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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, 2001
[_] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition 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
Securities registered pursuant to Section 12(g) of the Act:
Title of each class:
Class "A" shares, no par value
Securities registered pursuant to Section 12(b) of the Act:
None
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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 March 15, 2002 (computed by reference to the
last reported sale price of the common shares on the Nasdaq Stock Market on such
date): $236,698,295
Number of common shares outstanding at March 15, 2002: 15,471,335
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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In this Form 10-K, except where otherwise indicated, references to
"dollars" or "$" are to United States dollars, and references to "Cdn.$" are to
Canadian dollars.
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(R) 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 2001 U-Scan
systems processed over 350 million customer transactions. The U-Scan system can
be operated quickly and easily by shoppers and makes the checkout process more
convenient for them. The U-Scan system 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, 2001, we had sold 1,937 U-Scan systems, consisting of
7,706 checkout stations, across 42 states. 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:
1997 1998 1999 2000 2001
---- ---- ---- ---- ----
U-Scan system sales:
Systems sold during year..................... 22 57 288 583 979
Systems sold as at year-end.................. 30 87 375 958 1,937
U-Scan checkout stations sold as at year-end....... 120 346 1,498 3,808 7,706
Customer transactions (millions)(1)................ 12 45 150 350
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(1) Estimated, based on reports provided by our customers. Prior to 1998, we
did not track this data.
Our Corporate Information
Our company was formed in 1984 and is incorporated under the federal laws
of Canada. We commenced our current business in 1991. Our principal office is
located at 4700 de la Savane, Suite 101, Montreal, Quebec, H4P 1T7, and our
telephone number is (514) 738-8885. We have two subsidiaries, Optimal Robotics
Inc., a wholly-owned Delaware corporation and Optimal Robotics (Canada) Corp., a
wholly-owned Canadian corporation.
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.
The U-Scan system, which can be quickly and easily operated, addresses these
shoppers' needs by providing them with more control over the checkout process.
We believe that the potential market for self-checkout solutions includes
applications beyond supermarkets and supercenters. General merchandise stores,
home improvement stores and other big-box retailers have begun to purchase
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 and toy stores. 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 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
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200,000 in 1999, and that the number of ATMs in use worldwide was over 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 The Kroger Co.
o Ahold NV (which includes Bi-Lo, Tops, Giant Food and Stop & Shop in
the United States)
o Meijer Inc.
o The Great Atlantic & Pacific Tea Company, Inc. (A&P)
o Harris Teeter
o Price Chopper Supermarkets
o Loblaw Companies Limited
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 the U-Scan system. 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 purchased our
systems.
We believe that these customers have chosen to install the U-Scan
self-checkout system 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 979 systems sold in 2001, a majority were sold to The Kroger Co.
through its various divisions and affiliates. The loss of this customer could
have a material adverse effect upon our company.
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,
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o an established brand name and corporate identity,
o eight 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-hours per day, 365-days per
year on-line helpdesk supported by a dedicated network of service
personnel.
Our Business Strategy
Our primary objectives are to sell more U-Scan systems for installation in
additional supermarkets and supercenters, to begin selling U-Scan systems and
other self-checkout systems for installation in other kinds of stores, and to
initiate sales of our systems in Europe.
Key elements of our business strategy are to:
Increase Sales in Existing and New Supermarket and Supercenter Accounts. We
plan to further increase our penetration of existing customer accounts and
continue to increase 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 new lower profile ergonomically advanced variants of our U-Scan
system. Each of these new units enables customers to scan, bag and pay for their
purchases with limited or no assistance from store personnel, much like the
U-Scan Express(R) system, and we believe that these new units will serve to
expand our potential customer base.
Advance Our Leadership Position Through Innovation. We plan to continue to
enhance our self-checkout product line through offering the most advanced
peripherals and further automating certain processes of the self-checkout
experience.
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:
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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 system 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 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 system 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 system 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 system 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 system then prompts the shopper to select the form of payment. The
U-Scan system 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. The U-Scan system 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.
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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 system 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 system 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 system can also be customized to support a retailer's
electronic anti-theft system.
Customization and Flexible Technology
The U-Scan system 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 system 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 system 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 system 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.
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Optimal 6300 POS System
The Optimal 6300 POS(TM) 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
system.
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 our U-Scan systems directly to customers through our
own sales personnel. Consistent with our strategy of increasing distribution of
the U-Scan systems, we continue to actively review and evaluate other marketing
relationships.
We have eight 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.
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 system 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 continued to refine and simplify the integration of
Electronic Article Surveillance systems with any of our U-Scan
systems.
o Paging - We have introduced a paging unit that allows the U-Scan
system to page a supervisor if assistance is required in the event
that the supervisor is not standing at the traditional supervisor
terminal.
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o U-Scan Mobile Attendant(TM) device - We have completed the development
of a miniature, wireless handheld unit that allows a range of
supervisor functions to be performed even when the supervisor is not
standing at the traditional supervisor terminal.
o GUI - We have developed and improved the Graphics User Interface
(GUI).
o Remote update - We have developed new mechanisms for automated remote
update of the U-Scan system software.
We intend to increase research and development efforts in the following
areas:
o Developing new products and designs 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 Identifying and testing new (intelligent) devices to increase
reliability and improve serviceability of the U-Scan system.
o Developing a new lower profile, smaller footprint U-Scan system.
o Developing more sophisticated security algorithms.
o Developing support for alternative lane configurations, including six
lanes supervised by a single supervisor terminal.
o Researching the use of image recognition in self-checkout.
Our research and development expenses, net of tax credits, were approximately
$1,224,000 in 2001, $913,000 in 2000 and $220,000 in 1999.
Product Assembly
We assemble all of our systems at our Plattsburgh, New York and Phoenix,
Arizona facilities. See Item 2--"Description of Properties."
Suppliers
The U-Scan system 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 system
casing is specially manufactured for us by three 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 system for a fee.
Software support is provided to all customers via our helpdesk on a 24
hours per day, 365 days per 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 system can be
accessed on-line from our premises.
Hardware support is provided by our own technicians, including through our
Optimal Systems Services(TM) division, and a small number of independent service
companies with whom we have contracted and who are certified by us.
Alternatively, U-Scan system customers can elect to have their own facility
engineering group perform hardware maintenance on the system, in which case we
train such personnel.
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If there is a problem caused by a hardware malfunction, which cannot be
solved by the customer with the support of our helpdesk, or another matter
requiring personnel to be on-site, a technician is dispatched to assist the
customer. We maintain certified technicians at our headquarters in Montreal, and
in 40 states and two provinces.
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 customer's trained and certified employees
or by certified third party installers. For a typical installation by us, an
experienced technician 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. Certain of our competitors are larger and may have
greater financial, technical, and marketing resources. We believe, however, that
the U-Scan system 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 or have filed applications for the registration of over
one dozen different trademarks in the United States, Canada and the European
Union.
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We hold patents issued in the United States, Canada and certain member
states of the European Union and have additional patents pending in the United
States for various components of our system. Patents pending in the United
States will also be filed, within prescribed delays, in various member states to
the international Patent Cooperation Treaty.
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, 2001, we employed 502 (2000 - 288), 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 Segments and Geographic Areas
See note 16(a) of the notes to our consolidated financial statements, which
are included in Item 8 - "Financial Statements and Supplementary Data."
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 consolidated 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. We prepare our consolidated financial statements in accordance
with accounting principles which are generally accepted in Canada with a
reconciliation to accounting principles generally accepted in the United States.
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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: Leon P. Garfinkle
(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 51,000 square feet of leased
space at 4700 de la Savane, Montreal, Quebec, under a lease that expires on
January 31, 2006, subject to our right to renew the lease for an additional
28-month period. Our systems are assembled in a facility located in
approximately 43,000 square feet of leased space in Plattsburgh, New York, under
a lease that expires on March 31, 2003, and in a facility located in
approximately 26,000 square feet of leased space in Phoenix, Arizona, under a
lease that expires on September 30, 2004. The Plattsburgh and Phoenix leases may
be renewed for additional three-year and four-year periods, respectively. We
also operate a technical support hub in approximately 19,200 square feet of
leased space in Covington, Kentucky.
We also maintain parts storage facilities in 22 states and two provinces.
We intend to expand or to open additional hub facilities in the United States to
support current and future installations.
The following is a summary of our facilities:
Facility Location
Headquarters 4700 de la Savane, Montreal, Quebec
Systems Assembly Plattsburgh, New York and Phoenix, Arizona
Regional Facilities/ Arizona (Phoenix, Tucson, Glendale)
Parts Storage Hubs California (San Diego, Santa Ana, Rocklin)
Colorado ( Greeley)
Florida (Seffner)
Georgia (Jonesboro, Norcross Peachtree City,
Marietta, Savannah)
Illinois (Hillside, Urbana)
Indiana (Indianapolis, Fisher, Mishawaka, Kokomo)
Kentucky (Covington, Louisville)
Massachusetts (Canton, Northwood)
Maryland (Middle River, Timonium)
Michigan (Grand Rapids, Flint, Canton, Lansing,
Warren, Fulton, Clinton Township)
New Jersey (Edison)
New York (Holtsville)
North Carolina (Greensboro, Raleigh, Waxhaw,
Huntersville)
Ohio (Mogadore, Pickerington)
Oregon (Milwaulkie, Beaverton, Springfield)
South Carolina (Simpsonville)
Tennessee (Memphis, Hermitage, Knoxville,
Murfeesboro)
Texas (Houston, Irvings)
Virginia (Roanoke)
Washington (Seattle, Kent, Snohomish, Spanaway)
Wisconsin (Oak Creek)
Ontario (Ottawa, Cambridge)
Quebec (Montreal)
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Item 3. LEGAL PROCEEDINGS
Legal Proceedings
In each of 1995 and 1996, we received a demand letter from the same
claimant alleging that the U-Scan system 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 the
U-Scan system, 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 determination by a court that the
system infringes upon either of the claimant's rights would have a material
adverse effect on our business and results of operations.
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.
We are also party to litigation arising in the normal course of operations.
We do not expect the resolution of such matters to have a materially adverse
effect on our financial position or results of operations.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) Market Information
Our common shares trade on the Nasdaq National Market under the symbol
"OPMR." The following table sets forth the range of high and low bid
prices for our common shares as reported by the Nasdaq Stock Market.
Nasdaq Stock Market
-------------------
$ High $ Low
------- -----
2002
1st Quarter (through March 15, 2002)..... 36.15 13.86
2001
1st Quarter.............................. 38.38 25.56
2nd Quarter.............................. 38.15 23.19
3rd Quarter.............................. 53.48 24.50
4th Quarter.............................. 37.77 18.47
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
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.
12
(b) Holders
At March 15, 2002, there were 1,846 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, if any, 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, 2001 and 2000 and
for the years ended December 31, 2001, 2000 and 1999 are derived from and are
qualified by reference to our audited consolidated financial statements, which
are included in Item 8--"Financial Statements and Supplementary Data." The
following selected financial data as of December 31, 1998 and 1997 and for the
years ended December 31, 1998 and 1997 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 generally accepted accounting principle
(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 our consolidated
financial statements, which are 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," our consolidated
financial statements, the related notes and the other financial information
included elsewhere in this Form 10-K.
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
consolidated financial statements, see note 19 of the notes to our consolidated
financial statements, which are included in Item 8--"Financial Statements and
Supplementary Data."
13
Year ended December 31,
-----------------------------------------------------------------
2001 2000 1999 1998 1997
--------- --------- --------- --------- ---------
(U.S. dollars, in thousands except per share data)
Income Statement Data:
Revenues ..................................................... $ 101,421 $ 60,971 $ 29,634 $ 5,618 $ 3,397
Cost of sales ................................................ 63,159 45,558 23,457 5,135 2,709
--------- --------- --------- --------- ---------
Gross margin ................................................. 38,262 15,413 6,177 483 688
Selling, general, administrative and other expenses .......... 21,280 10,629 6,126 4,633 2,359
Research and development expenses, net of tax credits ........ 1,224 913 220 210 294
Write-down of inventory ...................................... -- -- 604 -- --
Investment income ............................................ (3,148) (3,896) (893) (449) (584)
--------- --------- --------- --------- ---------
Earnings (loss) before income taxes .......................... 18,906 7,767 120 (3,911) (1,381)
Provision for (recovery of) income taxes ..................... 9,600 2,972 (3,532) -- --
--------- --------- --------- --------- ---------
Net earnings (loss) .......................................... $ 9,306 $ 4,795 $ 3,652 $ (3,911) $ (1,381)
========= ========= ========= ========= =========
Weighted average number of common shares outstanding
(thousands) ............................................... 14,705 13,104 9,699 7,464 7,410
Weighted average diluted number of common shares
outstanding (thousands)(1) ................................ 15,573 14,499 10,929 7,464 7,410
Basic net earnings (loss) per common share(2) ................ $ 0.63 $ 0.37 $ 0.38 $ (0.52) $ (0.19)
========= ========= ========= ========= =========
Diluted net earnings (loss) per common share(1)(2) ........... $ 0.60 $ 0.33 $ 0.33 $ (0.52) $ (0.19)
========= ========= ========= ========= =========
Other data (unaudited):
U-Scan system sales:
Systems sold during year ............................... 979 583 288 57 22
Systems sold as at year-end ............................ 1,937 958 375 87 30
U-Scan self-checkout stations sold as at year-end ............ 7,706 3,808 1,498 346 120
Customer transactions (millions)(3) .......................... 350 150 45 12
Balance Sheet Data: December 31,
-----------------------------------------------------------------
2001 2000 1999 1998 1997
--------- --------- --------- --------- ---------
(U.S. dollars, in thousands)
Cash, cash equivalents and short-term investments ............ $ 104,104 $ 76,149 $ 29,136 $ 6,063 $ 10,354
Working capital .............................................. 124,850 100,030 36,032 7,319 10,783
Total assets ................................................. 147,391 111,273 44,206 9,329 11,848
Shareholders' equity ......................................... 133,473 104,746 39,705 7,596 11,072
U.S. GAAP Financial Data: Year Ended December 31,
-----------------------------------------------------------------
2001 2000 1999 1998 1997
--------- --------- --------- --------- ---------
(U.S. dollars, in thousands except per share data)
Revenues ..................................................... $ 101,421 $ 60,971 $ 29,634 $ 5,618 $ 3,397
Net loss ..................................................... (23,294) (14,105) (5,575) (16,403) (6,806)
Basic and diluted net loss per common share .................. (1.58) (1.08) (0.57) (2.20) (0.92)
December 31,
-----------------------------------------------------------------
2001 2000 1999 1998 1997
--------- --------- --------- --------- ---------
(U.S. dollars, in thousands)
Total assets ................................................. $ 147,391 $ 111,273 $ 44,191 $ 9,312 $ 12,679
(1) In 2001, we adopted the new recommendations of the Canadian Institute of
Chartered Accountants with respect to the calculation of diluted earnings
per share, which requires the use of the treasury stock method. The new
recommendations have been applied retroactively and accordingly, all
figures presented for periods prior to 2001 have been adjusted to conform
to the new recommendations. See note 2(n) of the notes to our consolidated
financial statements, which are included in Item 8-- "Financial Statements
and Supplementary Data."
(2) See note 15 of the notes to our consolidated financial statements, which
are included in Item 8-- "Financial Statements and Supplementary Data," for
supplementary measure of net earnings per share.
(3) Estimated, based on reports provided by our customers. Prior to 1998, we
did not track this data.
14
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of our company should be read in conjunction with our consolidated
financial statements for the years ended December 31, 2001, 2000 and 1999, which
are included in Item 8--"Financial Statements and Supplementary Data", and the
factors set forth below under "Forward-Looking Statements." All dollar amounts,
other than those expressed in millions of dollars, have been rounded to the
nearest thousand.
Overview
We are the leading provider of self-checkout systems to retailers in the
United States. Our principal product is the U-Scan 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, 2001, we had sold 1,937 U-Scan systems, consisting of
7,706 checkout stations, across 42 states. Based on reports provided by our
customers, we estimate that in 2001, U-Scan systems processed over 350 million
customer transactions. The U-Scan system can be operated quickly and easily by
shoppers and makes the checkout process more convenient. The U-Scan system
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 potential market for self-checkout solutions includes
applications beyond supermarkets and supercenters. General merchandise stores,
home improvement stores and other big-box retailers have begun to purchase
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 and toy stores.
We prepare our consolidated financial statements in accordance with
accounting principles which are generally accepted in Canada with a
reconciliation to accounting principles generally accepted in the United States,
as disclosed in note 19 of the notes to our consolidated financial statements,
which are included in Item 8--"Financial Statements and Supplementary Data."
Seasonality
Our revenue and gross margins vary from quarter to quarter as a result of
the level of business volumes and seasonality of demand.
Our contracts with key customers generally provide a framework for the
overall relationship with the customer. Actual production volumes are based on
purchase orders for the delivery of systems. We minimize risk relative to our
production inventory by ordering materials and components mainly to the extent
necessary to satisfy existing customer orders.
Our annual and quarterly operating results are primarily affected by the
level and timing of customer orders. Historically, we have experienced seasonal
variation in revenue, with revenue typically being highest in the second and
third quarters and lowest in the first and fourth quarters.
Trends in our costs
Gross margins on the sale of U-Scan systems are expected to increase during
the course of 2002. The increase is expected to result from greater efficiencies
over the assembly function of the U-Scan system, and the ability to leverage our
component requirements.
We continue to focus on taking advantage of economies of scale and reducing
the costs of installing and servicing our systems. One of the primary
responsibilities of our purchasing department is sourcing of new suppliers and
obtaining the best possible component prices.
15
As a result of our continuing cost-cutting initiatives, we experienced a
reduction in some of our component costs in 2001. 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 our plan to further increase our penetration of existing customer
accounts and sell to new customers.
Acquisition of Alpha Microsystems
On May 29, 2001, we acquired certain assets and the ongoing business of
Alpha Microsystems, LLC ("Alpha"), based in Santa Ana, California, for a total
purchase price of approximately $6.8 million, of which $5.7 million was paid by
the assumption of liabilities and $1.1 million was paid in cash. The acquired
assets formed the basis for the Optimal Systems Services division of our
company. Optimal System Services performs installation and on-site service
support for the U-Scan systems as well as computer hardware maintenance support
for third party accounts. See note 3 of the notes to our consolidated financial
statements, which are included in Item 8--"Financial Statements and
Supplementary Data."
Critical accounting policies
In December 2001, the Commission released "Cautionary Advice Regarding
Disclosure About Critical Accounting Policies." According to the Commission
release, accounting policies are among the "most critical" if they are, in
management's view, most important to the portrayal of the company's financial
condition and results and most demanding on their calls on judgment.
The discussion and analysis of our financial condition and results of
operations is based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in Canada.
On an ongoing basis, we evaluate our estimates, including those related to bad
debts, inventories, investments, intangible assets, income taxes, and
contingencies and litigation. We base our estimates on historical experience and
on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.
Our critical accounting policies are:
o Revenue Recognition: Over 90% of our revenues are derived from the
sale of our U-Scan systems. Revenue from these product sales is recognized
upon shipment, delivery or upon customer acceptance of the product, based
upon the terms as defined in the customer contract. In general, sales to a
retail chain follow a three-step process, in which the customer takes
delivery of a single U-Scan station, then places a full system in a store
for evaluation and finally decides whether to commit to a volume order. No
revenue is recognized for a new customer until the customization and
integration process is complete and accepted by the customer. Installation
service revenue, which is billed separately from product sales, is
recognized at the time the service has been provided to the customer.
Installations can be performed by our technicians, by the customer's
trained and certified employees, or by certified third party installers.
Revenue from maintenance, which is subject to separate service and support
contracts, is deferred and amortized ratably over the term of the contract.
o Inventory: 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.
In order to provide maintenance and repair services to our customers, we
are required to maintain significant levels of replacement parts. Parts are
stated at cost, less an allowance for obsolescence and shrinkage. The costs
of refurbishing parts are included in the cost of sales as incurred.
16
Periodic revisions to allowance estimates are required, based upon the
evaluation of several factors, including changes in estimated product life
cycles, usage levels, and technology changes. Changes in these estimates
are reflected immediately in income.
Supplementary measure of net earnings
As a result of unrealized foreign exchange gains which arise on the
conversion of short-term investments and other monetary assets and liabilities
into Canadian dollars for purposes of determining taxable income under Canadian
income tax regulations, we recorded a future tax liability in the amount of
approximately $2.2 million in 2001. Because the U.S. dollar is our measurement
currency and our consolidated financial statements are presented in U.S.
dollars, these foreign exchange gains do not impact earnings before income taxes
even though the income tax provision includes a tax liability for these gains.
To illustrate the impact of the foreign exchange gains, management has also
included in this discussion a supplementary measure of net earnings for its
operating performance, which excludes the effects of future income taxes on
unrealized foreign exchange gains. Supplementary net earnings is not a measure
of performance under Canadian GAAP or U.S. GAAP and should not be considered in
isolation or as a substitute for net earnings prepared in accordance with
Canadian GAAP or U.S. GAAP. See note 15 of the notes to our consolidated
financial statements, which are included in Item 8--"Financial Statements and
Supplementary Data."
Functional currency
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 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. Translation gains
and losses 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. With the adoption of the U.S. dollar as our
functional currency on July 1, 2000, the amount of the cumulative translation
adjustment has not changed.
Goodwill and other intangible assets
In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
141, "Business Combinations" and SFAS 142 "Goodwill and Other Intangible
Assets". SFAS 141, which replaces APB Opinion No. 16, revises the accounting
standards for business combinations and is effective for acquisitions initiated
after June 30, 2001. SFAS 142, which replaces APB Opinion No. 17, revises the
standards in accounting for goodwill and other intangibles and is effective for
fiscal years beginning after December 15, 2001. Similar standards have been
adopted by the Canadian Institute of Chartered Accountants. Effective for our
fiscal year beginning January 1, 2002, SFAS 142 changes the accounting for
goodwill from an amortization method to an impairment-only approach, with the
effect that goodwill and other intangibles determined to have an indefinite life
are no longer to be amortized but are to be tested for impairment at least
annually. In addition, SFAS 142 requires acquired intangible assets to be
separately recognized if the benefit of the intangible assets is obtained
through contractual or other legal right, or if the intangible assets can be
sold, transferred, licensed, rented or exchanged.
As of January 1, 2002, we had unamortized goodwill in the amount of $2.7
million, and unamortized identifiable intangible assets in the amount of
$905,000, all of which will be subject to the transition provisions of SFAS 141
and SFAS 142. Amortization expense related to goodwill was $141,750 for the year
ended
17
December 31, 2001. Because of the extensive effort needed to comply with
adopting SFAS 141 and SFAS 142, it is not practicable to reasonably estimate the
impact of adopting these Statements on our consolidated financial statements at
the date of this Form 10-K, including whether any transitional impairment losses
will be required to be recognized as the cumulative effect of a change in
accounting principle.
Financial Condition
Our cash and short-term investment portfolio amounted to $104,104,000 as at
December 31, 2001, compared to $76,149,000 as at December 31, 2000. The increase
relates primarily to free cash flows generated by our company of $8,534,000 and
proceeds received from the exercise of options and warrants of $19,421,000. Free
cash flows in 2001 were comprised of cash flows from operations less cash used
for the purchase of capital assets and the completion of the Alpha acquisition
discussed above. Our portfolio of short-term investments consists of short-term
discounted notes with a weighted average effective yield of 1.85%. Our
investments are liquid and investment grade. The portfolio is invested in U.S.
and Canadian dollar denominated securities, which are short-term to minimize
interest rate risk.
Our inventory position at year-end was $22,355,000, up from $16,726,000 at
the end of 2000. The year-end inventory position included $2,779,000 of finished
goods and $542,000 of work in process, compared to $3,543,000 of finished goods
and $589,000 of work in process in 2000. The increase in 2001 resulted from the
increase in our customer base and the additional inventory that we required
since we commenced assembling our products on January 1, 2001. In addition,
included in the inventory were raw materials and replacement parts amounting to
$6,970,000 and $12,064,000, respectively, for 2001 and $3,658,000 and
$8,935,000, respectively, for 2000. The increase in raw materials is
attributable to the fact that we began assembling our U-Scan systems in January
2001. The replacement part inventory increased in order to service additional
systems sold during the year. We believe that, considering our current installed
base and our anticipated sales for 2002, this level of replacement parts is
appropriate for the current servicing and support of our customers.
We have no long-term debt. Shareholders' equity as at December 31, 2001 was
$133,473,000 as compared to $104,746,000 as at December 31, 2000.
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.
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
consolidated financial statements, see note 19 of the notes to our consolidated
financial statements, which are included in Item 8--"Financial Statements and
Supplementary Data."
18
For the quarter ended
---------------------------------------------------------------------------------------------
Dec. 31, Sept. 30, June 30, March 31, Dec. 31, Sept. 30, June 30, March 31,
2001 2001 2001 2001 2000 2000 2000 2000
-------- -------- -------- -------- -------- -------- -------- --------
(U.S. dollars, in thousands except per share data)
(unaudited)
Revenues .................... $ 16,971 $ 33,757 $ 31,085 $ 19,608 $ 12,543 $ 20,301 $ 16,123 $ 12,004
Cost of sales ............... 10,836 20,718 19,334 12,271 9,467 15,120 11,957 9,014
-------- -------- -------- -------- -------- -------- -------- --------
Gross margin ................ 6,135 13,039 11,751 7,337 3,076 5,181 4,166 2,990
-------- -------- -------- -------- -------- -------- -------- --------
Earnings before income taxes 15 7,809 6,940 4,142 354 2,962 3,317 1,135
Provision for income taxes .. 2,028 3,258 2,692 1,622 136 133 1,269 434
-------- -------- -------- -------- -------- -------- -------- --------
Net earnings (loss) ......... $ (2,012) $ 4,551 $ 4,248 $ 2,520 $ 218 $ 1,829 $ 2,047 $ 701
======== ======== ======== ======== ======== ======== ======== ========
Basic net earnings (loss) per
common share ............. $ (0.13) $ 0.30 $ 0.30 $ 0.18 $ 0.02 $ 0.13 $ 0.15 $ 0.06
Diluted net earnings
(loss) per common share(1) $ (0.13) $ 0.28 $ 0.28 $ 0.17 $ 0.01 $ 0.12 $ 0.14 $ 0.06
Other data:
U-Scan systems
sold during quarter ...... 139 325 315 200 114 196 158 115
(1) In 2001, we adopted the new recommendations of the Canadian Institute of
Chartered Accountants with respect to the calculation of diluted earnings
per share, which requires the use of the treasury stock method. The new
recommendations have been applied retroactively and accordingly, all
figures presented for periods prior to 2001 have been adjusted to conform
to the new recommendations. See note 2(n) of the notes to our consolidated
financial statements, included in Item 8- "Financial Statements and
Supplementary Data."
The following table sets forth, for the periods indicated, income statement
data expressed as a percentage of total revenues:
For the quarter ended
---------------------------------------------------------------------------------------------
Dec. 31, Sept. 30, June 30, March 31, Dec. 31, Sept. 30, June 30, March 31,
2001 2001 2001 2001 2000 2000 2000 2000
-------- -------- -------- -------- -------- -------- -------- --------
(unaudited)
Revenues .................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales ............... 63.9 61.4 62.2 62.6 75.5 74.5 74.2 75.1
-------- -------- -------- -------- -------- -------- -------- --------
Gross margin ................ 36.1 38.6 37.8 37.4 24.5 25.5 25.8 24.9
-------- -------- -------- -------- -------- -------- -------- --------
Earnings before
income taxes ............ 0.0 23.1 22.3 21.1 2.8 14.6 20.6 9.4
Provision for
income taxes ............ 11.9 9.7 8.7 8.2 1.1 5.6 7.9 3.6
-------- -------- -------- -------- -------- -------- -------- --------
Net earnings (loss) ......... (11.9)% 13.4% 13.6% 12.9% 1.7% 9.0% 12.7% 5.8%
======== ======== ======== ======== ======== ======== ======== ========
Results of Operations
2001 Compared with 2000
Total revenues increased by $40,451,000, or 66%, from 2000 to 2001. Sales
of our U-Scan systems grew from 583 systems in 2000 to 979 systems in 2001,
producing $33,512,000 of additional systems revenues, an increase of 58%. The
growth in sales was due to a significant increase in orders from existing
customers as well as new customers. Service contract revenue recognized for
hardware and software maintenance increased by $6,682,000, or 198%, in part
because of the increased number of customers that entered into service contracts
with us after purchasing U-Scan systems and in part due to the service revenues
generated by the Optimal Systems Services division of our company, which was
established following completion of the Alpha acquisition discussed above. In
total, service revenues accounted for approximately 8.5% of our total revenues
in 2001 (2000- 5.1%).
Total cost of sales increased by $17,601,000, or 39%, from 2000 to 2001.
Overall gross margin increased as a percentage of sales from 25% in 2000 to 38%
in 2001, primarily due to the increase in gross margin on system sales. This
margin increase resulted primarily from the fact that commencing January 1, 2001
we began to assemble all of our U-Scan systems.
19
Gross research and development expenses increased by $966,000, or 91%, from
2000 to 2001. As a percentage of total revenues, gross research and development
expenses remained constant at 2% for both 2000 and 2001. Research and
development expenses during the year included the cost of the completion of the
U-Scan Mobile Attendant device and the development of an electronic signature
capture interface and process; a paging feature; a lower profile, smaller
footprint U-Scan system; and the improvement of the graphics user interface
(GUI).
Selling, general, administrative and other expenses (including operating
lease expenses) increased by $10,651,000, or 100%, in 2001 compared to 2000. As
a percentage of total revenues, these expenses increased from 17% to 21%. The
increase in selling, general, administrative and other expense in 2001 was
primarily due to increased investment in sales and marketing, support and
administrative staff required to service the increased customer base and
strategic acquisitions.
The provision for income taxes amounted to $9,600,000 in 2001 as compared
to $2,972,000 in 2000. We have utilized all unclaimed scientific research and
experimental development expenditures and federal investment tax credits carried
forward to reduce our cash taxes payable for 2001.
Our effective tax rate for 2001 was 51% as compared to 38% during the same
period for 2000. The increase was due to Canadian income taxes recognized on
foreign exchange gains in the amount of approximately $2.2 million. Because our
consolidated financial statements are presented in U.S. dollars, the foreign
exchange gains which, for Canadian income tax purposes, arise on the conversion
into Canadian dollars of our net monetary assets denominated in U.S. dollars
create a tax liability even though foreign exchange gains do not impact our
earnings before income taxes. Excluding the effect of Canadian income taxes on
these foreign exchange gains, the effective tax rate in 2001 would have been 39%
instead of 51%.
Net income in 2001 was $9,306,000 (or $0.60 per share (diluted)), compared
to $4,795,000 in 2000 (or $0.33 per share (diluted)), an increase of 94%. As a
measure of our financial performance, management uses supplementary net earnings
of operating performance. Supplementary net earnings exclude the effect of
future income taxes on unrealized foreign exchange gains, as discussed in note
15 of the notes to our consolidated financial statements, which are included in
Item 8--"Financial Statements and Supplementary Data." Excluding the income
taxes on the foreign exchange gains, supplementary measure of net earnings is
$11,479,000 for 2001, an increase of 139% compared with $4,795,000 for 2000. On
a per-share basis, the supplementary measure of net earnings is $0.78 (basic)
and $0.74 (diluted) for 2001, as compared to $0.37 (basic) and $0.33 (diluted)
for 2000.
2000 Compared with 1999
Total revenues increased by $31,336,000, or 106%, from 1999 to 2000. Sales
of our U-Scan systems 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 device.
As at December 31, 2000, for Canadian income tax purposes, we were entitled
to defer and deduct in future years certain scientific research and experimental
development expenditures incurred to that date. As of
20
December 31, 2000, the amount of such deferred deductions was Cdn.$3,228,000
(approximately US $2,153,000) for Canadian federal income tax purposes and
Cdn.$3,363,000 (approximately US $2,243,000) for Quebec provincial income tax
purposes. These deductions could be carried forward indefinitely. In addition,
we had non-refundable investment tax credits of approximately Cdn.$836,000
(approximately US $558,000), which could be carried forward to reduce Canadian
federal income taxes payable and which would 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 determined that it was still 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. Our ability to ultimately realize
these future income tax assets was 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 was also dependent on effective control over our selling, general
and administrative expenses. Our determination that we would realize these tax
assets was based upon the fact that we had purchase commitments for a large
number of systems which covered a substantial portion of our fiscal 2001
budgeted sales target, there was a positive trend in our profitability and sales
levels and we expected 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.
Liquidity and Capital Resources
As of December 31, 2001, we had cash, cash equivalents and short-term
investments of $104,104,000 (2000 - $76,149,000), and working capital of
$124,850,000 (2000 - $100,030,000).
Operating activities generated $13,678,000 of cash and cash equivalents in
2001, as compared to using $8,631,000 in 2000. In 2001, we issued 1,762,645
common shares pursuant to the exercise of options and warrants, which resulted
in net cash proceeds of $19,421,000. 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 2001, we acquired certain assets and the ongoing business of Alpha for a
cash consideration of $1,141,000, as discussed above. In addition we had capital
expenditures of $4,004,000, which principally related to computer equipment and
software, testing units and a customer list purchased from one of Alpha's
customers.
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.
21
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.
We have no financial obligations of significance other than long-term lease
commitments for our premises in the United States and Canada. These are
summarized in note 12(a) of the notes to our consolidated financial statements,
which are included in Item 8--"Financial Statements and Supplementary Data."
Forward-Looking Statements
This Form 10-K contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, which are intended to be
covered by the safe harbors created thereby. Words such as "expects", "intends",
"anticipates", "plans", "believes", "seeks", "estimates", or variations of such
words and similar expressions are intended to identify such forward-looking
statements. Investors are cautioned that all forward-looking statements involve
risk and uncertainty. Although we believe that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of the
assumptions could be inaccurate, and therefore, there can be no assurance that
the forward-looking statements included in this Form 10-K will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation of our company or any other person
that the objectives and plans of our company will be achieved.
The following factors are not intended to represent a complete list of the
general or specific factors that may affect us. It should be recognized that
other factors, including general economic factors and business strategies, may
be significant, presently or in the future, and the factors discussed below may
affect us to a greater extent than indicated. All forward-looking statements
attributable to us or persons acting on our behalf are expressly qualified in
their entirety by the cautionary statements set forth herein. Except as required
by law, we undertake no obligation to update any forward-looking statement,
whether as a result of new information, future events or otherwise.
WE PRINCIPALLY DEPEND ON ONE LINE OF PRODUCTS. Our near-term success
depends principally on the sales volume of one line of products, the U-Scan
self-checkout system. Our longer-term success depends upon the continued
acceptance of and demand for this one product line, as well as new products that
we may bring to market. If the U-Scan systems experience significant problems,
competition from superior technology, or customer resistance, we could be harmed
significantly.
Sales growth will depend on our generating additional orders from existing
U-Scan system customers, as well as finding new customers for the system. We
believe that our customers will only purchase the system if they conclude that
shoppers will use it and that there are financial benefits to their stores from
its installation. We believe that shoppers will use the system only if it is
convenient, easy to use and reliable.
WE RELIED ON ONE CUSTOMER FOR A MAJORITY OF OUR REVENUES IN 2001. One
significant customer, through its various divisions and affiliates, accounted
for more than half of our revenues in 2001, and we rely on this customer's
continued willingness to purchase our U-Scan systems. We may not be able to
generate new customers for our U-Scan systems.
WE MAY NOT BE ABLE TO MANAGE OUR GROWTH. In recent years, we have
experienced significant growth in sales. As a result, we have had to hire and
train additional skilled personnel. Should sales continue to increase, we will
have to hire and train even more personnel to customize, install and support our
U-Scan systems. There is no assurance that we will be able to hire the skilled
personnel we will need to meet increased demand, should it develop. This is
particularly true for installation and support personnel, for whom there is
significant competition. If we are unable to hire such personnel, our sales may
be adversely affected. Despite our recent growth, we are still a small company,
and should demand for our products be unexpectedly strong, we may be unable to
fill our orders.
22
WE RELY ON THIRD PARTY SUPPLIERS. The U-Scan system is assembled from
components that are readily available from numerous suppliers. Although we may
use a single supplier for particular components, given the open architecture of
our system, we are not dependent on any single supplier for any particular
component. Nevertheless, should any of our suppliers fail to deliver components
to us in a timely manner, it could disrupt our business.
OUR U-SCAN SYSTEMS ARE ASSEMBLED AT TWO FACILITIES. We assemble our systems
at our main facility in Plattsburgh, New York and at our facility in Phoenix,
Arizona. A disruption of operations at any of our facilities for any reason,
including labor unrest or natural disaster, could have a short-term adverse
effect upon our business and results of operations.
WE MAY NOT BE ABLE TO KEEP PACE WITH CHANGES IN TECHNOLOGY. The
self-checkout industry is rapidly developing. The technology used by the U-Scan
system is changing rapidly, in part due to the evolving demands of our
customers. To be successful, we will have to anticipate the demands of our
customers and improve our existing product line and develop new products to
satisfy them. If we fail to improve and develop products by the times and at the
prices demanded by our customers, our business and prospects may be adversely
affected. Our competitors may introduce new technology that is better than ours.
If so, we will have to improve our technology in order to remain competitive. If
we are unable to do so, there might be an adverse impact on us.
WE DEPEND UPON KEY PERSONNEL. Our future success depends to a great extent
on the continued services of our senior management and other key personnel,
including sales people. Our success will also depend upon our ability to hire
and retain qualified personnel to assemble, install and support our systems, to
improve our existing products and to develop new ones. These people will
include:
o programmers and other software engineers,
o project managers,
o installers, and
o hardware and software support personnel.
The competition for these people may be significant, despite current
economic conditions. Should we have difficulty hiring or retaining qualified
personnel, it could adversely affect our business and prospects.
COMPETITION COULD REDUCE REVENUE FROM THE U-SCAN SYSTEM. The market for
checkout systems is very competitive. The chief rival for our U-Scan system is
the traditional manned checkout counter. Although the use of automated
self-checkout systems such as the U-Scan system is relatively new, we expect
increasing competition for sales of this product. The barriers to entering this
market may be low. Certain of our competitors are larger and may have greater
financial and other resources. Competitors include NCR, Symbol Technologies and
Productivity Solutions. PSC has also recently entered the self-checkout market.
We may not be able to compete successfully against these and other companies
with greater financial and other resources. In the event that general economic
conditions result in reduced demand in our industry, our competitors could
develop aggressive pricing practices, which, in turn, could result in price
reductions, negatively affecting our operating results, reducing our profit
margins and potentially leading to a loss of market share.
OUR PRODUCTS MAY CONTAIN DEFECTS. Our products, including the U-Scan
system, are complex and, despite extensive testing, may contain undetected flaws
when first installed for a new customer. This is particularly true of the
software in the U-Scan system, which must be adapted to each customer's
information systems. If serious, any such flaws could prevent or delay market
acceptance of our products and cause us to incur substantial re-engineering
expenses.
THE ADVERSE RESOLUTION OF LITIGATION AGAINST US COULD ADVERSELY IMPACT OUR
BUSINESS. We are currently a defendant in an action alleging that the U-Scan
system infringes upon the claimant's patent, and a second party has sent a
demand letter to us alleging a different patent infringement. See Item 3 -
"Legal Proceedings." We are and may in the future be subject to other litigation
arising in the normal course of our business. Litigation may be time consuming,
expensive and distracting from the conduct of our
23
business, and the outcome of litigation is difficult to predict. The adverse
resolution of any specific lawsuit could have a material adverse effect on our
business, results of operations, and financial condition.
ORGANIZED LABOR MAY RESIST U-SCAN. The U-Scan system displaces cashiers.
For this reason, organized labor may seek provisions in collective bargaining
agreements that prevent stores from purchasing the system.
WE MAY BE VULNERABLE TO TECHNOLOGICAL PROBLEMS. We are a
technology-oriented company and depend to a significant degree upon our ability
to communicate on-line or by telephone with the systems that we have sold. If we
are unable to access these systems due to technological problems beyond our
control, it will have a material adverse effect on our ability to assist our
customers. Additionally, if our customers are unable to reach us by telephone or
via the Internet, we will also be unable to respond to questions or address
serious problems faced by these customers. If our ability to communicate with
our systems or our customers is impaired, our business may be adversely
affected. The Internet is subject to security and privacy breaches, which may
impact us or our customers.
ECONOMIC CONDITIONS IN THE UNITED STATES AND CANADA, AFFECTING THE
SELF-CHECKOUT INDUSTRY, ARE BEYOND OUR CONTROL AND MAY RESULT IN REDUCED DEMAND
AND PRICING PRESSURE ON OUR PRODUCTS. There are trends and factors affecting the
self-checkout industry, which are beyond our control and may affect our
operations. Such trends and factors include:
o adverse changes in the public and private equity and debt markets and
the ability of our customers to obtain financing or to fund capital
expenditures;
o visibility to, and the actual size and timing of, capital expenditures
by our customers;
o the effects of war or acts of terrorism.
Reduced capital spending and/or negative economic conditions in the United
States and Canada could result in reduced demand for or pricing pressures on our
products. Reduced capital spending and/or negative economic conditions in Europe
could affect our plan to initiate sales of our systems in Europe.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The table below provides information about our financial instruments that
are sensitive to changes in interest rates and foreign currency exchange rates.
Interest rate and foreign currency exchange rate sensitivity table
December 31, 2001
--------------------------
Maturing in Fair
----------- ----
2002 Value(1)
---- --------
(U.S. dollars)
Short-term discounted notes denominated in
U.S. and Canadian dollars, held for other
than trading purposes, with a weighted
average effective yield of 1.85% (2000 -
6.5%), maturing between March 19, 2002 and
May 31, 2002 (2000 - matured between January
26, 2001 and November 15, 2001), with a
maturity value of $94,571,000....................... $94,487,000 $94,635,000
(1) Fair value has been determined based upon quoted market values as at
December 31, 2001.
We are exposed to foreign currency exchange rate fluctuations. A
significant portion of our expense is paid in Canadian dollars, while
substantially all of our revenues are earned in U.S. dollars. If the Canadian
dollar strengthens in relation to the U.S. dollar, the effective cost of our
expenses (as reported in U.S. dollars) will increase. 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.
24
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
AUDITORS' REPORT TO THE SHAREHOLDERS
We have audited the consolidated balance sheets of Optimal Robotics Corp. as at
December 31, 2001 and the consolidated statements of operations, retained
earnings and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with Canadian generally accepted auditing
standards and United States generally accepted auditing standards. 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, 2001
and the results of its operations and its cash flows for the year then ended in
accordance with Canadian generally accepted accounting principles.
The consolidated financial statements as at December 31, 2000 and for each of
the years in the two-year period ended December 31, 2000 were audited by other
auditors who expressed an opinion without reservation on those statements in
their report dated February 9, 2001.
/s/ KPMG LLP
Chartered Accountants
Montreal, Canada
February 18, 2002
25
Auditors' Report
To the Shareholders of
Optimal Robotics Corp.
We have audited the consolidated balance sheet of Optimal Robotics Corp. as at
December 31, 2000 and the consolidated statements of operations, deficit and
cash flows for each of the years in the two-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 the results of its operations and its cash flows for each of the years in
the two-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
26
OPTIMAL ROBOTICS CORP.
Consolidated Balance Sheets
December 31, 2001 and 2000
(expressed in U.S. dollars)
====================================================================================================================================
2001 2000
- -----------------------------------------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 9,616,430 $ 5,006,982
Short-term investments (note 4) 94,487,326 71,141,910
Accounts receivable (note 5) 9,009,445 10,610,951
Inventories (note 6) 22,355,267 16,725,885
Tax credits receivable 884,057 323,788
Future income taxes (note 14) 284,253 2,420,718
Prepaid expenses and deposits 989,107 327,039
-----------------------------------------------------------------------------------------------------------------------------
137,625,885 106,557,273
Property, plant and equipment (note 7) 6,130,347 3,252,771
Intangibles (note 8) 3,635,163 377
Future income taxes (note 14) -- 1,462,227
- -----------------------------------------------------------------------------------------------------------------------------------
$ 147,391,395 $ 111,272,648
====================================================================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities (note 9) $ 6,673,804 $ 6,492,371
Income taxes payable 4,794,476 --
Deferred revenue 1,307,312 34,695
-----------------------------------------------------------------------------------------------------------------------------
12,775,592 6,527,066
Future income taxes (note 14) 1,143,213 --
Shareholders' equity:
Share capital (note 10) 126,476,633 107,050,914
Other capital 5,282 9,684
Retained earnings (deficit) 8,475,146 (830,545)
Cumulative translation adjustment (1,484,471) (1,484,471)
-----------------------------------------------------------------------------------------------------------------------------
133,472,590 104,745,582
Commitments and contingencies (note 12)
- -----------------------------------------------------------------------------------------------------------------------------------
$ 147,391,395 $ 111,272,648
====================================================================================================================================
See accompanying notes to consolidated financial statements.
Approved by the Board of Directors
/s/ HOLDEN L. OSTRIN Director /s/ NEIL S. WECHSLER Director
- ------------------------------- --------------------------
27
OPTIMAL ROBOTICS CORP.
Consolidated Statement of Operations
For each of the years in the three-year period ended December 31, 2001
(expressed in U.S. dollars)
===================================================================================================================================
2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------------
Revenues $ 101,421,243 $ 60,970,505 $ 29,634,246
Cost of sales 63,158,749 45,557,943 23,457,413
- -----------------------------------------------------------------------------------------------------------------------------------
Gross margin 38,262,494 15,412,562 6,176,833
Expenses (income):
Selling, general and administrative 18,531,978 9,153,760 5,548,833
Research and development (note 13) 1,223,956 912,679 219,956
Amortization 1,538,366 850,872 344,718
Operating lease 1,210,201 624,834 232,471
Write-down of inventory -- -- 604,364
Investment income (3,147,698) (3,896,899) (893,694)
-----------------------------------------------------------------------------------------------------------------------------
19,356,803 7,645,246 6,056,648
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 18,905,691 7,767,316 120,185
Income tax provision (recovery) (note 14) 9,600,000 2,972,239 (3,531,583)
- -----------------------------------------------------------------------------------------------------------------------------------
Net earnings $ 9,305,691 $ 4,795,077 $ 3,651,768
===================================================================================================================================
Earnings per common share (note 15)
===================================================================================================================================
See accompanying notes to consolidated financial statements.
28
OPTIMAL ROBOTICS CORP.
Consolidated Statement of Retained Earnings
For each of the years in the three-year period ended December 31, 2001
(expressed in U.S. dollars)
====================================================================================================================================
2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Deficit, beginning of year $ (830,545) $(5,625,622) $(9,277,390)
Net earnings 9,305,691 4,795,077 3,651,768
- -----------------------------------------------------------------------------------------------------------------------------------
Retained earnings (deficit), end of year $ 8,475,146 $ (830,545) $(5,625,622)
===================================================================================================================================
See accompanying notes to consolidated financial statements.
29
OPTIMAL ROBOTICS CORP.
Consolidated Statement of Cash Flows
For each of the years in the three-year period ended December 31, 2001
(expressed in U.S. dollars)
===================================================================================================================================
2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net earnings $ 9,305,691 $ 4,795,077 $ 3,651,768
Adjustments for items not affecting cash:
Amortization of capital assets 1,538,366 850,872 344,718
Unrealized foreign exchange loss (gain)
on contract advance -- 5,948 (14,016)
Non-refundable tax credits -- (65,539) (490,438)
Future income taxes 4,741,905 2,972,239 (3,531,583)
Loss on securitization of accounts receivable 73,955 86,686 --
Write-down of inventory -- -- 604,364
Changes in operating assets and liabilities:
Accounts receivable (6,544,104) (13,365,678) (3,256,151)
Proceeds on securitization of accounts
receivable 9,458,760 7,222,898 --
Inventories (4,374,837) (13,556,156) (2,441,539)
Tax credits receivable (560,269) (77,451) (128,289)
Prepaid expenses and deposits (519,685) (204,897) (120,936)
Accounts payable and accrued liabilities (3,960,049) 3,237,491 2,029,510
Income taxes payable 4,794,476 -- --
Deferred revenue (276,037) (532,007) 449,257
-----------------------------------------------------------------------------------------------------------------------------
13,678,172 (8,630,517) (2,903,335)
Cash flows from financing activities:
Proceeds from issuance of common shares 19,421,317 65,358,738 29,467,094
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)
-----------------------------------------------------------------------------------------------------------------------------
19,421,317 60,415,453 26,634,392
Cash flows from investing activities:
Purchase of capital assets (4,003,625) (3,069,584) (1,012,586)
Cost of business acquisition (note 3) (1,141,000) -- --
Increase in short-term investments (23,345,416) (47,707,424) (18,460,828)
-----------------------------------------------------------------------------------------------------------------------------
(28,490,041) (50,777,008) (19,473,414)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents