<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, 1999
______________________________________________________________
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: $1,434,117
As of March 1, 2000, 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, 2000, 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. In the fourth
quarter of 1998, ORS' major customer was acquired by a large multinational
corporation and subsequently ORS was able to develop a business relationship
with this new customer which accounted for 47% of sales in 1999. Since the
market for the Company's products is highly competitive and this new customer
has its own large vision development engineering department along with a
history of complete in-house control and manufacture of critical subassemblies
regardless of cost or performance, there is no assurance that the Company will
be successful in continuing 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. An
additional $725 was paid as the Internal Revenue Service claimed interest from
February 1 to February 10, 2000.
(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 two decades.
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, digital storage
devices, 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) 1999 Sales & Recent Backlog
ORS sells its products principally to manufacturers of automation
equipment for the electronics industry. Sales of $1,434,117 were up 10.4% from
1998 sales of $1,298,536. Two customers accounted for almost all of the total
sales for these periods.
As of March 1, 2000, ORS had unfilled orders for products totaling
$510,920. Of this total backlog, approximately 92% is based on purchase orders
from one customer scheduled to be delivered in 2000. This compares with the
backlog of $480,822 on March 1, 1999.
(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 1999 and 1998 ORS expended approximately
$209,570 and $173,500 respectively, on software and product development
activities. The product development in 1999 instituted more artificial
intelligence in the vision algorithm setups. Using expert system rules-based
algorithms, a complete point and click setup wizard allows optimized program
settings without requiring vision system expertise on the part of the end
user. New vision algorithms were and are continuing to be developed that can
be implemented using the latest high-speed microprocessors. These faster
microprocessors can now run complex vision algorithms in software that
previously would have to been implemented in dedicated hardware. This permits
rapid product customization to meet specific needs of customers.
(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, 1999, ORS had 7 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. As of March 1, 2000, there has been no
indication of any Year 2000 problems.
4
<PAGE>
The Year 2000 issue does create risk for ORS from unforeseen
problems from third parties such as banks and financial institutions. As of
March 1, 2000, there has been no indication of any Year 2000 problems.
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, 1999 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 $ 1,434,117 $ 1,298,536
Income From Operations 204,577 213,671
Net Income 164,765 244,256
Basic Earnings per Common Share 0.01 0.01
Financial Position at
December 31,
Total Assets $ 880,908 $ 969,245
Total Liabilities 509,953 763,055
Shareholder's Equity 370,955 206,190
</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, as 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 1999 with 1998, sales of
$1,434,117 increased approximately 10% from 1998 sales of $ 1,298,536.
Approximately 88% of the sales in 1999 were related to "i-lign" and "u-lign"
vision alignment products compared with 87% of sales in 1998. Affiliated
Manufacturers, Inc., ("AMI"), which has a controlling interest in ORS,
accounted for 27% of the sales in 1999 compared with 31% of sales in 1998.
The gross profit remained constant at 38% of sales in 1999 and 1998.
Administrative, Marketing and General expenses increased 24% to $343,995 for
1999 as compared to $278,544 for 1998. This increase was primarily due to the
hiring of a new marketing manager to replace one that departed in mid-year
1998.
6
<PAGE>
Software and product development expense increased 22% to approximately
$209,500 in 1999 compared to approximately $173,500 in 1998. This increase was
primarily due to the hiring of a new software engineer to replace one that
resigned and the subsequent return to prior years expenditure levels. 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, 1999 was
$204,577, as compared to income from operations of $213,671 for the year ended
December 31, 1998. In 1999, ORS had "Other Expenses" of $24,312 as compared
to "Other Income" of $54,370 in 1998. 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 $180,265 for 1999, as compared to net
income before provision for income taxes of $268,041 for 1998. At December 31,
1999 and December 31, 1998 there were no remaining state net operating loss
carryforwards, resulting in a provision of $15,500 for state income tax in
1999 and $23,785 in 1998. Net income for 1999 was $164,765 as compared to
$244,256 for 1998. There was no provision for federal income taxes as a result
of ORS' net operating loss carryforwards.
Liquidity and Capital Resources
In 1999, operating activities used $317,702 and short term investing
activities provided $81,434 less $3,613 for the purchase of equipment, as
compared to $65,371 provided by operating activities and purchases of short
term investments of $81,434 plus purchases of equipment of $17,028 in 1998. As
a result, ORS had a net decrease in cash in 1999 of $239,881 which resulted in
cash on hand at December 31, 1999 of $156,718. The decrease of cash in 1999
was due largely to the payment of principal and interest on priority tax
claims, an increase in inventory to protect the company as various
manufacturers gave notice of dropping some critical components, and the
payment of state taxes due to the expiration of state tax net operating loss
carryforwards.
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. An
additional $725 was paid as the Internal Revenue Service claimed interest from
February 1, to February 10, 1999.
Total stockholder's equity of $206,190 in 1998 increased to a
stockholder's equity of $370,955 in 1999 as a result of ORS' net income of
$164,765 for the year ended December 31, 1999.
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, 2000 director since
<S> <C> <C>
Edward Kornstein Chairman of the Board 1991
Chief Executive Officer
and Treasurer, 70
William Trautman Director, 60 1987
Howard W. Imhof Director, 57 1997
Patricia Newbill Secretary, 67 ----
</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 Managing Director of
The Global Executive Search Division of the Stratford Group, and General
Principal in Dupont, White and Stone, a NASD broker dealer. Previously, he
held senior
executive positions with several companies including A.T. Kearney,
Boyden Company,
Moore & Schley Securities, Seatrain Lines, Inc., XM World
Trade, Litton
Industries and Ford Motor Company.
Howard W. Imhof, Director. Mr. Imhof is a management consultant
and principal in Empire International, a executive search firm. Previously he
was President, Chief Operating Officer and Director of Affiliated
Manufacturers, Inc. He has also 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, 1999, 1998 and 1997
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
Edward Kornstein, 1999 $ 55,262 0
President/CEO 1998 $ 54,290 0
1997 $ 49,920 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, 2000 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, 1999, 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 $289,012. No payments were made to Affiliated
Manufacturers, Inc. in 1999 and 1998.
Sales to Affiliated Manufacturers, Inc. for the years ended December 31,
1999 and 1998 were $382,307 and $396,381, respectively. The sales represent
approximately 27% and 31%, respectively, of the total sales of ORS for those
years. At December 31, 1999 and December 31, 1998, accounts receivable from
Affiliated Manufacturers, Inc. amounted to $250,677 and $140,102,
respectively.
PART IV
Item 13. Exhibits List and Reports on Form 8-K
(a) Exhibits
See Page 11 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 29, 2000
----------------------- -----------------
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 3/29/00 Chairman, CEO, Treasurer
(Chief Financial Officer)
-----------------------------------------------------------------------
/s/ Howard W. Imhof 3/29/00 Director
------------------------------------------------------------------------
/S/ William Trautman 3/29/00 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, 1999
Statements of Operations F-5
For the Years Ended December 31, 1999 and 1998
Statements of Stockholders' Deficit F-6
For the Years Ended December 31, 1999 and 1998
Statements of Cash Flows F-7
For the Years Ended December 31, 1999 and 1998
Notes to Financial Statements F-8 - F-12
</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, 1999, and the related statements of income, stockholders' equity
(deficit) and cash flows for the years ending December 31, 1999 and 1998.
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, 1999, and the results of its operations and its cash flows for
the years ended December 31, 1999 and 1998 in conformity with generally
accepted accounting principles.
Withum, Smith & Brown
Flemington, NJ
January 24, 2000
F-3
<PAGE>
ORS AUTOMATION, INC.
BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current Assets:
Cash and cash equivalents $ 156,718
Accounts receivable, net of allowance for doubtful
accounts of $0 537,465
Inventory, net 171,417
Prepaid expenses 1,674
-------------
Total Current Assets 867,274
Property and Equipment, Net 13,634
-------------
TOTAL ASSETS $ 880,908
==============
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
Current Liabilities:
Accounts payable and accrued expenses $ 24,512
Income taxes payable 2,000
--------------
Total Current Liabilities 26,512
Long-term Liabilities:
State priority tax claims payable - principal 12,650
State priority tax claims payable - interest 15,677
Note payable - related party 166,102
Accrued interest payable - related party 289,012
--------------
Total Liabilities 509,953
Stockholders' Equity:
Preferred stock 10,000
Common stock 122,824
Capital in excess of par value 24,914,163
Accumulated deficit (24,676,032)
--------------
Total Stockholders' Equity 370,955
--------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 880,908
==============
</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, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Sales, Net $ 1,434,117 $ 1,298,536
Cost of Goods Sold 885,545 806,321
--------- ---------
Gross Profit 548,572 492,215
Administrative, Marketing and
General Expenses 343,995 278,544
---------- ----------
Income From Operations 204,577 213,671
Other Income (Expense):
Interest income 7,267 16,289
Change in estimate of IRS
priority tax claims payable --- 83,239
Interest expense (21,805) (36,274)
Depreciation (9,774) (8,884)
----------- ----------
Total Other Income (Expense), Net (24,312) 54,370
---------- ---------
Income Before Provision for
Income Taxes 180,265 268,041
Provision for Income Taxes 15,500 23,785
---------- --------
Net Income $ 164,765 $ 244,256
============= =============
Basic Earnings Per Common Share $ .01 $ .01
============= ==============
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, 1999 AND 1998
<TABLE>
<CAPTION>
Preferred Stock Class A Common Stock
Shares Par Value Shares Par Value
--------- -------- ----------- -----------
<S> <C> <C> <C> <C>
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
Net Income - - - -
Balance at
Dec. 31, 1999 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, 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
Net Income - - - 164,765 164,765
Balance at --------- --------- ---------- ------------ --------
Dec. 31, 1999 8,082,443 $ 80,824 24,914,163 ($24,676,032) $370,955
========= ========== =========== ============ ==========
</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, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 164,765 $ 244,256
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 9,774 8,884
Change in estimate on IRS
priority tax claims payable --- (83,239)
Cash provided by (used in) changes in:
Accounts receivable, net (176,826) (177,087)
Inventory, net (62,921) (11,730)
Prepaid expenses 608 1,303
Accounts payable and accrued
expenses (16,682) 23,210
Income taxes payable (21,500) 23,500
Priority tax claims payable-interest (67,925) 16,342
Priority tax claims payable-principal (166,927) ---
Accrued interest payable
related party 19,932 19,932
--------- ---------
Net Cash Provided by Operating
Activities (317,702) 65,371
Cash Flows From Investing Activities:
Purchase of property and
equipment (3,613) (17,028)
Purchase of short-term
investments 0 (81,434)
Proceeds from sale of short-term
investments 81,434 0
---------- ----------
Net Cash Provided By (Used In)
Investing Activities 77,821 (98,462)
---------- ---------
Net Decrease in Cash and Cash Equivalents (239,881) (33,091)
Cash and Cash Equivalents at the
Beginning of the Year 396,599 429,690
-------- ---------
Cash and Cash Equivalents at the
End of the Year $ 156,718 $ 396,599
=============== ============
</TABLE>
Supplemental Disclosure of Cash Flow Information:
<TABLE>
<CAPTION> 1999 1998
<S> <C> <C>
Cash paid during the period for:
Interest $ 69,753 $ --
Income taxes $ 36,518 $ 485
</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. 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 7
and 8).
D. 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.
E. 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.
F. Revenue Recognition
Sales of products are recorded in the period the units are
shipped.
G. 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 7 and 8, 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.
F-8
<PAGE>
ORS AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies (Cont'd):
H. 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.
I. 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 state
priority tax claims payable and note payable to related parties. See Notes 4
and 7, respectively, for additional information concerning such financial
instruments.
J. Effect of New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in either
assets or liabilities. As amended in June 1999 by SFAS No. 137 this statement
is effective for all fiscal years beginning after June 15, 2000 and is not to
be applied retroactively to financial statements for prior periods. The
impact of adoption of the standard has not yet been determined.
SFAS No. 130 "Comprehensive Income", requires an enterprise
report, by major components and as a single total, the change in its net
assets, during the period from non-owner sources. The Company does not have
any items of Other Comprehensive Income, as defined by SFAS No. 130, and thus
Net Income is equal to Comprehensive Income.
Note 2 - Inventory:
<TABLE>
<CAPTION>
Inventory consists of the following at December 31, 1999:
<S> <C>
Materials $237,654
Work in process ---
Finished goods 46,197
--------
Total 283,851
Less: Allowance for obsolescence 112,434
---------
Total Inventory $171,417
==========
</TABLE>
F-9
<PAGE>
ORS AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
Note 3 - Property and Equipment:
The major classifications of property and equipment are summarized as
follows at December 31, 1999:
<TABLE>
<S> <C>
Equipment $268,151
Furniture and fixtures 72,480
---------
Total 340,631
Less accumulated depreciation 326,997
---------
Property and Equipment, net $ 13,634
</TABLE>
Depreciation expense charged to operations amounted to $9,774 and
$8,884 for years ended December 31, 1999 and 1998, 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. The Company recorded a
change in estimate in the amount of $83,239 in 1998. The $236,000 was paid
during 1999.
As of December 31,1999, 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 $15,677.
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, 1999 and 1998, 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, 1999 and 1998, 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, 1999 and 1998.
Both common stock and Class A common stock have the same voting rights.
Note 6 - Earnings Per Share:
The Company has adopted Statement of Financial Accounting Standard No.
128, "Earnings Per Share". 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, 1999 and 1998, the Company had no such potential dilutive
securities, hence, only basic earnings per share is presented.
F-10
<PAGE>
ORS AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
Note 7 - Related Party Transactions:
As of December 31, 1999 and 1998, 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. The principal amounted to $166,102 at December 31, 1999. Accrued
interest is being calculated using simple interest at a rate of 12% per annum
and amounted to $289,012 at December 31, 1999. 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 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 1999 and 1998 was
$19,932 per year.
B. Sales and Accounts Receivable
Sales to AMI for the years ended December 31, 1999 and 1998 were
$382,307 and $396,381, respectively, which represented 26% and 31% of net
sales. Accounts receivable from this related party as of December 31, 1999
was $250,677 representing 46% 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>
1999 $ 988,393 69%
1998 $ 861,963 66%
</TABLE>
This major customer's accounts receivable balance is approximately
$245,461 at December 31, 1999.
Note 9 - Income Taxes:
The provision for income taxes consist of the following for the year
ended December 31:
<TABLE>
<CAPTION> 1999 1998
-------- --------
<S> <C> <C>
Federal - current $ -- $ --
State - current 15,500 23,785
Deferred 61,290 91,134
Benefit of net operating
loss carryforwards (61,290) (91,134)
---------- --------
Total $ 15,500 $ 23,785
=========== ==========
</TABLE>
F-11
<PAGE>
ORS AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
Note 9 - Income Taxes (Cont'd):
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> 1999 1998
-------- -------
<S> <C> <C>
Tax at U.S. statutory rate $ 61,290 $ 91,134
Change in valuation allowance (61,290) (91,134)
State tax expense 15,500 23,785
------- --------
Provision for income taxes $ 15,500 $ 23,785
========= =========
</TABLE>
The Company has federal net operating loss carryforwards of
approximately $11,161,000, which are available to offset federal income taxes.
These carryforwards expire between the years 2000 and 2010. At December 31,
1999, there were no remaining state net operating carryforwards.
Deferred income taxes are summarized as follows at December 31, 1999:
<TABLE>
<S> <C>
Deferred tax asset:
Federal net operating loss
& tax credit carryforwards $ 3,795,000
Valuation allowance (3,795,000)
-------------
Net deferred tax asset $ 0
==============
</TABLE>
During the year ended December 31, 1999, the Company's valuation
allowance declined by $1,747,000 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 lease expires August 31, 2000. Rent expense for
the years ending December 31, 1999 and 1998, including taxes, insurance and
maintenance reimbursements, amounted to $76,822 and $75,514, respectively.
Future minimum rentals on the above lease for the period ending after
December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000 33,345
--------
Total $ 33,345
==========
</TABLE>
F-12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Statements of Operations for the Year Ended December 31, 1999 and the
Balance Sheet at December 31, 1999 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 156,718
<SECURITIES> 0
<RECEIVABLES> 537,464
<ALLOWANCES> 0
<INVENTORY> 171,417
<CURRENT-ASSETS> 867,274
<PP&E> 340,631
<DEPRECIATION> 326,997
<TOTAL-ASSETS> 880,908
<CURRENT-LIABILITIES> 509,953
<BONDS> 0
0
10,000
<COMMON> 122,824
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 880,908
<SALES> 1,434,117
<TOTAL-REVENUES> 1,441,384
<CGS> 885,545
<TOTAL-COSTS> 1,229,540
<OTHER-EXPENSES> 9,774
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,805
<INCOME-PRETAX> 180,265
<INCOME-TAX> 15,500
<INCOME-CONTINUING> 164,765
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 164,765
<EPS-BASIC> .01
<EPS-DILUTED> .01
</TABLE>
