<PAGE>
- -----------------------------------------------------------------------
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, 1998
______________________________________________________________
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: $1,298,536
As of March 1, 1999, 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, 1999, 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>
Part I
Item 1. Description of Business
(a) State of Incorporation; Offices and Facilities
ORS Automation, Inc. ("ORS"), 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
ORS is primarily engaged in the production and sale of
computer-based vision products for automatic part alignment, machine guidance,
identification, inspection, control of industrial processes and visual sensing
systems for use with industrial automation equipment. These products and
control systems are sold to machine manufacturers who then incorporate them
into their machines which are sold to the end user. The end users are
typically automated, high volume electronic circuit and component
manufacturers located in all parts of the world.
(c) Corporate Developments
Due to the nature of its business, which requires close working
relationships with its customers, ORS has always depended on a few major
customers that could be supported by its engineering department. The principal
customer, accounting for 73% of ORS' sales in 1997, indicated in mid-year of
1998 that due to economic conditions in the Asian market, the demand for its
machines decreased. As a result, sales of machine vision and control systems
to this customer were delayed in the third quarter of 1998. In the fourth
quarter of 1998, this customer was acquired by a large multinational
corporation and ORS is presently in the process of building a relationship
with this potential new and larger customer. Since the market for the
Company's products is highly competitive, there is no assurance that the
Company will be successful in establishing this relationship.
On February 1, 1999, the Internal Revenue Service accepted ORS'
Offer in Compromise relating to priority tax claims that were set forth in
ORS' Plan of Reorganization under Chapter 11 of the United States Bankruptcy
Code dated April 18, 1991 ("Reorganization Plan"). On February 10, 1999 ORS
paid $236,000 to the Internal Revenue Service to settle its priority tax
claims.
(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).
2
<PAGE>
With these capabilities, ORS's products currently in production are
used to provide guidance information to automatic precision machinery,
primarily in the electronics manufacturing area.
(e) Products
Since 1986, ORS 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. ORS' principal product 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. We believe that our technical expertise combined
with our industrial "solution" experience enable us to offer quality products
at competitive prices to meet customer needs in the electronics and other
manufacturing industries.
ORS intends to expand the market niches in which it has demonstrated
technical and marketing capability, namely alignment systems and machine
control applications. In these markets, ORS will emphasize the factory-ready
nature of its products and its experience in automation in the electronics
industry, to provide a cost-justified return to both equipment manufacturers
and end user customers.
(f) Manufacturing
ORS 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
graphical user interfaces.
(g) 1998 Sales & Recent Backlog
ORS sells its products principally to manufacturers of automation
equipment for the electronics industry. Sales of $1,298,536 were up 10.5% from
1997 sales of $1,175,584. Two customers accounted for almost all of the total
sales for these periods.
As of March 1, 1999, ORS had unfilled orders for products totaling
$480,822. Of this total backlog, approximately 75% is based on purchase orders
from one customer scheduled to be delivered in 1999. This compares with the
backlog of $609,210 on March 1, 1998. The decrease in backlog reflects the
shift in sales, ORS' principal customer being acquired and the building of a
new relationship with a principal customer.
(h) Patents and Trademarks
ORS 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 ORS
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>
ORS 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". ORS has also copyrighted
critical software.
(i) Product Development
During fiscal years 1998 and 1997 ORS expended approximately
$173,500 and $223,000 respectively, on software and product development
activities. The product development in 1998 concentrated on making a
Windows(TM) compatible Graphical User Interface (GUI) with modules linked
through Object Linking and Embedding (OLE) technology. Existing software was
modified to run 32 bit versions on the Windows NT(TM) operating system using
Visual Basic 6 and C++6.0 programming languages. These object oriented
programming techniques allow for maximum reusable code to rapidly meet
customized applications for new and existing customers. Sales of programmable
machine control packages decreased to 14.3% of total sales in 1998 as compared
to 16.7% of total sales in 1997.
Windows(TM) and Windows NT(TM) are trademarks of the Microsoft
Corporation.
(j) Competition
ORS believes that there are a substantial number of competitors in
the automatic machine vision identification, inspection and control markets in
which ORS' 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 ORS intends to produce. Presently the field appears to be dominated
by a few companies, the most prominent being Cognex, Robot Vision Systems,
Electro Scientific Industries and Omron Electronics. These companies possess
financial resources and research and development staffs far greater than those
of ORS.
(k) Employees
At December 31, 1998, ORS had 6 employees. ORS also engages
consultants from time to time to provide specialized expertise in areas in
which it is uneconomical to utilize full-time employees. ORS enjoys good
relations with its employees.
(l) Impact of Year 2000
A Year 2000 problem may occur when a computer program was written
using two digits rather than four to define the applicable year. If a computer
program with date sensitive functions is not Year 2000 compliant, it might
recognize a date using "00" as the year 1900 rather than the year 2000. This
could cause a disruption of operations by a temporary inability to process
transactions or send invoices or engage in other normal business activities.
Although ORS' products do not use date information for operation,
current products have been tested and are Year 2000 compliant. Older systems,
delivered prior to 1996, may or may not be Year 2000 compliant. However, since
date information is not required for operation, the compliance issue relating
to these products is not significant. Internal accounting systems have been
checked and are Year 2000 compliant. Management believes that the likelihood
of a material adverse impact due to problems with internal programs or
products sold to customers is remote.
4
<PAGE>
The Year 2000 issue does create risk for ORS from unforeseen
problems from third parties such as banks and financial institutions.
Item 2. Description of Property
ORS leases 7,695 square feet of office and engineering space at 402
Wall Street, Princeton, New Jersey 08540, pursuant to a three year lease
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
The monthly base rent does not include tenant's share of operating expenses
which currently amount to $2,245 per month. ORS 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 ORS 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, ORS' 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 ORS' stock, trading, if any, has
been sporadic. As of December 31, 1998 there were 532 holders of record of
ORS' common stock.
ORS 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 ORS and such other factors as the Board of Directors deems relevant. ORS
anticipates that it will retain earnings, if any, in order to finance the
development and expansion of its business.
5
<PAGE>
Item 6. Management's Discussion and Analysis or Plan of Operation
The table below presents selected financial data for ORS for the past two
years.
<TABLE>
<CAPTION>
Results of Operations
For The Year Ended December 31, 1998 1997
- ------------------------- ---------- ---------
<S> <C> <C>
Operating Revenues $ 1,298,536 $ 1,175,584
Income From Operations 213,671 92,833
Net Income 244,256 58,985
Net Income per Share of
Common Stock 0.00 0.00
Financial Position at
December 31,
Total Assets $ 969,245 $ 725,244
Total Liabilities 763,055 763,310
Shareholder's Equity (Deficit) 206,190 (38,066)
</TABLE>
As discussed in the notes to the financial statements, a significant
portion of ORS' sales are to two major customers. Any substantial decrease in
sales to either of these two customers could have a material effect on ORS'
results of operations and financial condition.
The cost of the components for ORS' products (primarily electronic
components) has been decreasing in recent years, whereas the capacity and
capability of such items have been increasing. However, ORS 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, ORS 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 1998 with 1997, sales of $
1,298,536 increased approximately 10.5% from 1997 sales of $ 1,175,584.
Approximately 87.2% of the sales in 1998 were related to "i-lign" and "u-lign"
vision alignment products compared with 82.7% of sales in 1997. One customer,
Affiliated Manufacturers, Inc., ("AMI"), which has a controlling interest in
ORS, accounted for 31% of the sales in 1998 compared with 26% of sales in
1997.
The gross profit increased from 34.1% of sales in 1997 to 37.9% for 1998.
Administrative, Marketing and General expenses decreased 9.6% to $278,544 for
1998 as compared to $308,210 for 1997. This decrease was primarily due to the
departure of ORS' marketing manager in mid-year and a replacement hired late
in the year.
6
<PAGE>
Software and product development expense decreased 22.2% to $173,500 in
1998 compared to $223,000 in 1997. This decrease was primarily due to the
resignation of a software engineer and the inability of ORS to find a suitable
replacement. ORS 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, 1998 was
$213,671, as compared to income from operations of $92,833 for the year ended
December 31, 1997. In 1998, ORS had "Other Income" of $54,370 as compared to
"Other Expenses" of $40,257 in 1997. Other income in 1998 reflects $83,239 of
income reported as a result of ORS settling priority tax claims with the
Internal Revenue Service in February 1999. As a result, ORS had net income
before provision for income taxes of $268,041 for 1998, as compared to net
income before provision for income taxes of $52,576 for 1997. At December 31,
1998 there were no remaining state net operating loss carryforwards, resulting
in a provision of $23,785 for state income tax in 1998. Net income for 1998
was $244,256 as compared to $52,576 for 1997. There was no provision for
federal income taxes as a result of ORS' net operating loss carryforwards.
Liquidity and Capital Resources
In 1998, operating activities provided $65,371 and investing activities
used $98,462 for the purchase of equipment, and short term investments
compared to cash provided by operations of $268,228, and cash used in
investing activities of $6,991. As a result, ORS had a net decrease in cash in
1998 of $33,091 which resulted in cash on hand at December 31, 1998 of
$396,599. The decrease of cash in 1998 was due largely to the increase in
investing activities and an increase in accounts receivable.
On February 1, 1999, the Internal Revenue Service accepted ORS' Offer in
Compromise relating to priority tax claims that were set forth in ORS' Plan of
Reorganization under Chapter 11 of the United States Bankruptcy Code dated
April 18, 1991 ("Reorganization Plan"). On February 10, 1999 ORS paid $236,000
to the Internal Revenue Service to settle its priority tax claims.
Total stockholder's deficit of $38,066 in 1997 changed to a stockholder's
equity of $206,190 in 1998 as a result of ORS' net income of $244,256 for the
year ended December 31, 1998.
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
7
<PAGE>
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, 1999 director since
<S> <C> <C>
Edward Kornstein Chairman of the Board 1991
Chief Executive Officer
and Treasurer, 69
William Trautman Director, 59 1987
Howard W. Imhof Director, 56 1997
Patricia Newbill Secretary, 66 ----
</TABLE>
Edward Kornstein, Chairman of the Board, Chief Executive Office,
Treasurer and Director. Mr. Kornstein has been President of ORS since February
1987, Director since 1991, and Chairman of the Board and Treasurer since 1997.
From 1978 to 1987, he held various management positions with ORS. Prior to
joining ORS, Mr. Kornstein was the owner of Kortron, a consulting firm, and
previously held executive and management positions with Optel Corporation and
RCA.
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 was President, Chief
Operating Officer and Director of Affiliated Manufacturers, Inc. from 1997 to
1999. Previously he has held positions as chief operating officer, chief
executive officer, and in other international sales and marketing management
positions in the electronic materials industry. Mr. Imhof is a co-founder of
Heraeus Cermalloy's Electronic 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. Ms Newbill is an Administrative Assistant at Affiliated Manufacturers, a
position she has held since 1987.
8
<PAGE>
Item 10. Executive Compensation
The following summary compensation table sets forth all compensation paid
by the Company during the fiscal years ended December 31, 1998, 1997 and 1996
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
Edward Kornstein, President 1998 $ 54,290 0
1997 $ 49,920 0
1996 $ 68,363 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 confirmed in 1991, all options
and warrants then outstanding were canceled. Since then, no options or
warrants have been granted.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth the number and percentage of the
shares of ORS' voting stock owned as of March 1, 1999 by all persons known to
ORS who own more than 5% of the outstanding number of such shares, by all
directors of ORS, and by all officers and directors of ORS 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 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>
9
<PAGE>
Affiliated Manufacturers, Inc.'s holdings 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 ORS Class A Common Stock has the same rights and preferences as
the ORS' Common Stock, $0.01 par value.
Series A Preferred Stock
<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>
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.
Item 12. Certain Relationships and Related Transactions
Affiliated Manufacturers, Inc., a principal shareholder of ORS, currently
holds a first priority secured note from ORS. As of December 31, 1998, 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 $269,080. No payments were made to Affiliated
Manufacturers, Inc. in 1998 and 1997.
Sales to Affiliated Manufacturers, Inc. for the years ended December 31,
1998 and 1997 were $396,381 and $310,619, respectively. The sales represent
approximately 31% and 26%, respectively, of the total sales of ORS for those
years. At December 31, 1998 and December 31, 1997, accounts receivable from
Affiliated Manufacturers, Inc. amounted to $140,102 and $64,711, respectively.
PART IV
Item 13. Exhibits List and Reports on Form 8-K
(a) Exhibits
See Page 14 for a List of Exhibits.
(b) Reports on Form 8-K
None
10
<PAGE>
<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>
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 26, 1999
----------------------- -----------------
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 3/26/99 Chairman, CEO, Treasurer
(Chief Financial Officer)
-----------------------------------------------------------------------
/s/ Howard W. Imhof 3/26/99 Director
------------------------------------------------------------------------
/S/ William Trautman 3/26/99 Director
-----------------------------------------------------------------------
</TABLE>
12
<PAGE>
ORS AUTOMATION, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1998
F-1
<PAGE>
ORS AUTOMATION, INC.
CONTENTS TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
-----------------------------------------------------
<TABLE>
<CAPTION>
Page
---------
<S> <C>
Independent Auditors' Report F-3
Balance Sheet F-4
December 31, 1998
Statements of Operations F-5
For the Years Ended December 31, 1998 and 1997
Statements of Stockholders' Deficit F-6
For the Years Ended December 31, 1998 and 1997
Statements of Cash Flows F-7
For the Years Ended December 31, 1998 and 1997
Notes to Financial Statements F-8 - F-13
</TABLE>
F-2
<PAGE>
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, 1998, and the related statements of
income, stockholders' equity (deficit) and cash flows for the
years ending December 31, 1998 and 1997. 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 financial statements referred to above
present fairly, in all material respects, the financial position
of ORS Automation, Inc. as of December 31, 1998, and the results
of its operations and its cash flows for the years ended December
31, 1998 and 1997 in conformity with generally accepted
accounting principles.
Withum, Smith & Brown
Flemington, NJ
January 25, 1999
except as to Note 4, which is as of February 1, 1999
F-3
<PAGE>
ORS AUTOMATION, INC.
BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current Assets:
Cash and cash equivalents $ 396,599
Short-term investments 81,434
Accounts receivable, net of an allowance
for doubtful accounts of $0 360,639
Inventory, net 108,496
Prepaid expenses 2,282
____________
Total Current Assets 949,450
Property and Equipment, Net 19,795
-----------
TOTAL ASSETS $ 969,245
===========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT
<S> <C>
Current Liabilities:
Accounts payable and accrued expenses $ 41,194
Income taxes payable 23,500
IRS priority tax claims payable 236,000
--------
Total Current Liabilities 300,694
Long-term Liabilities:
State priority tax claims payable - principal 12,650
State priority tax claims payable - interest 14,529
Note payable - related party 166,102
Accrued interest payable - related party 269,080
--------
Total Liabilities 763,055
Stockholders' Equity:
Preferred stock 10,000
Common stock 122,824
Capital in excess of par value 24,914,163
Accumulated deficit (24,840,797)
-----------
Total Stockholders' Equity 206,190
-----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 969,245
============
</TABLE>
The Notes to Financial Statements are an integral part of these statements
F-4
<PAGE>
ORS AUTOMATION, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Sales, Net $ 1,298,536 $ 1,175,584
Cost of Goods Sold 806,321 774,541
--------- ---------
Gross Profit 492,215 401,043
Administrative, Marketing and
General Expenses 278,544 308,210
---------- ----------
Income From Operations 213,671 92,833
Other Income (Expense):
Interest income 16,289 9,209
Change in estimate of IRS
priority tax claims payable 83,239 --
Interest expense (36,274) (36,274)
Depreciation (8,884) (6,783)
Inventory obsolescence -- (6,409)
--------- ----------
Total Other Income
(Expense), Net 54,370 (40,257)
---------- ---------
Income Before Provision for
Income Taxes 268,041 52,576
Provision for Income Taxes 23,785 --
---------- --------
Net Income $ 244,256 $ 52,576
------------- -------------
Basic Earnings Per Common Share $ .01 $ NIL
------------- --------------
Common Shares Used in Computing
Basic Earnings Per Common Share 20,082,433 20,082,433
============= ============
</TABLE>
The Notes to Financial Statements are an integral part of these statements
F-5
<PAGE>
ORS AUTOMATION, INC.
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
Preferred Stock Class A Common Stock
Shares Par Value Shares Par Value
--------- -------- ----------- -----------
<S> <C> <C> <C> <C>
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
Net Income - - - -
Balance at
Dec. 31, 1998 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 Equity
--------- -------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance at
Dec. 31, 1996 8,042,760 $ 80,428 $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 (25,085,053) (38,066)
Net Income - - - 244,256 244,256
Balance at
Dec. 31, 1998 8,082,443 $ 80,824 24,914,163 ($24,840,797) $206,190
========= ========== =========== ============ ==========
</TABLE>
The Notes to Financial Statements are an integral part of these statements
F-6
<PAGE>
ORS AUTOMATION, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 244,256 $ 52,576
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 8,884 6,783
Change in estimate on IRS
priority tax claims payable (83,239) --
Cash provided by (used in) changes in:
Accounts receivable, net (177,087) 188,535
Inventory, net (11,730) (3,311)
Prepaid expenses 1,303 (715)
Accounts payable and accrued
expenses 23,210 (11,914)
Income taxes payable 23,500 --
Priority tax claims payable
interest 16,342 16,342
Accrued interest payable
related party 19,932 19,932
--------- ---------
Net Cash Provided by Operating
Activities 65,371 268,228
Cash Flows From Investing Activities:
Purchase of property and
equipment (17,028) (6,991)
Increase in short-term
investments (81,434) --
---------- ----------
Net Cash Used By
Investing Activities (98,462) (6,991)
---------- ---------
Net Increase (Decrease) in Cash
and Cash Equivalents (33,091) 261,237
Cash and Cash Equivalents at the
Beginning of the Year 429,690 168,453
-------- ---------
Cash and Cash Equivalents at the
End of the Year $ 396,599 $ 429,690
=============== ============
</TABLE>
Supplemental Disclosure of Cash Flow Information:
<TABLE>
<CAPTION> 1998 1997
<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>
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, who incorporate these products into their
equipment.
B. 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.
C. Short-Term Investments
Short-term investments consist of a CD with an
original maturity of 3-6 months, which is stated at cost, plus
accrued interest, which approximates market.
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 and financial condition (See Notes 8 and 9).
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.
F-8
<PAGE>
ORS AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies (Cont'd):
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, IRS priority tax claims payable, 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 state priority tax claims payable and note payable to
related parties. See Notes 4 and 7, respectively, for additional
information concerning such financial instruments.
K. Effect of New Accounting Pronouncements
During 1998, 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 adopted this
standard but because it has no other FAS 130 items of
comprehensive income, except net income, no change in
presentation was required.
In June 1998 the FASB issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities,"
effective for fiscal years beginning after June 15, 1999. SFAS
133 establishes accounting and reporting standards requiring that
F-9
<PAGE>
ORS AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies (Cont'd):
K. Effect of New Accounting Pronouncements (Cont'd)
every derivative instrument be recorded on the balance sheet as
either an asset or liability measured at fair value. SFAS 133
requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge
accounting criteria are met. Special accounting for qualifying
hedges allows a derivative's gains and losses to offset the
related results on the hedged item. The adoption of SFAS 133 is
expected to be immaterial to the Company's financial position and
results of operations.
Note 2 - Inventory:
<TABLE>
<CAPTION>
Inventory consists of the following at December 31, 1998:
<S> <C>
Materials $208,357
Work in process 5,389
Finished goods 28,745
--------
Total 242,491
Less: Allowance for obsolescence 133,995
---------
Total Inventory $108,496
==========
</TABLE>
Note 3 - Property and Equipment:
The major classifications of property and equipment are
summarized as follows at December 31, 1998:
<TABLE>
<S> <C>
Equipment $264,929
Furniture and fixtures 72,090
---------
Total 337,019
Less accumulated depreciation 317,224
---------
Property and Equipment, net $ 19,795
</TABLE>
Depreciation expense charged to operations amounted to
$8,884 and $6,783 for years ended December 31, 1998 and 1997,
respectively.
Note 4 - Priority Tax Claims Payable:
On February 1, 1999 the Internal Revenue Service accepted
an Offer of Compromise from the Company for their priority tax
claims payable. The settlement called for the Company to pay
$236,000. A change in estimate of $83,239 was recorded as other
income in the accompanying 1998 income statement.
As of December 31,1998, a priority tax claim still exists
for various state taxing authorities. The principal amount due
on this payable is $12,650 with interest accruing on the unpaid
balance at a statutory rate of 9% amounting to $14,529.
F-10
<PAGE>
ORS AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
Note 5 - 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, 1998 and 1997,
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, 1998 and 1997, 8,082,443
shares are outstanding. The difference between issued and
outstanding shares represent shares that have been canceled
pursuant to the Company's April 8, 1991 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, 1998 and 1997.
Both common stock and Class A common stock have the same
voting rights.
Note 6 - Earnings Per Share:
The Company adopted Statement of Financial Accounting
Standard No. 128, "Earnings Per Share" beginning with the fourth
quarter of 1997. 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 other outstanding options, warrants, etc. to
purchase common stock. For the years ended December 31, 1998 and
1997, the Company had no such potential dilutive securities,
hence, only basic earnings per share as presented.
Note 7 - Related Party Transactions:
As of December 31, 1998 and 1997, 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, 1998. Accrued
interest is being calculated using simple interest at a rate of
12% per annum and amounted to $269,080 at December 31, 1998. Per
a stipulation in the Company's April 8, 1991 Plan of
Reorganization, no payment of this secured claim shall be made
until all other bankruptcy claims have been paid in full or there
F-11
<PAGE>
ORS AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
Note 7 - Related Party Transactions (Cont'd):
is an event of default under the plan. Since the state tax
claims are still outstanding, the Company has classified this as
a long-term liability. Interest expense as a charge to
operations in 1998 and 1997 was $19,932 per year.
B. Sales and Accounts Receivable
Sales to AMI for the years ended December 31, 1998 and
1997 were $396,381 and $310,619, respectively, which represented
31% and 26% of net sales. Accounts receivable from this
related party as of December 31, 1998 was $140,102 representing
39% of accounts receivable.
Note 8 - 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>
1998 $ 861,963 66%
1997 $ 858,681 73%
</TABLE>
This major customer's accounts receivable balance is
approximately $220,537 at December 31, 1998.
Note 9 - Income Taxes:
The provision for income taxes consist of the following
for the year ended December 31:
<TABLE>
<CAPTION> 1998 1997
-------- --------
<S> <C> <C>
Federal - current $ -- $ --
State - current 23,785 --
Deferred 91,134 17,876
Benefit of net operating
loss carryforwards (91,134) (17,876)
---------- --------
Total $ 23,785 $ --
=========== ==========
</TABLE>
The reconciliation of income tax expense computed at the U.S.
federal statutory rate to the provision for income taxes is as
follows for the year ended December 31:
<TABLE>
<CAPTION> 1998 1997
-------- -------
<S> <C> <C>
Tax at U.S. statutory rate $ 91,134 $ 17,876
Change in valuation allowance (91,134) (17,876)
State tax expense 23,785 --
------- --------
Provision for income taxes $ 23,785 $ --
========= =========
</TABLE>
F-12
<PAGE>
ORS AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
Note 9 - Income Taxes (Cont'd):
The Company has federal net operating loss carryforwards of
approximately $16,397,000 and federal unused tax credits of
approximately $14,000 which are available to offset federal
income taxes. These carryforwards and credits expire between the
years 1999 and 2010. At December 31, 1998, there were no
remaining state net operating carryforwards.
Deferred income taxes are summarized as follows at
December 31, 1998:
<TABLE>
<S> <C>
Deferred tax asset:
Federal net operating loss
& tax credit carryforwards $ 5,542,000
Valuation allowance (5,542,000)
-------------
Net deferred tax asset $ 0
==============
</TABLE>
During the year ended December 31, 1998, the Company's
valuation allowance declined by $1,506,000 due to the utilization
of net operating loss carryforwards as well as the expiration of
state carryforwards. As seen in the above table, any future tax
benefit which may result from utilization of these net operating
loss carryforwards has been fully reserved for.
Note 10 - 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, 1998
and 1997, including taxes, insurance and maintenance
reimbursements, amounted to $75,514 and $70,625, respectively.
Future minimum rentals on the above lease for the years
ending after December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999 $ 48,741
2000 33,345
--------
Total $ 82,086
==========
</TABLE>
F-13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Statements of Operations for the Year Ended December 31, 1998 and the
Balance Sheet at December 31, 1998 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 396,599
<SECURITIES> 81,434
<RECEIVABLES> 360,639
<ALLOWANCES> 0
<INVENTORY> 108,496
<CURRENT-ASSETS> 949,450
<PP&E> 337,019
<DEPRECIATION> 317,224
<TOTAL-ASSETS> 969,245
<CURRENT-LIABILITIES> 763,055
<BONDS> 0
0
10,000
<COMMON> 122,824
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 969,245
<SALES> 1,298,536
<TOTAL-REVENUES> 1,398,064
<CGS> 806,321
<TOTAL-COSTS> 1,084,865
<OTHER-EXPENSES> 8,884
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,274
<INCOME-PRETAX> 268,041
<INCOME-TAX> 244,256
<INCOME-CONTINUING> 244,256
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 244,256
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
