sales
and marketing management positions in the electronic materials industry
including Lanxide Electronics Corporation, and Sherritt Corporation - Aluminum
Nitride Group. Mr. Imhof is a co-founder of Heraeus Cermalloy's Electronic
<PAGE> 8
Materials Division and served for several years in a number of top management
positions.
Patricia M. Newbill, Secretary. Ms Newbill was elected Secretary of
the Company in 1997 and is currently Secretary of Affiliated Manufacturers,
Inc. Since 1987, Ms Newbill is Administrative Assistant at Affiliated
Manufacturers.
Benson M. Austin, the Chairman of the Board, Chief Executive Officer and
Treasurer of the Company during 1996, passed away on January 17, 1997. Edward
Kornstein, President of the Company has succeeded Mr. Austin as Chairman of
the Board, Chief Executive Officer and Treasurer of the Company. In February
1997, Mr. Walter Sherman resigned as Director of the Company.
Item 10. Executive Compensation
The following summary compensation table sets forth all compensation paid
by the Company during the fiscal years ended December 31, 1997, 1996 and 1995
in all capacities for the accounts of the Chief Executive Officer (CEO) and
President.
<TABLE>
<CAPTION>
Name and Principal Annual Restricted
Position Year Compensation Stock Awards
------------------- ----- ---------- ----------
<S> <C> <C> <C>
Benson M. Austin, CEO 1997 0 0
1996 0 0
1995 0 0
Edward Kornstein, President 1997 $ 49,920 0
1996 $ 68,363 0
1995 $ 83,897 0
</TABLE>
Directors do not receive any remuneration for their services as such. The
Company does not have a pension plan.
Stock Options
Under the terms of the Reorganization Plan, all options and warrants then
outstanding were canceled. During 1997 and 1996, no options were granted.
8
<PAGE> 9
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth the number and percentage of the shares of
the registrant's voting stock owned as of March 1, 1998 by all persons known
to the registrant who own more than 5% of the outstanding number of such
shares, by all directors of the registrant, and by all officers and directors
of the registrant as a group. Unless otherwise indicated, each of the
stockholders has sole voting and investment power with respect to the shares
beneficially owned.
Common Stock
<TABLE>
<CAPTION>
Title Number of Shares Percent
of Class Name Beneficially Owned of Class
- ---------- ------- -------------------- -------
<S> <C> <C> <C>
Common Affiliated 13,076,250 (1) 65.2%
Manufacturers Inc.
U.S.Highway 22, P.O.
Box 5049 North
Branch, NJ 08876
Common Edward Kornstein 320,064 1.6%
Chairman, CEO,
Director,
ORS Automation, Inc.
402 Wall Street
Princeton, NJ 08540
_________________ _______
Common All Directors and 320,064 1.6%
Officers as a group
</TABLE>
(1) Includes 1,076,250 shares of Common Stock, $0.01 par value, and 12,000,000
shares of Class A Common Stock, $0.0035 par value. The Company's Class A
Common Stock has the same rights and preferences as the Company's Common
Stock, $0.01 par value.
<PAGE 9>
Series A Preferred Stock (1)
<TABLE>
<CAPTION>
Title
of Class Name Number of Shares Percent
Beneficially Owned of Class
- ----------- ----------- ------------------ ----------
<S> <C> <C> <C>
Series A Affiliated 1,000,000 100%
Preferred Manufacturers Inc.
U.S.Highway 22, P.O.
Box 5049 North
Branch, NJ 08876
</TABLE>
(1) Each share of Series A Preferred Stock, $0.01 par value, has the same
rights and preferences as the Company's Common Stock, $0.01 par value.
9
<PAGE> 10
Item 12. Certain Relationships and Related Transactions
Affiliated Manufacturers, Inc (AMI), a principal shareholder of the
Company, currently holds a first priority secured note from the Company. As of
December 31, 1997, the principal amounted to $166,102 and the accrued
interest, which is being calculated using simple interest on a quarterly basis
at a rate of 12% per annum, amounted to $249,148. No payments were made to AMI
in 1997 and 1996.
Sales to AMI for the years ended December 31, 1997 and 1996 were $314,821
and $427,912, respectively. The sales represent approximately 27% and 36%,
respectively, of the total sales of the Company for those years. At December
31, 1997, and December 31, 1996, accounts receivable from AMI amounted to
$64,711 and $155,733, respectively.
PART IV
Item 13. Exhibits List and Reports on Form 8-K
(a) Exhibits
See Page 11 for a List of Exhibits.
10
<PAGE> 11
<TABLE>
<CAPTION>
Exhibit
Method of Filing No. Exhibits
- ------------------ --------- -------------
<S> <C> <C>
Incorporated by reference 2(a) Plan of Reorganization under
to Form 8-K, dated Chapter 11 of the United
April 29, 1991. States Bankruptcy Code, dated
April 8, 1991
Incorporated by reference 2(b) Order Closing Case and Issuing
to Exhibit 2(b) to Form Final Decree Pursuant to 11
10KSB, for the year ended U.S.C. Section 350(a) and
December 31, 1992. Bankruptcy Rules 3022 and
5009, dated September 1, 1992
Incorporated by reference 3(a) Certificate of Incorporation
to Exhibit 3(a) to Form of ORS Automation, Inc. as
S-1, File No. 2-70609. amended through December 29,
1980.
Incorporated by reference 3(b) By-Laws of ORS Automation,
to Exhibit 3(b) to Form Inc.
S-1, File No. 2-70609.
Incorporated by reference 3(c) Certificate of Amendment of
to Exhibit 3 to Form 10-Q Certificate of Incorporation
for the Quarter ended of ORS Automation, Inc. filed
June 30, 1983. with the Secretary of State of
Delaware on May 27, 1983.
Incorporated by reference 3(d) Certificate of Amendment of
to Exhibit 3(d) to Form Certificate of Incorporation
10-K, for the Year ended of ORS Automation, Inc. filed
December 31, 1991. with the Secretary of State of
Delaware on May 30, 1985.
Incorporated by reference 3(e) Certificate of Designations of
to Exhibit 3(e) to Form The Preferred Stock of
10-K, for the Year ended ORS Automation, Inc. filed
December 31, 1991. with the Secretary of State
of Delaware on December 30,
1986.
Incorporated by reference 3(f) Certificate of Reorganization
to Exhibit 3(f) to Form and Amendment Pending
10-K, for the Year ended Confirmation of Plan of
December 31, 1991. Reorganization of ORS
Automation, Inc. filed with
the Secretary of State of
Delaware on December 30, 1986.
</TABLE>
11
<PAGE> 12
SIGNATURES
In accordance with 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.
ORS AUTOMATION, INC.
(Registrant)
By: /s/ Edward Kornstein Dated: March 25, 1998
----------------------- -----------------
Edward Kornstein, Chairman, CEO
In Accordance with the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Date Position with Registrant
------------ ------------ -----------------------
<S> <C> <C>
/s/ Edward Kornstein 3/25/98 Chairman, CEO, Treasurer
(Chief Financial Officer)
-----------------------------------------------------------------------
/s/ Howard W. Imhof 3/25/98 Director
------------------------------------------------------------------------
/S/ William Trautman 3/25/98 Director
-----------------------------------------------------------------------
</TABLE>
12
<PAGE 13>
ORS AUTOMATION, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1997
13
<PAGE> 14
ORS AUTOMATION, INC.
CONTENTS TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
-----------------------------------------------------
<TABLE>
<CAPTION>
Page
---------
<S> <C>
Independent Auditors' Report F-3
Balance Sheet F-4
December 31, 1997
Statements of Operations F-5
For the Years Ended December 31, 1997 and 1996
Statements of Stockholders' Deficit F-6
For the Years Ended December 31, 1997 and 1996
Statements of Cash Flows F-7
For the Years Ended December 31, 1997 and 1996
Notes to Financial Statements F-8 - F-13
</TABLE>
F-2
<PAGE> 15
WITHUM, SMITH & BROWN
A Professional Corporation
Certified Public Accountants & Consultants
P. O. Box 646
81 Park Avenue
Flemington, NJ 08822
INDEPENDENT AUDITORS' REPORT
To the Board of Directors,
ORS Automation, Inc.:
We have audited the accompanying balance sheet of ORS Automation, Inc. as
of December 31, 1997, and the related statements of operations, stockholders'
deficit and cash flows for the years ending December 31, 1997 and 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion of 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 financial statements referred to above present fairly,
in all material respects, the financial position of ORS Automation, Inc.
as of December 31, 1997, and the results of its operations and its cash
flows for the years ended December 31, 1997 and 1996 in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As further discussed in
Note 1(B) to the financial statements, the Company has not generated
sufficient earnings to pay their priority tax claims over the prescribed
initial period as contemplated by the Plan of Reorganization and has a net
capital deficiency of $38,066 at December 31, 1997. In addition, the Company
has been unable over recent years to increase their sales volume and customer
base. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
/s/ Withum, Smith & Brown
Withum, Smith & Brown
February 24, 1998
Flemington, NJ
F-3
<PAGE> 16
ORS AUTOMATION, INC.
BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current Assets:
Cash and cash equivalents $ 429,690
Accounts receivable 183,552
Inventory, net 96,766
Prepaid expenses 3,585
-----------
Total Current Assets 713,593
Property and Equipment, net 11,651
TOTAL ASSETS $ 725,244
===============
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT
<S> <C>
Current Liabilities:
Accounts payable and accrued expenses $ 17,984
Priority tax claims payable - principal 179,577
Priority tax claims payable - interest 150,499
Note payable - related party 166,102
Accrued interest payable - related party 249,148
------------
Total Liabilities 763,310
Stockholders' Deficit:
Preferred stock 10,000
Common stock 122,824
Capital in excess of par value 24,914,163
Accumulated deficit (25,085,053)
____________
Total Stockholders' Deficit (38,066)
_____________
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIT $ 725,244
===============
</TABLE>
The Notes to Financial Statements are an integral part of these statements
F-4
<PAGE> 17
ORS AUTOMATION, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Sales $ 1,232,421 $ 1,232,421
Cost of Goods Sold 837,024 837,024
----------- ---------
Gross Profit 395,397 395,397
Administrative, Marketing and General
Expenses 298,365 298,365
----------- ----------
Income From Operations 97,032 97,032
Other Expense (Income):
Interest income (4,727) (4,727)
Interest expense 40,474 40,474
Depreciation and amortization 7,171 7,171
Inventory obsolescence -
--------- ---------
Total Other Expense (Income),
net 42,918 42,918
---------- -----------
Income Before Provision for Income Taxes 54,114
Provision for Income Taxes -- --
Net Income $ 54,114 $ 54,114
============== ===============
Basic Earnings Per Common Share $ .00 $ .00
============== ================
Common Shares Used in Computing Basic
Earnings Per Common Share 20,070,216 20,070,216
============= ============
</TABLE>
The Notes to Financial Statements are an integral part of these statements
F-5
<PAGE> 18
ORS AUTOMATION, INC.
STATEMENTS OF CHANGES IN STOCKHOLDER'S DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Preferred Stock Class A Common Stock
Shares Par Value Shares Par Value
--------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at
Dec. 31, 1995 1,000,000 $ 10,000 12,000,000 $ 42,000
Conversion of
Debt into - - - -
Common Stock
Net Income - - - -
Balance at ------------ -------- ---------- --------
Dec. 31, 1996 1,000,000 10,000 12,000,000 42,000
Net Income - - - -
Balance at
Dec. 31, 1997 1,000,000 $ 10,000 12,000,000 $ 42,000
============ ========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
Common Stock Capital in Accumulated Total
Shares Par Value Excess of Par Deficit Stockholders
Value Deficit
--------- -------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance at
Dec. 31, 1995 8,042,760 $ 80,428 $24,914,559 ($25,191,743) ($144,756)
Conversion of
Debt into
Common Stock 39,683 396 (396) - -
Net Income 54,114 54,114
Balance at -------- -------- --------- -------- ------------
Dec. 31, 1996 8,082,443 80,824 24,914,163 (25,137,629) (90,642)
Net Income - - - 52,576 52,576
Balance at
Dec. 31, 1997 8,082,443 $ 80,824 24,914,163 ($25,137,629) ($ 38,066)
========= ========== =========== ============ ==========
</TABLE>
The Notes to Financial Statements are an integral part of these statements
F-6
<PAGE> 19
ORS AUTOMATION, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 52,576 $ 54,114
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation 6,783 7,171
Cash provided by (used in) changes in:
Accounts receivable, net 188,535 53,016
Inventory, net (3,311) 20,286
Prepaid expenses (715) (866)
Accounts payable and accrued expenses (11,914) (11,009)
Priority tax claims payable-interest 16,342 20,542
Accrued interest payable-related party 19,932 19,932
------------ -----------
Net Cash Provided by
Operating Activities 268,228 163,186
Cash Flows From Investing Activities:
Purchase of property and equipment (6,991) (8,395)
Cash Flows From Financing Activities:
Payment of priority tax claims - (45,500)
------------- ------------
Net Increase in Cash and Cash Equivalents 261,237 109,291
Cash and Cash Equivalents at the Beginning
of the Year 168,453 59,162
-------------- ------------
Cash and Cash Equivalents at the End of
the Year $ 429,690 $ 168,453
=============== ============
</TABLE>
Supplemental Disclosure of Cash Flow Information:
<TABLE>
<CAPTION> 1997 1996
<S> <C> <C>
Cash paid during the period for:
Interest $ -- $ --
Income taxes $ -- $ --
</TABLE>
The Notes to Financial Statements are an integral part of these statements
F-7
<PAGE> 20
ORS AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------
Note 1 - Summary of Significant Accounting Policies:
A. Nature of the Business
ORS Automation, Inc. is primarily engaged in the production and
sales of microcomputer based hardware and software vision products for
automatic control of industrial processes. The products are supplied as
sub-assemblies or add-ons to machine manufacturers, throughout the world, who
then incorporate them into their equipment.
B. Basis of Representation
The accompanying financial statements have been prepared in
accordance with generally accepted accounting principles which contemplates
the continuance of the Company as a going concern. As of December 31, 1997,
the Company reflects a stockholders deficit, as its total liabilities exceeds
total assets by $38,066. In addition, the Company has been unable over recent
years, to increase their sales volume and customer base. Also, the Company
has not generated sufficient earnings to pay its priority tax claims over the
prescribed initial period as contemplated by the Plan of Reorganization (See
Note 2). These factors raise substantial doubt as to whether the Company has
the ability to continue as a going concern. The financial statements do not
include any adjustments relating to the recoverability and classification of
recorded asset amounts and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern.
Management plans regarding their financial status is to increase sales and
control costs in future years and to produce additional revenue from new
customers from the development of new products.
C. Cash Equivalents
Cash and cash equivalents include cash on hand and in the bank
as well as all short term securities held for the primary purpose of general
liquidity. Such securities normally mature within three months from the date
of acquisition.
D. Concentration of Credit Risk
The Company maintains its cash and cash equivalents in bank
deposit accounts at high credit quality financial institutions. The balances,
at times, may exceed federally insured limits. As part of its cash management
process, the Company periodically reviews the relative credit standing of
these banks.
Other financial instruments which potentially subject the
Company to credit risk consist of accounts receivable. The deterioration of
the financial condition of one of the Company's major customers could
adversely impact the Company's operations (See Notes 8 and 9).
F-8
<PAGE> 21
Note 1 - Summary of Significant Accounting Policies (Cont'd):
E. Inventory
Inventory includes cost of materials and applicable labor and
overhead. Inventory is stated at the lower of cost or market, determined on
the moving-average cost basis.
F. Property and Equipment
Property and equipment are stated at cost. Depreciation is
computed using the straight-line method over the estimated useful lives of the
assets which range from 3-8 years.
G. Revenue Recognition
Sales of products are recorded in the period the units are
shipped.
H. Significant Risks and Uncertainties
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
As described in Notes 8 and 9, a significant portion of the
Company's sales are to two major customers. Any substantial decrease in sales
to either of these two customers, could have a material adverse effect on the
Company's results of operations and financial condition.
I. Income Taxes:
Deferred income tax assets and liabilities are recognized for
the differences between financial and income tax reporting basis of assets and
liabilities based on enacted tax rates and laws. The deferred income tax
provision or benefit generally reflects the net change in deferred income tax
assets and liabilities during the year. The current income tax provision
reflects the tax consequences of revenues and expenses currently taxable or
deductible on the Company's various income tax returns for the year reported.
The Company's only significant deferred tax items are net operating loss and
tax credit carryforwards.
J. Fair Value of Financial Instruments:
The carrying amounts of cash, accounts receivable, accounts
payable and accrued expenses approximate fair value because of the short
maturity of these items.
It was not practical to estimate the fair value of the priority
tax claims payable and note payable to related parties. See Notes 5 and 8,
respectively, for additional information concerning such financial
instruments.
F-9
<PAGE> 22
Note 1 - Summary of Significant Accounting Policies (Cont'd):
K. Effect of New Accounting Pronouncements
During 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 130, "Comprehensive Income".
The standard is effective for years beginning after December 15, 1997. The
Company does not expect that the accounting standard will have a material
effect on the Company's financial position or results of operations.
Note 2 - Plan of Reorganization:
Following a hearing in the United States Bankruptcy Court in
Trenton, New Jersey on April 8, 1991, the Fourth Amended Reorganization Plan
proposed by Affiliated Manufacturers, Inc. (AMI), the majority shareholders,
(approximately 65% of the outstanding common stock and 100% of the outstanding
preferred stock) and principal secured creditor, (due $280,709 of which
$166,102 was principal and $114,607 interest, as of April 1, 1991) was
confirmed. Under the plan, payment of tax claims, including pre-bankruptcy
interest and penalties, will be made in quarterly payments which also includes
interest as determined by the bankruptcy court at variable amounts over the
first four calendar years following the first payment of $27,000 made at date
of distribution. Interest is accrued on the unpaid balance with a floating
interest rate ranging from 8% to 10%.
Note 3 - Inventory:
<TABLE>
<CAPTION>
Inventory consists of the following at December 31, 1997:
<S> <C>
Materials $223,292
Finished goods 29,307
---------
Total 252,599
Less: Allowance for obsolescence 155,833
----------
Total Inventory $ 96,766
==========
</TABLE>
Note 4 - Property and Equipment:
The major classifications of property and equipment are summarized as
follows at December 31, 1997:
<TABLE>
<S> <C>
Equipment $248,006
Furniture and fixtures 71,984
----------
Total 319,990
Less accumulated depreciation 308,339
----------
Property and Equipment, net $ 11,651
</TABLE>
Depreciation expense charged to operations amounted to $6,783 and
$7,171 for years ended December 31, 1997 and 1996, respectively.
F-10
<PAGE> 23
Note 5 - Priority Tax Claims Payable:
Upon confirmation of the Plan of Reorganization on April 8, 1991,
priority tax claims amounted to $420,077. At December 31, 1997, the amount
due is $179,577. This amount consists of $126,092 in federal payroll taxes,
$40,835 in pre-bankruptcy federal interest and penalties, and $12,650 to
various state taxing authorities. Accrued interest at December 31, 1997 on
the unpaid balance is $150,499. Interest has been calculated at the statutory
rate of 9% during 1997 and 1996, respectively.
The Company has not generated sufficient earnings to pay their
priority tax claims over the prescribed initial period as determined by the
Plan of Reorganization. The Company has classified their priority tax claims
payable as long-term, since it is not obligated, pursuant to the Plan of
Reorganization, to repay these amounts until a sufficient level of earnings
has been achieved. However, during 1996 the Company did pay $45,500 of this
liability.
The Company is currently in the process of discussing with the
Internal Revenue Service, a potential compromise plan with regard to the
priority claims payable.
Note 6 - Preferred and Common Stock:
The preferred stock of the Company has a par value of $.01 per
share and 1,000,000 shares have been authorized to be issued. All are issued
and outstanding at December 31, 1997 and 1996, respectively. No dividends
have been declared by the Board of Directors. This preferred stock has no
liquidating preferences.
The common stock of the Company has a par value of $.01 per share,
10,000,000 shares have been authorized and 8,267,889 have been issued. As of
December 31, 1997 and 1996, 8,082,443 shares are outstanding. The difference
between issued and outstanding shares represent shares that have been canceled
pursuant to the Plan of Reorganization.
The Company also has Class A common stock, which has a par value
of $.0035 per share and 12,000,000 shares have been authorized to be issued.
All are issued and outstanding at December 31, 1997 and 1996.
Both common stock and Class A common stock have the same voting
rights.
Note 7 - Earnings Per Share:
The Company adopted Statement of Financial Accounting Standard No.
128, "Earnings Per Share" beginning with the fourth quarter of 1997. All
prior period earnings per common share data have been restated to conform to
the provisions of this statement. Basic earnings per common share is computed
using the weighted average number of shares outstanding. Diluted earnings per
common share would be computed using the weighted average number of shares
outstanding adjusted for the incremental shares attributed to outstanding
options to purchase common stock.
F-11
<PAGE> 24
Note 7 - Earnings Per Share (Cont'd):
However, in 1997 and 1996 diluted earnings per share is not
presented because there would be no effect on earning per share by including
incremental shares arising as part of the assumed debentures conversion.
Note 8 - Related Party Transactions:
As of December 31, 1997 and 1996, Affiliated Manufactures, Inc.
(AMI) controlled approximately 13 percent of the outstanding common stock, 100
percent of the outstanding Class A - common stock, which collectively
represents approximately 65% of the outstanding common stock, and 100 percent
of the outstanding preferred stock of the Company.
A. Note Payable
The Company currently owes AMI a note payable plus accrued
interest. This is a first priority secured claim. The principal amounted to
$166,102 at December 31, 1997. Accrued interest is being calculated using
simple interest at a rate of 12% per annum and amounted to $249,148 at
December 31, 1997. Per the Plan of Reorganization, no payment of this secured
claim shall be made until all other bankruptcy claims have been paid in full
or there is an event of default under the plan. Interest expense as a charge
to operations in 1997 and 1996 was $19,932 per year.
B. Sales and Accounts Receivable
Sales to AMI for the years ended December 31, 1997 and 1996
were $310,619 and $437,912, respectively, which represent 26% and 36% of total
sales. Accounts receivable from this related party as of December 31, 1997
and 1996 is $64,711 and $155,733, respectively.
Note 9 - Major Customer:
The following summarizes the non related party sales and the
percentage to total sales for the Company's major customer for years ended
December 31:
<TABLE>
<CAPTION>
Sales Percent
-------- --------
<S> <C> <C>
1997 $ 860,680 73%
1996 $ 757,407 61%
</TABLE>
This major customer's accounts receivable balance is approximately
$136,951 and $316,956 at December 31, 1997 and 1996, respectively.
Note 10 - Income Taxes:
In 1997 and 1996, the Company utilized $22,600 and $23,300,
respectively, of its deferred tax asset (net operating loss carryforwards) to
eliminate its provision for income taxes.
F-12
<PAGE> 25
Note 10 - Income Taxes (Cont'd):
Deferred income taxes are summarized as follows at December 31,
1997:
<TABLE>
<CAPTION>
Deferred tax asset:
<S> <C>
Federal and state net operating loss
& tax credit carryforwards $ 7,048,000
Valuation allowance (7,048,000)
-------------
Net deferred tax asset $ 0
=============
</TABLE>
During the year ended December 31, 1997, the Company's valuation
allowance declined by $901,000 due to the utilization of net operating loss
carryforwards as well as the expiration of such carryforwards. As seen in the
above table, any future tax benefit which may result from utilization of net
operating loss carryforwards has been fully reserved for.
At December 31, 1997, the Company has federal net operating loss
carryforwards of approximately $20,718,000 and federal unused tax credits of
approximately $175,000 which are available to offset federal income taxes.
These carryforwards and credits expire between the years 1998 and 2010.
At December 31, 1997, the Company also has net operating loss
carryforwards of approximately $45,470 which are available to offset New
Jersey state income taxes. These carryforwards expire between 1998 and 2002.
Note 11 - Lease Commitments:
The Company conducts its operations in approximately 7,700 square
feet of an office building. The amended lease is for a three year period
commencing September 1, 1997 and expiring August 31, 2000. The monthly base
rent is $3,848 for the first year, $4,008 for the second year and $4,168 for
the third year, all of which do not include the tenants share of operating
expenses. Rent expense for the years ending December 31, 1997 and 1996,
including taxes, insurance and maintenance reimbursements, amounted to $70,625
and $62,722, respectively.
Future minimum rentals on the above lease for the years ending
after December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998 $ 46,811
1999 48,741
2000 33,345
----------
Total $128,897
==========
F-13
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Statements of Operations for the Year Ended December 31, 1997 and the
Balance Sheet at December 31, 1997 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 429,690
<SECURITIES> 0
<RECEIVABLES> 183,552
<ALLOWANCES> 0
<INVENTORY> 96,766
<CURRENT-ASSETS> 713,593
<PP&E> 319,990
<DEPRECIATION> 308,339
<TOTAL-ASSETS> 725,244
<CURRENT-LIABILITIES> 17,984
<BONDS> 0
0
10,000
<COMMON> 122,824
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 725,244
<SALES> 1,175,584
<TOTAL-REVENUES> 1,184,793
<CGS> 774,541
<TOTAL-COSTS> 1,082,751
<OTHER-EXPENSES> 13,192
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,274
<INCOME-PRETAX> 52,575
<INCOME-TAX> 52,575
<INCOME-CONTINUING> 52,575
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52,575
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
