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 quarterly period ended September 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 October 19, 2000, the registrant had 13,703,690 Class "A" shares (without
nominal or par value) outstanding.
Explanatory Information
The interim financial information as at June 30, 2000 and for the periods ended
June 30, 2000 have been restated to reflect previously unrecognized foreign
exchange gains related to short term investments denominated in currencies other
than the functional currency. This restatement resulted in an increase in net
earnings
PART I. FINANCIAL STATEMENTS
Item 1. Financial Statements
The financial statements required by item 1 are set forth on pages 3-13.
Optimal Robotics Corp.
(Unaudited)
Interim Financial Statements
September 30, 2000
(stated in United States dollars)
3
Optimal Robotics Corp.
Interim Balance Sheet
- -------------------------------------------------------------------------------
(stated in United States dollars, unless otherwise noted)
September 30, December 31,
2000 1999
$ $
(unaudited)
Assets
Current assets
Cash and U.S. Treasury bill, at cost 277,631 4,499,084
Short-term investments 70,378,565 24,636,606
Accounts receivable 21,629,045 4,641,566
Systems in transit 756,000 --
Inventory 13,164,456 3,363,943
Tax credits receivable 284,788 252,520
Future income taxes 2,212,799 3,012,997
Prepaid expenses 450,487 127,017
----------------------------
109,153,771 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 2,416,139 1,347,903
----------------------------
113,512,431 44,206,292
============================
Liabilities
Current liabilities
Accounts payable and accrued liabilities 7,609,528 3,659,189
Deferred revenue 1,140,266 592,271
Contract advance 250,000 250,000
----------------------------
8,999,794 4,501,460
============================
Shareholders' Equity
Share capital 107,035,914 44,657,833
Other capital 9,684 20,559
Cumulative translation adjustment (1,484,471) 652,062
Deficit (1,048,490) (5,625,622)
============================
104,512,637 39,704,832
----------------------------
113,512,431 44,206,292
============================
4
Optimal Robotics Corp.
Interim Statement of Earnings
(Unaudited)
- -------------------------------------------------------------------------------
(stated in United States dollars, unless otherwise noted)
Three months Nine months Three months Nine months
ended ended ended ended
September 30, September 30, September 30, September 30,
2000 2000 2000 2000
$ $ $ $
Revenues 20,300,510 48,427,768 10,686,086 22,799,610
Cost of sales 15,119,822 36,091,248 8,127,717 18,007,577
-------------------------------------------------------------
Gross margin 5,180,688 12,336,520 2,558,369 4,792,033
-------------------------------------------------------------
Research and development, net of
tax credits 175,915 523,800 66,448 177,404
Selling, general, administrative
and other expenses 3,035,155 6,535,590 1,289,917 3,667,662
Amortization of capital assets 262,162 664,522 101,135 222,487
Investment income (1,254,723) (2,801,770) (319,359) (549,284)
-------------------------------------------------------------
2,218,509 4,922,142 1,138,141 3,518,269
-------------------------------------------------------------
Earnings before income taxes 2,962,179 7,414,378 1,420,228 1,273,764
Provision for income taxes 1,133,626 2,837,246 -- --
-------------------------------------------------------------
Net earnings for the period 1,828,553 4,577,132 1,420,228 1,273,764
=============================================================
Net earnings per common share (note 6)
5
Optimal Robotics Corp.
Interim Statement of Deficit
(Unaudited)
- -------------------------------------------------------------------------------
(stated in United States dollars, unless otherwise noted)
Three months Nine months Three months Nine months
ended ended ended ended
September 30, September 30, September 30, September 30,
2000 2000 2000 2000
$ $ $ $
Deficit - Beginning of period (2,877,043) (5,625,622) (9,423,854) (9,277,390)
Net earnings for the period 1,828,553 4,577,132 1,420,228 1,273,764
----------------------------------------------------------
Deficit - End of period (1,048,490) (1,048,490) (8,003,626) (8,003,626)
==========================================================
6
Optimal Robotics Corp.
Interim Statement of Cash Flows
(Unaudited)
Nine-months ended September 30, 2000
- -------------------------------------------------------------------------------
(stated in United States dollars, unless otherwise noted)
2000 1999
$ $
Cash provided by (used in)
Operating activities
Net earnings for the period 4,577,132 1,273,764
Items not affecting cash
Amortization of capital assets 664,522 222,487
Unrealized foreign exchange loss (gain) on contract advance 5,948 (11,041)
Non-refundable tax credits (65,539) --
Future income taxes 2,837,246 --
Change in non-cash operating working capital items
Increase in accounts receivable (17,226,353) (6,324,270)
Increase in inventory and systems in transit (10,750,726) (952,678)
Increase in tax credits receivable (38,451) (5,662)
Increase in prepaid expenses (328,345) (72,765)
Increase in accounts payable and accrued liabilities 4,354,648 782,584
Increase in deferred revenue 573,564 1,150,223
----------------------------
(15,396,354) (3,937,358)
----------------------------
Financing activities
Issuance of common shares 65,324,182 25,453,562
Share issue costs (4,673,729) --
Repayment of loan under Employee Stock Purchase Agreement -- 17,593
Decrease in contract advance -- (125,000)
----------------------------
60,650,453 25,346,155
----------------------------
Investing activities
Purchase of capital assets (2,046,225) (488,645)
Increase in short-term investments (46,944,079) (18,196,067)
Repayment of loan receivable 14,782 --
----------------------------
(48,975,522) (18,684,712)
----------------------------
Increase (decrease) in cash and cash equivalents during the period (3,721,423) 2,724,085
Effect of foreign exchange fluctuations on cash and cash equivalents (500,030) (361,411)
Cash and cash equivalents - Beginning of period 4,499,084 538,490
----------------------------
Cash and cash equivalents - End of period 277,631 2,901,164
============================
Cash and cash equivalents is comprised of:
Cash 277,631 2,342,937
U.S. Treasury bill -- 558,227
----------------------------
277,631 2,901,164
============================
7
Optimal Robotics Corp.
Notes to Interim Financial Statements
(Unaudited)
September 30, 2000
- -------------------------------------------------------------------------------
1 Interim financial information
The financial information as at September 30, 2000 and for the periods
ended September 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 policies
Functional currency
During the third quarter of fiscal 2000, the company determined that its
functional currency had clearly changed from the Canadian dollar to the
U.S. dollar as at the beginning of the quarter. As a result of this change,
which has been applied prospectively from July 1, 2000, transactions
denominated in currencies other than the U.S. dollar are now translated
into U.S. dollars using the temporal method. Under this method, monetary
assets and liabilities are translated into U.S. dollars at the exchange
rate in effect on the balance sheet date. Non-monetary assets and
liabilities are translated into U.S. dollars at historical exchange rates.
Revenues and expenses are translated into U.S. dollars at the exchange
rates prevailing at the dates of the respective transactions. Gains and
losses resulting from translation of monetary assets and liabilities into
U.S. dollars are reflected in the statement of earnings.
Prior to July 1, 2000, the Company's functional currency was the Canadian
dollar. Accordingly, the financial statements were translated from Canadian
dollars into U.S. dollars using the current rate method. Gains and losses
resulting from translation of the financial statements were included in the
cumulative translation adjustment in shareholders' equity. The translated
amounts for non-monetary items as at June 30, 2000 becomes the historical
basis for those items in subsequent periods.
3 Inventory
September 30, December 31,
2000 1999
$ $
Replacement parts 7,596,303 2,763,261
U-Scan(R)systems 3,528,000 600,682
Parts and staging units 2,040,153 --
----------------------------
13,164,456 3,363,943
============================
8
Optimal Robotics Corp.
Notes to Interim Financial Statements
(Unaudited)
September 30, 2000
- -------------------------------------------------------------------------------
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).
On June 22, 2000, the Board of Directors amended the Company's stock option
plan in order to increase the number of common shares that may be issued
pursuant to the plan from 3,000,000 to 6,000,000. On July 29, 2000, the
Company granted, to various employees, officers and directors, options to
purchase 1,370,500 at an exercise price of $25.25 per common share.
During the nine-month period ended September 30, 2000, 573,500 options with
a weighted average exercise price of $3.08, and 70,769 warrants with a
weighted average exercise price of $2.85 were exercised for a total cash
consideration of $1,966,363.
5 Research and development
Three months Nine months Three months Nine months
ended ended ended ended
September 30, September 30, September 30, September 30,
2000 2000 1999 1999
$ $ $ $
Research and development
expenses 219,915 664,119 102,832 286,478
Tax credits earned (44,000) (140,319) (36,384) (109,074)
-----------------------------------------------------------
175,915 523,800 66,448 177,404
===========================================================
9
Optimal Robotics Corp.
Notes to Interim Financial Statements
(Unaudited)
September 30, 2000
- -------------------------------------------------------------------------------
6 Net earnings per common share
Three months Nine months Three months Nine months
ended ended ended ended
September 30, September 30, September 30, September 30,
2000 2000 1999 1999
$ $ $ $
Weighted average number of
common shares
outstanding 13,677,286 12,894,858 10,784,114 9,212,360
-------------------------------------------------------------------------
Basic net earnings per
common share 0.13 0.35 0.13 0.14
-------------------------------------------------------------------------
Fully diluted net earnings
per common share 0.13 0.34 0.12 0.14
-------------------------------------------------------------------------
Tax adjusted net earnings
per common share(1)
Basic 0.13 0.35 0.08 0.09
-------------------------------------------------------------------------
Fully diluted 0.13 0.34 0.07 0.09
-------------------------------------------------------------------------
(1) The 1999 earnings per common share have been adjusted to reflect the impact
of having applied the statutory corporate tax rates.
Basic net earnings per common share
The basic net earnings per common share have been calculated on the weighted
average number of shares outstanding.
Fully diluted net earnings per common share
Fully diluted net earnings per share have been determined using the weighted
average number of common shares plus any dilutive common share equivalents
outstanding during the period. Net earnings for the period are increased by the
estimated additional earnings on the proceeds from the exercise of dilutive
common share equivalents.
10
Optimal Robotics Corp.
Notes to Interim Financial Statements
(Unaudited)
September 30, 2000
- -------------------------------------------------------------------------------
7 Other information
During the nine-month period ended September 30, 2000, the Company entered
into operating leases expiring through September 30, 2005 for additional
office and warehouse space. The additional minimum annual rentals required
under these leases in each of the years ending December 31 are as follows:
$
2001 276,780
2002 379,949
2003 278,198
2004 162,712
2005 58,896
---------
1,156,535
=========
8 Additional disclosures required by U.S. GAAP and differences between
Canadian GAAP and U.S. GAAP
Statement of earnings
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.
Under U.S. GAAP, diluted earnings per share are calculated using the
treasury stock method.
11
Optimal Robotics Corp.
Notes to Interim Financial Statements
(Unaudited)
September 30, 2000
- -------------------------------------------------------------------------------
Three months Nine months Three months Nine months
ended ended ended ended
September 30, September 30, September 30, September 30,
2000 2000 1999 1999
$ $ $ $
Net earnings for the period
in accordance with
Canadian GAAP 1,828,553 4,577,132 1,420,228 1,273,764
Stock-based compensation
costs (25,816) (18,967,181) (603,839) (2,310,584)
-----------------------------------------------------------------
Net earnings (loss) for the
period in accordance
with U.S. GAAP 1,802,737 (14,390,049) 816,389 (1,036,820)
Other comprehensive income
Foreign currency
translation
adjustments -- (2,136,533) 35,846 184,571
=================================================================
Comprehensive income (loss) 1,802,737 (16,526,582) 852,235 (852,249)
=================================================================
Weighted average number of
common shares
outstanding 13,677,286 12,894,858 10,784,114 9,212,360
=================================================================
Basic net earnings (loss)
per common share 0.13 (1.12) 0.08 (0.11)
=================================================================
Diluted net earnings (loss)
per common share 0.12 (1.12) 0.07 (0.11)
=================================================================
During the three-month period ended September 30, 2000, there were no
elements of other comprehensive income.
Three months Nine months Three months Nine months
ended ended ended ended
September 30, September 30, September 30, September 30,
2000 2000 1999 1999
$ $ $ $
Operating lease expense 216,866 410,481 65,848 174,298
=====================================================
12
Optimal Robotics Corp.
Notes to Interim Financial Statements
(Unaudited)
September 30, 2000
- -------------------------------------------------------------------------------
September 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 107,035,914 149,081,602 44,657,833 62,342,671
Other capital 9,684 7,522,013 20,559 12,911,604
Deficit (1,048,490) (49,072,745) (5,625,622) (34,682,696)
Cumulative translation
adjustment (1,484,471) -- 652,062 --
Accumulated other
comprehensive
income -- (3,018,233) -- (881,700)
---------------------------------------------------------------
104,512,637 104,512,637 39,704,832 39,689,879
===============================================================
(1) During the nine-month period ended September 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.
13
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 Nine Months of 2000 compared with First Nine Months 1999
Total revenue increased by $25,628,158 or 112% from $22,799,610 in 1999 to
$48,427,768 in 2000. In 2000, the Company sold 469 U-Scan(R) systems, compared
with 224 systems in 1999.
Total cost of sales increased by $18,083,671 or 100%, from $18,007,577 in 1999
to $36,091,248 in 2000. Overall gross margin as a percentage of sales increased
from 21% in 1999 to 25% in 2000. This increase resulted primarily from economies
of scale realized and the reduction of installation costs.
Net research and development expenses increased by $346,396, or 195%, from 1999
to 2000. As a percentage of sales, research and development expenses remained
unchanged at 1% from 1999 to 2000.
Selling, general and administrative and other expenses increased by $2,867,928,
or 78% in 2000 over 1999. As a percentage of sales, these expenses decreased
from 16% in 1999 to 13% in 2000. This decrease resulted from the substantial
increase in the number of U-Scan(R) systems sold in 2000 as compared to 1999.
Third Quarter of 2000 Compared with Third Quarter of 1999
Total revenues increased by $9,614,424, or 90%, from $10,686,086 in 1999 to
$20,300,510 in 2000. Sales of U-Scan(R) systems grew from 105 systems in 1999 to
196 systems in 2000.
Total cost of sales increased by $6,992,105, or 86%, from $8,127,717 in 1999 to
$15,119,822 in 2000. Overall gross margin increased as a percentage of sales
from 24% in 1999 to 26% in 2000.
Net research and development expenses increased by $109,467, or 165%, from 1999
to 2000. As a percentage of sales, research and development expenses remained
unchanged at 1% in 1999 and 2000.
14
OPTIMAL ROBOTICS CORP.
Selling, general, administrative and other expenses increased by $1,745,238, or
135% in 2000 compared to the second quarter of 1999. As a percentage of sales,
these expenses increased from 12% in 1999 to 15% in 2000. This increase is the
result of increased marketing efforts and the continuing growth of the
Plattsburgh operation.
Liquidity and Capital Resources
As of September 30, 2000, the Company had working capital of $100,153,977, which
included cash, cash equivalents and investment grade commercial paper of
$70,656,196. Operating activities for the first nine months of 2000 used
$15,396,354 as compared with $3,937,358 in 1999. The Company believes that it
has sufficient working capital to meet its needs for the next 12 months.
Inventory increased by $9,800,513 during the nine-month period ended September
30, 2000. As of September 30, 2000 the Company had parts and staging units of
$2,040,153, in preparation of assuming the assembly function of our products as
of January 1, 2001. Replacement parts inventory increased by $4,833,042 during
this period to accommodate the servicing of the Company's expanding installed
base. Our U-Scan(R) systems inventory has increased by $2,927,318, as a result
of purchases made at the end of September for delivery in the fourth quarter.
In the first nine months of 2000, the Company had capital expenditures of
$2,046,225, principally relating to leasehold improvements, and the acquisition
of computer equipment, furniture and fixtures 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, after deducting underwriting commissions and other
expenses of $2,957,000 (net of future income taxes of $1,774,000).
On June 22, 2000, the Board of Directors amended the Company's stock option plan
in order to increase the number of common shares that may be issued pursuant to
the plan from 3,000,000 to 6,000,000. On July 29, 2000, the Company granted, to
various employees, officers and directors, options to purchase 1,370,500 at an
exercise price of $25.25 per common share.
During the nine-month period ended September 30, 2000, 573,500 options with a
weighted average exercise price of $3.08, and 70,769 warrants with a weighted
average exercise price of $2.85 were exercised for a total cash consideration of
$1,966,363.
The Company maintains an operating line of credit in the amount of $500,000 CAD
with its banker.
15
OPTIMAL ROBOTICS CORP.
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.
16
OPTIMAL ROBOTICS CORP.
Item 3: Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes since December 31, 1999.
17
OPTIMAL ROBOTICS CORP.
PART II. OTHER INFORMATION
Item 1. 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.
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 has nothing to report under this item.
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
18
OPTIMAL ROBOTICS CORP.
Signature
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: October 24, 2000 By: /s/ Holden L. Ostrin
--------------------------------------------
Holden L. Ostrin
Co-Chairman
By: /s/ Gary S. Wechsler
-------------------------------------------
Secretary, Treasurer and Chief
Financial Officer
19