SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the six month period ended June 30, 2000
Commission file number 0-28572
OPTIMAL ROBOTICS CORP.
(Exact name of registrant as specified in its charter)
CANADA 98-0160833
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
4700 de la Savane, Suite 101, Montreal, Quebec, Canada H4P 1T7
(514) 738-8885
(Registrant's Telephone Number, including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes __X__ No _____
At July 6, 2000, the registrant had 13,655,625 Class "A" shares (without nominal
or par value) outstanding.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
2
Optimal Robotics Corp.
Interim Financial Statements
(Unaudited)
June 30, 2000
(stated in United States dollars)
3
OPTIMAL ROBOTICS CORP.
INTERIM BALANCE SHEETS
(stated in United States dollars, unless otherwise noted)
June 30, December 31,
2000 1999
$ $
(unaudited)
Assets
Current assets
Cash and U.S. Treasury bill, at cost 1,174,399 4,499,084
Short-term investments 73,841,238 24,636,606
Accounts receivable (note 8) 15,108,993 4,641,566
Inventory (note 3) 12,668,932 3,363,943
Tax credits receivable 266,788 252,520
Future income taxes 3,700,747 3,012,997
Prepaid expenses 278,010 127,017
=================================
107,039,107 40,533,733
Loans receivable 137,383 155,643
Deferred share issue costs -- 56,985
Future income taxes 1,805,138 2,112,028
Capital assets 1,967,616 1,347,903
=================================
110,949,244 44,206,292
=================================
Liabilities
Current liabilities
Accounts payable and accrued
liabilities 7,291,090 3,659,189
Deferred revenue 1,527,693 592,271
Contract advance 250,000 250,000
=================================
9,068,783 4,501,460
---------------------------------
Shareholders' Equity
Share capital 106,840,472 44,657,833
Other capital 14,966 20,559
Cumulative translation adjustment (1,484,471) 652,062
Deficit (3,490,506) (5,625,622)
---------------------------------
101,880,461 39,704,832
---------------------------------
110,949,244 44,206,292
=================================
4
OPTIMAL ROBOTICS CORP.
INTERIM STATEMENTS OF OPERATIONS
(unaudited)
(stated in United States dollars, unless otherwise noted)
Three months Six months Three months Six months
ended ended ended ended
June 30, June 30, June 30, June 30,
2000 2000 1999 1999
$ $ $ $
Revenues (note 6) 16,123,099 28,127,258 7,023,259 12,113,524
Cost of sales (note 6) 11,957,323 20,971,426 5,535,849 9,879,860
---------------------------------------------------------------------------
Gross margin 4,165,776 7,155,832 1,487,410 2,233,664
---------------------------------------------------------------------------
Research and development net of tax
credits (note 5) 237,806 347,885 50,884 110,956
Selling, general and administrative
expenses 2,525,856 4,494,220 1,136,943 2,377,745
Amortization of capital assets 262,981 402,360 71,933 121,352
Investment income (1,183,722) (1,547,047) (200,712) (229,925)
---------------------------------------------------------------------------
1,842,921 3,697,418 1,059,048 2,380,128
---------------------------------------------------------------------------
Earnings (loss) before income taxes 2,322,855 3,458,414 428,362 (146,464)
Provision for income taxes 888,957 1,323,298 -- --
---------------------------------------------------------------------------
Net earnings (loss) for the period 1,433,898 2,135,116 428,362 (146,464)
===========================================================================
Weighted average number of common shares
outstanding 13,567,536 12,511,392 9,292,011 8,413,457
===========================================================================
Net earnings (loss) per common share
(note 7) 0.11 0.17 0.05 (0.02)
===========================================================================
5
OPTIMAL ROBOTICS CORP.
INTERIM STATEMENTS OF DEFICIT
(unaudited)
(stated in United States dollars, unless otherwise noted)
Three months Six months Three months Six months
ended ended ended ended
June 30, June 30, June 30, June 30,
2000 2000 19992000 19992000
$ $ $ $
Deficit - Beginning of period (4,924,404) (5,625,622) (9,852,216) (9,277,390)
Net earnings (loss) for the period 1,433,898 2,135,116 428,362 (146,464)
---------------------------------------------------------------------------
Deficit - End of period (3,490,506) (3,490,506) (9,423,854) (9,423,854)
===========================================================================
6
OPTIMAL ROBOTICS CORP.
INTERIM BALANCE SHEET
(stated in United States dollars, unless otherwise noted)
OPTIMAL ROBOTICS CORP.
INTERIM STATEMENTS OF CASH FLOWS
(unaudited)
(stated in United States dollars, unless otherwise noted)
2000 1999
$ $
Cash provided by (used in)
Operating activities
Net earnings (loss) for the period 2,135,116 (146,464)
Items not affecting cash
Amortization of capital assets 402,360 121,352
Unrealized foreign exchange (loss) gain on contract
advance 5,948 (11,778)
Non-refundable tax credits (39,539) --
Future income taxes 1,323,298 --
Change in non-cash operating working capital items
Increase in accounts receivable (10,706,301) (4,621,835)
Increase in inventory (9,499,202) (499,448)
Increase in tax credits receivable (20,451) (72,773)
Increase in prepaid expenses (155,868) (43,043)
Increase in accounts payable and accrued liabilities 4,036,210 2,086,032
Increase in deferred revenue 960,991 702,212
--------------------------------
(11,557,438) (2,485,745)
--------------------------------
Financing activities
Issuance of common shares 65,134,022 27,297,499
Share issue costs (4,673,729) (2,585,876)
Decrease in contract advance -- (125,000)
--------------------------------
60,460,293 24,586,624
--------------------------------
Investing activities
Purchase of capital assets (1,335,541) (347,026)
Increase in short-term investments (50,394,557) (18,172,026)
Repayment of loan receivable 14,782 1,239
--------------------------------
(51,715,316) (18,517,813)
--------------------------------
Increase (decrease) in cash and cash equivalents during
the period (2,812,461) 3,583,066
Effect of foreign exchange fluctuations on cash (512,223) (333,194)
Cash and cash equivalents - Beginning of period 4,499,083 538,490
--------------------------------
Cash and cash equivalents - End of period 1,174,399 3,788,362
================================
Cash and cash equivalents is comprised of
Cash 595,454 3,238,784
U.S. Treasury bill 578,945 549,578
--------------------------------
1,174,399 3,788,362
================================
7
OPTIMAL ROBOTICS CORP.
NOTES TO INTERIM FINANCIAL STATEMENTS
(unaudited)
(stated in United States dollars, unless otherwise noted)
1 Interim financial information
The financial information as at June 30, 2000 and for the periods ended
June 30, 2000 and 1999 is unaudited; however, in the opinion of management,
all adjustments necessary to present fairly the results of the periods have
been included. The adjustments made were of a normal, recurring nature.
Interim results may not necessarily be indicative of results expected for
the year. These interim financial statements have not been the subject of a
review engagement by the Company's independent auditors.
2 Accounting policy
Change in reporting currency
The financial statements of the Company were presented in Canadian dollars
up to December 31, 1997. Effective December 31, 1998, the U.S. dollar has
been adopted as the reporting currency. The functional currency continues
to be the Canadian dollar. The financial statements for all period prior to
December 31, 1998 were translated into U.S. dollars in accordance with a
translation of convenience method using the representative exchange rate at
December 31, 1998 of US$1.00 = Cdn$1.5333. The translated amount for
monetary and non-monetary items at December 31, 1998 became the historical
basis for those items in subsequent reporting periods. The financial
statements for all periods subsequent to December 31, 1998 are translated
into U.S. dollars in accordance with the current rate method.
3 Inventory
June 30, December 31,
2000 1999
$ $
Replacement parts 4,456,282 2,763,261
U-Scan(R)Express systems 8,212,650 600,682
------------------------------
12,668,932 3,363,943
==============================
4 Capital stock
On March 28, 2000, the Company filed a registration statement with the
Securities and Exchange Commission qualifying the issuance of 1,625,000
common shares for gross proceeds of $39.00 per share. Net proceeds from the
offering amounted to $60,418,000, after deducting underwriting commissions
and other expenses of $2,957,000 (net of future income taxes of
$1,774,000).
8
OPTIMAL ROBOTICS CORP.
NOTES TO INTERIM FINANCIAL STATEMENTS
(unaudited)
(stated in United States dollars, unless otherwise noted)
During the six-month period ended June 30, 2000, 60,000 options with a
weighted average exercise price of CDN$2.50, and 518,000 options with a
weighted average exercise price of US$3.08 were exercised for a total cash
consideration of $1,575,552. In addition, 40,000 warrants with a weighted
average exercise price of CDN$3.75 and 15,384 warrants with a weighted
average exercise price of US$6.50 were exercised for a total cash
consideration of $203,110.
5 Research and development
Three months Six months Three months Six months
ended ended ended ended
June 30, June 30, June 30, June 30,
2000 2000 1999 1999
$ $ $ $
Research and development expenses 237,806 444,204 83,896 183,646
Tax credits earned -- (96,319) (33,012) (72,690)
------------------------------------------------------------------
237,806 347,885 50,884 110,956
==================================================================
6 Other information
Revenues and costs of sales are detailed as follows:
Three months Six months Three months Six months
ended ended ended ended
June 30, June 30, June 30, June 30,
2000 2000 1999 1999
$ $ $ $
Revenues
Systems 15,395,849 26,772,218 6,748,348 11,674,070
Development and customization 53,344 114,699 81,287 149,350
Hardware and software
maintenance 673,906 1,240,341 193,624 290,104
-------------------------------------------------------------------------
16,123,099 28,127,258 7,023,259 12,113,524
=========================================================================
Cost of sales
Systems 11,327,194 19,812,052 5,295,951 9,491,626
Development and customization 28,420 55,510 31,443 54,245
Hardware and software
maintenance 601,709 1,103,864 208,455 333,989
-------------------------------------------------------------------------
11,957,323 20,971,426 5,535,849 9,879,860
=========================================================================
9
OPTIMAL ROBOTICS CORP.
NOTES TO INTERIM FINANCIAL STATEMENTS
(unaudited)
(stated in United States dollars, unless otherwise noted)
7 Net earnings (loss) per common share
The net earnings (loss) per common share has been calculated on the
weighted average number of shares outstanding. Fully diluted net earnings
(loss) per common share has not been presented as the effect would be
anti-dilutive.
8 Additional disclosures required by U.S. GAAP and differences between
Canadian GAAP and U.S. GAAP
Statement of operations
Transactions entered into after December 15, 1995 in which an entity
acquires goods and services from non-employees in exchange for equity
instruments are required to be recorded at fair value (SFAS No. 123).
For stock-based compensation plans, the Company has chosen to use the
intrinsic value method (APB Opinion No. 25), which requires compensation
cost to be recognized on the difference, if any, between the quoted market
price of the stock as at the grant date and the amount the individual must
pay to acquire the stock. Variable stock option plans require subsequent
changes in the fair value of the underlying stock to be recorded as an
adjustment to compensation cost. The options issued in 1997 have a
cashless exercise option and accordingly, they are accounted for as
variable stock option plans. On April 22, 1998, option holders waived the
cashless exercise option on options to acquire 1,507,000 common shares.
Therefore, subsequent changes in the fair value of the underlying stock
are no longer recorded as an increase or decrease of compensation cost
until the options are exercised.
Under Canadian GAAP, compensation expense is not recognized.
10
OPTIMAL ROBOTICS CORP.
NOTES TO INTERIM FINANCIAL STATEMENTS
(unaudited)
(stated in United States dollars, unless otherwise noted)
Three months Six months Three months Six months
ended ended ended ended
June 30, June 30, June 30, June 30,
2000 2000 1999 1999
$ $ $ $
Net earnings (loss) for the period
in accordance with Canadian
GAAP 1,433,898 2,135,116 428,362 (146,464)
Stock-based compensation costs (18,807,034) (18,941,365) (1,343,814) (1,706,745)
------------------------------------------------------------------------
Net loss for the period in
accordance with U.S. GAAP (17,373,136) (16,806,249) (915,452) (1,853,209)
Other comprehensive income (loss)
Foreign currency translation
adjustments (1,990,640) (2,136,533) 27,166 148,725
------------------------------------------------------------------------
Comprehensive loss (19,363,776) (18,942,782) (888,286) (1,704,484)
========================================================================
Weighted average number of common
shares outstanding 13,567,536 12,511,392 9,292,011 8,413,457
========================================================================
Basic and diluted net loss per
common share (1.28) (1.34) (0.10) (0.22)
========================================================================
Operating lease expense 81,477 193,615 59,352 108,450
========================================================================
11
OPTIMAL ROBOTICS CORP.
NOTES TO INTERIM FINANCIAL STATEMENTS
(unaudited)
(stated in United States dollars, unless otherwise noted)
Balance sheet
June 30, 2000 December 31, 1999
------------------------------------- --------------------------------
As reported U.S. GAAP As reported U.S. GAAP
$ $ $ $
Loans receivable (1) 137,383 137,383 155,643 140,690
===============================================================================
Shareholders' equity
Share capital 106,840,472 148,886,160 44,657,833 62,342,671
Other capital 14,966 7,501,479 20,559 12,911,604
Deficit (3,490,506) (51,488,945) (5,625,622) (34,682,696)
Cumulative translation
adjustment (1,484,471) -- 652,062 --
Accumulated other
comprehensive loss -- (3,018,233) -- (881,700)
--------------------------------------------------------------------------------
101,880,461 101,880,461 39,704,832 39,689,879
================================================================================
(1) During the six-month period ended June 30, 2000, the share purchase loan in
the amount of $14,953, which was presented against capital stock under U.S.
GAAP, was reimbursed in full.
Accounts receivable
Accounts receivable are presented net of an allowance for doubtful accounts of
nil.
12
OPTIMAL ROBOTICS CORP.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Results of Operations
The following discussion and analysis of the Company's results of operations and
liquidity and capital resources should be read in conjunction with the financial
information and the financial statements of the Company and their related notes
appearing elsewhere herein. The financial statements have been prepared in
accordance with Generally Accepted Accounting Principles ("GAAP") in Canada,
which conform in all material respects with U.S. GAAP except as disclosed in
Note 8 to the financial statements, which explains the nature of the differences
between Canadian and U.S. GAAP and their impact on the financial statements.
First Six Months of 2000 compared with First Six Months of 1999
Total revenue increased by $16,013,734, or 132%, from $12,113,524 in 1999 to
$28,127,258 in 2000. For the first six-months of 2000, the Company sold 273
U-Scan(R) Express systems, compared with 119 systems for the first six-months of
1999. The growth in systems sales is due to a significant increase in orders
from both existing and new customers, which produced $15,098,148 of additional
systems revenue. Service contract revenue recognized for hardware and software
maintenance increased by $950,237 or 328%, due to the increased number of stores
that entered into contracts with the Company after purchasing U-Scan(R) Express
systems.
Total cost of sales increased by $11,091,566, or 112%, from $9,879,860 in 1999
to $20,971,426 for the first six-months of 2000. Overall gross margin as a
percentage of sales increased from 18% in 1999 to 25% in 2000. This increase is
attributed primarily to the increase in gross margin on system sales, from 19%
in 1999 to 26% in 2000, which resulted from economies of scale realized and the
reduction of installation costs. In the first six-months of 2000, a gross margin
of 11% was realized on hardware and software maintenance revenue.
Net research and development expenses increased by $236,929, or 214%, from 1999
to 2000. As a percentage of sales, net research and development expenses
remained unchanged at 1% for both 1999 and 2000. Selling, general and
administrative expenses increased by $2,116,475, or 89% in 2000 over 1999. As a
percentage of sales, these expenses decreased from 20% in 1999 to 16% in 2000.
This decrease resulted from the substantial increase in the number of U-Scan(R)
Express systems sold in 2000 as well as greater efficiencies realized through
spending control.
13
OPTIMAL ROBOTICS CORP.
Second Quarter of 2000 Compared with Second Quarter of 1999
Total revenues increased by $9,099,840, or 130%, from $7,023,259 in 1999 to
$16,123,099 in 2000. Sales of U-Scan(R) Express grew from 68 systems in 1999 to
158 systems in 2000, producing $8,647,501 of additional systems revenue, an
increase of 128%. Service contract revenue recognized for hardware and software
maintenance increased by $480,282, or 248%.
Total cost of sales increased by $6,421,474, or 116%, from $5,535,849 in 1999 to
$11,957,323 in 2000. Overall gross margin increased as a percentage of sales
from 21% in 1999 to 26% in 2000, which was primarily due to the increased gross
margin on system sales from 22% in 1999 to 26% in 2000. In the second quarter of
2000, a gross margin of 11% was realized on hardware and software maintenance
revenue. Net research and development expenses increased by $186,922, or 367%,
from 1999 to 2000. As a percentage of sales, net research and development
expenses remained unchanged at 1% in 1999 and 2000.
Selling, general and administrative expenses increased by $1,388,913, or 122% in
2000 compared to the second quarter of 1999. As a percentage of sales, these
expenses remained constant at 16%.
Liquidity and Capital Resources
As of June 30, 2000, the Company had working capital of $97,970,324 which
included cash, cash equivalents and investment grade commercial paper of
$75,015,637. Operating activities for the first six months of 2000 used
$11,557,438 as compared with $2,485,745 in 1999. The Company believes that it
has sufficient working capital to meet its needs for the next twelve months.
Inventory increased by $9,304,989 during the six-month period ended June 30,
2000. Replacement parts inventory increased by $1,693,021 during this period to
accommodate the servicing of the Company's expanding customer base. Our
U-Scan(R) Express systems inventory has increased by $7,611,968 as a result of
purchases made at the end of June for delivery in the third quarter.
In the first six months of 2000, the Company had capital expenditures of
$1,335,541, principally relating to the acquisition of leasehold improvements,
computer equipment and test units.
On March 28, 2000, the Company filed a registration statement with the
Securities and Exchange Commission qualifying the issuance of 1,625,000 common
shares for gross proceeds of $39.00 per share. Net proceeds from the offering
amounted to $60,418,000, net of underwriting discounts and other expenses of
$2,957,000 (net of future income taxes of $1,774,000).
During the six-month period ended June 30, 2000, 60,000 options, with an average
exercise price of CDN$2.50, and 518,000 options, with a weighted average
exercise price
14
OPTIMAL ROBOTICS CORP.
of US$3.08, were exercised for a total cash consideration of $1,575,552. In
addition, 40,000 warrants with a weighted average exercise price of CDN$3.75,
and 15,384 warrants, with a weighted average exercise price of US$6.50, were
exercised for a total cash consideration of $203,110.
The Company maintains an operating line of credit in the amount of CAD$500,000
with its banker.
Year 2000 Issues
To date, none of our customers has informed us of any Year 2000 problems with
their systems and hardware, although some uncertainty remains in the software
industry and other industries concerning the scope and magnitude of problems
associated with the century change. Furthermore, we received no indications that
any material third party providers were not ready for the Year 2000, and we
believe that any such unpreparedness discovered after January 2000 will not have
a material effect on our business, results of operations or financial condition.
15
OPTIMAL ROBOTICS CORP.
Item 3: Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes since December 31, 1999.
16
OPTIMAL ROBOTICS CORP.
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings
In each of 1995 and 1996, we received a demand letter from the same claimant
alleging that U-Scan Express infringes upon the claimant's patent. In July 1999,
this claimant filed a civil action in the United States district Court for the
District of Utah against us and PSC, the current assembler of U-Scan Express,
alleging patent infringement. A second party also sent a demand letter to us
alleging a different patent infringement. Although after consultation with
counsel, we believe that the former claimant should not prevail in its lawsuit
and that the latter claimant should not prevail if a lawsuit is brought to
assert its claim, and that these claims will not have a material adverse effect
on our business or prospects, no assurance can be given that a court will not
find that the system infringes upon one or both of such claimants' rights.
Smith's Food & Drug Centers, Inc., an indirect wholly-owned subsidiary of
Kroger, has also been sued by the same claimant in the State of Utah based upon
the same issues underlying the suit filed against us in July. At our expense,
our counsel is also defending Smith's in such action. Furthermore, we are
contractually bound to indemnify Kroger for any damages that it may incur in
connection with such suit.
Item 2. The registrant has nothing to report under this item.
Item 3. The registrant has nothing to report under this item.
Item 4. The registrant held its annual meeting of the shareholders on June 22,
2000. The following resolutions were adopted:
- --------------------------------------------------------------------------------
Resolution Votes For Votes Against Withheld
- --------------------------------------------------------------------------------
Election of a Director 7,934,575 5,884
- --------------------------------------------------------------------------------
Re-appointment of Price 7,950,355 5,984
WaterhouseCoopers as Auditors
- --------------------------------------------------------------------------------
Resolution to amend the 7,924,799 26,084
Corporations' Articles
- --------------------------------------------------------------------------------
Amendment to Corporation's By-Law 7,919,619 30,864
No. 1A
- --------------------------------------------------------------------------------
Amendment to Stock Option Plan 4,089,054 1,143,829
- --------------------------------------------------------------------------------
Item 5. The registrant has nothing to report under this item
Item 6.
(a) Exhibits - 27 Financial Data Schedule
(b) Reports on Form 8K - None
17
OPTIMAL ROBOTICS CORP.
Signatures
Pursuant to the requirements 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.
OPTIMAL ROBOTICS CORP.
Dated: July 25, 2000 By: /s/ Holden L. Ostrin
------------------------------------
Holden L. Ostrin
Co-Chairman
By: /s/ Gary S. Wechsler
------------------------------------
Gary S. Wechsler
Secretary, Treasurer and Chief
Financial Officer
18