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, 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 October 23, 2001, the registrant had 15,471,335 Class "A" shares (without
nominal or par value) outstanding.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Financial Statements of
(Unaudited)
OPTIMAL ROBOTICS CORP.
Periods ended September 30, 2001 and 2000
(expressed in US dollars)
- 2 -
OPTIMAL ROBOTICS CORP.
Consolidated Financial Statements
(Unaudited)
Periods ended September 30, 2001 and 2000
(expressed in US dollars)
Financial Statements
Consolidated Balance Sheets........................................... 4
Consolidated Statements of Operations................................. 5
Consolidated Statements of Retained Earnings (Deficit)................ 6
Consolidated Statements of Cash Flows................................. 7
Notes to Consolidated Financial Statements............................ 8
- 3 -
OPTIMAL ROBOTICS CORP.
Consolidated Balance Sheets
(Unaudited)
September 30, 2001 and December 31, 2000
(expressed in US dollars, unless otherwise noted)
=============================================================================================
September 30, December 31,
2001 2000
---------------------------------------------------------------------------------------------
(Unaudited) (Audited)
Assets
Current assets:
Cash $ 12,346,046 $ 5,006,982
Short-term investments 75,746,623 71,141,910
Accounts receivable:
Trade, net of allowance for doubtful accounts of
$359,000 (nil at December 31, 2000) 31,249,211 8,287,492
Other 293,368 2,197,525
Inventories (note 4) 21,684,980 16,725,885
Tax credits receivable 429,682 323,788
Future income taxes 133,520 2,420,718
Prepaid expenses and deposits 935,962 327,039
---------------------------------------------------------------------------------------------
142,819,392 106,431,339
Loans receivable 125,934 125,934
Capital assets 4,967,648 3,253,148
Goodwill (note 3) 2,348,965 --
Future income taxes 1,322,328 1,462,227
---------------------------------------------------------------------------------------------
$ 151,584,267 $ 111,272,648
=============================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 9,232,735 $ 6,492,371
Income taxes payable 4,780,222 --
Deferred revenue 2,086,551 34,695
---------------------------------------------------------------------------------------------
16,099,508 6,527,066
Shareholders' equity:
Share capital (note 5) 126,476,633 107,050,914
Other capital 5,282 9,684
Retained earnings (deficit) 10,487,315 (830,545)
Cumulative translation adjustment (1,484,471) (1,484,471)
---------------------------------------------------------------------------------------------
135,484,759 104,745,582
Contingency (note 6)
---------------------------------------------------------------------------------------------
$ 151,584,267 $ 111,272,648
=============================================================================================
See accompanying notes to unaudited consolidated financial statements.
- 4 -
OPTIMAL ROBOTICS CORP.
Consolidated Statements of Operations
(Unaudited)
Periods ended September 30, 2001 and 2000
(expressed in US dollars)
=============================================================================================================
Three months ended Nine months ended
September 30, September 30,
------------------------------- -------------------------------
2001 2000 2001 2000
-------------------------------------------------------------------------------------------------------------
Revenues $ 33,757,420 $ 20,300,510 $ 84,450,156 $ 48,427,768
Cost of sales 20,717,808 15,119,822 52,322,942 36,091,248
-------------------------------------------------------------------------------------------------------------
Gross margin 13,039,612 5,180,688 32,127,214 12,336,520
Selling, general and
administrative expenses 5,089,465 2,818,289 13,052,926 6,125,109
Research and development
expenses (note 7) 63,239 175,915 820,811 523,800
Operating lease expense 332,612 216,866 816,861 410,481
Amortization 408,650 262,162 1,074,848 664,522
Investment income (663,124) (1,254,723) (2,528,549) (2,801,770)
-------------------------------------------------------------------------------------------------------------
5,230,842 2,218,509 13,236,897 4,922,142
-------------------------------------------------------------------------------------------------------------
Earnings before income taxes 7,808,770 2,962,179 18,890,317 7,414,378
Provision for income taxes 3,258,229 1,133,626 7,572,457 2,837,246
-------------------------------------------------------------------------------------------------------------
Net earnings $ 4,550,541 $ 1,828,553 $ 11,317,860 $ 4,577,132
=============================================================================================================
Weighted average number of shares:
Basic 15,268,386 13,677,286 14,446,265 12,894,858
Add effect of dilution using
treasury stock method 1,148,038 1,233,868 1,120,505 1,467,420
-------------------------------------------------------------------------------------------------------------
Diluted 16,416,424 14,911,154 15,566,770 14,362,278
=============================================================================================================
Earnings per share:
Basic $ 0.30 $ 0.13 $ 0.78 $ 0.35
Diluted 0.28 0.12 0.73 0.32
=============================================================================================================
See accompanying notes to unaudited consolidated financial statements.
- 5 -
OPTIMAL ROBOTICS CORP.
Consolidated Statements of Retained Earnings (Deficit)
(Unaudited)
Periods ended September 30, 2001 and 2000
(expressed in US dollars)
===================================================================================================
Three months ended Nine months ended
September 30, September 30,
---------------------------- ------------------------------
2001 2000 2001 2000
---------------------------------------------------------------------------------------------------
Retained earnings (deficit),
beginning of period $ 5,936,774 $(2,877,043) $ (830,545) $(5,625,622)
Net earnings 4,550,541 1,828,553 11,317,860 4,577,132
---------------------------------------------------------------------------------------------------
Retained earnings (deficit),
end of period $10,487,315 $(1,048,490) $ 10,487,315 $(1,048,490)
===================================================================================================
See accompanying notes to unaudited consolidated financial statements.
- 6 -
OPTIMAL ROBOTICS CORP.
Consolidated Statements of Cash Flows
(Unaudited)
Periods ended September 30, 2001 and 2000
(expressed in US dollars)
===================================================================================================================
Three months ended Nine months ended
September 30, September 30,
------------------------------- -------------------------------
2001 2000 2001 2000
-------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net earnings $ 4,550,541 $ 1,828,553 $ 11,317,860 $ 4,577,132
Adjustments for:
Amortization 408,650 262,162 1,074,848 664,522
Unrealized foreign exchange
gain on contract advance -- -- -- 5,948
Non-refundable tax credits -- (26,000) -- (65,539)
Future income taxes 137,755 1,133,626 2,427,097 2,837,246
Loss on securitization of trade
accounts receivable -- 24,424 --
Changes in operating assets and
liabilities:
Trade and other receivables (1,774,837) (6,520,052) (22,733,788) (17,226,353)
Proceeds on securitization
of trade accounts receivable -- -- 3,038,907 --
Inventories (357,139) (1,251,524) (3,704,550) (10,750,726)
Tax credits receivable (75,000) (18,000) (105,894) (38,451)
Prepaid expenses and deposits (20,278) (172,477) (466,540) (328,345)
Accounts payable and
accrued liabilities (3,623,299) 318,438 (1,176,249) 4,354,648
Income taxes payable 2,747,228 -- 4,780,222 --
Deferred revenue (1,089,493) (387,427) 1,020,471 573,564
-------------------------------------------------------------------------------------------------------------------
904,128 (4,832,701) (4,503,192) (15,396,354)
Cash flows from financing activities:
Proceeds from issuance of common
shares 15,950,056 190,160 19,421,317 65,324,182
Share issue costs -- -- -- (4,673,729)
----------------------------------------------------------------------------------------------------------------
15,950,056 190,160 19,421,317 60,650,453
Cash flows from investing activities:
Purchase of capital assets (586,465) (710,684) (1,833,348) (2,046,225)
Business acquisition -- -- (1,141,000) --
(Increase) decrease in short-term
investments (9,048,859) 4,456,457 (4,604,713) (46,944,079)
Repayment of loan receivable -- -- -- 14,782
----------------------------------------------------------------------------------------------------------------
(9,635,324) 3,745,773 (7,579,061) (48,975,522)
-------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash during the
period 7,218,860 (896,768) 7,339,064 (3,721,423)
Effect of foreign exchange fluctuations
on cash -- -- -- (500,030)
Cash, beginning of period 5,127,186 1,174,399 5,006,982 4,499,084
-------------------------------------------------------------------------------------------------------------------
Cash, end of period $ 12,346,046 $ 277,631 $ 12,346,046 $ 277,631
===================================================================================================================
See accompanying notes to unaudited consolidated financial statements.
- 7 -
OPTIMAL ROBOTICS CORP.
Notes to Consolidated Financial Statements
(Unaudited)
Periods ended September 30, 2001 and 2000
(expressed in US dollars)
================================================================================
1. Interim financial information:
The financial information as at September 30, 2001 and for the periods
ended September 30, 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.
These financial statements have been prepared in accordance with the
recommendations of the Canadian Institute of Chartered Accountants for
interim reporting. The disclosures in these interim consolidated financial
statements do not conform in all aspects to the requirements of Canadian
generally accepted accounting principles for annual financial statements;
therefore, these interim consolidated financial statements should be read
in conjunction with the annual consolidated financial statements for the
year ended December 31, 2000. These interim consolidated financial
statements follow the same accounting policies and methods of their
application as the annual consolidated 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 (b).
2. Significant accounting policies:
(a) 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 US dollar. As a result of this change, which was applied
prospectively from July 1, 2000, transactions denominated in
currencies other than the US dollar are translated into US dollars
using the temporal method. Under this method, monetary assets and
liabilities are translated into US dollars at the exchange rate in
effect on the balance sheet date. Non-monetary assets and liabilities
are translated into US dollars at historical exchange rates. Revenues
and expenses are translated into US 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 US dollars are reflected in the statement of operations. The
translated amounts for non-monetary items as at June 30, 2000 became
the historical basis for those items in subsequent periods.
Prior to July 1, 2000, the Company's functional currency was the
Canadian dollar. However, the Company adopted the US dollar as its
reporting currency effective December 31, 1998. Accordingly, the
financial statements, since December 31, 1998, have been translated
from Canadian dollars into US 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.
- 8 -
OPTIMAL ROBOTICS CORP.
Notes to Consolidated Financial Statements
(Unaudited)
Periods ended September 30, 2001 and 2000
(expressed in US dollars)
================================================================================
2. Significant accounting policies (continued):
(b) 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 did not result in any changes to the way in which
basic net earnings per share are calculated. However, the new
recommendations substantially eliminate the differences between
Canadian and US generally accepted accounting principles in the
calculation of diluted earnings per share.
The new standard requires that the treasury stock method be used for
calculating diluted earnings per share. Diluted earnings per share are
computed in a manner consistent with basic earnings per share except
that the weighted average shares outstanding are increased to include
additional shares from the assumed exercise of options and warrants,
if dilutive. The number of additional shares is calculated by assuming
that outstanding options and warrants were exercised and that the
proceeds from such exercises were used to acquire common shares.
Previously, diluted earnings per share were calculated on the
assumption that stock options which are dilutive are exercised at the
beginning of the year, or the date granted if later, and the funds
derived therefrom are invested at the Company's annual after tax cost
of short-term financing. Under this method, the net earnings available
to shareholders would be adjusted for this imputed interest.
This change, which has been applied retroactively, resulted in the
following changes in diluted net earnings per share for the three and
nine-month periods ended September 30, 2000.
======================================================================
Periods ended September 30, 2000
----------------------------------------------------------------------
(3 months) (9 months)
As previously reported $ 0.13 $ 0.34
Restated 0.12 0.32
======================================================================
- 9 -
OPTIMAL ROBOTICS CORP.
Notes to Consolidated Financial Statements
(Unaudited)
Periods ended September 30, 2001 and 2000
(expressed in US dollars)
================================================================================
3. Business acquisition:
On May 29, 2001, the Company acquired certain assets and the ongoing
business of Alpha Microsystems LLC ("Alpha"), based in Santa Ana,
California, for a total purchase price of approximately $6.0 million, of
which $4.9 million was paid by the assumption of liabilities and $1.1
million was paid in cash.
Details of the acquisition are as follows:
===========================================================================
Net assets acquired, at assigned values:
Accounts receivable $ 1,387,105
Inventory 1,254,545
Capital assets 875,000
Other assets 142,383
Accounts payable and accrued liabilities (2,531,613)
Notes payable (1,385,000)
Deferred revenue (1,031,385)
------------------------------------------------------------------------
(1,288,965)
Goodwill 2,429,965
--------------------------------------------------------------------------------
$ 1,141,000
================================================================================
Consideration given:
Cash $ 1,141,000
================================================================================
Goodwill is being amortized over a period of 10 years. At September 30,
2001, goodwill consists of:
================================================================================
Goodwill $ 2,429,965
Less accumulated amortization (81,000)
--------------------------------------------------------------------------------
$ 2,348,965
================================================================================
Included in the determination of the allocation of the purchase price are
certain liabilities which were determined using management's best estimate
as at the date of the financial statements and are expected to be finalized
during fiscal 2001.
- 10 -
OPTIMAL ROBOTICS CORP.
Notes to Consolidated Financial Statements
(Unaudited)
Periods ended September 30, 2001 and 2000
(expressed in US dollars)
================================================================================
4. Inventories:
===========================================================================
September 30, December 31,
2001 2000
---------------------------------------------------------------------------
(Unaudited) (Audited)
Finished goods $ 2,673,317 $ 3,543,262
Work in process 1,464,401 589,424
Raw materials 6,604,342 3,657,967
Replacement parts 10,942,920 8,935,232
---------------------------------------------------------------------------
$21,684,980 $16,725,885
===========================================================================
5. Share capital:
During the nine-month period ended September 30, 2001, the Company issued
1,409,225 common shares pursuant to the exercise of stock options with
exercise prices ranging between $3 and $47 per share and 353,420 common
shares pursuant to the exercise of warrants with exercise prices ranging
between Cdn$5 and $6.60 per share. Total proceeds from the issuance of
these shares amounted to $19,421,317.
6. Contingency:
In 1995 and 1996, the Company received demand letters from the same
claimant alleging patent infringement. In June 1999, the 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. The Company is
contractually bound to indemnify the customer for any damages it incurs in
connection with such suit. At the Company's expense, the Company's legal
counsel is defending this suit. The Company also received a letter from
another party in 1999, and again in February 2001, 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.
- 11 -
OPTIMAL ROBOTICS CORP.
Notes to Consolidated Financial Statements
(Unaudited)
Periods ended September 30, 2001 and 2000
(expressed in US dollars)
================================================================================
7. Research and development:
===========================================================================
Three months ended Nine months ended
September 30, September 30,
---------------------- -------------------------
2001 2000 2001 2000
---------------------------------------------------------------------------
Research and development
expenses $ 511,485 $ 219,915 $ 1,413,613 $ 664,119
Tax credits (448,246) (44,000) (592,802) (140,319)
---------------------------------------------------------------------------
$ 63,239 $ 175,915 $ 820,811 $ 523,800
===========================================================================
8. Segmented information:
The Company operates in one segment, the development, marketing,
installation and servicing of automated transaction software and systems
designed for use in the retail sector. Substantially all of the Company's
revenue is derived from sales to supermarket retailers located in the
United States and is denominated in US dollars. Capital assets and goodwill
by geographic area are as follows:
===========================================================================
September 30, December 31,
2001 2000
---------------------------------------------------------------------------
Canada $ 3,454,948 $ 2,782,757
United States 3,861,665 470,391
---------------------------------------------------------------------------
$ 7,316,613 $ 3,253,148
===========================================================================
- 12 -
OPTIMAL ROBOTICS CORP.
Notes to Consolidated Financial Statements
(Unaudited)
Periods ended September 30, 2001 and 2000
(expressed in US dollars)
================================================================================
9. Additional disclosures required by U.S. GAAP and differences between
Canadian GAAP and U.S. GAAP:
(a) Consolidated statement of operations:
The reconciliation of earnings reported in accordance with Canadian
GAAP with US GAAP is as follows:
===================================================================================================
Three months ended Nine months ended
September 30, September 30,
---------------------------- -------------------------------
2001 2000 2001 2000
---------------------------------------------------------------------------------------------------
Net earnings in accordance
with Canadian GAAP $ 4,550,541 $ 1,828,553 $ 11,317,860 $ 4,577,132
Stock-based compensation
costs (1) 8,703,560 (25,816) (23,010,144) (18,967,181)
---------------------------------------------------------------------------------------------------
Net income (loss) in accordance
with U.S. GAAP 13,254,101 1,802,737 (11,692,284) (14,390,049)
Other comprehensive income
(loss):
Foreign currency translation
adjustments -- -- -- (2,136,533)
---------------------------------------------------------------------------------------------------
Comprehensive income
(loss) $13,254,101 $ 1,802,737 $(11,692,284) $(16,526,582)
===================================================================================================
Earnings per share:
Basic $ 0.87 $ 0.13 $ (0.81) $ (1.28)
Diluted 0.81 0.12 (0.81) (1.28)
===================================================================================================
(1) Accounting for stock-based compensation:
For stock-based compensation plans, the Company has chosen to use the
intrinsic value method (APB Opinion No. 25), which requires
compensation costs to be recognized on the difference, if any, between
the quoted market price of the stock 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.
- 13 -
OPTIMAL ROBOTICS CORP.
Notes to Consolidated Financial Statements
(Unaudited)
Periods ended September 30, 2001 and 2000
(expressed in US dollars)
================================================================================
9. Additional disclosures required by U.S. GAAP and differences between
Canadian GAAP and U.S. GAAP (continued):
(b) Consolidated balance sheets:
==================================================================================================
September 30, 2001 December 31, 2000
--------------------------------- ---------------------------------
Canadian US Canadian US
GAAP GAAP GAAP GAAP
--------------------------------------------------------------------------------------------------
Shareholders' equity:
Share capital $ 126,476,633 $ 168,695,446 $ 107,050,914 $ 149,269,727
Other capital 5,282 30,288,009 9,684 7,282,267
Retained earnings
(deficit) 10,487,315 (60,480,463) (830,545) (47,788,179)
Cumulative translation
adjustment (1,484,471) -- (1,484,471) --
Accumulated other
comprehensive loss -- (3,018,233) -- (3,018,233)
--------------------------------------------------------------------------------------------------
$ 135,484,759 $ 135,484,759 $ 104,745,582 $ 104,745,582
==================================================================================================
(c) New accounting standards:
In June 2001, FASB issued SFAS 141, "Business Combinations" and SFAS
142 "Goodwill and Other Intangible Assets". SFAS 141, which replaces
APB Opinion No. 16, revises the accounting standards for business
combinations and is effective for acquisitions initiated after June
30, 2001. SFAS 142, which replaces APB Opinion No. 17, revises the
standards in accounting for goodwill and other intangibles and is
effective for fiscal years after December 15, 2001. Similar standards
have been adopted by the Canadian Institute of Chartered Accountants.
In addition, FASB also issued SFAS 143, "Accounting for Asset
Retirement Obligations" and SFAS 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets". The Company does not expect the impact
of these new standards to be material.
- 14 -
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 9 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 Nine Months of 2001 Compared with First Nine Months of 2000
Total revenues increased by $36,022,000, or 74%, from 2000 to 2001, due to
a significant increase in sales to existing customers and the addition of new
customers. Product revenue increased by $31,474,000, an increase of 68%. Service
contract revenue recognized for hardware and software maintenance increased by
$4,366,000, or 198%, primarily as a result of the increased number of customers
that entered into service contracts.
Total cost of sales increased by $16,232,000, or 45%, from 2000 to 2001.
Overall gross margin increased as a percentage of sales from 25.5% in 2000 to
38.0% in 2001, representing primarily the increase in gross margins on product
revenue. This increase resulted mainly from the fact that we began to assemble
and deliver U-Scan systems from our facility in Plattsburgh, New York commencing
January 2001, and from our facility in Phoenix, Arizona, commencing April 2001.
Gross research and development expenses increased by $749,000, or 113%,
from 2000 to 2001. As a percentage of total revenues, gross research and
development expenses remained constant at approximately 2% for both 2001 and
2000. Research and development expenses during the period related to continued
enhancements of our product lines and the development of new products.
Selling, general, administrative and other expenses (including operating
lease expenses) increased by $7,334,000, or 112%, in 2001 compared to 2000. As a
percentage of total revenues, these expenses increased from 13% in 2000 to 16%
in 2001. During the first nine months of 2001, we continued to expand marketing
efforts through an increased tradeshow schedule and advertising campaign. In
addition, we incurred increased costs in the following areas: engineering
related to the design, development and early phase commercial production of
casings for the redesigned, small footprint U-Scan Solo system and the
integration of our recent acquisition of Alpha Microsystems.
As a result of the increase in revenues and improved gross margin, the
Company's net earnings were $11,318,000 in 2001 compared to $4,577,000 in 2000,
an increase of 147%. On a per share basis, the Company earned $0.78 ($0.73 on a
diluted basis), compared to $0.35 ($0.32 on a diluted basis), in 2000.
Third Quarter of 2001 Compared with Third Quarter of 2000
Total revenues increased by $13,457,000, or 66%, from the third quarter of
2000 to the third quarter of 2001, due to a significant increase in sales from
existing customers and the addition of new customers. Product revenue increased
by $10,915,000, an increase of 57%. Service contract revenue recognized for
hardware and software maintenance increased by $2,338,000, or 242%, as a result
of the increased number of customers that entered into service contracts with
us.
- 15 -
Total cost of sales increased by $5,598,000, or 37%, from 2000 to 2001.
Overall gross margin increased as a percentage of sales from 25.5% in 2000 to
38.6% in 2001, representing primarily the increase in gross margins on systems
revenue. This increase resulted mainly from the fact that we began to assemble
and deliver U-Scan systems from our facility in Plattsburgh, New York commencing
January 2001, and from our facility in Phoenix, Arizona, commencing April 2001.
Gross research and development expenses increased by $292,000, or 133%,
from 2000 to 2001. As a percentage of total revenues, gross research and
development expenses increased from 1% in 2000 to 2% in 2001. Research and
development expenses during the period related to continued enhancements of our
product lines and the development of new products.
Selling, general, administrative and other expenses (including operating
lease expenses) increased by $2,387,000, or 79%, in 2001 compared to 2000. As a
percentage of total revenues, these expenses increased from 15% in 2000 to 16%
in 2001. During the third quarter of 2001, we continued to expand marketing
efforts through an increased tradeshow schedule and advertising campaign. In
addition, we incurred additional costs in the following areas: engineering
related to the design, development and early phase commercial production of
casings for the redesigned, small footprint U-Scan Solo system and the
integration of our recent acquisition of Alpha Microsystems.
The Company's net earnings in the third quarter were $4,551,000 compared to
$1,829,000 in the corresponding 2000 period, an increase of 149%. On a per share
basis, the Company earned $0.30 ($0.28 on a diluted basis), compared to $0.13
($0.12 on a diluted basis), in 2000.
Financial Condition
Accounts Receivable
Accounts receivable at September 30, 2001 were $31,543,000 (December 31,
2000 - $10,485,000), of which $31,249,000 (December 31, 2000 - $8,287,000) were
trade accounts receivable. Calculated in accordance with common industry
practice, the Company's days outstanding of accounts receivable ("DSO's") as at
September 30, 2001 were 73 days.
Inventory
The total inventory position at September 30, 2001 was $21,685,000
(December 31, 2000 - $16,726,000). This increase is mainly attributable to the
planned build-up of work in process, raw materials, and finished goods in order
to provide for deliveries in the fourth quarter of 2001.
Future Income Taxes
Current future income tax assets at September 30, 2001 were $1,456,000 as
compared to $3,883,000 at December 31, 2000, a decrease of $2,427,000. This
decrease is attributable to the utilization of a substantial portion of our
future income tax assets to reduce taxable income for the first nine months of
2001.
Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities increased by $2,741,000, from
$6,492,000 at December 31, 2000 to $9,233,000 at September 30, 2001. This
increase is primarily due to the purchase of inventories.
- 16 -
Deferred Revenue
Deferred revenue increased by $2,052,000, from $35,000 at December 31, 2000
to $2,087,000 at September 30, 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 twelve months. In addition,
approximately $760,000 of this increase is related to our recent acquisition of
Alpha Microsystems.
Liquidity and Capital Resources
As of September 30, 2001, the Company had cash and short-term investments
of $88,093,000 (December 31, 2000 - $76,149,000) and working capital of
$126,720,000 (December 31, 2000 - $99,904,000).
Operating activities used $4,503,000 in the first nine months of 2001 as
compared to $15,396,000 for the first nine months of 2000. The improvement in
operating cash flow resulted from increased operating earnings in 2001 compared
to 2000. In the first nine months of 2001, the Company issued 1,762,645 (2000 -
644,269) common shares pursuant to the exercise of options and warrants which
resulted in cash proceeds of $19,421,000 (2000 - $1,966,363).
In the first nine months of 2001, the Company had capital expenditures of
$1,833,000 (2000 - $2,046,000), principally relating to leasehold improvements,
test systems and computer hardware. The Company also utilized cash of $1,100,000
in connection with the Alpha acquisition.
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. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have no material changes to the disclosure on this matter made in our
Annual Report on Form 10-K for the year ended December 31, 2000.
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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.
Item 3 through 5. The registrant has nothing to report under these items.
Item 6.
(a) Exhibits - Not applicable.
(b) Reports on Form 8K - No reports on Form 8K were filed during the period.
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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: October 25, 2001 By: /s/ Holden L. Ostrin
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Holden L. Ostrin
Co-Chairman
By: /s/ Gary S. Wechsler
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Gary S. Wechsler
Treasurer and Chief Financial
Officer
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