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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 2000
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transaction period from to
Commission file number 0-28572.
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OPTIMAL ROBOTICS CORP.
(Exact name of registrant as specified in its charter)
[Canada] 98-0160833
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
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4700 de la Savane, Suite 101, H4P 1T7
Montreal, Quebec, Canada (Postal code)
(Address of principal executive offices)
Registrants telephone number, including area code: (514) 738-8885
Title of each class: Name of each exchange on which registered
Class "A" shares, no par value Nasdaq National Market
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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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X].
Aggregate market value of the voting stock of the registrant held by
non-affiliates of the registrant at February 15, 2001 (computed by reference to
the last reported sale price of the common shares on the Nasdaq Stock Market on
such date): $377,987,535.63
Number of common Shares outstanding at February 15, 2001: 13,772,690
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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Item 1. BUSINESS
Company Overview
We are the leading provider of self-checkout systems to retailers in the
United States. Our principal product is the U-Scan, an automated self-checkout
system which enables shoppers to scan, bag and pay for their purchases with
little or no assistance from store personnel. We estimate that in 2000 U-Scan
systems processed over 150 million customer transactions. The U-Scan can be
operated quickly and easily by shoppers and makes the checkout process more
convenient for them. The U-Scan also reduces the cost of checkout transactions
to retailers and addresses labor shortage problems by replacing manned checkout
counters with our automated self-checkout stations.
As of December 31, 2000, we had sold 958 U-Scan systems, consisting of
3,808 checkout stations, in 865 stores of leading retailers across 37 states and
two provinces. Each U-Scan system typically includes four checkout stations and
one manned supervisor terminal.
The following chart provides information regarding the U-Scan systems we
sold during the last five years:
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
U-Scan system deliveries:
Systems sold during year..................... 6 22 57 288 583
Systems sold as at year-end.................. 8 30 87 375 958
U-Scan checkout stations sold as at year-end...... 32 120 346 1,498 3,808
Customer transactions (millions)(1)............... 12 45 150
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(1) Estimated, based on reports provided by our customers. Prior to 1998, we
did not track this data.
Our Industry
We currently target supermarket and supercenter chains in the United States
with average annual sales per store in excess of $12 million. According to
industry sources, there are over 11,500 of these stores in the United States.
U-Scan, which can be quickly and easily operated, addresses these shoppers'
needs by providing them with more control over the checkout process.
The potential market for self-checkout solutions includes applications
beyond supermarkets and supercenters. General merchandise stores and other
big-box retailers have begun to install self-checkout systems. Other types of
stores that we have identified where self-checkout systems could be used include
drug stores, warehouse stores, office superstores, toy stores and home
improvement centers. In 2000, we introduced one new product for use in small
retail establishments and small departments in larger stores and a second new
product for use in high volume retail outlets. See "--Our Business Strategy."
Additionally, we believe that a large market for self-checkout systems exists in
Europe.
We believe that the demand for self-checkout systems will continue to grow,
in part because they help alleviate the significant labor shortage confronting
retailers in certain markets. The U.S. Bureau of Labor Statistics has estimated
that, from 1998 to 2008, the U.S. economy will require over 550,000 additional
cashiers. In addition to providing stores with a dependable and economical
alternative to maintaining cashiers in express checkout lanes, we believe that
self-checkout systems allow large retailers to offer shoppers the speed of a
small convenience store while maintaining the greater selection and lower prices
of a supermarket.
We also believe that the acceptance of self-checkout systems will increase
over time much like the increase in acceptance of automated teller machines
(ATMs) and pay-at-the-pump credit/debit card machines. Banking industry sources
have estimated that the number of ATMs in the United States grew from 18,500 in
1980 to over 200,000 in 1999, and that the number of ATMs in use worldwide was
over
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700,000 at the end of 1999. According to the National Association of Convenience
Stores' 1999 State of the Industry report, the percentage of convenience stores
with pay-at-the-pump technology increased from less than 5% in 1990 to 50% in
1998. In the same way that many people have become more accustomed to using ATMs
to conduct their banking and to paying at the pump when fueling their cars,
rather than interacting with a bank teller or store attendant, we believe that
consumers seeking convenience and "control" when shopping will choose to use a
self-checkout system instead of paying at a traditional manned checkout counter.
Our Customers
Our most significant customers have been supermarkets and supercenters,
including the following retailers:
o Kroger. Kroger is the largest supermarket retailer in the United States,
and owns and operates approximately 2,338 supermarkets and 789
convenience stores. Kroger is our largest customer and recently ordered
an additional 500 U-Scan systems, of which 32 have been delivered. We
have sold a total of 541 systems to Kroger's stores.
o Meijer. Meijer is the second largest U.S. supercenter operator with
approximately 130 stores. Its typical store size is over 175,000 square
feet. We have sold 197 U-Scan systems to Meijer's stores. In January
2000, Meijer agreed to purchase up to 150 (with a minimum of 100)
additional systems through June 2001, of which 103 have been delivered.
o Ahold. Ahold operates over 7,000 stores of various types in the United
States, Europe, Asia and Latin America under various banners, including
over 1,000 BI-LO, Stop & Shop, Tops Markets, Giant and other stores in
the United States. We have sold 136 U-Scan systems to Ahold's stores.
Recently, Ahold agreed to purchase 210 U-Scan systems for delivery in
its U.S. stores, of which 26 have been delivered.
These leading retailers figure prominently in the establishment of market
standards, and we believe that our relationships with them and the increasing
presence and use of our systems in their stores contribute to the market's
growing acceptance of U-Scan. We also believe that shoppers' increasing
familiarity with our systems at these retailers will facilitate future sales
efforts, particularly with retailers who have not yet installed our systems in
their stores.
We believe that these customers have chosen to install U-Scan because it:
o increases convenience for their shoppers, while accommodating typical
shopping patterns and allowing shoppers to check out as if they were
at a manned checkout counter,
o provides the shopper with more control over the checkout process,
similar to an ATM transaction,
o builds loyalty by making shopping easier and more convenient,
o addresses labor shortages in certain markets by replacing manned
checkout counters with automated self-checkout stations, and
o provides labor cost savings by allowing one employee to supervise four
unmanned stations.
Of the 958 systems sold as at December 31, 2000, over 50% were sold to
Kroger, over 20% were sold to Meijer and over 14% were sold to Ahold. The loss
of any one of these three customers could have a material adverse effect upon
our company.
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Our Competitive Advantages
We believe that the following competitive advantages have helped us become
the leading provider of self-checkout systems to retailers in the United States:
o the largest installed base of self-checkout systems in the United
States and well-established relationships with leading retailers,
o an established brand name and corporate identity,
o seven years' experience and expertise in designing self-checkout
solutions for retailers,
o a focused business strategy targeting the rapidly developing
self-checkout market,
o a senior management team and experienced sales force familiar with the
needs of retailers, and
o superior customer service through a 24-hour, 365-day on-line helpdesk
supported by a dedicated network of service personnel.
Our Business Strategy
Our primary objectives are to install more U-Scan systems in additional
supermarkets and supercenters, to begin installing U-Scan and other
self-checkout systems in other kinds of stores, and to initiate sales and
installations of our systems in Europe.
Key elements of our business strategy are to:
Increase Installations in Existing and New Supermarket and Supercenter
Accounts. We plan to increase our penetration of existing customer accounts and
have increased the size of our direct sales force in order to sell to new
customers in North America. We are continuing to develop opportunities in
Europe.
Extend Retail Applications of Our Products and Services. In addition to our
focus on transactions for supermarkets and supercenters, we have recently
introduced two new products, U-Scan Carousel and U-Scan Solo, that have been
designed to extend the retail applications of our U-Scan self-checkout
technology. Much like the U-Scan Express, each of these new applications enables
customers to scan, bag and pay for their purchases with limited or no assistance
from store personnel.
U-Scan Carousel
To meet the demands of existing and new customers, U-Scan Carousel has been
configured as a six-bag self-checkout system which can accommodate large order
purchases. The U-Scan Carousel utilizes U-Scan technology that has been
specifically adapted to handle large orders in the following high volume retail
outlets:
o warehouse stores,
o general merchandise stores,
o home improvement centers, and
o other big-box retailers.
This larger configuration enables these retailers to address the labor
shortage found in many markets while providing a more convenient shopping
experience. We first delivered a U-Scan Carousel in the second quarter of fiscal
2000.
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U-Scan Solo
U-Scan Solo is a one-bag self-checkout station in which our U-Scan
technology has been adapted to meet the needs of small footprint retail
establishments such as drug stores, convenience stores and general merchandise
stores, as well as for satellite areas, such as floral and video departments, in
supermarkets and supercenters. We first delivered a U-Scan Solo in the third
quarter of fiscal 2000.
The U-Scan Carousel and the U-Scan Solo are the direct results of our
research and development efforts. We remain committed to developing other new
products like U-Scan Carousel and U-Scan Solo on a timely and cost-effective
basis and continuing to improve our current products.
Products and Systems
U-Scan System
A U-Scan system, in a typical configuration for a supermarket or
supercenter application, consists of four self-checkout stations and one manned
supervisor terminal. Each checkout station consists of the following components
linked by a PC platform:
o a bar code scanner with a scale,
o a bagging station equipped with a scale,
o a touchscreen monitor,
o an overhead video camera,
o a credit/debit terminal (with available support for signature capture
devices),
o bill and coin acceptors and dispensers, and
o a receipt printer.
The supervisor terminal consists of:
o a monitor that allows the supervisor to observe the activity at each
checkout station,
o a hand-held scanner, either wired or wireless, that enables the
supervisor to assist shoppers with large items,
o an easy-to-use touchscreen that makes it simple for the supervisor to
interact with the system, and
o a receipt printer for credit/debit transactions.
In a typical configuration, the U-Scan occupies the same floor space as
would three manned checkout lanes. As a result, shoppers are provided with one
additional checkout station.
Operation
The U-Scan system is equipped with a convenient, intuitive touchscreen
interface and provides automated voice instructions that guide the shopper
through the entire checkout process, from scanning the first item to removing
the receipt after payment.
To commence the checkout process, a shopper presses an icon on the
touchscreen of a U-Scan station. An automated voice greets the shopper and
instructs him or her to begin scanning items using the station's easy-to-use,
multi-directional scanner. As each item is scanned by the shopper, the
touchscreen acknowledges the scanned item and displays its price.
Simultaneously, the shopper is instructed by the automated voice to place the
scanned item in the shopping bag located on the station's scale. In this
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manner, not only are purchased items bagged, but the station also simultaneously
weighs each item and makes sure that its weight is correct for the item scanned.
The U-Scan easily handles bar-coded items and has been designed to
accommodate non bar-coded items and items requiring compliance with specific
procedures. The U-Scan has the capacity to learn the weight of bar-coded items
that it has not previously encountered. For non-bar-coded items such as produce
or other items sold by weight, the shopper places the item on a separate scale
that is part of the scanner and presses a specific icon on the touchscreen that
alerts the system supervisor. Each U-Scan station is equipped with an overhead
video camera that transmits an image of the item placed on the scale to the
color video monitor located at the supervisor terminal. This enables the
supervisor to identify the item for the system, which, in turn, computes the
correct price for the item. At the request of some customers, the system is
configured to allow shoppers to identify the non-bar-coded items being
purchased, thereby eliminating the need for supervisor attention. Additionally,
alcohol and tobacco product purchases automatically prompt the system supervisor
to verify the purchaser's age. The system supervisor terminal is equipped with a
hand-held scanner that is used to read bar codes on heavy, oversized items. Both
wired and wireless models are available.
The U-Scan is able to handle variations on the normal bar-coded purchase.
For example, it can process transactions involving products that are sold on a
"per unit" basis. The system can identify multiple-unit items such as six-packs
of canned beverages and partial purchases of multiple-unit items (such as five
cans of a six-pack). The system also has the capability to adjust its tolerance
level for deviations in an item's weight, such as where the inclusion of a prize
in a cereal box would increase the weight of that box beyond the preset or
previously "learned" tolerance level.
Once a shopper has scanned all the items he or she wishes to purchase, the
shopper notifies the system by pressing the appropriate icon on the touchscreen.
The U-Scan then prompts the shopper to select the form of payment. The U-Scan
can accept any form of payment, either at the self-checkout station or at the
supervisor's terminal, that is accepted by cashiers, including cash, checks,
credit cards, debit cards, coupons, food stamps and gift certificates. The
U-Scan station can make change and dispense additional cash should the shopper
choose to withdraw additional money using a credit or debit card. U-Scan also
identifies and can handle "mix and match" payments, such as a combination of
cash and coupons. Those shoppers who choose to pay with checks, food stamps or
gift certificates are directed to the system supervisor to complete their
transactions.
Once the shopper has made payment and received change from the U-Scan
station's bill and coin dispenser, a receipt is printed at the U-Scan station.
At all times, a system supervisor is located nearby to provide prompt assistance
should it be required by the shopper.
Security
The close proximity of the system supervisor to the U-Scan stations helps
to deter theft. Moreover, the U-Scan provides an additional level of protection
with a built-in, three-tier security system designed to guard against loss due
to theft or human error. The security system at each U-Scan station consists of:
o a bagging station equipped with a scale that detects any unscanned or
substituted items,
o an overhead video camera that discourages non-scanning or
substitution, and
o an integrated payment mechanism that substantially reduces the
opportunity for cashier fraud or error.
The U-Scan weighs each item scanned. If the weight detected for the scanned
item is different from the item's weight contained in the system's database, the
shopper will be asked to try again and the cashier will be alerted. Should a
shopper fail to scan an item that is placed on the weighing platform, the system
will prompt the shopper to remove the item and scan it. Should a shopper
mistakenly scan an item more than once before placing it on the weighing
platform, the U-Scan station will only charge the shopper once for such item.
The U-Scan can also be customized to support a retailer's electronic anti-theft
system.
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Customization and Flexible Technology
The U-Scan can be customized to meet the individual requirements of a
particular store by changing features such as the user graphics on the
touchscreen and automated voice prompts. It can be programmed to include
frequent shopper and other loyalty and marketing programs and is available with
a multilingual touchscreen. To ensure compliance with governmental regulations,
the U-Scan can be programmed to comply with local weights and measures and
federal and local laws regarding proof-of-age verification for purchases of
alcohol and tobacco products.
The U-Scan operates on an industry-standard, PC-based platform with the
Windows NT operating system, and uses readily available, off-the-shelf
components. Its open architecture enables it to be integrated with most existing
information systems. It can be upgraded to take advantage of new features and
can generate custom management reports. The U-Scan obtains most of the
information it needs to operate from the store's information systems, just as
cashier-operated terminals do. A local area network links the four checkout
stations to the supervisor terminal.
We have developed software that allows the U-Scan system to form part of
and communicate with a store's information systems in the same way conventional
cashier-operated terminals do. In doing so, the system uses the store's network
and communications protocol, enabling it to interact easily and completely with
the information systems. Our technology allows information to be communicated
between the U-Scan system and a store's information systems on a real-time
basis, including such information as:
o product movement data,
o inventory management data,
o cash balance information, and
o transaction summaries.
The U-Scan system's software is customized for the first installation at
each chain so it can communicate with that chain's information systems and is
modified as necessary to address the needs of each retailer.
Optimal 6300 POS System
The Optimal 6300 POS system is an open-architecture, PC-based point-of-sale
cash register system utilizing Windows NT/95 or Novel SFTIII mirrored servers.
We offer only the system software for the Optimal 6300 POS.
The customer is responsible for purchasing the system hardware. The Optimal
6300 POS system communicates with a store's information systems and has been
designed for use as a conventional cash register checkout system in high-volume
retailers such as supermarkets, department stores and warehouse stores.
We were engaged by Price Chopper Supermarkets of Schenectady, New York, to
develop and install the Optimal 6300 POS system. We receive a monthly fee for
the continuing development of the system. The Optimal 6300 POS system is
presently installed in all of the over 100 Price Chopper supermarkets. The
system is also installed at Atlantic Food Mart in Reading, Massachusetts.
Sales and Marketing
We primarily market U-Scan directly to customers through our own sales
personnel. We also market the system through IBM under a non-exclusive
cooperative marketing agreement under which IBM receives a commission on sales
of systems to customers that it has registered with us. Consistent with our
strategy of increasing distribution of the U-Scan, we will continue to actively
review and evaluate other marketing relationships.
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We have six employees dedicated to sales and marketing. We plan to hire
additional sales and marketing employees to expand our direct sales force.
To date, we have focused our marketing efforts almost exclusively on
supermarket and supercenter chains in the United States. We intend to begin
marketing our products in Europe in the near term. With the introduction of
U-Scan Carousel and U-Scan Solo, we are marketing our products to drug stores,
convenience stores and general merchandise stores, and for use in satellite
areas, such as floral and video departments, in supermarkets and supercenters.
Sales to a retail chain typically follow a three-step process, in which the
customer takes delivery of a single U-Scan station and a supervisor terminal in
a testing facility, then places a full system in a store for evaluation, and
finally decides whether to commit to a volume order.
Before delivering a U-Scan system to the first store of a chain, we
customize the system, which typically takes two months. This process may include
modifying user graphics, voice instructions, functions for specific pricing,
couponing methods and software to meet the store's specifications. This process
also includes integrating the U-Scan with the store's information systems so
that data compiled at each U-Scan station is automatically transmitted to the
store's information systems in the same way data would be compiled and
transmitted by a manned cashier station.
Once we have completed the customization and integration process, the
U-Scan system is delivered. Typically, the store will monitor the performance of
the system for a period of one to two months and request certain software
modifications. Upon the completion of a successful first installation, the
U-Scan system generally requires only minor customization to accommodate
additional installations within the chain.
Research and Development
Our research and development efforts are focused on improving our existing
products and developing new products. To date, most of the software relating to
our products has been developed internally by our employees.
Features that have been introduced during the last 12 months include the
following:
o EAS - We have developed a process that allows electronic article
surveillance (EAS) systems, that are designed to deter shoplifting and
internal theft, to be integrated with any of our U-Scan systems.
o Biometrics - U-Scan now supports the latest biometrics technology,
enabling shoppers to pay for credit card and check transactions using
their unique fingerprint.
o U-Scan Mobile Attendant(TM)- We have introduced a miniature, wireless
handheld unit that allows range of supervisor functions to be
performed even when the supervisor is not behind the traditional
supervisor terminal.
We intend to increase research and development efforts in the following
areas:
o Developing new products and extending our existing products into
additional retail applications.
o Adapting U-Scan self-checkout solutions for use in Europe and other
international markets.
o Displaying targeted and relational interactive advertising on a U-Scan
station's touchscreen when it is not in use and printing advertising
on receipts.
o Expanding the use of radio frequency. Radio frequency technology is
used in the recently introduced miniature handheld supervisor unit.
Radio frequency technology would also simplify
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installation because it would eliminate the need to install wiring to
connect the U-Scan to the store's information systems.
o Improving the receipt-of-payment function by making the U-Scan system
more efficient and easier to use. For example, incorporating
technology that enables the system to verify customers' signatures and
confirm bank balances will allow the system to accept checks without
the intervention of a supervisor. One such technology is the
biometrics technology that is now supported by our system.
Our research and development expenses, net of tax credits, were approximately
$913,000 in fiscal 2000, $220,000 in fiscal 1999 and $210,000 in fiscal 1998.
Product Assembly
Since the termination of PSC's exclusive assembly rights on December 31,
2000, we assemble all of our systems at our Plattsburgh, New York facility.
Previously, we performed final software configuration and quality assurance at
the Plattsburgh facility, where all systems assembled by PSC were certified
before delivery to a customer. See Item 2--"Description of Properties."
Suppliers
The U-Scan is assembled from components that are readily available from
numerous suppliers. Given the open architecture of our system, we are not
dependent on any single supplier for any particular component. The U-Scan casing
is specially manufactured for us by two suppliers.
Service and Field Support
It is essential to retailers that providers offer timely and efficient
software and hardware service and support. We provide both software and hardware
service and support for the U-Scan for a fee.
Software support is provided to all customers via our helpdesk on a 24
hours a day, 365 days a year basis. Our helpdesk and support personnel are
trained to diagnose software and hardware problems that may arise in the field.
Software problems are typically solved on-line, as the U-Scan can be accessed
on-line from our premises.
U-Scan customers can choose between a number of options for hardware
support. Customers may elect to have their own facility engineering group
perform hardware maintenance on the system, in which case we train such
personnel. Customers may also purchase hardware support service from us or an
authorized subcontractor.
We maintain certified technicians at our headquarters, at our central hubs
near Cincinnati, Ohio and in Lansing, Michigan, and at various other strategic
locations. We are generally able to remotely diagnose and solve software-related
problems from our head office in Montreal. If there is a problem caused by a
hardware malfunction or another matter requiring personnel to be on-site, a
technician is dispatched to assist the customer. For general hardware support
for our system, we have contracted with and certified a small number of
independent service companies. Furthermore, we maintain regional facilities for
parts storage in Phoenix, Arizona; Denver and Greeley, Colorado; Atlanta,
Georgia; Indianapolis, Indiana; Covington and Louisville, Kentucky; Boston,
Massachusetts; Grand Rapids, Kalamazoo, Flint, Canton, Mishawaka and Lansing,
Michigan; Plattsburgh, New York; Greensboro, North Carolina; Columbus, Ohio;
Milwaulkie, Oregon; Simpsonville, South Carolina; Nashville and Hermitage,
Tennessee; Houston and Dallas, Texas; and Seattle, Washington.
Installation Personnel
It is important that our systems are able to be quickly and reliably
installed with minimal impact on store operations. Installations can be
performed by our technicians, by the customers trained and certified employees
or by certified third party installers. For a typical installation by us, an
experienced technician
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visits the store before the delivery of the system to coordinate all aspects of
the installation. The goal is to ensure that our systems can be installed and
fully operational within six hours.
Government Regulation
We and certain of the components that are used in our products are subject
to regulation by various agencies in the United States and in other countries in
which our products are sold. Laser safety is regulated in the United States by
the Food and Drug Administration's Center for Devices and Radiological Health
and in Canada by the Radiation Protection Bureau of Health Canada. In addition,
the U.S. Occupational Safety and Health Administration and various states and
U.S. cities have promulgated regulations concerning working condition safety
standards in connection with the use of lasers in the workplace. Radio emissions
are the subject of governmental regulation in all countries in which we expect
to sell our products. We also voluntarily submit our products for certification
for product safety in the United States and in Canada by the nationally
recognized testing laboratories, the Underwriters Laboratories, Inc. and the
Canadian Standards Association, respectively.
Competition
We compete against manufacturers of traditional cashier-operated terminals
as well as developers of portable hand-held devices and other partially
automated self-scanning devices, including NCR, Symbol Technologies and
Productivity Solutions. Several of our competitors are substantially larger and
have greater financial, technical, and marketing resources. We believe, however,
that the U-Scan performs more functions than any other self-checkout system for
retail use currently available on the market. PSC has also recently entered the
self-checkout market.
We believe that the principal criteria for competition within the
self-checkout system market are the following:
o technological capability,
o product features,
o price,
o product support,
o ease of use,
o name recognition,
o distribution channel capability, and
o financial strength of the provider.
Intellectual Property
We have registered the following trademarks in the United States:
o Optimal Robotics Corporation(R),
o a stylized version of Optimal Robotics Corporation(R),
o U-Scan,
o a stylized version of U-Scan, and
o U-Scan Express.
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Additionally, we have filed, or are in the process of filing trademark
applications for the following marks:
o Optimal Robotics,
o A stylized version of Optimal Robotics(R)
o a second stylized version of Optimal Robotics Corporation, which is
used for different purposes than the registered mark noted above,
o Scan Pay Go,
o U-Scan Solo,
o U-Scan Carousel,
o It's That Simple, and
o The Best Service... Is Self Service.
Trademark applications for the foregoing marks (other than Optimal Robotics
and its stylized version,) have also been filed, or are in the process of being
filed in Canada and the European Economic Community.
We have six patents, and three patents pending in the United States for
various components of our system. We have two German patents, one United Kingdom
patent and one European patent.
As a general policy, we file domestic and foreign patent applications to
protect our technological position and new product development. We intend to
continue to apply wherever necessary to protect our patents in all countries in
which we operate. Although we believe that our patents provide some competitive
advantage and market protection, we rely for our success primarily upon our
proprietary know-how, innovative skills, technical competence and marketing
abilities. Furthermore, there is no assurance that these patents will not be
challenged, invalidated or circumvented in the future. We plan to apply for
additional patents on our products, but our applications may not be granted and
any new products developed by us may not be patentable.
We regard our software as proprietary and attempt to protect it with
copyrights, trade secret measures and nondisclosure agreements. Despite these
restrictions, it may be possible for competitors or users to copy aspects of our
products or to obtain information which we regard as trade secrets. Existing
copyright laws afford only limited practical protection for computer software.
The laws of foreign countries generally do not protect our proprietary rights in
our products to the same extent as the laws of the United States and Canada. In
addition, we may experience more difficulty in enforcing our proprietary rights
in certain foreign jurisdictions.
Employees
As of December 31, 2000, we employed 288 (1999 - 168), full-time employees.
Our employees are not represented by any collective bargaining unit and we
have never experienced a work stoppage. We believe that our employee relations
are good.
Financial Information About Geographic Areas
See Note 13 of the notes to the financial statements, included in Item 8 -
"Financial Statements and Supplementary Data."
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Enforceability of Civil Liabilities
It may not be possible for shareholders to effect service of process within
the United States upon our directors and officers and the experts named herein,
who are residents of Canada, or upon all or a substantial portion of their
assets and substantially all of our assets, which are located in Canada. It may
also not be possible to enforce against them judgments of U.S. courts under any
U.S. securities laws. There is doubt as to the enforceability in Canada of civil
liabilities predicated upon the U.S. securities laws.
Where You Can Find Additional Information
We file reports and other information with the Securities and Exchange
Commission. You may review these reports and other information without charge at
the Commission's Public Reference Room, 450 Fifth Street, N.W., Washington, D.C.
20549. The public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an
Internet site that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the SEC, which
Internet site is located at http://www.sec.gov.
We are required to furnish to our shareholders annual reports containing
audited financial statements certified by our chartered accountants in Canada
and quarterly reports containing unaudited financial data for the first three
quarters of each fiscal year following the end of the respective fiscal quarter.
You may request a copy of these filings at no cost, by writing or
telephoning us at the following address or telephone number:
Optimal Robotics Corp.
4700 de la Savane
Suite 101
Montreal, Quebec H4P 1T7
Attention: O. Bradley McKenna
(514) 738-8885
We are a foreign private issuer under the rules and regulations of the
Commission.
Item 2. DESCRIPTION OF PROPERTIES
Facilities
Our headquarters are located in approximately 46,000 square feet of leased
space at 4700 de la Savane, Montreal, Quebec, under a lease that expires on May
31, 2003, subject to our right to renew the lease for an additional five-year
period. Our systems are assembled in a facility located in approximately 40,000
square feet of leased space in Plattsburgh, New York, under a lease that expires
on March 31, 2003, subject to our right to renew the lease for an additional
three-year period. We also operate technical support hubs in approximately
19,200 square feet of leased space in the Covington, Kentucky, approximately
2,700 square feet of leased space in Lansing, Michigan and approximately 26,000
square feet of leased space in Phoenix, Arizona.
We also maintain parts storage facilities in 13 states. We intend to expand
or to open additional hub facilities in the United States to support current and
future installations.
12
The following is a summary of our facilities:
Facility Location
-------- --------
Headquarters 4700 de la Savane, Montreal, Quebec
Systems Assembly Plattsburgh, New York
Regional Facilities/ Arizona (Phoenix)
Parts Storage Hubs Colorado (Denver, Greeley)
Georgia (Atlanta)
Indiana (Indianapolis)
Kentucky (Covington , Louisville)
Massachusetts (Boston)
Michigan (Grand Rapids, Kalamazoo, Flint, Canton,
Mishawaka, Lansing)
North Carolina (Greensboro)
Ohio (Columbus)
Oregon (Milwaulkie)
South Carolina (Simpsonville)
Tennessee (Nashville, Hermitage)
Texas (Houston, Dallas)
Washington (Seattle)
Item 3. LEGAL PROCEEDINGS
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
13
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) Market Information
Nasdaq Stock Market
-------------------
US$ High US$ Low
-------- -------
2001
First Quarter (through February 15,
2001).................................. 38.38 26.00
2000
1st Quarter............................ 47.00 30.50
2nd Quarter............................ 46.25 33.38
3rd Quarter............................ 40.88 25.25
4th Quarter............................ 41.75 25.88
1999
1st Quarter............................ 12.88 7.00
2nd Quarter............................ 11.13 7.06
3rd Quarter............................ 19.88 9.75
4th Quarter............................ 40.75 17.00
Prior to September 2000, our common shares were quoted sporadically in
the Canadian Dealing Network. In September 2000, the Canadian Dealing
Network merged with The Canadian Venture Exchange. Our common shares
are not listed on The Canadian Venture Exchange.
(b) Holders
At February 15, 2001, there were 1,913 stockholders of record of our
common shares.
(c) Dividends
Our policy is to retain all earnings, if any are realized, for the
development and growth of our business. We have never declared or paid
cash dividends on our common shares and we do not anticipate paying
cash dividends in the foreseeable future. Any determination to pay
dividends will be at the discretion of our Board of Directors and will
depend upon our financial condition, results of operations, capital
requirements, limitations contained in loan agreements and such other
factors as our Board of Directors deems relevant.
Item 6. SELECTED FINANCIAL AND OTHER DATA
The following selected financial data as of December 31, 2000 and 1999 and
for the years ended December 31, 2000, 1999 and 1998 are derived from and are
qualified by reference to our audited financial statements that are included in
Item 8--"Financial Statements and Supplementary Data." The following selected
financial data as of December 31, 1998, 1997 and 1996 and for the years ended
December 31, 1997 and 1996 are derived from our audited financial statements, as
restated for a change in reporting currency, that are not included herein.
Effective December 31, 1998, we adopted the U.S. dollar as the reporting
currency for our financial statements. The financial data for all periods prior
to 1999, for Canadian GAAP purposes, are presented in 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--see note 2 of the notes to the
financial statements, included in Item 8--"Financial Statements and
Supplementary Data."
The data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the financial
statements, related notes and the other financial information included elsewhere
in this annual report.
The selected financial data are prepared on the basis of Canadian GAAP,
which is different in some regards from U.S. GAAP. For a description of the
material differences between Canadian GAAP and U.S. GAAP in regard to our
financial statements, see note 15 of the notes to the financial statements,
included in Item 8--"Financial Statements and Supplementary Data."
14
Year ended December 31,
-------------------------------------------------
2000 1999 1998 1997 1996
---- -------- ---------- ---------- --------
(U.S. dollars, in thousands except per share data)
Income Statement Data:
Revenues...................................................... $ 60,971 $ 29,634 $ 5,618 $ 3,397 $ 894
Cost of sales ................................................ 45,558 23,457 5,135 2,709 837
-------- -------- ------- ------- -------
Gross margin ................................................. 15,413 6,177 483 688 57
Research and development expenses, net of tax credits ........ 913 220 210 294 506
Selling, general, administrative and other expenses .......... 10,629 6,126 4,633 2,359 745
Write-down of inventory ...................................... -- 604 -- -- --
Investment income ............................................ (3,896) (893) (449) (584) (127)
-------- -------- ------- ------- -------
Earnings (loss) before income taxes .......................... 7,767 120 (3,911) (1,381) (1,067)
Provision for (recovery of) income taxes(1) .................. 2,972 (3,532) -- -- --
-------- --------- ------- ------- -------
Net earnings (loss) .......................................... $ 4,795 $ 3,652 $(3,911) $ (1,381) $ (1,067)
======== ======== ======= ======= =======
Weighted average number of common shares outstanding
(thousands) ............................................... 13,104 9,699 7,464 7,410 4,918
Weighted average fully diluted number of common shares
Outstanding (thousands) ................................... 14,168 12,709 7,464 7,410 4,918
Basic net earnings (loss) per common share ................... $ 0.37 $ 0.38 $ (0.52) $ (0.19) $ (0.22)
======== ======== ======= ======= =======
Diluted net earnings (loss) per common share ................. $ 0.35 $ 0.35 $ (0.52) $ (0.19) $ (0.22)
======== ======== ======= ======= =======
Other data:
U-Scan system deliveries:
Systems sold during year ................................ 583 288 57 22 6
Systems sold as at year-end ............................. 958 375 87 30 8
U-Scan checkout stations sold as at year-end ................. 3,808 1,498 346 120 32
Customer transactions (millions)(2) .......................... 150 45 12
Balance Sheet Data: December 31,
----------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(U.S. dollars, in thousands)
Cash, cash equivalents and short-term investments.................. $ 76,149 $ 29,136 $ 6,063 $ 10,354 $12,868
Working capital.................................................... 99,904 36,032 7,319 10,783 12,855
Total assets....................................................... 111,273 44,206 9,329 11,848 13,741
Shareholders' equity............................................... 104,746 39,705 7,596 11,072 12,453
U.S. GAAP Financial Data: Year ended December 31,
-----------------------------------------------------
2000 1999 1998 1997 1996
----- ---- ---- ---- ----
(U.S. dollars, in thousands except per share data)
Revenues.............................................. $ 60,971 $ 29,634 $ 5,721 $ 3,749 $ 1,006
Net loss.............................................. $(14,105) $ (5,575) $ (16,403) $(6,806) $ (1,362)
Basic and diluted net loss per common share........... $ (1.08) $ (0.57) $ (2.20) $ (0.92) $ (0.28)
December 31,
----------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(U.S. dollars, in thousands)
Total assets.......................................... $ 111,273 $ 44,191 $ 9,312 $ 12,679 $ 15,348
(1) Based upon the purchase commitments for a large number of systems which we
received in the fourth quarter of 1999, which covered a substantial portion
of our fiscal 2000 budgeted sales target, and the positive trend in our
profitability and sales levels in the preceding quarters, we determined
that as of December 31, 1999, it was more likely than not that we would
earn sufficient taxable income during the allowable carry-forward period to
fully realize all of our future income tax assets as at that date.
Therefore, during the fourth quarter of 1999, we recognized the future
benefit of all of our future income tax assets, which relate principally to
previously unrecognized non-capital losses and undeducted research and
development expenses. With respect to the future income tax assets recorded
as at December 31, 2000, we have determined that it is still more likely
than not that we will earn sufficient taxable income during the allowable
carry-forward period to fully realize all of our future income tax assets.
See Item 7--"Management's Discussion and Analysis of Financial Condition
and Results of Operations--Results of Operations--2000 Compared with 1999."
(2) Estimated, based on reports provided by our customers. Prior to 1998, we
did not track this data.
15
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
We are the leading provider of self-checkout systems to retailers in the
United States. Our principal product is the U-Scan, an automated self-checkout
system which enables shoppers to scan, bag and pay for their purchases with
little or no assistance from store personnel.
As of December 31, 2000, we had sold 958 U-Scan systems, consisting of
3,808 checkout stations, in 865 stores of leading retailers across 37 states and
two provinces. We estimate that in 2000, U-Scan systems processed over 150
million customer transactions. The U-Scan can be operated quickly and easily by
shoppers and makes the checkout process more convenient for them. The U-Scan
also reduces the cost of checkout transactions to retailers and addresses labor
shortage problems by replacing manned checkout counters with our automated
self-checkout stations.
We believe that the market for the U-Scan extends beyond supermarkets and
supercenters and we now sell to general merchandise stores and other big-box
retailers.
Agreement with PSC
In 1995, we entered into a strategic relationship agreement whereby we
granted to Spectra-Physics Scanning Systems, Inc. an exclusive worldwide license
to distribute, sell, assemble and install U-Scan systems. PSC acquired
Spectra-Physics in 1996 and assumed this agreement.
The agreement obligated PSC to service and maintain the hardware in the
systems after installation. Our role was to develop the product, provide and
service the software for it and assist in selling it. We shared the gross margin
relating to sales of systems with PSC. As our resources expanded, we negotiated
to reduce PSC's role. Beginning April 1, 1998, PSC was paid to act as the
exclusive assembler for our U-Scan systems, and we assumed primary
responsibility for the sale and all responsibilities for distributing,
installing and servicing our systems and became entitled to all the revenue from
their sale.
In October 1999, we notified PSC that we would not renew its exclusive
assembly rights beyond December 31, 2000, the date specified in our agreement.
We now assemble our U-Scan systems in our Plattsburgh, New York facility.
Trends in our costs
Gross margins on the sale of U-Scan systems are expected to increase to
approximately 35% in 2001, from approximately 25% in 2000. The increase will
result from our taking over the assembly function of the U-Scan system, which
was previously done by a third party.
We continue to focus on taking advantage of economies of scale and reducing
the costs of installing and servicing our product. One of the primary
responsibilities of our purchasing department is sourcing of new suppliers and
obtaining the best possible prices for our raw materials.
As a result of the continuing cost-cutting initiatives, we experienced a
reduction in some of our raw material costs. The decrease in the overall cost
per system was a direct result of the increase in the number of U-Scan systems
sold. We believe that as the number of firm commitments we have to purchase the
U-Scan increases, we will be able to leverage our increased component
requirements into lower prices from suppliers.
We continue to make significant investments in our infrastructure to
support the rapid growth of our business.
16
Financial Condition
Our cash and short-term investment portfolio totaled $76,149,000 as at
December 31, 2000. The portfolio consists of short-term discounted notes with a
weighted average effective yield of 6.5%. Our investments are liquid and
investment grade. The portfolio is invested in U.S. dollar denominated
securities. The portfolio is invested in short-term securities to minimize
interest rate risk.
During the fourth quarter of 2000, we sold, on a non-recourse basis,
certain designated accounts receivable to a Canadian chartered bank. These
receivables had an aggregate carrying value of approximately $7,310,000 for
which we received net proceeds of approximately $7,223,000. This transaction
resulted in an interest expense of approximately $87,000. However, taking into
account the interest to be earned on the sale proceeds that we recovered and the
tax on capital that we saved by investing the sale proceeds in qualifying
instruments, the pro forma net effect of the sale transaction will be a gain to
us of approximately $12,000. The sale also resulted in a reduction in our days
outstanding of accounts receivable ("DSO's") at year-end to 38 days from 74 days
at the end of the third quarter of 2000. Under generally accepted accounting
principles, DSOs are calculated by dividing revenues by the average of the
beginning and ending balance of trade receivables. As at December 31, 2000, our
ending balance of trade receivables was $8,287,000.
Our inventory position at year-end was $16,726,000, up from $3,364,000 at
the end of 1999. The year-end inventory position included $3,543,000 of finished
goods and $590,000 of work in process, compared to $601,000 of finished goods
and no work in process in 1999. The increase in 2000 is a direct result of the
significant increase in orders for the first quarter of 2001 as compared to that
of the first quarter of 2000 and the fact that we began assembling U-Scan
systems during the fourth quarter of 2000. In addition, included in the
inventory were raw materials and replacement parts amounting to $3,658,000 and
$8,935,000, respectively. We believe that, considering our current installed
base and our anticipated run rate for 2001, this level of replacement parts is
appropriate for the current servicing and support of our customers.
We have no long-term debt. Shareholders' equity at December 31, 2000 was
$104,746,000.
We will continue to invest in sales, marketing and product support
infrastructure. We will continue to increase spending in research and
development activities in the areas of new technologies. Additions to leasehold
improvements and equipment will continue, including enhancing existing
facilities and computer systems for research and development, sales and
marketing, support and administrative staff.
During the third quarter of fiscal 2000, we determined that our 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 operations.
Prior to July 1, 2000, our 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 the
non-monetary items as at June 30, 2000 become the historical basis for those
items in subsequent periods.
Recently Issued Accounting Standards
As a result of the issuance of Staff Accounting Bulletin No. 101 (SAB 101)
issued by the staff of the Securities and Exchange Commission of the United
States, we reviewed our accounting policies and changed our revenue recognition
policy for sales of systems and installation services to that noted below.
17
Prior to the change, we accounted for revenues related to sales of systems and
installation services upon completion of installation. This change in policy did
not have a material effect on the current or prior years' revenues or net
earnings (loss).
Revenue is now recognized when all of the following conditions are met: we
have persuasive evidence of an arrangement; the prices for the systems or
services are fixed or determinable; collection is reasonably assured; and the
systems have been delivered or the services have been provided. Delivery of
systems occurs at the later of shipment of the system to the customer or upon
customer acceptance. Revenue for installation services is recognized as the
services are performed. Revenue from maintenance contracts is recognized over
the term of the contract.
Quarterly Results
The following table sets forth certain summarized unaudited quarterly
financial and other data for the periods presented. The financial data has been
derived from unaudited financial statements that, in the opinion of management,
reflect all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of such quarterly data. The operating results
for any quarter are not necessarily indicative of the results to be expected for
any future period.
The summary financial data are prepared on the basis of Canadian GAAP,
which is different in some regards from U.S. GAAP. For a description of the
material differences between Canadian GAAP and U.S. GAAP in regard to our
financial statements, see note 15 of the notes to the financial statements,
included in Item 8--"Financial Statements and Supplementary Data."
For the quarter ended
-----------------------------------------------------------------------------------
Dec. 31, Sept. 30, June 30, March 31, Dec. 31, Sept. 30, June 30, March 31,
2000 2000 2000 2000 1999 1999 1999 1999
---- ---- ---- ---- ---- ---- ---- ----
(U.S. dollars, in thousands except per share data)
(unaudited)
Revenues......................... $ 12,543 $ 20,301 $ 16,123 $ 12,004 $ 6,835 $ 10,686 $ 7,023 $ 5,090
Cost of sales.................... 9,467 15,120 11,957 9,014 5,449 8,128 5,536 4,344
----- ------ ------ ----- ----- ----- ----- -----
Gross margin..................... 3,076 5,181 4,166 2,990 1,386 2,558 1,487 746
----- ------ ------ ----- ----- ----- ----- -----
Earnings (loss) before income
Taxes......................... 354 2,962 3,317 1,135 (1,153) 1,420 428 (575)
Provision for (recovery of)
Income taxes............... 136 1,133 1,269 434 (3,532) -- -- --
----- ------ ------ ----- ------ -- -- --
Net earnings (loss).............. $ 218 $ 1,829 $ 2,047 $ 701 $ 2,379 $ 1,420 $ 428 $ (575)
----- ------ ------ ----- ------ ------ ----- -----
Basic net earnings (loss) per
Common share.................. $ 0.02 $ 0.13 $ 0.15 $ 0.06 $ 0.21 $ 0.13 $ 0.05 $ (0.08)
Fully diluted net earnings
(loss) per common share....... $ 0.02 $ 0.13 $ 0.15 $ 0.06 $ 0.18 $ 0.12 $ 0.05 $ (0.08)
Other data:
U-Scan systems
Sold during quarter........... 114 196 158 115 64 105 68 51
The following table sets forth, for the periods indicated, income statement
data expressed as a percentage of total revenues: For the quarter ended
For the quarter ended
-------------------------------------------------------------------------------
Dec. 31, Sept. 30, June 30, March 31, Dec. 31, Sept. 30, June 30, March 31,
2000 2000 2000 2000 1999 1999 1999 1999
---- ---- ---- ---- ---- ---- ---- ----
(unaudited)
Revenues................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............ 75.5 74.5 74.2 75.1 79.7 76.1 78.8 85.3
----- ----- ----- ----- ----- ----- ----- -----
Gross margin............. 24.5 25.5 25.8 24.9 20.3 23.9 21.2 14.7
----- ----- ----- ----- ----- ----- ----- -----
Earnings (loss) before
Income taxes......... 2.8 14.6 20.6 9.4 (16.9) 13.3 6.1 (11.3)
Provision for (recovery of)
Income taxes......... 1.1 5.6 7.9 3.6 (51.7) -- -- --
----- ----- ----- ----- ----- ----- ---- -----
Net earnings (loss)...... 1.7% 9.0% 12.7% 5.8% 34.8% 13.3% 6.1% (11.3)%
----- ----- ----- ----- ----- ----- ---- -----
18
Results of Operations
The following discussion and analysis of our results of operations and
liquidity and capital resources should be read in conjunction with the financial
information and our financial statements and their related notes, included in
Item 8--"Financial Statements and Supplementary Data." All dollar amounts have
been rounded to the nearest thousand.
2000 Compared with 1999
Total revenues increased by $31,336,000, or 106%, from 1999 to 2000. Sales
of U-Scan grew from 288 systems in 1999 to 583 systems in 2000, producing
$29,049,000 of additional systems revenues, an increase of 103%. The growth in
sales was due to a significant increase in orders from existing customers.
Service contract revenue recognized for hardware and software maintenance
increased by $2,370,000, or 238%, because of the increased number of customers
that entered into service contracts with us after purchasing U-Scan systems.
Total cost of sales increased by $22,101,000, or 94%, from 1999 to 2000.
Overall gross margin increased as a percentage of sales from 21% in 1999 to 25%
in 2000, primarily representing the increase in gross margin on system sales.
This increase resulted primarily from taking advantage of economies of scale and
reducing the costs of installing our systems.
Gross research and development expenses increased by $97,000, or 10%, from
1999 to 2000. As a percentage of total revenues, gross research and development
expenses decreased from 3% in 1999 to 2% in 2000. This percentage decrease
resulted from the substantial increase in the number of systems sold in 2000 as
compared to 1999. Research and development expenses during the year included the
cost of the development of the biometrics support feature and the U-Scan Mobile
Attendant(TM).
We may, for Canadian federal income tax purposes, defer and deduct in
future years certain scientific research and experimental development
expenditures incurred to date. As of December 31, 2000, the amount of such
deferred deductions is CA $3,228,000 (approximately US $2,153,000) for Canadian
federal income tax purposes and CA $3,363,000 (approximately US $2,243,000) for
Quebec provincial income tax purposes. These deductions may be carried forward
indefinitely. In addition, we have non-refundable investment tax credits of
approximately CA $836,000 (approximately US $558,000), which can be carried
forward to reduce Canadian federal income taxes payable and which expire in
various years through 2010.
During 1999, we retroactively adopted the revised recommendations of the
Canadian Institute of Chartered Accountants regarding accounting for income
taxes, which are consistent with U.S. GAAP. During the fourth quarter of 1999,
we received purchase commitments for a large number of systems which covered a
substantial portion of our fiscal 2000 budgeted sales target. In addition, there
had been a positive trend in our profitability and sales levels in the preceding
quarters. Based on these factors, we determined that as of December 31, 1999, it
was more likely than not that we would earn sufficient taxable income during the
allowable carry-forward period to fully realize all of our future income tax
assets as at that date. Therefore, as a result of this determination, we were
required to record, during the fourth quarter of 1999, an income tax recovery
with respect to these future income tax assets.
With respect to the future income tax assets recorded as at December 31,
2000, we have determined that it is still more likely than not that we will earn
sufficient taxable income during the allowable carry-forward period to fully
realize all of our future income tax assets. Our ability to ultimately realize
these future income tax assets will be dependent upon our realizing certain
sales levels within the allowable carry-forward period, thus creating sufficient
taxable income to realize the benefit of these assets. Our ability to realize
these assets is also dependent on effective control over our selling, general
and administrative expenses. Our determination that we will realize these tax
assets is based upon the fact that we currently have purchase commitments for a
large number of systems which cover a substantial portion of our fiscal 2001
budgeted sales target, there has been a positive trend in our profitability and
sales levels
19
and we expect our gross and operating margins to increase as a result of our
having assumed the assembly responsibility for our systems.
Selling, general, administrative and other expenses (including operating
lease expenses) increased by $4,503,000, or 74%, in 2000 compared to 1999. As a
percentage of total revenues, these expenses decreased from 21% in 1999 to 17%
in 2000. During the last quarter of 2000, 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 2000 in the following
areas: engineering, related to the design, development and early phase
commercial production of new casings for the U-Scan systems; the enlargement of
our Plattsburgh facility in connection with the commencement of system assembly
at this facility; the enlargement of our head office premises to accommodate the
growth in the number of our employees; and the opening of our facility in
Phoenix, Arizona.
1999 Compared with 1998
Total revenues increased by $24,016,000, or 427%, from 1998 to 1999. Sales
of U-Scan grew from 57 systems in 1998 to 288 systems in 1999, producing
$23,147,000 of additional systems revenues, an increase of 449%. The growth in
sales was due to a significant increase in orders from existing customers.
Service contract revenue recognized for hardware and software maintenance
increased by $855,000, or 600%, because of the increased number of customers
that entered into service contracts with us after purchasing U-Scan.
Total cost of sales increased by $18,322,000, or 357%, from 1998 to 1999.
Overall gross margin increased as a percentage of sales from 9% in 1998 to 21%
in 1999, primarily representing the increase in gross margin on system sales.
This increase resulted primarily from taking advantage of economies of scale and
reducing the costs of installing and servicing our products.
Gross research and development expenses increased by $636,000, or 196%,
from 1998 to 1999. As a percentage of total revenues, gross research and
development expenses decreased from 6% in 1998 to 3% in 1999. This percentage
decrease resulted from the substantial increase in the number of systems sold in
1999 as compared to 1998. Research and development expenses during the year
included the cost of the development of our U-Scan Solo and U-Scan Carousel
systems.
Selling, general, administrative and other expenses (including operating
lease expenses) increased by $1,493,000, or 24%, in 1999 compared to 1998. As a
percentage of total revenues, these expenses decreased from 82% in 1998 to 21%
in 1999. This percentage decrease resulted from the substantial increase in the
number of systems sold in 1999 compared to 1998. During the last quarter of
1999, we continued to expand sales and marketing efforts and hire additional
personnel, as our backlog continued to increase. In addition, we incurred
increased costs in engineering follow-through during the early phases of
commercial production for our U-Scan Solo and U-Scan Carousel systems. We also
incurred increased costs adapting the capabilities of our existing U-Scan system
to new customers' needs and for the start-up of our Plattsburgh facility.
A write-down of inventory of $604,000 in the fourth quarter of 1999 was
required due to upgrades in some hardware components, to recognize the declining
replacement costs for many components as a result of stronger purchasing power
with our suppliers, and due to parts obsolescence.
Our 1999 net earnings of $3,652,000 reflect an income tax recovery of
$3,532,000, which represents the future benefit of non-capital loss
carryforwards and undeducted scientific research and experimental development
expenditures which may be used to reduce taxable income, for Canadian federal
and Quebec provincial income tax purposes, in future years. We may utilize these
loss carryforwards and undeducted expenditures only to the extent that we
generate taxable income for Canadian federal and Quebec provincial income tax
purposes, in the future.
During 1999, we retroactively adopted the revised recommendations of the
Canadian Institute of Chartered Accountants regarding accounting for income
taxes, which are consistent with U.S. GAAP.
20
During the fourth quarter of 1999, we received purchase commitments for a large
number of systems which covered a substantial portion of our fiscal 2000
budgeted sales target. In addition, there had been a positive trend in our
profitability and sales levels in the preceding quarters. Based on these
factors, we determined that as of December 31, 1999, it was more likely than not
that we would earn sufficient taxable income during the allowable carry-forward
period to fully realize all of our future income tax assets as at that date.
Therefore, as a result of this determination, we were required to record, during
the fourth quarter of 1999, an income tax recovery with respect to these future
income tax assets.
Based on our earnings estimates for fiscal 2000, $3,013,000 of these future
income tax assets were classified as a current asset. These future income tax
assets were fully utilized in fiscal 2000.
Liquidity and Capital Resources
As of December 31, 2000, we had cash, cash equivalents and short-term
investments of $76,149,000 and working capital of $99,904,000.
Operating activities used $8,657,000 of cash and cash equivalents in 2000,
as compared to $2,918,000 in 1999. In 2000, we issued 1,625,000 common shares
pursuant to a public offering and 646,449 common shares pursuant to the exercise
of options and warrants, which resulted in net cash proceeds of $58,682,000 and
$1,984,000, respectively. In 1999, we issued 3,000,000 common shares pursuant to
a public offering and 961,963 common shares pursuant to the exercise of options
and warrants, which resulted in net cash proceeds of $24,206,000 and $2,467,000,
respectively.
In 2000, we had capital expenditures of $3,070,000, which principally
related to computer equipment, testing units and leasehold improvements related
to the expansion of our head office premises, our facility in Plattsburgh and
the opening of our facility in Phoenix. In 1999, we had capital expenditures of
$1,013,000, which were principally related to computer equipment and testing
units and leasehold improvements.
We believe that our cash, cash equivalents and short-term investments, will
be adequate to meet our needs for at least the next 12 months.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest rate and foreign currency exchange rate sensitivity table
December 31, 2000
-----------------
Maturing in Fair
----------- ----
2001 Value(1)
---- --------
(U.S. dollars)
Short-term discounted notes denominated in U.S. dollars, held for other than
trading purposes, with a weighted average effective yield of 6.5% (1999 - 5.8%),
maturing between January 26, 2001 and November 15, 2001 (1999 - matured on April
3, 2000), with a maturity value of $72,872,000................................... $71,141,910 $72,345,779
(1) Fair value has been determined based upon quoted market values as at
December 31, 2000.
We are exposed to foreign currency exchange rate fluctuations. We have
never tried to hedge our exchange rate risk, do not plan to do so and may not be
successful should we attempt to do so in the future. We are also exposed to
interest rate fluctuation risk, which we do not systematically manage. We
presently invest in short-term investment grade paper.
21
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Auditors' Report
To the Shareholders of
Optimal Robotics Corp.
We have audited the consolidated balance sheets of Optimal Robotics Corp. as at
December 31, 2000 and 1999 and the consolidated statements of operations,
deficit and cash flows for each of the years in the three-year period ended
December 31, 2000. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in Canada and the United States. Those standards require that we plan and
perform an audit to obtain reasonable assurance whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 2000
and 1999 and the results of its operations and its cash flows for each of the
years in the three-year period ended December 31, 2000 in accordance with
Canadian generally accepted accounting principles.
/s/ PricewaterhouseCoopers LLP
Chartered Accountants
Montreal, Quebec, Canada
February 9, 2001
22
Optimal Robotics Corp.
Consolidated Balance Sheets
As at December 31, 2000 and 1999
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
2000 1999
$ $
Assets
Current assets
Cash 5,006,982 4,499,084
Short-term investments (note 14) 71,141,910 24,636,606
Accounts receivable, net of allowance for doubtful accounts of nil (note 4) 10,485,017 4,641,566
Inventories (note 5) 16,725,885 3,363,943
Tax credits receivable 323,788 252,520
Future income taxes (note 12) 2,420,718 3,012,997
Prepaid expenses and deposits 327,039 127,017
--------------------------------------
106,431,339 40,533,733
Loan receivable (note 6) 125,934 155,643
Deferred share issue costs -- 56,985
Future income taxes (note 12) 1,462,227 2,112,028
Capital assets (note 7) 3,253,148 1,347,903
--------------------------------------
111,272,648 44,206,292
--------------------------------------
Liabilities
Current liabilities
Accounts payable and accrued liabilities (note 8) 6,492,371 3,659,189
Deferred revenue 34,695 592,271
Contract advance (note 11) -- 250,000
--------------------------------------
6,527,066 4,501,460
--------------------------------------
Commitments and contingency (note 11)
Shareholders' Equity
Share capital (note 9) 107,050,914 44,657,833
Other capital 9,684 20,559
Cumulative translation adjustment (1,484,471) 652,062
Deficit (830,545) (5,625,622)
--------------------------------------
104,745,582 39,704,832
--------------------------------------
111,272,648 44,206,292
--------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
Approved by the Board of Directors
/s/ Neil S. Wechsler /s/ Leon P. Garfinkle
____________________________ Director _____________________________ Director
23
Optimal Robotics Corp.
Consolidated Statements of Operations
For each of the years in the three-year period ended December 31, 2000
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
2000 1999 1998
$ $ $
(note 2)
Revenues 60,970,505 29,634,246 5,618,013
Cost of sales 45,557,943 23,457,413 5,135,077
-------------------------------------------------------------
Gross margin 15,412,562 6,176,833 482,936
-------------------------------------------------------------
Research and development expenses, net of tax
credits (note 11) 912,679 219,956 210,374
Selling, general and administrative expenses 9,153,760 5,548,833 4,215,487
Operating lease expense 624,834 232,471 211,399
Write-down of inventory -- 604,364 --
Amortization of capital assets 850,872 344,718 205,684
Investment income (3,896,899) (893,694) (449,244)
-------------------------------------------------------------
7,645,246 6,056,648 4,393,700
-------------------------------------------------------------
Earnings (loss) before income taxes 7,767,316 120,185 (3,910,764)
Provision for (recovery of) income taxes (note 12) 2,972,239 (3,531,583) --
-------------------------------------------------------------
Net earnings (loss) for the year 4,795,077 3,651,768 (3,910,764)
-------------------------------------------------------------
Weighted average number of common shares outstanding 13,104,361 9,699,385 7,463,984
-------------------------------------------------------------
Net earnings (loss) per common share
Basic 0.37 0.38 (0.52)
-------------------------------------------------------------
Fully diluted 0.35 0.35 (0.52)
-------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
24
Optimal Robotics Corp.
Consolidated Statements of Deficit
For each of the years in the three-year period ended December 31, 2000
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
2000 1999 1998
$ $ $
(note 2)
Deficit - Beginning of year (5,625,622) (9,277,390) (5,366,626)
Net earnings (loss) for the year 4,795,077 3,651,768 (3,910,764)
-------------------------------------------------------------
Deficit - End of year (830,545) (5,625,622) (9,277,390)
-------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
25
Optimal Robotics Corp.
Consolidated Statements of Cash Flows
For each of the years in the three-year period ended December 31, 2000
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
2000 1999 1998
$ $ $
(note 2)
Cash flows provided by (used for)
Operating activities
Net earnings (loss) for the year 4,795,077 3,651,768 (3,910,764)
Items not affecting cash
Write-down of inventory -- 604,364 --
Amortization of capital assets 850,872 344,718 205,684
Unrealized foreign exchange loss (gain) on contract
advance 5,948 (14,016) 53,414
Non-refundable tax credits (65,539) (490,438) --
Future income taxes 2,972,239 (3,531,583) --
Loss on securitization of accounts receivable 86,686 -- --
Change in non-cash operating working capital items
Increase in accounts receivable (13,391,909) (3,271,239) (380,271)
Proceeds on securitization of accounts receivable 7,222,898 -- --
Increase in inventories (13,556,156) (2,441,539) (1,376,724)
Increase in tax credits receivable (77,451) (128,289) (14,894)
Decrease (increase) in prepaid expenses and deposits (204,897) (120,936) 16,265
Increase in accounts payable and accrued liabilities 3,237,491 2,029,510 902,972
Increase (decrease) in deferred revenue (532,007) 449,257 124,784
------------------------------------------
(8,656,748) (2,918,423) (4,379,534)
------------------------------------------
Financing activities
Issuance of common shares 65,358,738 29,467,094 435,596
Share issue costs (4,693,285) (2,793,434) --
Deferred share issue costs -- (55,616) --
Repayment of loans under Employee Stock Purchase
Arrangement -- 141,348 --
Decrease in contract advance (250,000) (125,000) (125,000)
------------------------------------------
60,415,453 26,634,392 310,596
------------------------------------------
Investing activities
Purchase of capital assets (3,069,584) (1,012,586) (234,207)
Decrease (increase) in short-term investments (47,707,424) (18,460,828) 4,558,988
Repayment of loans receivable 26,231 15,088 12,854
------------------------------------------
(50,750,777) (19,458,326) 4,337,635
------------------------------------------
Increase in cash and cash equivalents during the year 1,007,928 4,257,643 268,697
Effect of exchange rate changes on cash and cash
equivalents (500,030) (297,049) --
Cash and cash equivalents - Beginning of year 4,499,084 538,490 269,793
------------------------------------------
Cash and cash equivalents - End of year 5,006,982 4,499,084 538,490
------------------------------------------
Supplementary information
Cash paid during the year for interest 34,747 38,786 1,182
Cash paid for income taxes 26,660 -- --
The accompanying notes are an integral part of the consolidated financial
statements
26
Optimal Robotics Corp.
Notes to Consolidated Financial Statements
For each of the years in the three-year period ended December 31, 2000
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
1. Nature of operations
The Company is engaged in the development, marketing, installation and
servicing of automated transaction software and systems designed for use in
the retail sector. The Company's principal product focus is its U-Scan(R)
system, a self-service checkout system for the retail industry. The Company
also develops, markets and services its 6300 POS for the supermarket
industry.
The U-Scan(R) system allows shoppers to scan, bag and pay for their
purchases with limited or no assistance from store personnel. The 6300 POS
is an open architecture, PC-based, point-of-sale system designed to replace
proprietary cash registers at high volume retailers.
2. Summary of significant accounting policies
Basis of presentation
These financial statements have been prepared in accordance with accounting
principles generally accepted in Canada. These principles conform, in all
material respects, with accounting principles generally accepted in the
United States, except as described in note 15. The principal accounting
policies of the Company, which have been consistently applied, are
summarized as follows:
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Principles of consolidation
These consolidated financial statements include the accounts of the Company
and its wholly owned U.S. subsidiary, Optimal Robotics, Inc.
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 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 operations.
27
Optimal Robotics Corp.
Notes to Consolidated Financial Statements
For each of the years in the three-year period ended December 31, 2000
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
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.
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 was
adopted as the reporting currency. Comparative financial information for
1998 has been presented in U.S. dollars in accordance with a translation of
convenience method using the representative exchange rate at December 31,
1998 of US$1.00 - CA$1.5333. The translated amount for non-monetary items
as at December 31, 1998 became the historical basis for those items in
subsequent years.
Foreign currency transactions
Transactions denominated in foreign currencies are translated into the
functional currency using the temporal method.
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand and balances with banks
and all highly liquid debt instruments with original terms to maturity of
three months or less.
Short-term investments
Short-term investments, which management intends to hold until maturity,
are carried at the lower of amortized cost and market value.
Inventories
Replacement parts and raw material inventories are stated at the lower of
landed cost and replacement cost. Finished goods and work in process
inventories are stated at the lower of cost and net realizable value. Cost
is determined on the basis of actual costs.
Capital assets
Capital assets are recorded at cost. Amortization is provided for over the
estimated useful lives of the capital assets using the straight-line method
as follows:
Test units 33%
Equipment 10%
Leasehold improvements Over lease term plus one renewal period
Computer equipment and software 33%
Patents 5%
28
Optimal Robotics Corp.
Notes to Consolidated Financial Statements
For each of the years in the three-year period ended December 31, 2000
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
Revenue recognition
Revenue is recognized when all of the following conditions are met: the
Company has persuasive evidence of an arrangement; the prices for the
systems or services are fixed or determinable; collection is reasonably
assured; and the systems have been delivered or the services have been
provided. Delivery of systems occurs at the later of shipment of the system
to the customer or upon customer acceptance. Revenue for installation
services is recognized as the services are performed. Revenue from
maintenance contracts is recognized over the term of the contract.
Change in accounting policy
As a result of the issuance of Staff Accounting Bulletin No. 101 (SAB 101)
issued by the staff of the Securities and Exchange Commission of the United
States, the Company reviewed its accounting policies and changed its
revenue recognition policy for sales of systems and installation services
to that noted above. Prior to the change, the Company accounted for
revenues related to sales of systems and installation services upon
completion of installation. This change in policy did not have a material
effect on the current or prior years' revenues or net earnings (loss).
Tax credits
The Company is entitled to scientific research and experimental development
("SRED") tax credits granted by the Canadian federal government ("Federal")
and the government of the Province of Quebec ("Provincial"). Federal SRED
tax credits, which can only be used to offset Federal income taxes
otherwise payable, are earned on qualified Canadian SRED expenditures at a
rate of 20%. Provincial SRED tax credits are earned on qualified SRED
salaries in the Province of Quebec at a rate of 20%. These tax credits are
refundable.
SRED tax credits are accounted for as a reduction of the related
expenditures. The refundable portion of SRED tax credits is recorded in the
year in which they are earned. The non-refundable portion of SRED tax
credits is recorded at such time as the Company has reasonable assurance
that the credits will be realized.
Income taxes
The Company provides for income taxes using the liability method of tax
allocation. Under this method, future income tax assets and liabilities are
determined based on deductible or taxable temporary differences between
financial statement values and tax values of assets and liabilities using
enacted income tax rates expected to be in effect for the year in which the
differences are expected to reverse.
The Company establishes a valuation allowance against future income tax
assets if, based on available information, it is more likely than not that
some or all of the future income tax assets will not be realized.
Research and development expenses
Research costs, which include all costs incurred to establish technological
feasibility, are charged to operations in the year in which they are
incurred. Technological feasibility has been defined as the completion of
the product design for the computer software.
Once technological feasibility has been established, development costs are
evaluated for deferral and subsequent amortization. As at December 31,
2000, the Company has not deferred any development costs.
29
Optimal Robotics Corp.
Notes to Consolidated Financial Statements
For each of the years in the three-year period ended December 31, 2000
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
Stock-based compensation plan
The Company maintains a stock-based compensation plan, which is described
in note 10. Under accounting principles generally accepted in Canada, no
compensation expense is recognized for this plan when stock options or
shares are issued to employees. Any consideration received from plan
participants upon exercise of stock options is credited to capital stock.
Earnings (loss) per share
Basic earnings (loss) per share is determined using the weighted average
number of common shares outstanding during the period.
Fully diluted earnings (loss) per share is determined using the weighted
average number of common shares and dilutive common share equivalents, such
as stock options and warrants, outstanding during the period. Earnings for
the period are increased by the estimated additional earnings, net of
applicable income taxes, on the proceeds from the exercise of dilutive
common share equivalents.
3. New accounting pronouncements
The Canadian Institute of Chartered Accountants ("CICA") has approved
revised recommendations relating to the computation of earnings per share.
These new recommendations, which are effective for fiscal years beginning
on or after January 1, 2001, substantially eliminate the current
differences between Canadian and U.S. generally accepted accounting
principles with respect to the computation of the weighted average number
of shares for purposes of computing diluted earnings per share. The
adoption of this new standard will result in diluted earnings (loss) per
share of $0.32, $0.33 and $(0.52) for the years ended December 31, 2000,
1999 and 1998, respectively.
4. Accounts receivable
2000 1999
$ $
Trade accounts receivable 8,287,492 4,305,188
Accrued interest 1,309,772 176,019
Other 887,753 160,359
----------------------------------
10,485,017 4,641,566
----------------------------------
During 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 fourth
quarter of fiscal 2000, the Company sold accounts receivable with an
aggregate carrying value of $7,309,584 for net proceeds amounting to
$7,222,898. The excess of the carrying value over the net proceeds on
securitization of these accounts receivable of $86,686 has been charged to
interest expense in 2000.
30
Optimal Robotics Corp.
Notes to Consolidated Financial Statements
For each of the years in the three-year period ended December 31, 2000
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
5. Inventories
2000 1999
$ $
Finished goods 3,543,262 600,682
Work in process 589,424 --
Raw materials 3,657,967 --
Replacement parts 8,935,232 2,763,261
--------------------------------------
16,725,885 3,363,943
--------------------------------------
6. Loan receivable
To an officer/director to purchase a home in the amount of CA$204,000 (1999
- CA$221,000). This loan is non-interest bearing and is repayable in annual
instalments of CA$17,000 until July 1, 2012. This loan is forgivable if the
officer/director leaves the employment of the Company for any reason.
7. Capital assets
2000 1999
$ $
Cost
Test units 926,564 443,931
Equipment 716,441 331,775
Leasehold improvements 1,751,151 499,105
Leasehold improvements under construction -- 275,862
Computer equipment and software 1,407,920 516,286
Patents 13,686 13,686
--------------------------------------
4,815,762 2,080,645
--------------------------------------
Accumulated amortization
Test units 531,548 268,670
Equipment 72,727 33,322
Leasehold improvements 462,932 253,756
Computer equipment and software 482,098 164,050
Patents 13,309 12,944
--------------------------------------
1,562,614 732,742
--------------------------------------
Net carrying amount 3,253,148 1,347,903
--------------------------------------
31
Optimal Robotics Corp.
Notes to Consolidated Financial Statements
For each of the years in the three-year period ended December 31, 2000
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
8. Accounts payable and accrued liabilities
2000 1999