SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
Commission file number 0-28572
OPTIMAL ROBOTICS CORP.
(Exact name of registrant as specified in its charter)
CANADA 98-0160833
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
4700 de la Savane, Suite 101, Montreal, Quebec, Canada H4P 1T7
(514) 738-8885
(Registrant's Telephone Number, including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes _X_ No _____
At October 22, 1999, the registrant had 11,085,549 Class "A" shares (without
nominal or par value) outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The financial statements required by item 1 are set forth on pages 3-12.
2
<PAGE>
OPTIMAL ROBOTICS CORP.
INTERIM
FINANCIAL STATEMENTS
(stated in United States dollars)
September 30, 1999
3
<PAGE>
OPTIMAL ROBOTICS CORP.
INTERIM BALANCE SHEET
(stated in United States dollars, unless otherwise noted)
<TABLE>
<CAPTION>
September 30 December 31
1999 1998
----------------------------
(unaudited)
<S> <C> <C>
Assets
Current assets
Cash $ 2,342,937 $ --
U.S. Treasury bill, at cost 558,227 538,490
Short-term investments 24,078,124 5,524,819
Accounts receivable, net of allowance for doubtful accounts
of nil (1998 - nil) 7,705,289 1,219,716
Inventory 2,432,683 1,401,049
Tax credits receivable 125,392 114,494
Prepaid expenses 77,056 2,935
----------------------------
37,319,708 8,801,503
Loans receivable 167,813 161,807
Capital assets 653,658 365,869
----------------------------
$ 38,141,179 $ 9,329,179
============================
Liabilities
Current liabilities
Accounts payable and accrued liabilities $ 2,083,396 $ 1,233,014
Deferred revenue 1,299,973 124,784
Current portion of contract advance -- 125,000
----------------------------
3,383,369 1,482,798
Contract advance 250,000 250,000
----------------------------
3,633,369 1,732,798
Contingency (Note 5)
Shareholders' Equity
Share capital 42,321,981 16,850,531
Other capital 23,240 23,240
Cumulative translation adjustment 166,215 --
Deficit (8,003,626) (9,277,390)
----------------------------
34,507,810 7,596,381
----------------------------
$ 38,141,179 $ 9,329,179
============================
</TABLE>
4
<PAGE>
OPTIMAL ROBOTICS CORP.
INTERIM STATEMENT OF OPERATIONS
(unaudited)
(stated in United States dollars, unless otherwise noted)
<TABLE>
<CAPTION>
Three months Nine months Three months Nine months
ended ended ended ended
September 30 September 30 September 30 September 30
1999 1999 1998 1998
---------------------------------------------------------------------------
(Note 2) (Note 2)
<S> <C> <C> <C> <C>
Revenues
Systems $10,342,151 $22,016,221 $ 2,617,735 $ 3,603,674
Development 76,381 225,731 52,898 142,989
Hardware and software maintenance 267,554 557,658 51,505 78,548
Other -- -- -- 118,286
---------------------------------------------------------------------------
10,686,086 22,799,610 2,722,138 3,943,497
Cost of sales
Systems 7,816,795 17,308,421 2,402,405 3,229,371
Development 24,832 79,077 22,827 59,562
Hardware and software maintenance 286,090 620,079 38,592 38,592
Other -- -- -- 92,267
---------------------------------------------------------------------------
8,127,717 18,007,577 2,463,824 3,419,792
---------------------------------------------------------------------------
Gross margin 2,558,369 4,792,033 258,314 523,705
Research and development, net of tax
credits 66,448 177,404 25,868 142,553
Selling, general, administrative and
other expenses 1,604,894 3,761,664 1,624,516 3,944,585
Amortization of capital assets 101,135 222,487 34,268 102,424
---------------------------------------------------------------------------
Earning (loss) before undernoted
items 785,892 630,478 (1,426,338) (3,665,857)
Other
Investment income 319,359 549,284 115,243 360,482
Foreign exchange gain 314,977 94,002 289,731 535,898
---------------------------------------------------------------------------
634,336 643,286 404,974 896,380
---------------------------------------------------------------------------
Net earnings (loss) for
the period $ 1,420,228 $ 1,273,764 $(1,021,364) $(2,769,477)
===========================================================================
Weighted average number of common
shares outstanding 10,784,114 9,212,360 7,474,278 7,456,933
===========================================================================
Basic net earnings (loss) per common
share $ 0.13 $ 0.14 $ (0.14) $ (0.37)
===========================================================================
Fully diluted net earnings (loss)
per common share $ 0.12 $ 0.14 $ (0.14) $ (0.37)
===========================================================================
</TABLE>
5
<PAGE>
OPTIMAL ROBOTICS CORP.
INTERIM STATEMENT OF DEFICIT
(unaudited)
(stated in United States dollars, unless otherwise noted)
<TABLE>
<CAPTION>
Three months Nine months Three months Nine months
ended ended ended ended
September 30 September 30 September 30 September 30
1999 1999 1998 1998
---------------------------------------------------------------------------
(Note 2) (Note 2)
<S> <C> <C> <C> <C>
Deficit, beginning of period $(9,423,854) $(9,277,390) $(7,114,739) $(5,366,626)
Net earnings (loss) for
the period 1,420,228 1,273,764 (1,021,364) (2,769,477)
---------------------------------------------------------------------------
Deficit, end of period $(8,003,626) $(8,003,626) $(8,136,103) $(8,136,103)
===========================================================================
</TABLE>
6
<PAGE>
OPTIMAL ROBOTICS CORP.
INTERIM STATEMENT OF CASH FLOWS
(unaudited)
(stated in United States dollars, unless otherwise noted)
<TABLE>
<CAPTION>
Nine months ended September 30
1999 1998
--------------------------------------
(Note 2)
<S> <C> <C>
Cash provided by (used in)
Operating activities
Net earnings (loss) for the period $ 1,273,764 $ (2,769,477)
Items not affecting cash
Amortization of capital assets 222,487 102,424
Unrealized foreign exchange gain on contract advance (11,041) --
Change in non-cash operating working capital items
Increase in accounts receivable (6,324,270) (1,520,432)
Increase in inventory (952,678) (316,009)
Decrease (increase) in tax credits receivable (5,662) 28,422
Decrease (increase) in prepaid expenses (72,765) 14,975
Increase in accounts payable and accrued liabilities 782,584 826,414
Increase in deferred revenue 1,150,223 85,251
--------------------------------------
(3,937,358) (3,548,432)
Financing activities
Increase in bank indebtedness -- 192,032
Issuance of common shares 25,453,562 432,596
Repayment of loan under Employee Stock Purchase Agreement 17,593 --
Decrease in contract advance (125,000) 51,099
--------------------------------------
25,346,155 675,727
Investing activities
Purchase of capital assets (488,645) (29,137)
Decrease (increase) in short-term investments (18,196,067) 3,161,300
--------------------------------------
(18,684,712) 3,132,163
--------------------------------------
Increase in cash and cash equivalents during the period 2,724,085 259,458
Effect of foreign exchange fluctuations on cash (361,411) --
Cash and cash equivalents at beginning of period 538,490 269,793
--------------------------------------
Cash and cash equivalents at end of period $ 2,901,164 $ 529,251
--------------------------------------
Cash and cash equivalents is comprised of
Cash $ 2,342,937 $ --
U.S. Treasury bill 558,227 529,251
--------------------------------------
$ 2,901,164 $ 529,251
======================================
</TABLE>
7
<PAGE>
OPTIMAL ROBOTICS CORP.
NOTES TO INTERIM FINANCIAL STATEMENTS
September 30, 1999
1 Interim financial information
The financial information as at September 30, 1999 and for the periods
ended September 30, 1999 and 1998 is unaudited; however, in the opinion of
management, all adjustments necessary to present fairly the results of the
periods have been included. The adjustments made were of a normal,
recurring nature. Interim results may not necessarily be indicative of
results expected for the year.
2 Accounting policies
Change in reporting currency
The financial statements of the Company were presented in Canadian dollars
up to December 31, 1997. Effective December 31, 1998, the U.S. dollar has
been adopted as the reporting currency. The functional currency continues
to be the Canadian dollar. The statements of operations and deficit for the
three and nine months ended September 30, 1998 and statement of cash flows
for the nine months ended September 30, 1998 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.
The translated amount for non-monetary items at December 31, 1998 became
the historical basis for those items in subsequent reporting periods. The
financial statements for the three and nine months ended September 30, 1999
have been translated using the current rate method.
3 Research and development
<TABLE>
<CAPTION>
Three months Three months
ended September Nine months ended ended September Nine months ended
30 1999 September 30 1999 30 1998 September 30 1998
-----------------------------------------------------------------------------
(Note 2) (Note 2)
<S> <C> <C> <C> <C>
Research and development
expenses $ 102,832 $ 286,478 $ 38,361 $ 213,731
Tax credits earned (36,384) (109,074) (12,493) (71,178)
-----------------------------------------------------------------------------
$ 66,448 $ 177,404 $ 25,868 $ 142,553
=============================================================================
</TABLE>
4 Basic net earnings (loss) per common share
The basic net earnings (loss) per common share has been calculated on the
weighted average number of shares outstanding.
Fully diluted net earnings per share has been determined using the weighted
average number of common shares plus any dilutive common share equivalents
outstanding during the period. Net earnings for the period are increased by
the estimated additional earnings on the proceeds from exercise of dilutive
common share equivalents.
8
<PAGE>
OPTIMAL ROBOTICS CORP.
NOTES TO INTERIM FINANCIAL STATEMENTS...continued
September 30, 1999
5 Contingency
On July 2, 1999, legal proceedings were instituted against the Company
alleging patent infringement. The Company has filed a defence against the
claim and believes that the claim is without merit; therefore, no provision
has been made in the financial statements.
6 Additional disclosures required by U.S. GAAP and differences between
Canadian GAAP and U.S. GAAP
Statement of operations
Transactions entered into after December 15, 1995 in which an entity
acquires goods and services from non-employees in exchange for equity
instruments are required to be recorded at fair value (SFAS No. 123).
For stock-based compensation plans, the Company has chosen to use the
intrinsic value method (APB Opinion No. 25), which requires compensation
cost to be recognized on the difference, if any, between the quoted market
price of the stock as at the grant date and the amount the individual must
pay to acquire the stock. Variable stock option plans require subsequent
changes in the fair value of the underlying stock to be recorded as an
adjustment to compensation cost. The options issued in 1997 have a cashless
exercise option and accordingly, they are accounted for as variable stock
option plans. On April 22, 1998, option holders waived the cashless
exercise option on options to acquire 1,507,000 common shares. Therefore,
subsequent changes in the fair value of the underlying stock are no longer
recorded as an increase or decrease of compensation cost until the options
are exercised.
9
<PAGE>
OPTIMAL ROBOTICS CORP.
NOTES TO INTERIM FINANCIAL STATEMENTS...continued
September 30, 1999
6 Additional disclosures required by U.S. GAAP and differences between
Canadian GAAP and U.S. GAAP ...continued
Under Canadian GAAP, compensation expense is not recognized.
Under U.S. GAAP, fully diluted earnings per share is calculated using the
treasury stock method.
<TABLE>
<CAPTION>
Three months Nine months Three months Nine months
ended ended ended ended
September 30 September 30 September 30 September 30
1999 1999 1998 1998
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net earnings (loss) for the
period in accordance with
Canadian GAAP $ 1,420,228 $ 1,273,764 $ (1,021,364) $ (2,769,477)
Stock-based compensation
costs (603,839) (2,310,584) (268,034) (11,680,421)
Change in reporting currency -- -- (12,519) (126,816)
---------------------------------------------------------------------------
Net earnings (loss) for the
period in accordance with
U.S. GAAP 816,389 (1,036,820) (1,301,917) (14,576,714)
Other comprehensive income
Foreign currency
translation
adjustments 35,846 184,571 (383,066) (684,242)
---------------------------------------------------------------------------
Comprehensive income (loss) $ 852,235 (852,249) $ (1,684,983) $(15,260,956)
===========================================================================
Weighted average number of
common shares outstanding 10,784,114 9,212,360 7,474,278 7,456,933
===========================================================================
Basic net earnings (loss)
per common share $ 0.08 (0.11) $ (0.17) $ (1.95)
===========================================================================
Fully diluted net earnings
(loss) per common share $ 0.07 (0.11) $ (0.17) $ (1.95)
===========================================================================
</TABLE>
10
<PAGE>
OPTIMAL ROBOTICS CORP.
NOTES TO INTERIM FINANCIAL STATEMENTS...continued
September 30, 1999
6 Additional disclosures required by U.S. GAAP and differences between
Canadian GAAP and U.S. GAAP ...continued
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
As reported U.S. GAAP As reported U.S. GAAP
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loans receivable $ 167,813 $ 150,607 $ 161,807 $ 144,133
---------------------------------------------------------------------------
Shareholders' equity
Share capital $ 42,321,981 46,395,648 $ 16,850,531 $ 19,420,856
Other capital 23,240 19,588,234 23,240 18,798,880
Deficit (8,003,626) (30,144,087) (9,277,390) (29,107,267)
Cumulative translation
adjustment 166,215 -- -- --
Accumulated other
comprehensive income -- (1,349,191) -- (1,533,762)
---------------------------------------------------------------------------
$ 34,507,810 $ 34,490,604 $ 7,596,381 $ 7,578,707
===========================================================================
</TABLE>
Change in reporting currency
As mentioned in Note 2, the Company adopted in 1998 the U.S. dollar as its
reporting currency. Under U.S. GAAP, the financial statements, including
prior years, are translated according to the current rate method. Under
Canadian GAAP, at the time of change in reporting currency, the historical
financial statements are presented using a translation of convenience (see
Note 2).
Under Canadian GAAP, the statements of operations for the three and nine
months ended September 30, 1998 were translated into U.S. dollars using an
exchange rate of US$1.00 = Cdn$1.5333 (see Note 2). Under U.S. GAAP,
revenues and expenses would be translated at exchange rates prevailing at
the respective transaction dates. The average exchange rates for the three
and nine months ended September 30, 1998 were 1.5147 and 1.4639,
respectively.
11
<PAGE>
OPTIMAL ROBOTICS CORP.
NOTES TO INTERIM FINANCIAL STATEMENTS...continued
September 30, 1999
6 Additional disclosures required by U.S. GAAP and differences between
Canadian GAAP and U.S. GAAP ...continued
Statement of cash flows
Under Canadian GAAP, the statement of cash flows for the nine months ended
September 30, 1998 was translated into U.S. dollars using an exchange rate
of US$1.00 = Cdn$1.5333 (see Note 2). Under U.S. GAAP, the historical
exchange rate on the dates of the cash flow activities would be used. For
the nine months ended September 30, 1999, there were no material
differences in the statement of cash flows under U.S. GAAP versus Canadian
GAAP. Following is a summary cash flow statement for the nine months ended
September 30, 1998 under U.S. GAAP:
Operating activities $ (3,675,248)
Financing activities 707,762
Investing activities 3,280,651
-----------------
Increase in cash and cash equivalents for the period 313,165
Effect of foreign exchange fluctuations on cash (53,707)
Cash and cash equivalents at beginning of period 269,793
-----------------
Cash and cash equivalents at end of period $ 529,251
=================
12
<PAGE>
Item 2. Management's discussion and analysis of results of operations and
financial condition
Some of the statements contained in this quarterly report contain
forward-looking statements, which may include information concerning growth and
operating strategies, liquidity and capital expenditures and financing plans.
These forward-looking statements involve known and unknown risks, uncertainties
and other factors that could cause the Company's actual results to differ
materially from those anticipated in these forward-looking statements.
Results of Operations
The following discussion and analysis of the Company's results of
operations and liquidity and capital resources should be read in conjunction
with the financial information and the financial statements of the Company and
their related notes appearing elsewhere herein. The financial statements have
been prepared in accordance with Generally Accepted Accounting Principles
("GAAP") in Canada, which conform in all material respects with U.S. GAAP except
as disclosed in Note 6 to the financial statements, which explains the nature of
the differences between Canadian and U.S. GAAP and their impact on the financial
statements.
Reporting Currency
The comparative financial statements for the three and nine month periods
ended September 30, 1998 are presented in U.S. dollars in accordance with the
translation of convenience method using the representative exchange rate at
December 31, 1998 of US$1.00 = Cdn$1.5333
13
<PAGE>
First nine months of 1999 compared with first nine months 1998
Total revenue increased by $18,856,113 or 478% from $3,943,497 in 1998 to
$22,799,610 in 1999. In 1999, the Company sold 224 U-Scan(R) Express systems,
compared with 40 systems in 1998. The growth in systems sales is due to a
significant increase in orders from existing customers, which produced
$18,412,547 of additional systems revenue. Development revenue, which relates to
the POS business, increased by $82,742, or 58%. Service contract revenue
recognized for hardware and software maintenance increased by $479,110, or 610%,
because of increased sales and the related increase in the number of stores that
entered into contracts with the Company after purchasing U-Scan(R) Express
systems.
Total cost of sales increased by $14,587,785 or 427%, from $3,419,792 in
1998 to $18,007,577 in 1999. Overall gross margin as a percentage of total
revenue increased from 13% in 1998 to 21% in 1999. This increase resulted
primarily from taking advantage of economies of scale and reducing the costs of
installing and servicing our products. Gross margin on system sales increased
from 10% in 1998 to 21% in 1999. In the first nine months of 1999, a negative
gross margin of 11% was realized on hardware and software maintenance revenue
because of the increase in the related hardware and software maintenance costs
that are required to support the rapid deployment of systems. The gross margin
on development revenue increased from 58% in 1998 to 65% in 1999.
Net research and development expenses increased by $34,851, or 24%, from
1998 to 1999. As a percentage of total revenue, research and development
expenses decreased from 4% in 1998 to 1% in 1999. This percentage decrease
resulted from the substantial increase in the number of U-Scan(R) Express
systems sold in 1999 as compared to 1998.
Selling, general and administrative and other expenses decreased by
$182,921, or 5% in 1999 compared to 1998. As a percentage of total revenue,
these expenses decreased from 100% in 1998 to 16% in 1999. This percentage
decrease resulted from the substantial increase in the number of U-Scan(R)
Express systems sold in 1999 as compared to 1998.
14
<PAGE>
Third quarter of 1999 compared with third quarter of 1998
Total revenue increased by $7,963,948, or 293%, from $2,722,138 in 1998 to
$10,686,086 in 1999. Sales of U-Scan(R) Express grew from 24 systems in 1998 to
105 systems in 1999, producing $7,724,416 of additional systems revenue, an
increase of 295%. Development revenue increased by $23,483, or 44%. Service
contract revenue recognized for hardware and software maintenance increased by
$216,049, or 419%.
Total cost of sales increased by $5,663,893, or 230%, from $2,463,824 in
1998 to $8,127,717 in 1999. Gross margin increased as a percentage of total
revenue from 9% in 1998 to 24% in 1999 which was primarily due to the increased
gross margin on system sales which increased from 8% in 1998 to 24% in 1999. In
the third quarter of 1999, a negative gross margin of 7% was realized on
hardware and software maintenance revenue. The gross margin on development
revenue increased from 57% in 1998 to 67% in 1999.
Net research and development expenses increased by $40,580, or 157%, from
1998 to 1999. As a percentage of total revenue, research and development
expenses remained constant at approximately 1%.
Selling, general and administrative and other expenses decreased by
$19,622, or 1% in 1999 compared to the third quarter of 1998. As a percentage of
total revenue, these expenses decreased from 60% in 1998 to 15% in 1999. This
percentage decrease resulted from the substantial increase in the number of
U-Scan(R) Express systems sold in 1999 as compared to 1998.
15
<PAGE>
Liquidity and Capital Resources
As of September 30, 1999, the Company had working capital of $33,936,339,
which included cash, cash equivalents and investment grade commercial paper of
$26,979,288. Operating activities for the first nine months of 1999 used
$3,937,358 as compared with $3,548,432 in 1998.
The Company believes that it has sufficient working capital to meet its
needs for the next 12 months.
In the first nine months of 1999, the Company had capital expenditures of
$488,645, principally relating to the acquisition of computer equipment, office
furniture, and mobile test units.
On May 20, 1999, the Company sold 3,000,000 Class "A" shares to the public
at a price of $9.00 per share, less offering costs and commissions for a net
cash proceeds of $24,169,388. For the nine-month period ended September 30, 1999
the Company also issued 610,271 Class "A" shares pursuant to the exercise of
options and warrants, resulting in net cash proceeds of $1,284,174.
The Company maintains an operating line of credit in the amount of $500,000
CAD with its banker.
In connection with the original agreement with PSC, the Company received a
$500,000 contract advance. In 1998, a repayment of $125,000 was made and in
January 1999, a further $125,000 repayment was made. The final repayment of
$250,000 is due on December 31, 2000.
16
<PAGE>
Year 2000 Issues
Many currently installed computer systems are not capable of distinguishing
21st century dates from 20th century dates. As a result, beginning on January 1,
2000, computer systems and software used by the Company's customers will produce
erroneous results or fail unless they have been modified or upgraded to process
date information correctly. Significant uncertainty exists in the software
industry and other industries concerning the scope and magnitude of problems
associated with the century change. The Company recognizes the need to ensure
that its operations will not be adversely affected by Year 2000 software
problems.
The Company has completed its assessment of the Year 2000 issues in the
software contained in its products and the software contained in its internal
systems. Based on its current assessment, the Company has determined that the
consequences of the Year 2000 issues with respect thereto will not have a
material effect on its business, results of operation or financial condition.
Upgrades required to make current internal systems Year 2000 ready were
installed and tested by June 30, 1999 at a cost that was not material to the
Company. All internal systems installed hereafter will be tested and verified
for Year 2000 readiness at the time of installation at no additional cost. No
alteration to the Company's software products will be necessary. The Company is
in the process of upgrading the software operating platform used in its products
to a version which is certified to be Year 2000 ready.
The Company's products are generally integrated into a store's information
systems, which we may not be able to adequately evaluate for Year 2000
readiness. Although it has not been a party to any litigation or arbitration
involving its products or services related to Year 2000 readiness issues, the
Company may in the future be required to defend its products or services in such
proceedings, or to negotiate resolutions of claims based on Year 2000 issues.
The costs of defending and resolving Year 2000 related disputes, regardless of
the merits of such disputes, and any liability the Company may have for Year
2000 related damages, including consequential damages, could materially
adversely affect its business, financial condition and operating results.
The Company prepared a questionnaire to verify the Year 2000 readiness of
all third parties that could cause a material impact on the Company. All major
and most minor suppliers have responded, and have reported that they are Year
2000 ready. Even if certain third parties are not ready for the Year 2000,
however, the Company believes that their situation will not have a material
effect on the Company's business, results of operation or financial condition.
The Company has multiple suppliers for each component of its products and,
accordingly, the readiness of any single supplier of a component would not be
expected to have a material impact on the Company. If any of its major suppliers
are unprepared for the Year 2000, the Company believes that it could perform the
function currently being performed by any of its major suppliers or could find a
substitute supplier without suffering a material effect on business, results of
operation or financial condition. The Company does not have any ongoing
responsibility for the Year 2000 readiness of customers (other than in regard to
the Company's
17
<PAGE>
products) or the vendors to those customers. Should such a customer suffer Year
2000 related problems, the Company would not necessarily share the effects of
the problems. For example, the software in the U-Scan(R) Express reads dates on
credit, debit and other similar cards and accesses third party systems such as
bank networks (which may not be Year 2000 ready) to obtain authorization for the
use of the cards. The customer alone is responsible for dealing with these
networks to ensure that they are Year 2000 ready. If, in the future, a potential
customer should suffer from Year 2000 related problems or make expenditures on
Year 2000 related matters, it is likely that the purchase of the Company's
products would be delayed. The Company is not aware of any such delays to date.
To date, the Company has not incurred any material costs directly
associated with its Year 2000 readiness efforts, except for compensation
expenses associated with its salaried employees who have devoted some of their
time to the Company's Year 2000 assessment and remediation efforts. As discussed
above, the Company does not expect the total cost of Year 2000 problems to be
material to its business, financial condition and operating results. However,
during the months prior to the century change, it will continue to evaluate new
versions of its software and products supplied to it. Despite its current
assessment, the Company may not identify and correct all significant Year 2000
problems on a timely basis.
The reasonable worst case Year 2000 scenario for the Company would include
the partial or complete shutdown of potential and existing customers'
information systems. A shutdown would prevent or delay purchases of U-Scan(R)
Express systems. The Company has no contingency plan for dealing with this
scenario and is not planning to develop one. The cost to the Company should this
scenario occur would be the sales that are lost or deferred until customers'
Year 2000 problems are remedied. The Company will seek to mitigate its losses by
dealing with customers, if any, that do not suffer Year 2000 problems. If PSC,
Inc. (the contract manufacturer of our systems) encounters Year 2000 problems
and is unable to perform its obligations under its agreement with the Company,
the Company's contingency plan is to replace PSC, Inc. by developing in-house
capability or by finding another third-party manufacturer that continues to
operate. The Company believes that it could develop this capability within 60
days at a cost not to exceed $100,000. The reasonable worst case scenario would
also include the failure of infrastructure, such as electricity and water
supplies. The Company relies upon governmental supplies for water, electricity
and other infrastructure services. Any significant failure of the infrastructure
would completely shut down the Company. The Company does not have its own
ability to produce infrastructure services and does not plan to develop it. The
contingency plan for dealing with a failure of infrastructure is for the Company
to use its best efforts to find alternate governmental or private suppliers. If
the Company were unable to find alternate suppliers, all of the Company's
operations would be halted unless they could be moved to a location where
infrastructure supplies are available.
18
<PAGE>
Item 3: Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes since December 31, 1998.
19
<PAGE>
PART II. OTHER INFORMATION
Item 1. In each of 1995 and 1996, the Company received a lawyer's letter from
International Automated Systems ("IAS") alleging that the Company's
U-Scan(R) Express system infringes upon IAS's patent. At such times,
the Company had reviewed the claim and believed that IAS would not
prevail in any lawsuit and that such a lawsuit would not have a
material adverse effect on the Company's business or prospects.
On July 2, 1999, IAS, alleging patent infringement, filed a complaint
against the Company in the State of Utah. On October 22, 1999, the
Company filed an answer to the complaint. The Company continues to
believe that IAS will not prevail, believes that the lawsuit will not
have a material adverse effect on the Company's business or prospects,
and intends to vigorously defend the claim.
Item 2. The registrant has nothing to report under this item.
Item 3. The registrant has nothing to report under this item.
Item 4. The registrant has nothing to report under this item.
Item 5. The registrant has nothing to report under this item.
Item 6.
(a) Exhibits - Not applicable.
(b) Reports on Form 8K - None
20
<PAGE>
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OPTIMAL ROBOTICS CORP.
Dated: October 25, 1999 By: /s/ Gary S. Wechsler
----------------------------------
Gary S. Wechsler, C.A.
Secretary, Treasurer and Chief
Financial Officer
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACED FROM THE INTERIM
FINANCIAL STATEMENTS OF OPTIMAL ROBOTICS CORP. DATED SEPTEMBER 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,342,937<F1>
<SECURITIES> 24,636,351
<RECEIVABLES> 7,705,289
<ALLOWANCES> 0
<INVENTORY> 2,432,683
<CURRENT-ASSETS> 37,319,708
<PP&E> 653,658<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 38,141,179
<CURRENT-LIABILITIES> 3,383,369
<BONDS> 250,000<F3>
0
0
<COMMON> 42,321,981
<OTHER-SE> (7,814,171)<F4>
<TOTAL-LIABILITY-AND-EQUITY> 38,141,179
<SALES> 22,799,610
<TOTAL-REVENUES> 22,799,610
<CGS> 18,007,577
<TOTAL-COSTS> 18,007,577
<OTHER-EXPENSES> 4,067,553
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (549,284)
<INCOME-PRETAX> 1,273,764
<INCOME-TAX> 1,273,764<F5>
<INCOME-CONTINUING> 1,273,764<F5>
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,273,764<F5>
<EPS-BASIC> 0.14
<EPS-DILUTED> 0.14
<FN>
(1) The Company's financial statements are prepared in accordance with
generally accepted accounting principles in Canada. See Note 6 to financial
statements for a reconciliation of Canadian and U.S. GAAP.
(2) Net of depreciation.
(3) Contract advance.
(4) Includes shareholder deficit, capital attributable to warrants and a
cumulative translation adjustment.
(5) Any income indicated is offset by loss carryforwards in the Company's home
jurisdictions.
</FN>
</TABLE>
