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 March 31, 2001
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 April 17, 2001, the registrant had 13,976,110 Class "A" shares (without
nominal or par value) outstanding.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Optimal Robotics Corp.
Interim Consolidated Balance Sheet
(stated in United States dollars, unless otherwise noted)
As at As at
March 31, December 31,
2001 2000
$ $
(unaudited)
Assets
Current assets
Cash 9,973,018 5,006,982
Short-term investments 65,927,691 71,141,910
Accounts receivable
Trade, net of allowance for doubtful accounts of nil 17,538,033 8,287,492
Other 897,732 2,197,525
Inventories 19,636,789 16,725,885
Tax credits receivable 279,682 323,788
Future income taxes 790,472 2,420,718
Prepaid expenses 825,595 327,039
----------------------------
115,869,012 106,431,339
Loans receivable 125,934 125,934
Future income taxes 1,462,227 1,462,227
Capital assets 3,761,426 3,253,148
----------------------------
121,218,599 111,272,648
============================
Liabilities
Current liabilities
Accounts payable and accrued liabilities 9,453,223 6,492,371
Deferred revenue 2,764,378 34,695
----------------------------
12,217,601 6,527,066
----------------------------
Shareholders' Equity
Share capital 108,791,294 107,050,914
Other capital 5,282 9,684
Retained earnings (deficit) 1,688,893 (830,545)
Cumulative translation adjustment (1,484,471) (1,484,471)
----------------------------
109,000,998 104,745,582
----------------------------
121,218,599 111,272,648
============================
The accompanying notes are an integral part
of the consolidated financial statements.
Optimal Robotics Corp.
Interim Consolidated Statement of Operations
(Unaudited) For the three months ended March 31,
(stated in United States dollars, unless otherwise noted)
2001 2000
$ $
Revenues 19,607,998 12,004,159
Cost of sales 12,271,007 9,014,103
-------------------------
Gross margin 7,336,991 2,990,056
-------------------------
Research and development, net of tax credits 330,004 110,079
Selling, general, administrative and other expenses 3,417,893 1,886,887
Operating lease expense 206,352 81,477
Amortization of capital assets 297,675 139,379
Investment income (1,056,511) (363,325)
-------------------------
3,195,413 1,854,497
-------------------------
Earnings before income taxes 4,141,578 1,135,559
Provision for future income taxes 1,622,140 434,341
-------------------------
Net earnings for the period 2,519,438 701,218
=========================
Weighted average number of common shares outstanding
Basic 13,807,141 11,455,270
Addition to reflect the impact of dilutive
potential common shares using the treasury stock method 1,277,064 1,114,286
-------------------------
Diluted 15,084,205 12,569,556
=========================
Net earnings per common share
Basic 0.18 0.06
Diluted 0.17 0.06
The accompanying notes are an integral part
of the consolidated financial statements.
Optimal Robotics Corp.
Interim Consolidated Statement of Retained Earnings (Deficit)
(Unaudited) For the three months ended March 31,
(stated in United States dollars, unless otherwise noted)
2001 2000
$ $
Deficit - Beginning of period (830,545) (5,625,622)
Net earnings for the period 2,519,438 701,218
-------------------------
Retained earnings (deficit) - End of period 1,688,893 (4,924,404)
=========================
The accompanying notes are an integral part
of the consolidated financial statements.
Optimal Robotics Corp.
Interim Consolidated Statement of Cash Flows
(Unaudited) For the three months ended March 31,
(stated in United States dollars, unless otherwise noted)
2001 2000
$ $
Cash flows provided by (used for)
Operating activities
Net earnings for the period 2,519,438 701,218
Items not affecting cash
Amortization of capital assets 297,675 139,379
Unrealized foreign exchange loss 121,768 912
Non-refundable tax credits (113,662) --
Future income taxes 1,622,140 434,341
Loss on securitization of trade accounts receivable 24,424 --
Change in non-cash operating working capital items
Increase in trade accounts receivable (12,313,872) (6,282,611)
Proceeds on securitization of trade accounts receivable 3,038,907 --
Decrease (increase) in other accounts receivable 1,299,793 (128,578)
Increase in inventories (2,910,904) (1,215,753)
Decrease (increase) in tax credits receivable 44,106 (96,319)
Increase in prepaid expenses (498,556) (96,641)
Increase in accounts payable and accrued liabilities 2,960,852 3,151,743
Increase in deferred revenue 2,729,683 179,421
------------------------
(1,178,208) (3,212,888)
------------------------
Financing activities
Advance from broker -- 2,835,629
Issuance of common shares 1,735,978 142,436
Deferred share issue costs -- (3,448,268)
------------------------
1,735,978 (470,203)
------------------------
Investing activities
Purchase of capital assets (805,953) (584,839)
Decrease in short-term investments 5,214,219 660,636
------------------------
4,408,266 75,797
------------------------
Increase (decrease) in cash during the period 4,966,036 (3,607,294)
Effect of exchange rate changes on cash -- (8,622)
Cash - Beginning of period 5,006,982 4,499,084
------------------------
Cash - End of period 9,973,018 883,168
========================
The accompanying notes are an integral part
of the consolidated financial statements.
Optimal Robotics Corp.
Notes to Interim Consolidated Financial Statements
(Unaudited) March 31, 2001
(stated in United States dollars, unless otherwise noted)
1 Interim financial information
The financial information as at March 31, 2001 and for the three-month
periods ended March 31, 2001 and 2000 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.
The disclosures in these interim financial statements do not conform in all
respects to the requirements of generally accepted accounting principles
for annual financial statements; therefore, these interim financial
statements should be read in conjunction with the annual financial
statements for the year ended December 31, 2000. These interim financial
statements follow the same accounting policies and methods of their
application as the annual financial statements for the year ended December
31, 2000, except for the change in accounting policy with respect to
earnings per share, as described in note 2.
2 Accounting policies
Foreign currency translation
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 was 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 operations.
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 became the historical
basis for those items in subsequent periods.
Earnings per share
During the first quarter of fiscal 2001, the Company adopted the new
recommendations of the Canadian Institute of Chartered Accountants with
respect to the calculation of earnings per share. These new recommendations
do not result in any changes to the way in which basic net earnings per
share is calculated. However, the new recommendations do affect the
calculation of diluted net earnings per share.
Optimal Robotics Corp.
Notes to Interim Consolidated Financial Statements
(Unaudited) March 31, 2001
(stated in United States dollars, unless otherwise noted)
Diluted net earnings per share is now calculated based on the weighted
average number of common shares outstanding during the period, plus the
effects of dilutive potential common shares, such as options and warrants,
outstanding during the period. This method requires that diluted net
earnings per share be calculated using the treasury stock method, as if all
dilutive potential common shares had been exercised at the later of the
beginning of the reporting period or date of issuance, and that the funds
obtained thereby were used to purchase common shares of the Company at the
average trading price of the common shares during the period.
This change, which has been applied retroactively, did not result in any
change in diluted net earnings per share for the three months ended March
31, 2000.
3 Research and development
Three months ended March 31,
----------------------------
2001 2000
$ $
Research and development expenses 399,560 206,398
Tax credits (69,556) (96,319)
-------------------------
330,004 110,079
=========================
4 Accounts receivable
In fiscal 2000, the Company entered into an agreement with a Canadian
chartered bank which provides the Company with the right to sell designated
accounts receivable to the bank on a non-recourse basis. During the first
quarter of fiscal 2001, the Company sold accounts receivable with an
aggregate carrying value of $3,063,331, for net proceeds amounting to
$3,038,907. The excess of the carrying value over the net proceeds on
securitization of these accounts receivable of $24,424 has been charged to
interest expense in 2001.
5 Inventories
March 31, December 31,
2001 2000
$ $
Finished goods 2,021,239 3,543,262
Work in process 2,210,525 589,424
Raw materials 5,991,263 3,657,967
Replacement parts 9,413,762 8,935,232
-----------------------
19,636,789 16,725,885
=======================
Optimal Robotics Corp.
Notes to Interim Consolidated Financial Statements
(Unaudited) March 31, 2001
(stated in United States dollars, unless otherwise noted)
6 Contingency
In each of 1995 and 1996, the Company received demand letters from the same
claimant alleging patent infringement. In June 1999, this same claimant
filed a civil action alleging patent infringement in the United States
District Court for the District of Utah against the Company and PSC Inc.,
one of the Company's suppliers. In addition, a similar suit has been filed
in the State of Utah against one of the Company's customers. At the
Company's expense, the Company's legal counsel is defending this suit. The
Company is also retroactively bound to indemnify the customer for any
damages it incurs in connection with such suit. The Company also received a
lawyer's letter from another party in 1999 alleging infringement of another
patent. The Company believes these claims to be without merit and intends
to vigorously defend its position. Consequently, no provision has been made
in these financial statements with respect to the above claims.
7 Capital stock
During the three months ended March 31, 2001, the Company issued 14,000
common shares pursuant to the exercise of stock options with exercise
prices ranging between $3.00 and $12.875 per share and 253,420 common
shares pursuant to the exercise of warrants at an exercise price of $6.60
per share. Total proceeds from the issuance of these shares amounted to
$1,735,978.
8 Additional disclosures required by U.S. GAAP and differences between
Canadian GAAP and U.S. GAAP
Statement of operations
For stock-based compensation plans with employees, the Company has chosen
to use the intrinsic value method which requires compensation costs 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. Certain of the Company's stock options are variable
because the exercise price is not known until the options are exercised. As
a result, compensation cost is measured on the date the options are
exercised.
Under Canadian GAAP, compensation expense is not recognized.
Optimal Robotics Corp.
Notes to Interim Consolidated Financial Statements
(Unaudited) March 31, 2001
(stated in United States dollars, unless otherwise noted)
Three months ended March 31,
----------------------------
2001 2000
$ $
Net earnings for the period in accordance with Canadian GAAP 2,519,438 701,218
Stock-based compensation costs (14,008,625) (134,331)
-----------------------
Net earnings (loss) for the period in accordance with U.S. GAAP (11,489,187) 566,887
Other comprehensive income
Foreign currency translation adjustments -- (145,893)
-----------------------
Comprehensive income (loss) (11,489,187) 420,994
-----------------------
Basic and diluted net earnings (loss) per common share (0.83) 0.05
-----------------------
Balance sheet
March 31, December 31,
2001 2000
----------------------------- -----------------------------
As reported U.S. GAAP As reported U.S. GAAP
$ $ $ $
Shareholders' equity
Share capital 108,791,294 151,010,107 107,050,914 149,269,727
Other capital 5,282 21,286,490 9,684 7,282,267
Retained earnings (deficit) 1,688,893 (60,277,366) (830,545) (48,788,179)
Cumulative translation adjustment (1,484,471) -- (1,484,471) --
Accumulated other comprehensive
loss -- (3,018,233) -- (3,018,233)
------------------------------------------------------------
109,000,998 109,000,998 104,745,582 104,745,582
============================================================
New accounting standards
In September 2000, FASB issued SFAS 140, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities". SFAS 140, which
replaces SFAS 125, revises the accounting standards for securitizations and
other transfers of financial assets and collateral and requires certain
additional disclosures. SFAS 140 is effective for securitizations and other
transfers occurring after March 31, 2001. The Company expects the impacts of
this new standard to be insignificant.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following discussion and analysis of the Company's results of
operations and financial condition 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.
Results of Operations
First Three Months of 2001 Compared with First Three Months of 2000
Total revenues increased by $7,604,000, or 63%, from 2000 to 2001, due to a
significant increase in orders from existing customers and the addition of new
customers. We delivered 797 U-Scan(R) self-checkout terminals, or 200 U-Scan
systems, in the quarter, an increase of 74% from 460 U-Scan self-checkout
terminals, or 115 U-Scan systems, delivered in the first quarter of 2000. This
increase produced $6,984,000 of additional systems revenue, an increase of 61%.
Service contract revenue recognized for hardware and software maintenance
increased by $620,000, or 110%, as a result of the increased number of customers
that entered into service contracts with us after purchasing U-Scan systems.
Total cost of sales increased by $3,257,000, or 36%, from 2000 to 2001.
Overall gross margin increased as a percentage of revenue from 25% in 2000 to
37% in 2001, primarily representing the increase in gross margins on system
revenue. This increase resulted mainly from the fact that commencing January 1,
2001 we began to assemble and deliver all of our U-Scan systems from our
facility in Plattsburgh, New York.
Gross research and development expenses increased by $193,000, or 94%, from
2000 to 2001. As a percentage of total revenues, gross research and development
expenses was 2%. Research and development expenses during the period related to
continued enhancements of our product lines.
Selling, general, administrative and other expenses (including operating
lease expenses) increased by $1,656,000, or 84%, in 2001 compared to 2000. As a
percentage of total revenues, these expenses increased from 16% in 2000 to 18%
in 2001. During the first quarter of 2001, we continued to expand sales and
marketing efforts and hired additional personnel as our backlog continued to
increase. In addition, we incurred increased costs during the first quarter of
2001 in the following two areas: engineering, related to the design, development
and early phase commercial production of new casings for the U-Scan Carousel(TM)
systems; and the make-ready program initiated at our
Phoenix, Arizona facility
in connection with the commencement of system assembly at this facility.
Financial Condition
Accounts Receivable
Accounts receivable at March 31, 2001 were $18,436,000 (December 31, 2000 -
$10,485,000), of which $17,538,000 (December 31, 2000 - $8,287,000) was trade
accounts receivable. This increase is due primarily to a significant number of
U-Scan systems being sold in the last 45 days of the period ended March 31,
2001.
During the first three months of 2001, certain designated accounts
receivable were sold, on a non-recourse basis, to a Canadian chartered bank.
These receivables had an aggregate carrying value of $3,063,000 for which the
Company received net proceeds of $3,039,000.
Calculated in accordance with common industry practice, the Company's days
outstanding of accounts receivable ("DSO's") as at March 31, 2001 were 60 days.
If the Company had not sold certain designated accounts receivable, DSO's would
have been 80 days.
Inventory
The total inventory position at March 31, 2001 was $19,637,000 (December
31, 2000 - $16,726,000). This increase is mainly attributable to increases in
work in process and raw materials in order to provide for deliveries in the
second quarter of 2001.
Future Income Taxes
Current future income taxes at March 31, 2001 were $790,000 as compared to
$2,421,000 at December 31, 2000, a decrease of $1,631,000. This decrease is
attributable to the utilization of a substantial portion of our future income
tax assets to reduce taxable income for the first quarter of 2001.
Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities increased by $2,961,000 from
$6,492,000 at December 31, 2000 to $9,453,000 at March 31, 2001. This increase
is primarily due to the purchase of inventories.
Deferred Revenue
Deferred revenue increased by $2,729,000 from $35,000 at December 31, 2000
to $2,764,000 at March 31, 2001. This increase is due to hardware and software
maintenance contracts being invoiced at the beginning of the year whereas the
associated revenue is recognized over the term of the contract.
Liquidity and Capital Resources
As of March 31, 2001, the Company had cash and short-term investments of
$75,901,000 (December 31, 2000 - $76,149,000) and working capital of
$103,651,000 (December 31, 2000 - $99,904,000).
Operating activities used $1,178,000 in the first three months of 2001 as
compared to $3,213,000 for the first three months of 2000. In the first three
months of 2001, the Company issued 267,420 (2000 - 25,692) common shares
pursuant to the exercise of options and warrants which resulted in cash proceeds
of $1,736,000 (2000 - $142,000).
In the first three months of 2001, the Company had capital expenditures of
$806,000 (2000 - $585,000), principally relating to leasehold improvements, test
systems and computer hardware.
The Company believes that its cash and short term investments will be
adequate to meet its liquidity needs for at least the next 12 months.
Item 3. There have been no material changes since December 31, 2000.
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 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 former assembler of U-Scan,
alleging patent infringement. A second party also sent a demand letter to us in
1999, and again in February 2001, 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.
A 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 1999.
At our expense, our counsel is also defending the subsidiary of Kroger 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.
Items 3. through 5. The registrant has nothing to report under these items.
Item 6.
(a) Exhibits - Not applicable.
(b) Reports on Form 8K - One report on Form 8K was filed on February 1, 2001
relating to press releases announcing customer orders.
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: April 24, 2001 By: /s/ Holden L. Ostrin
---------------------------------------
Holden L. Ostrin
Co-Chairman
By: /s/ Gary S. Wechsler
---------------------------------------
Gary S. Wechsler
Treasurer and Chief Financial
Officer