OPTIMAL ROBOTICS CORP, F-3/A, 2000-03-07

OPTIMAL ROBOTICS CORP
F-3/A, 2000-03-07
COMPUTER INTEGRATED SYSTEMS DESIGN

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As filed with the Securities and Exchange Commission on March 7, 2000

Registration No. 333-31044

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- -------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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AMENDMENT NO. 1

To
FORM F-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933

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Optimal Robotics Corp.
(Exact name of Registrant as specified in its charter)

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<TABLE>
<S> <C> <C>
Canada 7373 98-0160833
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>

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4700 de la Savane
Suite 101
Montreal, Quebec H4P 1T7
(514) 738-8885
(Address and telephone number of Registrant's principal executive offices)

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CT Corporation System
111 8th Avenue
New York, New York 10011
Telephone (212) 894-8400
(Name, address and telephone number of agent for service)

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Copies to:
<TABLE>
<S> <C> <C>
Guy P. Lander, Esq. Leon P. Garfinkle, Esq. Arthur Jay Schwartz, Esq.
Goodman Phillips & Vineberg Goodman Phillips & Vineberg Marlon F. Starr, Esq.
430 Park Avenue 1501 McGill College Avenue Smith, Gambrell & Russell, LLP
New York, New York 10022 Montreal, Quebec H3A 3N9 1230 Peachtree Street, N.E.
(212) 308-8866 (514) 841-6400 Atlanta, Georgia 30309
(404) 815-3500
</TABLE>

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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest investment plans, please check the following
box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
please check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.

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<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this preliminary prospectus is not complete and may be +
+changed. These securities may not be sold until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+preliminary prospectus is not an offer to sell nor does it seek an offer to +
+buy these securities in any jurisdiction where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION

DATED MARCH 7, 2000

PRELIMINARY PROSPECTUS

2,000,000 Class "A" Shares

[LOGO]

Common Shares

------------

We are offering for sale 1,325,000 of our common shares and the shareholders
named in this prospectus are offering an aggregate of 675,000 of our common
shares that trade on the Nasdaq National Market under the symbol "OPMR." On
March 6, 2000, the last reported sale price of our common shares was $31.1875
per share.

Investing in our common shares involves certain risks. See "Risk Factors"
beginning on page 6.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities, or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.

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<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public offering price............................... $ $
Underwriting discount............................... $ $
Proceeds to us...................................... $ $
Proceeds to the selling shareholders................ $ $
</TABLE>

We have granted the underwriters a 30-day option to purchase up to 300,000
additional common shares to cover over-allotments.

The underwriters are offering the shares subject to various conditions. The
underwriters expect to deliver the shares to purchasers on or about , 2000.

------------

Gerard Klauer Mattison & Co., Inc.

The Robinson-Humphrey Company

Raymond James & Associates, Inc.

Prospectus dated , 2000
<PAGE>

TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 6
Forward-Looking Statements............................................... 10
Use of Proceeds.......................................................... 11
Capitalization........................................................... 12
Selected Financial and Other Data........................................ 13
Management's Discussion and Analysis of Financial Condition and Results
of Operations .......................................................... 15
Business................................................................. 20
Management............................................................... 33
Principal and Selling Shareholders....................................... 38
Description of Share Capital............................................. 40
Certain Canadian and United States Income Tax Considerations............. 42
Shares Eligible for Future Sale.......................................... 45
Underwriting............................................................. 46
Legal Matters............................................................ 47
Experts.................................................................. 47
</TABLE>

You may rely only on the information contained in this prospectus. We have
not authorized anyone to provide information different from that contained in
this prospectus. Neither the delivery of this prospectus nor the sale of common
shares means that information contained in this prospectus is correct after the
date of this prospectus. This prospectus is not an offer to sell or
solicitation of an offer to buy these common shares in any circumstances under
which the offer or solicitation is unlawful.

i
<PAGE>

OUTSIDE FRONT GATE

[The outside front gate will have a dark background.]

[At the top of the page, the words "Is this your idea of customer
service?" will appear in red, below which a yellow sign reading "LANE
CLOSED" will appear. Below this, the words "Then it's time for U-
Scan/(R)/ Express." will appear in white, followed by, from left to
right, the stylized version of the U-Scan Express/(R)/ with the words
"The right answer. Right now." below it, a picture of the U-Scan Express
and our Logo.]

<PAGE>

INSIDE FRONT GATE

[The background is blue. At the top right corner, carrying over onto the
inside front cover, is the stylized version of the U-Scan Express. In
the upper left is a picture of the U-Scan Express system. Below this
picture, to the left is the stylized version of the U-Scan Solo
trademark. Below the U-Scan Solo trademark is our Logo. To the right of
the logo is a picture of the U-Scan Solo. Above the picture of the U-
Scan Solo are concentric circles, with the words "The Leader in North
America" on the outside and containing our stylized Logo.]

<PAGE>

INSIDE FRONT COVER

[The background is blue. Pictures, clockwise from the top left corner,
are of a woman and child using our U-Scan Express, a woman and child
approaching the U-Scan Express with a shopping cart, a stylized version
of the U-Scan Carousel trademark, and a picture of the U-Scan Carousel.]

<PAGE>

PROSPECTUS SUMMARY

The summary highlights information contained elsewhere in this prospectus. It
does not contain all of the information that you should consider before
investing in our common shares. We encourage you to read the entire prospectus
carefully, including the section entitled "Risk Factors" and the financial
statements and the notes to those financial statements. Unless otherwise
stated, all information in this prospectus assumes that the underwriters will
not exercise their over-allotment option.

References contained in this prospectus to "Optimal," "us," "we," and "our"
are to Optimal Robotics Corp.

Our Company

As of December 31, 1999, we had installed 375 U-Scan Express systems,
consisting of 1,498 checkout stations, in 328 stores of leading retailers
across 29 states. Each U-Scan Express system typically includes four checkout
stations and one manned supervisor terminal.

As of January 31, 2000, we had purchase commitments for a minimum of 457 U-
Scan Express systems. See "Business--Company Overview." The following chart
provides information regarding the U-Scan Express systems we have installed
during the last five years:

<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
U-Scan Express system
installations:
Systems installed during
year................... 2 6 22 57 288
Systems installed at
year-end............... 2 8 30 87 375
U-Scan checkout stations
installed at year-end.... 8 32 120 346 1,498
Customer transactions
(millions) (1)........... 12 45
</TABLE>
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(1) Estimated, based on reports provided by our customers. Prior to 1998, we
did not track this data.

Our Industry

We currently target supermarket and supercenter chains in the United States
with average annual sales per store in excess of $12 million. According to
industry sources, there are over 11,500 of these stores in the United States.
Based on information received from various supermarkets and supercenters, we
believe that approximately half of all transactions at those stores are made by
shoppers who purchase 15 or fewer items and who check out through express
lanes.

We believe that the demand for self-checkout systems will continue to grow,
in part because they help alleviate the significant labor shortages confronting
retailers in certain markets. The U.S. Bureau of Labor Statistics has estimated
that, from 1998 to 2008, the U.S. economy will require over 550,000 additional
cashiers.

1
<PAGE>

Our Customers

Our main customers have been supermarkets and supercenters. Our customers
include The Kroger Company, Meijer, Inc., Ahold NV, The Great Atlantic and
Pacific Tea Co., Inc. (A&P), Wal-Mart Stores, Inc., Harris Teeter, Inc. and
Fleming Companies, Inc. (through its Rainbow Foods division). The following
table outlines the installed base in our customers' stores as of January 31,
2000:

<TABLE>
<CAPTION>
Systems
Customer Description Installed
-------- ----------- ---------
<C> <S> <C>
Kroger Largest supermarket retailer in the United States... 235
Meijer Second largest U.S. supercenter operator............ 94
Operates BI-LO, Stop & Shop, Tops and certain Giant
Ahold stores.............................................. 13
A&P A leading U.S. supermarket retailer................. 24
Wal-Mart World's largest retailer............................ 18
Other .................................................... 21
</TABLE>

These leading retailers figure prominently in the establishment of market
standards, and we believe that our relationships with them and the increasing
presence and use of our systems in their stores contribute to the market's
growing acceptance of U-Scan Express. We also believe that shoppers' increasing
familiarity with our systems at these retailers will facilitate future sales
efforts, particularly with retailers who have not yet installed our systems in
their stores.

We believe that these customers have chosen to install U-Scan Express because
it:

. 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,

. provides the shopper with more control over the checkout process, similar
to an ATM transaction,

. builds loyalty by making shopping easier and more convenient,

. addresses labor shortages in certain markets by replacing manned checkout
counters with automated self-checkout stations, and

. provides labor cost savings by allowing one employee to supervise four
unmanned stations.

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:

. the largest installed base of self-checkout systems in the United States
and well-established relationships with leading retailers,

. an established brand name and corporate identity,

. six years' experience and expertise in designing self-checkout solutions
for retailers,

. a focused business strategy targeting the rapidly developing self-
checkout market,

. a senior management team and experienced sales force familiar with the
needs of retailers, and

. superior customer service through a 24-hour, 365-day on-line helpdesk
supported by a dedicated network of service personnel.

2
<PAGE>

Our Business Strategy

Our primary objectives are to install more U-Scan Express systems in
additional supermarkets and supercenters, to begin installing U-Scan Express
and other self-checkout systems in other kinds of stores, and to initiate sales
and installations of our systems in Europe.

The key elements of our business strategy are to:

. Increase Installations in Existing and New Supermarket and Supercenter
Accounts. We plan to increase our penetration of existing customer
accounts and 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
begun to extend the retail applications of our U-Scan self-checkout
technology into larger order transactions and into other kinds of stores.
We have recently introduced the U-Scan Carousel, a large-order system,
and the U-Scan Solo, a small-order system for use in drug stores,
convenience stores and specialized departments within big-box retailers.
See "Business--Our Business Strategy."

. Capitalize on e-Commerce Opportunities. We are developing strategies that
will enable us to take advantage of our large and growing installed base
of self-checkout systems and the amount of time shoppers spend at our
stations. These strategies, which may include Internet-enabled, on-screen
interactive advertising and order fulfillment, would allow us to
capitalize on the integration of the Internet with our self-checkout
systems as consumers transition from traditional shopping experiences to
Internet-enabled models.

. Assume Assembly of U-Scan Express. Upon the termination of PSC, Inc.'s
exclusive assembly rights on December 31, 2000, we will assume the
assembly of the U-Scan Express in our Plattsburgh, New York facility (in
addition to the final software configuration and the quality assurance
tasks we already perform in Plattsburgh). We believe that assuming the
assembly of our systems will result in a material increase in our gross
and operating margins.

Our Corporate Information

Optimal 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, Montreal, Quebec, H4P 1T7, and our telephone
number is (514) 738-8885. We have one subsidiary, Optimal Robotics, Inc., a
wholly-owned Delaware corporation.

3
<PAGE>

The Offering

<TABLE>
<C> <S>
Common shares offered:
By Optimal....................................... 1,325,000 shares(1)
By the selling shareholders...................... 675,000 shares
-----------------
2,000,000 shares(1)

Common shares to be outstanding after the offering.. 13,345,933 shares(1)(2)

Use of proceeds..................................... To fund product research
and development; to
expand into Europe; to
expand sales and
marketing operations; to
expand our assembly
facility; to increase
support services; and to
provide for general
corporate purposes,
including working
capital, potential
acquisitions and
strategic partnerships.

Nasdaq National Market Symbol....................... OPMR
</TABLE>
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(1) Does not include up to 300,000 common shares issuable upon the exercise of
the underwriters' over-allotment option.
(2) Does not include 2,299,882 common shares issuable upon the exercise of
options (including reload options) and warrants to be outstanding after the
offering. See footnote (3) to "Principal and Selling Shareholders."

4
<PAGE>

Summary Financial Data

The following summary financial data as of December 31, 1999 and for the
years ended December 31, 1999, 1998 and 1997 are derived from our audited
financial statements included elsewhere in this prospectus. Effective December
31, 1998, we adopted the U.S. dollar as the reporting currency for our
financial statements. The financial statements for all periods prior to 1999,
for Canadian GAAP purposes, are presented in U.S. dollars in accordance with a
translation of convenience--See note 2 of the notes to the financial
statements, included elsewhere in this prospectus.

The summary financial data are prepared on the basis of Canadian GAAP, which
is different in some regards from U.S. GAAP. For a description of the material
differences between Canadian GAAP and U.S. GAAP in regard to our financial
statements, see note 16 of the notes to the financial statements, included
elsewhere in this prospectus.

<TABLE>
<CAPTION>
Year ended December 31,
------------------------
1999 1998 1997
------- ------- -------
(U.S. dollars, in
thousands except per
share data)
<S> <C> <C> <C>
Income Statement Data:
Revenues......................................... $29,634 $ 5,618 $ 3,397
Gross margin..................................... 6,177 483 688
Earnings (loss) before income taxes.............. 120 (3,911) (1,381)
Income tax recovery(1)........................... 3,532 -- --
Net earnings (loss).............................. $ 3,652 $(3,911) $(1,381)
Basic net earnings (loss) per common share....... $ 0.38 $ (0.52) $ (0.19)
Fully diluted net earnings (loss) per common
share........................................... $ 0.35 $ (0.52) $ (0.19)
</TABLE>

<TABLE>
<CAPTION>
December 31, 1999
---------------------
Actual As Adjusted(2)
------- -------------
(unaudited)
(U.S. dollars,
in thousands)
<S> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and short-term investments.... $29,136 $68,848
Working capital...................................... 36,032 75,744
Total assets......................................... 44,206 83,918
Shareholders' equity................................. 39,705 79,417
</TABLE>
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(1) We received purchase commitments for a large number of systems in the
fourth quarter of 1999, which cover a substantial portion of our fiscal
2000 budgeted sales target. In addition, there has been a positive trend in
our profitability and sales levels in recent quarters. Based on these
factors, we have determined that it is now more likely than not that we
will earn sufficient taxable income during the allowable carry-forward
period to realize all of our future income tax assets. Therefore, during
the fourth quarter of 1999, we recognized the future benefit of all of our
future income tax assets, which relate principally to previously
unrecognized non-capital losses and undeducted research and development
expenses. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Results of Operations--1999 Compared with 1998."

(2) Adjusted to give effect to the sale of the 1,325,000 common shares offered
by Optimal hereby (at an assumed public offering price of $31.1875 per
share) and the application of the estimated net proceeds therefrom and from
the exercise of options and warrants by the selling shareholders. See "Use
of Proceeds."

In this prospectus, except where otherwise indicated, references to "dollars"
or "$" are to United States dollars, and references to "Cdn.$" are to Canadian
dollars.

Information contained on our website does not form a part of this prospectus.

5
<PAGE>

RISK FACTORS

You should carefully consider the following factors and other information in
this prospectus before deciding to purchase our common shares.

We have a history of losses. Prior to the second quarter of 1999, our
operations generated losses. As of December 31, 1999, our accumulated deficit
from inception was $5,625,622. There is no guarantee that we will be profitable
in the future.

We principally depend on one product. We believe that our near-term success
depends principally on the sales volume of one product, the U-Scan Express. Our
future success depends upon the continued acceptance of and demand for this one
product, as well as new products that we may bring to market. If U-Scan Express
experiences 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 Express customers as
well as finding new customers for the system. We believe that our customers
will only purchase the U-Scan Express if they conclude that shoppers will use
it and that there are benefits to the store from its installation. We believe
that shoppers will use the U-Scan Express only if it is convenient, easy to use
and reliable.

We rely on a few customers for most of our revenues. We have 15 major
retailers as customers, nearly all of which are supermarket chains, and we rely
on these customers' continued willingness to install the U-Scan Express. We may
not be able to generate new customers for the U-Scan Express.

We may not be able to manage our growth. During the past several 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 U-Scan Express. 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.

We rely on third party assembly. We currently depend upon PSC to assemble U-
Scan Express. PSC has the exclusive right to assemble U-Scan Express for us
through December 31, 2000 (after which date PSC will cease assembly and we will
commence assembling our systems). Prior to December 31, 2000, should PSC fail
for any reason to produce enough systems to meet demand, we may be materially
adversely affected. Furthermore, the inability to control the assembly of our
primary product during this period could adversely affect us.

We rely on third party suppliers. The U-Scan Express is assembled from
components that are readily available from numerous suppliers. Although we may
utilize 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.

The U-Scan Express is assembled in a single facility. PSC currently assembles
the U-Scan Express in a single facility in Rochester, New York. Beginning
January 1, 2001, we will assemble our systems in a single facility in
Plattsburgh, New York. A disruption of operations at either facility for any
reason, including labor unrest or natural disaster, may adversely affect our
business and results of operations.

We have limited experience assembling the U-Scan Express. We will assume
assembly of our systems in our Plattsburgh, New York facility on January 1,
2001. Because we have not performed this function before, we may experience
difficulties in assembling our systems or encounter logistical problems.

We have pending patent infringement claims against us. In each of 1995 and
1996, we received a demand letter from the same claimant alleging that U-Scan
Express 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 current assembler of U-Scan Express, alleging patent
infringement. A second party also sent a

6
<PAGE>

demand letter to us alleging a different patent infringement. 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. However, no assurance can
be given that a court will not ultimately determine 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 claimants' rights would have a material
adverse effect on 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 utilized by the U-Scan Express
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 products and develop new ones 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:

.programmers and other software engineers,

.project managers,

.installers, and

.hardware and software support personnel.

The competition for these people may be significant. 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 Express. The market for
checkout systems is very competitive. The chief rival for the U-Scan Express is
the traditional manned checkout counter. Although the use of automated self-
checkout systems such as the U-Scan Express is relatively new, we expect
increasing competition for sales of this product. The barriers to entering this
market may be low. Most of our competitors are larger and have greater
financial and other resources. Competitors include NCR Corporation, Symbol
Technologies, Inc. and Productivity Solutions, Inc. Additionally, PSC has
announced its intention to enter this market after December 31, 2000. We may
not be able to compete successfully against these and other companies with
greater financial and other resources.

Our products may contain defects. Our products, including the U-Scan Express,
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 our products, 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.

Our directors and officers can influence shareholder actions through their
share ownership. After this offering, our officers and directors will have the
right to vote (if they were to exercise all vested options, including "reload"
options, and warrants held by them) an aggregate of 1,852,000 common shares,
which will amount to 12.5% of the then total outstanding shares (after giving
effect to such exercises). See footnotes (3) and (10) to "Principal and Selling
Shareholders." This percentage of outstanding shares may permit these persons
to determine the outcome of any matter submitted to a vote of our shareholders,
including the election of directors, any amalgamation or consolidation, or the
sale of all or substantially all of our assets.

7
<PAGE>

Share prices in technology stocks have been volatile. Recently, there have
been substantial price and volume fluctuations in stock markets, and the prices
of technology company shares have been particularly volatile. The price of our
common shares in the stock market may move in ways that are unrelated or
disproportionate to our operating performance. In addition to our performance,
the following factors may cause the price of our common shares to fluctuate in
the stock market:

.the introduction of new products by us or by competitors,

.business conditions in our markets,

.earnings forecasts by market analysts,

.sales of our common shares in the market,

.low trading volume of our common shares, and

.general economic conditions.

Other factors, both related and unrelated to us, may also cause fluctuations in
our share price.

We are at risk from foreign currency exchange rate fluctuations. A
significant portion of our expenses is paid in Canadian dollars, while
substantially all of our revenues are earned in U.S. dollars. If the Canadian
dollar becomes stronger, 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 begin to do so and may not be successful should we attempt
to do so in the future.

Future sales of common shares could depress the price of the common
shares. Sales of significant numbers of common shares in the public market
after this offering, or the perception that these sales will occur, may
materially depress the market price of the common shares as well as restrict
our ability to raise capital through future sales of common shares. Of the
13,345,933 common shares that will be outstanding upon the closing of this
offering, 12,563,665 shares, which include the 2,000,000 shares being sold in
this offering, will be eligible for immediate resale in the public market
without restriction. All of our directors and officers have agreed to certain
lock-up arrangements prohibiting the sale of shares owned by them for specified
periods. Lock-up arrangements with the selling shareholders expire on February
24, 2001 and lock-up arrangements with our other officers and directors expire
90 days after the date of this prospectus. Following the expiration of all
lock-up periods, an aggregate of 2,355,750 additional shares (including shares
underlying currently unvested options) may be sold by our affiliates into the
public market, subject to certain volume and other limitations.

Additionally, we have registered on behalf of Gerard Klauer Mattison & Co.,
Inc., the lead underwriter in this offering, 253,420 common shares underlying
presently exercisable stock purchase warrants held by Gerard Klauer. Gerard
Klauer has agreed to delay any sales of these common shares until 90 days after
the date of this prospectus, at which time they may be sold in the public
market.

We have an effective Registration Statement covering up to 2,528,000 common
shares issuable upon the exercise of outstanding options (including reload
options) and warrants held by directors, officers, employees and consultants.
Those common shares, when issued, will be eligible for immediate resale in the
public market.

Our quarterly operating results may vary. Our operating results have varied
from quarter to quarter. In November and December, retailers focus on holiday
season sales and not on installing checkout systems. As a result, sales in
those months are generally less than sales in the rest of the year. We
recognize revenue from the sale of a system when installation is completed and
the customer has accepted it.

We do not anticipate paying dividends in the near future. We intend to retain
all of our earnings, if any, to finance operations and expand our business and
do not anticipate paying any cash dividends in the foreseeable future.

8
<PAGE>

It may be difficult to enforce judgments against us or our affiliates. We are
incorporated under the federal laws of Canada. Most of our directors and
officers and the experts named herein are residents of Canada and all or a
substantial portion of their assets and substantially all of our assets are
located outside the United States. As a result, it may not be possible for
shareholders to effect service of process within the United States upon such
persons or to enforce against them judgments of U.S. courts under any U.S.
securities laws. There is doubt as to the enforceability in Canada, in original
actions or in actions for the enforcement of judgments of U.S. courts, of civil
liabilities predicated upon the U.S. securities laws.

Organized labor may resist U-Scan Express. The U-Scan Express displaces
cashiers. For this reason, organized labor may seek provisions in collective
bargaining agreements that prevent stores from installing U-Scan Express.

Management has broad discretion to disburse proceeds. While the net proceeds
of this offering will be dedicated generally to the uses set forth under "Use
of Proceeds," specific expenditures within each of these categories will be at
the discretion of management. Additionally, management has broad discretion in
determining how to utilize the approximately $18.7 million of proceeds that
have been earmarked for general corporate purposes. Pending their use, the
offering proceeds will be invested in short-term, investment grade, interest-
bearing securities. The return on these investments may be less than what we
would earn if the proceeds were put to use immediately.

We may require additional financing. We believe that our present cash and
cash equivalents along with our net proceeds from this offering will be
sufficient to meet our working capital and capital expenditure needs for at
least the next 12 months. If, however, we need to raise additional funds for
reasons that we currently do not anticipate, any securities that we issue in
connection therewith may diminish the percentage ownership or voting rights of
the holders of our common shares. Securities may be issued that have rights or
preferences superior to the common shares that are being sold in this offering.
Should we need to raise additional funds in the future, we may not be able to
do so on any terms, or we may be unwilling to agree to the terms necessary to
do so, and we would be adversely affected as a result of the failure to raise
additional funds.

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 installed. 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.
We are also developing strategies to capitalize on e-commerce opportunities.
The Internet is subject to security and privacy breaches which may impact us or
our customers.

Year 2000 remediation may involve significant time and expense and may reduce
our future sales. All major and most minor third party providers of goods and
services to us completed questionnaires that allowed us to assess their Year
2000 readiness prior to January 1, 2000. However, there is no assurance that we
properly evaluated each third party's readiness through our review of the
respective response. If a potential customer were to suffer Year 2000 related
problems or set aside funds for Year 2000 expenditures while considering the
purchase of a U-Scan Express, it is likely that any such purchase would be
delayed. Additionally, we may face claims based on Year 2000 issues arising
from the integration of multiple products within an overall system at a
customer. To date, we have not been alerted to any difficulties on the part of
our customers relating to Year 2000 issues, nor are we aware of any such delays
in purchasing the system or claims resulting from its integration with a
customer's store systems.

9
<PAGE>

FORWARD-LOOKING STATEMENTS

Some of the statements contained in this prospectus contain forward-looking
information. These statements are found in the sections entitled "Prospectus
Summary," "Risk Factors," "Use of Proceeds," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business." They
include information concerning:

.growth and operating strategy,

.liquidity and capital expenditures,

.use of proceeds of the offering,

.financing plans,

.industry trends, and

.payment of dividends.

You can identify these statements by forward-looking words such as "expect,"
"believe," "goal," "plan," "intend," "estimate," "may," and "will" or similar
words. These forward-looking statements involve known and unknown risks,
uncertainties and other factors, including those described in the "Risk
Factors" section and elsewhere in this prospectus, that could cause our actual
results to differ materially from those anticipated in these forward-looking
statements.

10
<PAGE>

USE OF PROCEEDS

The net proceeds to be received by us from our sale of 1,325,000 common
shares and the proceeds from the exercise of options and warrants by the
selling shareholders, after deducting underwriting discounts and commissions
and offering expenses of approximately $925,000, will be approximately
$39,700,000, assuming a public offering price of $31.1875 per share. We intend
to use the net proceeds of the offering as follows:

<TABLE>
<CAPTION>
Use Amount
- --- -----------
<S> <C>
To fund product research and development........................... $ 6,000,000
To expand into Europe.............................................. 6,000,000
To expand sales and marketing operations........................... 4,000,000
To expand our Plattsburgh assembly facility........................ 3,000,000
To increase support services (and the number of support hubs) in
the United States................................................. 2,000,000
To provide for general corporate purposes, including working
capital, potential acquisitions and strategic partnerships(1)(2).. 18,700,000
-----------
Total(1)......................................................... $39,700,000
===========
</TABLE>
- --------
(1) Includes an aggregate of approximately $1,586,800 (assuming the January 31,
2000 conversion rate of US$1.00=Cdn.$1.45 on Canadian dollar-denominated
options and warrants) in proceeds from the exercise of options and warrants
by the selling shareholders to acquire 560,000 of the 675,000 common shares
being sold by them in this offering. We will receive none of the proceeds
from the sale by the selling shareholders of their common shares.
(2) Although we have allocated a portion of the net proceeds for potential
acquisitions, we are not in negotiations regarding, nor do we have any
agreements or understandings with respect to, any acquisitions.

Although we have allocated the net proceeds of this offering among these
various uses, the amounts actually expended for any of the above purposes may
vary if our needs or strategies change after the offering. Pending such use, we
intend to invest the net proceeds in short-term, investment grade, interest-
bearing securities.

11
<PAGE>

CAPITALIZATION

The following table sets forth the actual capitalization of Optimal as of
December 31, 1999 and as adjusted to give effect to the issuance and sale by
Optimal of the 1,325,000 common shares that it is offering hereby, and the
exercise of common share purchase options and warrants by the selling
shareholders for this offering, after deducting underwriting discounts and
commissions and estimated offering expenses payable by Optimal, and the
application of the estimated net proceeds to Optimal of this offering. This
table should be read in conjunction with our consolidated financial statements
and notes thereto included elsewhere in this prospectus.

<TABLE>
<CAPTION>
December 31, 1999
--------------------
As
Actual Adjusted(2)
------- -----------
(unaudited)
(U.S. dollars,
in thousands)
<S> <C> <C>
Shareholders' equity:
Share capital: 11,437,241 common shares issued and
outstanding; 13,322,241 shares issued and outstanding
as adjusted(1)......................................... $44,658 $84,370
Other capital........................................... 21 21
Cumulative translation adjustment....................... 652 652
Deficit................................................. (5,626) (5,626)
------- -------
Total capitalization.................................. $39,705 $79,417
======= =======
</TABLE>
- --------
(1) Excludes 2,883,574 common shares issuable upon exercise of outstanding
options (including reload options) and warrants outstanding at December 31,
1999, of which 23,692 common shares have been issued since December 31, 1999
upon the exercise of outstanding options and warrants.

(2) Adjusted to give effect to the sale of the 1,325,000 common shares being
offered by Optimal (at an assumed public offering price of $31.1875 per
share), the exercise by the selling shareholders of options and warrants to
purchase 560,000 of the 675,000 common shares being sold by them in this
offering, and the application of the estimated net proceeds therefrom. See
"Use of Proceeds."

12
<PAGE>

SELECTED FINANCIAL AND OTHER DATA

The following selected financial data as of December 31, 1999 and 1998 and
for the years ended December 31, 1999, 1998 and 1997 are derived from and are
qualified by reference to our audited financial statements that are included
elsewhere in this prospectus. The following selected financial data as of
December 31, 1997, 1996 and 1995 and for the years ended December 31, 1996 and
1995 are derived from our audited financial statements, as restated for a
change in reporting currency, that are not included herein. Effective December
31, 1998, we adopted the U.S. dollar as the reporting currency for our
financial statements. The financial data for all periods prior to 1999, for
Canadian GAAP purposes, are presented in U.S. dollars in accordance with a
translation of convenience method using the representative exchange rate at
December 31, 1998 of US$1.00=Cdn.$1.5333--see note 2 of the notes to the
financial statements, included elsewhere in this prospectus.

The data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the financial
statements, related notes and the other financial information included
elsewhere in this prospectus.

The selected financial data are prepared on the basis of Canadian GAAP, which
is different in some regards from U.S. GAAP. For a description of the material
differences between Canadian GAAP and U.S. GAAP in regard to our financial
statements, see note 16 of the notes to the financial statements, included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------
1999 1998 1997 1996 1995
-------- ------- -------- -------- ------
(U.S. dollars, in thousands except per
share data)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues........................ $ 29,634 $ 5,618 $ 3,397 $ 894 $ 498
Cost of sales................... 23,457 5,135 2,709 837 171
-------- ------- -------- -------- ------
Gross margin.................... 6,177 483 688 57 327

Research and development
expenses, net of tax credits... 220 210 294 506 153
Selling, general, administrative
and other expenses............. 6,022 5,265 2,780 1,047 807
Write-down of inventory......... 604 -- --
Other........................... (789) (1,081) (1,005) (429) (15)
-------- ------- -------- -------- ------
Earnings (loss) before income
taxes.......................... 120 (3,911) (1,381) (1,067) (618)
Income tax recovery(1).......... 3,532 -- -- -- --
-------- ------- -------- -------- ------
Net earnings (loss)............. $ 3,652 $(3,911) $ (1,381) $ (1,067) $ (618)
======== ======= ======== ======== ======
Weighted average number of
common shares outstanding
(thousands).................... 9,699 7,464 7,410 4,918 3,624
Weighted average fully diluted
number of common shares
outstanding (thousands)........ 12,709 -- -- -- --
Basic net earnings (loss) per
common share................... $ 0.38 $ (0.52) $ (0.19) $ (0.22) $(0.17)
======== ======= ======== ======== ======
Fully diluted net earnings
(loss) per common share........ $ 0.35 $ (0.52) $ (0.19) $ (0.22) $(0.17)
======== ======= ======== ======== ======
Other data:
U-Scan Express system
installations:
Systems installed during
year......................... 288 57 22 6 2
Systems installed at year-
end.......................... 375 87 30 8 2
U-Scan checkout stations
installed at year-end.......... 1,498 346 120 32 8
Customer transactions
(millions)(2).................. 45 12

<CAPTION>
December 31,
---------------------------------------------
1999 1998 1997 1996 1995
-------- ------- -------- -------- ------
(U.S. dollars, in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and
short-term investments......... $ 29,136 $ 6,063 $ 10,354 $ 12,868 $ 612
Working capital................. 36,032 7,319 10,783 12,855 832
Total assets.................... 44,206 9,329 11,848 13,741 1,260
Shareholders' equity............ 39,705 7,596 11,072 12,453 435
</TABLE>

13
<PAGE>

<TABLE>
<CAPTION>
Year ended December 31,
U.S. GAAP: -------------------------------------------
1999 1998 1997 1996 1995
------- -------- ------- ------- ------
(U.S. dollars, in thousands except per
share data)
<S> <C> <C> <C> <C> <C>
Revenues......................... $29,634 $ 5,721 $ 3,749 $ 1,006 $ 561
Net loss......................... $(5,575) $(16,403) $(6,806) $(1,362) $ (715)
Basic and fully diluted net loss
per common share................ $ (0.57) $ (2.20) $ (0.92) $ (0.28) $(0.20)
<CAPTION>
December 31,
-------------------------------------------
1999 1998 1997 1996 1995
------- -------- ------- ------- ------
(U.S. dollars, in thousands)
<S> <C> <C> <C> <C> <C>
Total assets..................... $44,191 $ 9,312 $12,679 $15,348 $1,391
</TABLE>
- --------
(1) We received purchase commitments for a large number of systems in the
fourth quarter of 1999, which cover a substantial portion of our fiscal
2000 budgeted sales target. In addition, there has been a positive trend in
our profitability and sales levels in recent quarters. Based on these
factors, we have determined that it is now more likely than not that we
will earn sufficient taxable income during the allowable carry-forward
period to realize all of our future income tax assets. Therefore, during
the fourth quarter of 1999, we recognized the future benefit of all of our
future income tax assets, which relate principally to previously
unrecognized non-capital losses and undeducted research and development
expenses. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Results of Operations--1999 Compared with 1998."
(2) Estimated, based on reports provided by our customers. Prior to 1998, we
did not track this data.

14
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Overview

We are the leading provider of self-checkout systems to retailers in the
United States. Our principal product is the U-Scan Express, an automated self-
checkout system which enables shoppers to scan, bag and pay for their purchases
with little or no assistance from store personnel. As of December 31, 1999, we
had installed 375 U-Scan Express systems, consisting of 1,498 checkout
stations, in 328 stores of leading retailers across 29 states. We estimate that
in 1999 U-Scan Express systems processed over 45 million customer transactions.
The U-Scan Express can be operated quickly and easily by shoppers and makes the
checkout process more convenient for them. The U-Scan Express also reduces the
cost of checkout transactions to retailers and addresses labor shortage
problems by replacing manned checkout counters with our automated self-checkout
stations. We believe that the market for the U-Scan Express extends beyond
supermarkets and supercenters and we now sell to general merchandise stores and
other big-box retailers. The U-Scan Express is currently assembled by PSC under
contract. IBM and PSC also market the U-Scan Express.

Agreement with PSC

In 1995, we entered into a strategic relationship agreement whereby we
granted to Spectra-Physics Scanning Systems, Inc. an exclusive worldwide
license to distribute, sell, assemble and install U-Scan Express systems. PSC
acquired Spectra-Physics in 1996 and assumed this agreement. The agreement
obligated PSC to service and maintain the hardware in the systems after
installation. Our role was to develop the product, provide and service the
software for it and assist in selling it. We shared the gross margin relating
to sales of systems with PSC. As our resources expanded, we negotiated to
reduce PSC's role. Beginning April 1, 1998, we assumed primary responsibility
for the sale and all responsibilities for distributing, installing and
servicing our U-Scan Express systems and became entitled to all the revenue
from their sale. We currently pay PSC to act as the exclusive assembler of the
systems. In October 1999, we notified PSC that we will not renew its exclusive
assembly rights beyond December 31, 2000, the date specified in our agreement.
Starting in January 2001, PSC will cease assembling and we will assume assembly
of the U-Scan Express in our Plattsburgh, New York facility. Through December
2000, the purchase price that we pay to PSC for each system is equal to the
cost of the system plus a margin that fluctuates with its ultimate sales price.
PSC continues to market the U-Scan Express, but we are now the primary seller
of our systems. Furthermore, we control PSC's purchasing process for raw
materials and influence its direct labor costs as they relate to U-Scan
Express.

Trends in our costs

We continue to focus on taking advantage of economies of scale and reducing
the costs of installing and servicing our product. In late 1998, we created a
department having a primary responsibility of sourcing new suppliers and
obtaining the best possible prices for our raw materials. As a result of this
cost-cutting initiative, during 1999 we experienced a reduction in some of our
raw material costs. In 1999, the decrease in the overall cost per system was a
direct result of the increase in the number of U-Scan Express systems sold and
the benefits of this cost cutting initiative. Furthermore, we believe that as
the number of firm commitments we have to purchase the U-Scan Express
increases, we will be able to leverage our increased component requirements
into lower prices from suppliers. We continue to make significant investments
in our infrastructure to support the rapid growth of our business.

15
<PAGE>

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 financial data
for all periods prior to 1999, for Canadian GAAP purposes, are presented in
U.S. dollars in accordance with a translation of convenience method using the
representative exchange rate at December 31, 1998 of US$1.00=Cdn.$1.5333--see
note 2 of the notes to the financial statements, included elsewhere in this
prospectus. The operating results for any quarter are not necessarily
indicative of the results to be expected for any future period.

<TABLE>
<CAPTION>
For the quarter ended
------------------------------------------------------------------------------
Dec. 31, Sept. 30, June 30, March 31, Dec. 31, Sept. 30, June 30, March 31,
1999 1999 1999 1999 1998 1998 1998 1998
-------- --------- -------- --------- -------- --------- -------- ---------
(U.S. dollars, in thousands except per share data)
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ 6,835 $10,686 $7,023 $ 5,090 $ 1,674 $ 2,722 $ 696 $ 525
Cost of sales........... 5,449 8,128 5,536 4,344 1,715 2,464 582 373
------- ------- ------ ------- ------- ------- ------- -------
Gross margin............ 1,386 2,558 1,487 746 (41) 258 114 152
Earnings (loss) before
income taxes........... (1,153) 1,420 428 (575) (1,142) (1,021) (949) (799)
Income tax recovery..... 3,532 -- -- -- -- -- -- --
------- ------- ------ ------- ------- ------- ------- -------
Net earnings (loss)..... $ 2,379 $ 1,420 $ 428 $ (575) $(1,142) $(1,021) $ (949) $ (799)
Basic net earnings
(loss) per common
share.................. $ 0.21 $ 0.13 $ 0.05 $ (0.08) $ (0.15) $ (0.14) $ (0.13) $ (0.11)
Fully diluted net
earnings (loss) per
common share........... $ 0.18 $ 0.12 $ 0.05 $ (0.08) $ (0.15) $ (0.14) $ (0.13) $ (0.11)
Other data:
U-Scan Express systems
installed during
quarter................ 64 105 68 51 17 24 9 7
</TABLE>

The following table sets forth, for the periods indicated, income statement
data expressed as a percentage of total revenues:

<TABLE>
<CAPTION>
For the quarter ended
-----------------------------------------------------------------------------
Dec. 31, Sept. 30, June 30, March 31, Dec. 31, Sept. 30, June 30, March 31,
1999 1999 1999 1999 1998 1998 1998 1998
-------- --------- -------- --------- -------- --------- -------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales........... 79.7 76.1 78.8 85.3 102.4 90.5 83.6 71.0
----- ----- ----- ----- ----- ----- ------ ------
Gross margin............ 20.3 23.9 21.2 14.7 (2.4) 9.5 16.4 29.0
Earnings (loss) before
income taxes........... (16.9) 13.3 6.1 (11.3) (68.2) (37.5) (136.4) (152.2)
Income tax recovery..... 51.7 -- -- -- -- -- -- --
----- ----- ----- ----- ----- ----- ------ ------
Net earnings (loss)..... 34.8% 13.3% 6.1% (11.3)% (68.2)% (37.5)% (136.4)% (152.2)%
</TABLE>

16
<PAGE>

Results of Operations

The following discussion and analysis of our results of operations and
liquidity and capital resources should be read in conjunction with the
financial information and our financial statements and their related notes,
included elsewhere in this prospectus.

1999 Compared with 1998

Total revenues increased by $24,016,233, or 427%, from 1998 to 1999. Sales of
U-Scan Express grew from 57 systems in 1998 to 288 systems in 1999, producing
$23,146,629 of additional systems revenues, an increase of 449%. The growth in
sales was due to a significant increase in orders from existing customers.
Service contract revenue recognized for hardware and software maintenance
increased by $854,707, or 600%, because of the increased number of customers
that entered into service contracts with us after purchasing U-Scan Express.

Total cost of sales increased by $18,322,336, or 357%, from 1998 to 1999.
Overall gross margin increased as a percentage of sales from 9% in 1998 to 21%
in 1999, primarily representing the increase in gross margin on system sales.
This increase resulted primarily from taking advantage of economies of scale
and reducing the costs of installing and servicing our products.

Gross research and development expenses increased by $635,572, or 196%, from
1998 to 1999. As a percentage of total revenues, gross research and development
expenses decreased from 6% in 1998 to 3% in 1999. This percentage decrease
resulted from the substantial increase in the number of systems sold in 1999 as
compared to 1998. Research and development expenses during the year included
the cost of the development of two new product lines.

We may, for Canadian federal income tax purposes, defer and deduct in future
years certain scientific research and experimental development expenditures
incurred to date. As of December 31, 1999, the amount of such deferred
deductions is Cdn.$2,420,000 (approximately $1,669,000) for Canadian federal
income tax purposes and Cdn.$4,010,000 (approximately $2,766,000) for Quebec
provincial income tax purposes. These deductions may be carried forward
indefinitely. In addition, we have non-refundable investment tax credits of
approximately Cdn.$729,000 (approximately $503,000), which can be carried
forward to reduce Canadian federal income taxes payable and which expire in
various years through 2009.

Selling, general, administrative and other expenses (including operating
lease expenses) increased by $618,099, or 12%, in 1999 compared to 1998. As a
percentage of total revenues, these expenses decreased from 90% in 1998 to 19%
in 1999. This percentage decrease resulted from the substantial increase in the
number of systems sold in 1999 compared to 1998. During the last quarter of
1999, we continued to expand sales and marketing efforts and hire additional
personnel, as our backlog continued to increase. In addition, we incurred
increased costs in engineering follow-through during the early phases of
commercial production for U-Scan Solo and U-Scan Carousel. We also incurred
increased costs adapting the capabilities of our existing U-Scan system to new
customers' needs and for the start-up of the Plattsburgh facility.

A write-down of inventory of $604,364 in the fourth quarter of 1999 was
required due to upgrades in some hardware components, to recognize the
declining replacement costs for many components as a result of stronger
purchasing power with our suppliers, and due to parts obsolescence.

Our 1999 net earnings of $3,651,768 reflect an income tax recovery of
$3,531,583, which represents the future benefit of non-capital loss
carryforwards and undeducted scientific research and experimental development
expenditures which may be used to reduce taxable income, for Canadian federal
and Quebec provincial income tax purposes, in future years. We may utilize
these loss carryforwards and undeducted expenditures only to the extent that we
generate taxable income for Canadian federal and Quebec provincial income tax
purposes, in the future.

During 1999, we retroactively adopted the revised recommendations of the
Canadian Institute of Chartered Accountants regarding accounting for income
taxes, which are consistent with U.S. GAAP. During the fourth quarter of the
year, we received purchase commitments for a large number of systems which
cover a substantial

17
<PAGE>

portion of our fiscal 2000 budgeted sales target. In addition, there has been a
positive trend in our profitability and sales levels in recent quarters. Based
on these factors, we have determined that it is now more likely than not that
we will earn sufficient taxable income during the allowable carry-forward
period to fully realize all of our future income tax assets. Therefore, as a
result of this determination, we were required to record, during the fourth
quarter of the year, an income tax recovery with respect to these future income
tax assets.

Our ability to ultimately realize these future income tax assets will be
dependent upon our realizing certain sales levels within the allowable carry-
forward period, thus creating sufficient taxable income to realize the benefit
of these assets. We believe that our revenues for fiscal 2000 and 2001 will
grow annually based on our current order backlog and expected additional
purchase commitments from new and existing customers. Our ability to realize
these assets is also dependent on effective control over our selling, general
and administrative expenses. In addition, we expect our gross and operating
margins to materially increase as a result of our assumption of the assembly
responsibility for our systems commencing in January 2001, when PSC ceases to
assemble our systems. Based on our earnings estimates for fiscal 2000,
$3,012,997 of these future income tax assets have been classified as a current
asset.

1998 Compared with 1997

Total revenues increased by $2,221,296, or 65%, from 1997 to 1998. Sales of
U-Scan Express grew from 22 systems in 1997 to 57 systems in 1998, producing
$3,483,994 of additional systems revenue, an increase of 209%. The growth in
sales was due to our greater marketing efforts and the change in our
relationship with PSC. Under the arrangement with PSC before April 1, 1998, we
recorded as revenue only our portion of the gross margin on system sales.
Beginning April 1, 1998, we recorded the entire sales proceeds for the system
sales (as well as the corresponding cost of sales). See "Overview." The average
selling price for U-Scan Express decreased from 1997 to 1998. From time to
time, we retrofit already-installed systems by changing their casings. In 1998,
we completed 12 retrofits, compared to five in 1997. The price of retrofits
remained constant from year to year. Between May and December 1997, we had
hardware sales of $1,472,559 related to our Optimal 6300 POS ("POS") system.
Prior to January 1, 1998, we discontinued these hardware sales. In 1998,
development and customization revenues, which predominantly related to the POS
business, declined by $16,713, or 8%, because the demand of our POS customer
for development of that product was less. In 1999, we entered into a contract
with that customer for a greater sum than we received in 1998. Service contract
revenue recognized for hardware and software maintenance increased by $119,123,
or 508%, from 1997 to 1998, because of the increased number of customers that
entered into contracts with us after purchasing U-Scan Express systems and
because we began receiving hardware maintenance payments in accordance with the
new agreement with PSC.

Total cost of sales increased by $2,426,288, or 90%, from 1997 to 1998. Gross
margin decreased as a percentage of sales from 20% in 1997 to 9% in 1998. This
decrease resulted primarily from the change in our relationship with PSC. The
costs that we assumed from PSC more than offset the additional revenue that we
realized due to the change. As a result, gross margin on sales of systems
decreased from 29% in 1997 to 7% in 1998. In 1997, we realized a gross margin
of $25,202, or 2%, on revenues of $1,472,559 related to sales of hardware,
which were discontinued prior to 1998. In 1998, a negative gross margin of 26%
was realized on hardware and software maintenance revenue because hardware
maintenance costs, which are recognized as incurred, exceeded hardware
maintenance revenues, which are fixed by contract and recognized evenly over
the term thereof. The gross margin on development and customization revenues
decreased from 68% in 1997 to 58% in 1998. This amount represents only a
$13,100 increase in the cost of sales. In 1998, we realized a gross margin of
$26,019, or 22%, on the sale of third-party software licenses in a single, non-
recurring transaction.

Gross research and development expenses in 1998 remained relatively constant
as compared to 1997. As a percentage of sales, they fell from 12% in 1997 to 6%
in 1998. This change reflects our growing focus in 1998 on selling and
installing U-Scan Express systems and expanding our general and administrative
resources.

Selling, general and administrative expenses (including operating lease
expense) increased by $2,403,056, or 90%, from 1997 to 1998. As a percentage of
sales, selling, general and administrative expenses increased from 75% in 1997
to 86% in 1998. Both increases resulted in part from our expanding our sales
and marketing efforts and hiring additional personnel, including engineers and
technicians, as our backlog increased and we anticipated future sales. Expenses
for adapting software for potential new customers, quality control and
redesigning software and hardware also increased from 1997 to 1998.

18
<PAGE>

Liquidity and Capital Resources

As of December 31, 1999, we had cash, cash equivalents and short-term
investments of $29,135,690 and working capital of $36,032,273.

Operating activities used $2,918,423 of cash and cash equivalents in 1999 as
compared to $4,379,534 in 1998. In 1999, we issued 3,000,000 common shares
pursuant to a public offering and 961,963 common shares pursuant to the
exercise of options and warrants, which resulted in net cash proceeds of
$24,206,566 and $2,467,094, respectively.

In 1999, we had capital expenditures of $1,012,586, which principally related
to computer equipment and testing units and leasehold improvements related to
the expansion of our head office premises. In 1998, we had capital expenditures
of $234,207, which were principally related to testing units and computer
equipment.

We also maintain an operating line of credit in the amount of Cdn.$500,000
with a Canadian chartered bank, in connection with which we have pledged a U.S.
treasury bill. We do not have any amounts outstanding under this line of
credit. We believe that our cash, cash equivalents and short-term investments,
combined with the net proceeds of this offering and our operating line will be
adequate to meet our needs for at least the next 12 months.

Year 2000 Issues

To date, none of our customers has informed us of any Year 2000 problems with
their systems and hardware, although some uncertainty remains in the software
industry and other industries concerning the scope and magnitude of problems
associated with the century change. Furthermore, we received no indications
that any material third party providers were not ready for the Year 2000, and
we believe that any such unpreparedness discovered after January 2000 will not
have a material effect on our business, results of operations or financial
condition.

We took steps during 1999 to ensure that our operations would not be
adversely affected by Year 2000 software problems. We determined that the
consequences of the Year 2000 for our products and the software contained in
our internal systems would not have a material effect on our business, results
of operations 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 us. All internal systems installed thereafter
were tested and verified for Year 2000 readiness at the time of installation at
no additional cost. No alteration to the software contained in our products was
necessary. Nevertheless, customers generally integrate our products into a
store's information systems, which the customer might not have been able to
adequately evaluate for Year 2000 readiness. If in the future we are required
to defend our products or services in court 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 we may have for Year 2000 related damages,
including consequential damages, could materially adversely affect our
business, financial condition and operating results.

19
<PAGE>

BUSINESS

Company Overview

As of January 31, 2000, we had purchase commitments for a minimum of 457 U-
Scan Express systems. Purchase commitments represent general purchase orders,
blanket purchase commitments or purchase contracts from customers for a
designated number of U-Scan Express systems over a specified period of time.
The following chart provides information regarding the U-Scan Express systems
we have installed during the last five years:
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
U-Scan Express system installations:
Systems installed during year................... 2 6 22 57 288
Systems installed at year-end................... 2 8 30 87 375
U-Scan checkout stations installed at year-end.... 8 32 120 346 1,498
Customer transactions (millions)(1)............... 12 45
</TABLE>
- --------
(1) Estimated, based on reports provided by our customers. Prior to 1998, we
did not track this data.

Our Industry

The potential market for self-checkout solutions includes applications beyond
supermarkets and supercenters. General merchandise stores and other big-box
retailers have begun to install self-checkout systems. Other types of stores
that we have identified where self-checkout systems could be used include drug
stores, warehouse stores, office superstores, toy stores and home improvement
centers. We recently introduced one new product for use in small retail
establishments and small departments in larger stores and a second new product
for use in high volume retail outlets. See "--Our Business Strategy."
Additionally, we believe that a large market for self-checkout systems exists
in Europe.

We believe that the demand for self-checkout systems will continue to grow,
in part because they help alleviate the significant labor shortage confronting
retailers in certain markets. The U.S. Bureau of Labor Statistics has estimated
that, from 1998 to 2008, the U.S. economy will require over 550,000 additional
cashiers. In addition to providing stores with a dependable and economical
alternative to maintaining cashiers in express checkout lanes, we believe that
self-checkout systems allow large retailers to offer shoppers the speed of a
small convenience store while maintaining the greater selection and lower
prices of a supermarket.

20
<PAGE>

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
estimate that the number of ATMs in the United States grew from 18,500 in 1980
to over 200,000 in 1999, and that the number of ATMs in use worldwide was over
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 main customers have been supermarkets and supercenters, including the
following retailers:

. Kroger. Kroger is the largest supermarket retailer in the United States,
and owns and operates approximately 2,200 supermarkets and 794
convenience stores. Kroger is our largest customer and recently ordered
an additional 200 U-Scan Express systems, of which 43 have been
installed. We presently have a total of 235 systems installed in Kroger's
stores.

. Meijer. Meijer is the second largest U.S. supercenter operator with
approximately 130 stores. Its typical store size is over 175,000 square
feet. We presently have 94 U-Scan Express systems installed in Meijer's
stores. In January 2000, Meijer agreed to purchase up to 150 (with a
minimum of 100) additional systems through June 2001, of which 10 have
been installed.

. Ahold. Ahold operates over 3,600 stores of various types in the United
States, Europe, Asia and Latin America under various banners, including
over 1,000 BI-LO, Stop & Shop, Tops, Giant and other stores in the United
States. In December 1999, Ahold agreed to purchase 100 U-Scan Express
systems for installation in its U.S. stores, of which five have been
installed.

. A&P. A&P operates over 700 food stores in North America. In October 1999,
A&P informed us that it intends to purchase and install 100 U-Scan
Express systems, of which 24 have been installed.

. Wal-Mart. Wal-Mart is the world's largest retailer with over 2,850
general merchandise discount stores and supercenters in the United States
alone. We presently have 18 U-Scan Express systems installed in Wal-Mart
supercenters and general merchandise discount stores. Wal-Mart is
continuing to work with us as they evaluate the use of U-Scan Express in
their stores.

We believe that these customers have chosen to install U-Scan Express because
it:

. 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,

. provides the shopper with more control over the checkout process, similar
to an ATM transaction,

. builds loyalty by making shopping easier and more convenient,

. addresses labor shortages in certain markets by replacing manned checkout
counters with automated self-checkout stations, and

. provides labor cost savings by allowing one employee to supervise four
unmanned stations.

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<PAGE>

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:

. the largest installed base of self-checkout systems in the United States
and well-established relationships with leading retailers,

. an established brand name and corporate identity,

. six years' experience and expertise in designing self-checkout solutions
for retailers,

. a focused business strategy targeting the rapidly developing self-
checkout market,

. a senior management team and experienced sales force familiar with the
needs of retailers, and

. superior customer service through a 24-hour, 365-day on-line helpdesk
supported by a dedicated network of service personnel.

Our Business Strategy

Key elements of our business strategy are to:

Increase Installations in Existing and New Supermarket and Supercenter
Accounts. We plan to increase our penetration of existing customer accounts and
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 two new products, U-Scan Carousel and U-Scan Solo, that have been
designed to extend the retail applications of our U-Scan self-checkout
technology. Much like the U-Scan Express, each of these new applications
enables customers to scan, bag and pay for their purchases with limited or no
assistance from store personnel.

U-Scan Carousel

To meet the demands of existing and new customers, U-Scan Carousel has been
configured as a six-bag self-checkout system which can accommodate large order
purchases. The U-Scan Carousel utilizes U-Scan technology that has been
specifically adapted to handle large orders in the following high volume retail
outlets:

. warehouse stores,

. general merchandise stores,

. home improvement centers, and

. other big-box retailers.

This larger configuration enables these retailers to address the labor
shortage found in many markets while providing a more convenient shopping
experience.

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<PAGE>

U-Scan Solo

U-Scan Solo is a one-bag self-checkout station in which our U-Scan technology
has been adapted to meet the needs of small footprint retail establishments
such as drug stores, convenience stores and general merchandise stores, as well
as for satellite areas, such as floral and video departments, in supermarkets
and supercenters.

The U-Scan Carousel and the U-Scan Solo are the direct results of our
research and development efforts. We remain committed to developing other new
products like U-Scan Carousel and U-Scan Solo on a timely and cost-effective
basis and continuing to improve our current products.

Capitalize on e-Commerce Opportunities. We are exploring various e-commerce
opportunities as a means of generating additional revenue from U-Scan stations.
Among these are the following:

. We estimate that with over 45 million customer transactions through U-
Scan Express systems in 1999, U-Scan touchscreens received over two
million hours of "eyeball" time. U-Scan touchscreens can act as portals
for interactive marketing and advertising solutions. Because we are on-
line to all of our systems, we can deliver targeted interactive
advertising and promotions to the customer on U-Scan touchscreens as well
as relational advertising for other products or services.

. Our self-checkout solutions can be integrated with and used to help
enhance a retailer's e-commerce strategy. A U-Scan system can act as an
e-commerce accelerator because it automates the order fulfillment
process. As shoppers transition to "clicks and mortar" shopping
experiences, we believe our systems will enable shoppers to physically
complete their on-line transactions faster and easier.

Assume Assembly of U-Scan Express. Upon the termination of PSC's exclusive
assembly rights on December 31, 2000, we will assume the assembly of the U-Scan
Express in our Plattsburgh, New York facility (in addition to the final
software configuration and the quality assurance tasks we already perform in
Plattsburgh). We believe that assuming the assembly of our systems will result
in a material increase in our gross and operating margins.

Products and Systems

U-Scan Express System

A U-Scan Express 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:

. a bar code scanner with a scale,

. a bagging station equipped with a scale,

. a touchscreen monitor,

. an overhead video camera,

. a credit/debit terminal (with available support for signature capture
devices),

. bill and coin acceptors and dispensers, and

. a receipt printer.

23
<PAGE>

[Picture of U-Scan Express(R) Checkout Station Showing Bag & Weight Platform,
Bill & Coin Acceptors, Receipt Printer, Bill & Coin Dispensers, Credit & Debit
Card Keypad, Overhead Video Camera, Touchscreen Monitor and Bar Code Scanner &
Scale]

The supervisor terminal consists of:

. a monitor that allows the supervisor to observe the activity at each
checkout station,

. a hand-held scanner, either wired or wireless, that enables the
supervisor to assist shoppers with large items,

. an easy-to-use touchscreen that makes it simple for the supervisor to
interact with the system, and

. a receipt printer for credit/debit transactions.

In a typical configuration, the U-Scan Express occupies the same floor space
as would three manned checkout lanes. As a result, shoppers are provided with
one additional checkout station. Because one supervisor can oversee four self-
checkout stations, we believe that the store's costs per checkout lane are
lowered. We believe that labor cost savings associated with a U-Scan Express in
a typical supermarket yield a positive return on investment.

[Schematic Diagram Showing Typical Configuration and Floor Space Occupied]

24
<PAGE>

Operation

The U-Scan Express 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 Express 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 Express 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 Express 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 Express then prompts the shopper to select the form of
payment. The U-Scan Express can accept any form of payment, either at the self-
checkout station or at the supervisor's terminal, that is accepted by cashiers,
including cash, checks, credit cards, debit cards, coupons, food stamps and
gift certificates. The U-Scan station can make change and dispense additional
cash should the shopper choose to withdraw additional money using a credit or
debit card. U-Scan Express also identifies and can handle "mix and match"
payments, such as a combination of cash and coupons. Those shoppers who choose
to pay with checks, food stamps or gift certificates are directed to the system
supervisor to complete their transactions.

Once the shopper has made payment and received change from the U-Scan
station's bill and coin dispenser, a receipt is printed at the U-Scan station.
At all times, a system supervisor is located nearby to provide prompt
assistance should it be required by the shopper.

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<PAGE>

Security

The close proximity of the system supervisor to the U-Scan stations helps to
deter theft. Moreover, the U-Scan Express 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:

. a bagging station equipped with a scale that detects any unscanned or
substituted items,

. an overhead video camera that discourages non-scanning or substitution,
and

. an integrated payment mechanism that substantially reduces the
opportunity for cashier fraud or error.

The U-Scan Express 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 Express can also be customized to support a retailer's
electronic anti-theft system.

Customization and Flexible Technology

The U-Scan Express 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 Express 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 Express 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 Express 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 Express 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 Express system and a store's information
systems on a real-time basis, including such information as:

. product movement data,

. inventory management data,

. cash balance information, and

. transaction summaries.

The U-Scan Express system's software is customized for the first installation
at each chain so it can communicate with that chain's information systems and
is modified as necessary to address the needs of each retailer.

Optimal 6300 POS System

The Optimal 6300 POS system is an open-architecture, PC-based point-of-sale
cash register system utilizing Windows NT/95 or Novel SFTIII mirrored servers.
We offer only the system software for the Optimal

26
<PAGE>

6300 POS. The customer is responsible for purchasing the system hardware. The
Optimal 6300 POS system communicates with a store's information systems and has
been designed for use as a conventional cash register checkout system in high-
volume retailers such as supermarkets, department stores and warehouse stores.

We were engaged by Price Chopper Supermarkets of Schenectady, New York, to
develop and install the Optimal 6300 POS system. We receive a monthly fee for
the continuing development of the system. The Optimal 6300 POS system is
presently installed in all 96 Price Chopper supermarkets. The system is also
installed at Atlantic Food Mart in Reading, Massachusetts.

Sales and Marketing

We primarily market U-Scan Express directly to customers through our own
sales personnel. We also market the system through IBM under a non-exclusive
cooperative marketing agreement under which IBM receives a commission on sales
of systems to customers that it has registered with us. In addition, PSC has
non-exclusive marketing rights under our agreement with it. Consistent with our
strategy of increasing distribution of the U-Scan Express, we will continue to
actively review and evaluate other marketing relationships.

We have five employees dedicated to sales and marketing. We plan to hire
additional sales and marketing employees to expand our direct sales force and
to support IBM and PSC. Should PSC choose to promote or market a competing
product it would no longer have any rights to market our system.

To date, we have focused our marketing efforts almost exclusively on
supermarket and supercenter chains in the United States. We intend to begin
marketing our products in Europe in the near term. With the introduction of U-
Scan Carousel and U-Scan Solo, we are marketing our products to drug stores,
convenience stores and general merchandise stores, and for use in satellite
areas, such as floral and video departments, in supermarkets and supercenters.

Sales to a retail chain typically follow a three-step process, in which the
customer takes delivery of a single U-Scan Express 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 installing a U-Scan Express system in 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 Express 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
Express system is installed. 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 Express 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.

We will use a portion of the proceeds of this offering to increase research
and development efforts in the following areas:

. Developing new products and extending our existing products into
additional retail applications.

. Adapting U-Scan self-checkout solutions for use in Europe and other
international markets.

27
<PAGE>

. Displaying targeted and relational interactive advertising on a U-Scan
station's touchscreen when it is not in use and printing advertising on
receipts.

. Expanding the use of radio frequency technology so that the U-Scan
Express supervisor can perform more of his or her functions using a
wireless hand-held device, which would allow the supervisor to move
freely from station to station to assist shoppers. Radio frequency
technology would also simplify installation because it would eliminate
the need to install wiring to connect the U-Scan Express to the store's
information systems.

. Improving the receipt-of-payment function by making the U-Scan Express
system more efficient and easier to use. For example, incorporating
technology that enables the system to verify customers' signatures and
confirm bank balances will allow the system to accept checks without the
intervention of a supervisor.

Product Assembly

Upon the termination of PSC's exclusive assembly rights on December 31,
2000, we will assemble all of our systems at our Plattsburgh, New York
facility. We currently perform final software configuration and quality
assurance at the Plattsburgh facility, where all systems assembled by PSC are
checked before delivery to a customer. See "--Facilities."

PSC will continue to act as the exclusive contract assembler of U-Scan
Express through December 2000. PSC currently assembles U-Scan Express to our
designs and specifications in ISO 9001 certified conditions in its Rochester,
New York plant. We believe that PSC will be able to meet the expected demand
for U-Scan Express systems through December 2000.

Suppliers

The U-Scan Express 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
Express casing is specially manufactured for us by two suppliers.

Service and Field Support

It is essential to retailers that providers offer timely and efficient
software and hardware service and support. We provide both software and
hardware service and support for the U-Scan Express for a fee.

Software support is provided to all customers via our helpdesk on a 24 hours
a day, 365 days a year basis. Our helpdesk and support personnel are trained
to diagnose software and hardware problems that may arise in the field.
Software problems are typically solved on-line, as the U-Scan Express can be
accessed on-line from our premises.

U-Scan Express customers can choose between a number of options for hardware
support. Customers may elect to have their own facility engineering group
perform hardware maintenance on the system, in which case we train such
personnel. Customers may also purchase hardware support service from us or an
authorized subcontractor.

We maintain certified technicians at our headquarters, at our central hubs
near Cincinnati, Ohio and in Lansing, Michigan, and at various other strategic
locations. We are generally able to remotely diagnose and solve software-
related problems from our head office in Montreal. If there is a problem
caused by a hardware malfunction or another matter requiring personnel to be
on-site, we dispatch technicians to assist the customer.
To assist with such problems, we have contracted with and certified four
independent service companies that provide hardware support for our system.
Furthermore, we maintain regional facilities for parts storage in Nashville,
Memphis and Knoxville, Tennessee; Indianapolis, Indiana; Denver, Colorado;
Atlanta, Georgia; Boise, Idaho; Des Moines, Iowa; Charlotte, North Carolina;
Houston, Texas; Roanoke, Virginia; Grand Rapids, Michigan; Plattsburgh, New
York; and Springfield, Missouri.

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<PAGE>

Installation Personnel

It is important that we are able to perform large-scale installations of our
systems quickly and reliably with minimal impact on store operations. For a
typical installation, a project manager or one of our other experienced
employees visits the store before the delivery of the system to coordinate all
aspects of the installation. Site requirements are generally limited. Our 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 (and/or PSC) also voluntarily submit our
products for certification for product safety in the United States and in
Canada by the nationally recognized testing laboratories, the Underwriters
Laboratories, Inc. and the Canadian Standards Association, respectively.

Competition

We compete against manufacturers of traditional cashier-operated terminals as
well as developers of portable hand-held devices and other partially automated
self-scanning devices, including NCR, Symbol Technologies and Productivity
Solutions. Several of our competitors are substantially larger and have greater
financial, technical, and marketing resources. We believe, however, that the U-
Scan Express performs more functions than any other self-checkout system for
retail use currently available on the market. PSC has also announced its
intention to enter the self-checkout market after December 31, 2000.

We believe that the principal criteria for competition within the self-
checkout system market are the following:

. technological capability,

. product features,

. price,

. product support,

. ease of use,

. name recognition,

. distribution channel capability, and

. financial strength of the provider.

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Intellectual Property

We have registered the following trademarks in the United States:

. Optimal Robotics Corporation(R),

. U-Scan(R),

. a stylized version of Optimal Robotics Corporation(R),

. U-Scan Express(R), and

. a stylized version of U-Scan Express(R).

Additionally, we have filed trademark applications for the following marks:

. Optimal Robotics,

. a second stylized version of Optimal Robotics Corporation, which is used
for different purposes than the registered mark noted above,

. Scan Pay Go,

. U-Scan Solo,

. U-Scan Carousel, and

. It's That Simple.

We have six patents in the United States for various components of our
system. We have two German patents, one United Kingdom patent and one European
patent.

As a general policy, we file domestic and foreign patent applications to
protect our technological position and new product development. We intend to
continue to apply wherever necessary to protect our patents in all countries in
which we operate. Although we believe that our patents provide some competitive
advantage and market protection, we rely for our success primarily upon our
proprietary know-how, innovative skills, technical competence and marketing
abilities. Furthermore, there is no assurance that these patents will not be
challenged, invalidated or circumvented in the future. We plan to apply for
additional patents on our products, but our applications may not be granted and
any new products developed by us may not be patentable.

We regard our software as proprietary and attempt to protect it with
copyrights, trade secret measures and nondisclosure agreements. Despite these
restrictions, it may be possible for competitors or users to copy aspects of
our products or to obtain information which we regard as trade secrets.
Existing copyright laws afford only limited practical protection for computer
software. The laws of foreign countries generally do not protect our
proprietary rights in our products to the same extent as the laws of the United
States and Canada. In addition, we may experience more difficulty in enforcing
our proprietary rights in certain foreign jurisdictions.

Employees

As of January 31, 2000, we employed 187 full-time employees, of whom three
were executive officers, 39 were actively engaged in software customization and
programming, as well as research and development, and the remainder were
engaged in sales, marketing, project management, installation and technical
support, finance and administrative functions.

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.

Facilities

Our headquarters are located in approximately 32,000 square feet of leased
space at 4700 de la Savane, Montreal, Quebec, under a lease that expires on
October 1, 2001, subject to our right to renew the lease for an additional
five-year period. We also operate technical support hubs in approximately 5,000
square feet of leased space in the Cincinnati, Ohio metropolitan area,
approximately 2,700 square feet of leased space in Lansing, Michigan and
approximately 10,500 square feet of leased space in Plattsburgh, New York. We
currently perform final software configuration and quality assurance at, and
ship our systems from our Plattsburgh facility. We intend to lease
approximately 30,000 additional square feet at our Plattsburgh facility this
year in preparation for the termination of PSC's exclusive assembly rights in
December 2000. As of January 1, 2001, we will assemble our systems at the
Plattsburgh facility.

30
<PAGE>

We also maintain parts storage facilities in 14 states. We intend to use a
portion of the net proceeds of this offering 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:

<TABLE>
<CAPTION>
Facility Location
--------------------------------------------------------------------------
<S> <C>
Headquarters 4700 de la Savane, Montreal, Quebec
--------------------------------------------------------------------------
Technical Support Hubs Cincinnati, Ohio; Lansing, Michigan;
Plattsburgh, New York (used for final software
configuration, quality assurance and, beginning
2001, system assembly)
--------------------------------------------------------------------------
Regional Facilities/ Denver, Colorado Atlanta, Georgia
Parts Storage Hubs Boise, Idaho Indianapolis, Indiana
Charlotte, North Carolina Des Moines, Iowa
Nashville, Memphis Grand Rapids, Michigan
and Knoxville, Tennessee Springfield, Missouri
Roanoke, Virginia Houston, Texas
--------------------------------------------------------------------------
</TABLE>

Legal Proceedings

In each of 1995 and 1996, we received a demand letter from the same claimant
alleging that U-Scan Express 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 current assembler of U-Scan
Express, alleging patent infringement. A second party also sent a demand letter
to us 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.

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 July. At our
expense, our counsel is also defending Kroger in such action. Furthermore, we
are contractually bound to indemnify Kroger for any damages that it may incur
in connection with such suit.

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. See "Risk Factors."

Where You Can Find Additional Information

We file reports and other information with the Securities and Exchange
Commission. We have filed a registration statement on Form F-3 with the
Commission to register the common shares offered hereby. This prospectus, which
constitutes part of such registration statement, does not contain all of the
information contained in the registration statement and such exhibits and
schedules. You may review the registration statement 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.

31
<PAGE>

Our statements in this prospectus about contracts, agreements and other
documents are not necessarily complete, and you are encouraged to review the
schedules and exhibits to the registration statement for a more complete
description of the matter involved. Each such statement is qualified in its
entirety by reference to the schedule or exhibit.

We are required to furnish to our shareholders annual reports containing
audited financial statements certified by our chartered accountants in Canada
and quarterly reports containing unaudited financial data for the first three
quarters of each fiscal year following the end of the respective fiscal
quarter.

The SEC allows us to "incorporate by reference" certain information that we
file with them, which means that we can disclose important information to you
by referring you to those documents. The information incorporated by reference
is an important part of this prospectus, and information which we incorporate
by reference to our future SEC filings will automatically update and supersede
this information. We incorporate by reference our Annual Report on Form 10-K
for the year ended December 31, 1999, filed with the SEC on February 24, 2000
and any future filings we will make with the SEC under Section 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act of 1934 and the description of the
common shares being offered hereby contained in our Form 8-A filed with the SEC
on July 14, 1996. We may also incorporate in this prospectus any Form 6-K which
we file with the Securities and Exchange Commission by identifying in such Form
that it is being incorporated by reference into this prospectus.

You may request a copy of these filings at no cost, by writing or telephoning
us at the following address or telephone number:

Optimal Robotics Corp.
4700 de la Savane
Suite 101
Montreal, Quebec H4P 1T7
Attention: O. Bradley McKenna
(514) 738-8885

We are a foreign private issuer under the rules and regulations of the
Commission.

32
<PAGE>

MANAGEMENT

The names, ages and positions of our directors and officers at February 23,
2000, are as follows:

<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Neil S. Wechsler........... 33 Co-Chairman, Chief Executive Officer and
Director
Holden L. Ostrin........... 40 Co-Chairman and Director
Henry M. Karp.............. 45 President, Chief Operating Officer and
Director
Gary S. Wechsler, C.A. .... 42 Secretary, Treasurer and Chief Financial
Officer
O. Bradley McKenna, C.A. .. 50 Vice President, Administration and Human
Resources
Ike Tamigian............... 40 Vice President, Software Development
Vice President, Operations and Product
Elliot Brenhouse........... 46 Management
Leon P. Garfinkle.......... 39 Director
James S. Gertler........... 33 Director
</TABLE>

Neil S. Wechsler has been a director since June 1995, the Chief Executive
Officer since October 1994 and was Chairman of Optimal from June 1996 through
June 1999, at which time Mr. Wechsler and Mr. Holden L. Ostrin each became Co-
Chairman. From May 1994 to October 1994, Mr. Wechsler was the Vice
President/Marketing and Operations of Optimal. Mr. Wechsler earned a Bachelor
of Arts degree from McGill University in 1988 and a Bachelor of Civil Law
degree and a Bachelor of Common Law degree from McGill University in 1992.

Holden L. Ostrin has been a director of Optimal since June 1996. Mr. Ostrin
was Vice Chairman from June 1996 through June 1999, at which time Mr. Ostrin
and Mr. N. Wechsler each became Co-Chairman. From May 1995 to May 1996, Mr.
Ostrin was an independent business consultant. Prior to April 1995, Mr. Ostrin
was Vice President and Director of CIBC Wood Gundy Securities Inc., a Canadian
investment dealer. Mr. Ostrin earned a Bachelor of Arts degree in 1982 from
Boston University and a Juris Doctor degree from Boston University School of
Law in 1985.

Henry M. Karp has been a director and the Chief Operating Officer of Optimal
since June 1996. Since June 1999, Mr. Karp has been Optimal's President. From
June 1996 through June 1999, Mr. Karp was the Executive Vice President of
Optimal, and from December 1994 to May 1996, Mr. Karp was Vice President,
Business Development of Optimal. Mr. Karp earned a Bachelor of Arts degree in
Economics from McGill University in 1976 and a Masters of Business
Administration degree from McGill University in 1978.

Gary S. Wechsler, C.A. has been the Secretary, Treasurer and Chief Financial
Officer of Optimal since May 1994. For over five years until May 1999, Mr.
Wechsler was a partner of Victor & Gold, a Montreal-based accounting firm. Mr.
Wechsler continues to act as a consulting partner for Victor & Gold. Mr.
Wechsler earned a Bachelor of Commerce degree from McGill University in 1980.
Mr. Wechsler obtained his Chartered Accountant designation in 1983. Neil S.
Wechsler and Gary S. Wechsler are brothers.

O. Bradley McKenna, C.A. has been the Vice President, Administration and
Human Resources of Optimal since June 1999. From March 1994 until June 1999,
Mr. McKenna was the Controller of Optimal. Mr. McKenna earned a Bachelor of
Commerce degree from Loyola College in 1973 and a Masters of Business
Administration degree from McGill University in 1975. Mr. McKenna obtained his
Chartered Accountant designation in 1978.

Ike Tamigian has been the Vice President, Software Development of Optimal
since June 1998. From June 1995 to June 1998, Mr. Tamigian was Director of
Software Development of Optimal. Prior to June 1995, Mr. Tamigian was the
Senior Design Engineer/Microprocessors and Microcontroller-Based Systems at
Centrodyne Inc. for more than four years. Mr. Tamigian earned a Bachelor of
Electrical Engineering degree from McGill University in 1987.

Elliot Brenhouse has been a Vice President of Optimal since June 1998. Prior
to June 1998, Mr. Brenhouse held various managerial positions with the
aerospace division of AlliedSignal Canada Inc. for more than five years. Mr.
Brenhouse earned a Bachelor of Electrical Engineering degree from McGill
University in 1976.

33
<PAGE>

Leon P. Garfinkle has been a director of Optimal since June 1996. For over
the past five years, Mr. Garfinkle has been a practicing lawyer and is a
partner with the law firm of Goodman Phillips & Vineberg, in Montreal, Quebec.
Mr. Garfinkle earned a Bachelor of Commerce degree from McGill University in
1982, a Bachelor of Laws degree from the University of Toronto in 1985 and a
Bachelor of Laws degree from the University of Montreal in 1986.

James S. Gertler has been a director of Optimal since November 1997. Since
January 1996, Mr. Gertler has been Vice President of Corporate Development of
Applied Graphics Technologies, Inc. Since May 1993, he has also been the Vice
President of Corporate Development for Daily News, L.P. and U.S. News & World
Report, L.P. Mr. Gertler earned a Bachelor of Science degree in Economics from
the Wharton School of the University of Pennsylvania in 1988 and a Masters of
Business Administration degree from Harvard University in 1992.

The Board of Directors of Optimal has set the number of directors at five,
divided into three classes, the first class consisting of one director and the
second and third classes consisting of two directors each. At the annual and
special meeting of our shareholders held on June 26, 1997, Mr. N. Wechsler, as
sole member of the first class of directors, was elected to hold office until
the close of the 2000 annual meeting of shareholders; at the 1998 annual
meeting of shareholders, Messrs. Karp and Garfinkle, as members of the second
class of directors, were elected to hold office until the close of the 2001
annual meeting of shareholders; and at the 1999 annual meeting of shareholders,
Messrs. Ostrin and Gertler, as members of the third class of directors, were
elected to hold office until the close of the 2002 annual meeting of
shareholders.

Pursuant to their employment agreements, each of Messrs. N. Wechsler, Karp
and Ostrin must be nominated by Optimal for election as a director. See
"--Executive Employment Agreements."

Executive officers of Optimal are appointed annually by the Board of
Directors and serve until their successors are duly appointed and qualified.

Audit Committee

The Audit Committee of the Board of Directors performs services related to
the completion of the audit of our financial statements. The Audit Committee
has responsibility for, among other things, (i) reviewing the scope and results
of the audit with the independent auditors, (ii) reviewing with management and
the independent auditors our financial statements, (iii) considering the
adequacy of our internal accounting, bookkeeping and control procedures, and
(iv) reviewing any non-audit services and special engagements to be performed
by the independent auditors and considering the effects of such performance on
the auditors' independence. The members of the Audit Committee are Messrs.
Ostrin, Garfinkle and Gertler.

Compensation

The compensation paid to the Chief Executive Officer and the two other most
highly compensated executive officers (collectively, the "Named Executive
Officers"), for each of the three most recently completed fiscal years is set
forth in the following table. Other than these three individuals, no executive
officer received salary and bonus in excess of $100,000 during 1999.
<TABLE>
<CAPTION>
Annual Long Term
Compensation ($) Compensation
------------------ -----------------
Shares Underlying
Name and Position Year Salary(1) Bonus(1) Options
----------------- ---- --------- -------- -----------------
<S> <C> <C> <C> <C>
Neil S. Wechsler..................... 1999 123,166 30,791 284,000(2)
Co-Chairman and 1998 123,348 30,837 --
Chief Executive Officer 1997 132,149 -- 494,000(3)

Holden L. Ostrin..................... 1999 123,166 30,791 284,000(2)
Co-Chairman 1998 123,348 30,837 --
1997 132,149 -- 494,000(3)

Henry M. Karp........................ 1999 123,166 30,791 284,000(2)
President and 1998 123,348 30,837 --
Chief Operating Officer 1997 132,149 -- 494,000(3)
</TABLE>
- --------
(1) The Company pays salaries and bonuses in Canadian dollars. The respective
average exchange rates for 1997, 1998 and 1999 were used to convert these
salaries into dollars: US$1.00=Cdn.$1.3848 (1997); US$1.00=Cdn.$1.4836
(1998) and US$1.00=Cdn.$1.4858 (1999).
(2) Includes 94,000 common shares issuable pursuant to the automatic
replacement ("reload") feature of an option granted in 1997 and exercised
in 1999. See footnote (3) below, and footnote (3) under "Principal and
Selling Shareholders."
(3) Does not include an additional 188,000 common shares issuable pursuant to
the reload feature of an option to purchase 94,000 common shares. See
footnote (3) under "Principal and Selling Shareholders."

34
<PAGE>

Option Grants in 1999

The following table provides information regarding options granted to the
Named Executive Officers during 1999:
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price
Individual Grants Appreciation ($) (2)
------------------------------------------------- ---------------------
Percent of Total
Shares Options Granted Exercise
Underlying to Employees in Price Expiration
Name Options 1999 ($) Date 5% 10%
- ---- ---------- ---------------- -------- ---------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Neil S. Wechsler........ 100,000 9.7 12.875 1/5/04 355,713 786,032
94,000(1) 9.1 16.125 5/5/02 200,117 415,480
90,000 8.8 31.250 12/3/04 777,042 1,717,059
Holden L. Ostrin........ 100,000 9.7 12.875 1/5/04 355,713 786,032
94,000(1) 9.1 16.125 5/5/02 200,117 415,480
90,000 8.8 31.250 12/3/04 777,042 1,717,059
Henry M. Karp........... 100,000 9.7 12.875 1/5/04 355,713 786,032
94,000(1) 9.1 16.125 5/5/02 200,117 415,480
90,000 8.8 31.250 12/3/04 777,042 1,717,059
</TABLE>
- --------
(1) This option was issued upon the exercise of an option granted in 1997,
pursuant to the reload feature of such option. See footnote (3) under
"Principal and Selling Shareholders."
(2) The dollar amounts under these columns represent the potential realizable
value of each option granted assuming that the market price of the common
shares appreciates in value from the date of grant at the 5% and 10% annual
rates prescribed by the SEC and therefore are not intended to forecast
possible future appreciation, if any, of the price of the common shares.

Aggregated Option and Warrant Exercises in 1999 and Year-end Option and
Warrant Values

The following table provides information regarding option exercises by the
Named Executive Officers in 1999 and the amount and value of the Named
Executive Officers' exercised and unexercised options and warrants as of
December 31, 1999. Between January 1, 1999 and December 31, 1999, each of the
Named Executive Officers exercised options and sold 194,000 shares at an
average price per share of $27.16.

<TABLE>
<CAPTION>
Number of Shares Value of Unexercised
Underlying Unexercised in-the-Money Options
Option Exercises Options and Warrants and Warrants ($)
------------------------- ----------------------------- -------------------------
Common
Shares Value
Name Acquired (1) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Neil S. Wechsler........ 344,000 5,978,839 394,000(2) 190,000 12,260,750 2,977,500
Holden L. Ostrin........ 194,000 4,833,750 494,000(2) 190,000 15,640,922 2,977,500
Henry M. Karp........... 194,000 4,833,750 494,000(2)(3) 190,000 15,778,853 2,977,500
</TABLE>
- --------
(1) With the exception of 150,000 of the shares acquired by Mr. Wechsler, all of
these shares were sold during 1999.
(2) Does not include an additional 94,000 common shares issuable pursuant to the
reload feature of an option granted in 1997. See footnote (3) under
"Principal and Selling Shareholders."
(3) Includes warrants to purchase 40,000 common shares owned by a personal
holding company of Mr. Karp.

Executive Employment Agreements

The Company has entered into employment agreements with each of the Named
Executive Officers. The agreements, the terms of which are identical, were
entered into as of May 5, 1997 and amended as of January 5, 1999. They were
designed to assure the Company of the continued employment of each officer in
his respective executive positions with the Company.

35
<PAGE>

Under the terms of these agreements, each officer receives a minimum annual
salary and an annual bonus in an amount not less than 25% of the salary then in
effect. Additional bonuses may also be paid in whatever amounts and at whatever
times as determined by the Board of Directors of the Company.

Each of these agreements provided for an option grant. The option grant was
designed to provide incentive in a manner similar to and commensurate with the
incentive arrangements for senior executives of other high technology companies
of comparable size and scope. The option grants took into account that no
options had been granted in 1996 and none were going to be granted in 1998.
Each officer was granted an option to acquire 400,000 common shares at an
exercise price of $3.00 per share (collectively the "Executive Options"). The
last sale price of the common shares prior to May 4, 1997 was $2.75 per share.
The Executive Options are presently exercisable in full and were exercised in
1999 as to 100,000 of the underlying shares by each of the Named Executive
Officers.

The agreements provide that the Company will pay or reimburse the officer for
the premiums for a life and disability term insurance policy with a minimum
coverage of $1,000,000. The agreements also provide for the forgiveness of
indebtedness of the officer if he leaves the employment of the Company for any
reason. See "--Indebtedness of Directors and Employees."

In the event of the sale of all or substantially all of the assets of the
Company or the acquisition by any person of outstanding shares of the Company
representing more than 50% of the votes attached to all outstanding voting
shares of the Company at any time during the term of the agreement or within 12
months thereafter (unless the officer has had his employment terminated for
cause), the officer will be entitled to a bonus in an amount not less than the
aggregate of his then-current salary and bonus, and the term insurance, for
which the Company has been reimbursing premiums will be converted to a whole
life insurance policy and the Company will pay the entire cost of the premium
for that whole life insurance policy. In addition, in each such circumstance,
the exercise price of all options, warrants and rights to purchase common
shares which are held by the officer shall, subject to regulatory approval, be
reduced to Cdn.$1.00 in the aggregate. Upon any exercise following the
reduction of such exercise price, the Company will record, for U.S. GAAP
reconciliation purposes, and an acquiror reporting in accordance with U.S. GAAP
may be required to present as compensation expense, an amount which includes
the aggregate dollar value of such reduction. Furthermore, upon any exercise of
options, warrants or rights held by the officer, the Company will record, for
U.S. GAAP reconciliation purposes, and an acquiror reporting in accordance with
U.S. GAAP may be required to present as compensation expense, the amount by
which the then-prevailing market price exceeds the exercise price (except with
regard to the Executive Options and the options to acquire 94,000 common shares
granted to each officer on May 5, 1997, in respect of which a portion of the
compensation expense has already been recorded by the Company for U.S. GAAP
reconciliation purposes).

If the officer's services are terminated other than for cause or death or
disability, or in the event that the officer terminates his employment with the
Company for good reason (as defined in the agreements) within six months of a
change of control (as defined in the agreements), (i) the Company will pay to
the officer an amount equal to five times the sum of (a) the highest salary
paid to him during the term and (b) the highest aggregate bonuses paid to him
during any year during the term, and (ii) the exercise price of all options,
warrants and rights held by the officer to purchase common shares shall be
reduced to Cdn.$1.00 in the aggregate and all of such options shall become
immediately exercisable and will expire within 90 days of the termination of
the covered officer's employment with the Company.

The agreements each contain a covenant on the part of the officer not to
compete with the Company for a period of 24 months following the date upon
which he ceases to be an employee of the Company.

Compensation of Directors

In January 1999, options to purchase 10,000 common shares at an exercise
price of $12.875 per share were granted to each of Messrs. Garfinkle and
Gertler, being the two non-executive directors of the Company. These options
became exercisable as to 50% of the underlying shares on January 25, 2000 and
will become exercisable as to the remaining 50% of the underlying shares on
January 25, 2001. These options expire on January 25, 2004.

36
<PAGE>

During the first quarter of 1998, it was determined to discontinue the
payment of fees to the Company's non-executive directors.

Indebtedness of Directors and Employees

The aggregate indebtedness to the Company of all employees, officers and
directors and former employees, officers and directors is $169,235. Of such
indebtedness, $152,414 relates to an unsecured home-loan agreement with Holden
L. Ostrin, the Co-Chairman of the Company. This loan, in the original principal
amount of $175,862, is non-interest bearing and is repayable in annual
installments of $11,724 through and including July 1, 2012. The foregoing
indebtedness is denominated in Canadian dollars, and has been converted at a
rate of US$1.00=Cdn.$1.45.

Options to Purchase Securities

On February 7, 1997, the Board of Directors of the Company adopted a share
option plan known as the 1997 Stock Option Plan (as amended, the "1997 Plan").

Pursuant to the provisions of the 1997 Plan, the Company may grant options to
purchase common shares to full-time employees or directors of the Company.
Options may be granted for a term of up to 10 years and the term during which
such options may be exercised will be determined by the Board of Directors at
the time of each grant of options. The conditions of vesting and exercise of
the options and the option price will be established by the Board of Directors
when such options are granted and the option price shall not involve a discount
greater than that permitted by law and by the regulations, rules and policies
of the securities regulatory authorities to which the Company may then be
subject.

Options granted under the 1997 Plan cannot be assigned or transferred, except
by will or by the laws of descent and distribution of the domicile of the
deceased optionee. Upon an optionee's employment with the Company being
terminated for cause or upon an optionee being removed from office as a
director or becoming disqualified from being a director by law, any option or
the unexercised portion thereof shall terminate forthwith. If an optionee's
employment with the Company is terminated otherwise than by reason of death or
termination for cause, or if any optionee ceases to be a director other than by
reason of death, removal or disqualification by law, any option or the
unexercised portion thereof may be exercised by the optionee for that number of
shares only which he was entitled to acquire under the option at the time of
such termination or cessation, provided that such option shall only be
exercisable within 90 days after such termination or cessation or prior to the
expiration of the term of the option, whichever occurs earlier. If an optionee
dies while employed by the Company or while serving as a director, any option
or the unexercised portion thereof may be exercised by the person to whom the
option is transferred by will or the laws of descent and distribution for that
number of shares only which the optionee was entitled to acquire under the
option at the time of death, provided that such option shall only be
exercisable within 180 days following the date of death or prior to the
expiration of the term of the option, whichever occurs earlier.

An aggregate of 3,000,000 common shares may be issued pursuant to the 1997
Plan. As of February 23, 2000, an aggregate of 651,271 common shares have been
issued pursuant to the 1997 Plan and options to acquire an additional 2,348,000
common shares (including reload options) under the 1997 Plan are issued and
outstanding. In addition, an option to acquire 60,000 common shares granted to
Henry M. Karp, our President and Chief Operating Officer, on May 4, 1995, and
an option to acquire 20,000 common shares granted to a consultant in 1997, are
outstanding.

37
<PAGE>

PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth, as of February 29, 2000, and as adjusted to
reflect the sales of shares offered by this prospectus, certain information
regarding the ownership of the common shares by (i) each person known to us to
be a beneficial owner of more than 5% of the common shares of Optimal, (ii) the
four selling shareholders, (iii) each director and Named Executive Officer of
Optimal and (iv) all directors and officers of Optimal as a group.

<TABLE>
<CAPTION>
Common Shares Owned Common Shares Owned
Prior to this Offering After this Offering
------------------------------- -------------------------------
Common Shares
Number and Nature Being Sold Number and Nature
of Beneficial in this of Beneficial
Name of Beneficial Owner Ownership Percent(1) Offering Ownership Percent(1)
- ------------------------ ----------------- ---------- ------------- ----------------- ----------
<S> <C> <C> <C> <C> <C>
Neil S. Wechsler..................... 713,000(2)(3) 6.0% 200,000(2) 513,000(2)(3) 3.7%
Holden L. Ostrin..................... 694,000(3)(4) 5.7% 200,000(4) 494,000(3)(4) 3.6%
Henry M. Karp........................ 698,000(3)(5) 5.8% 200,000(5) 498,000(3)(5) 3.6%
Gary S. Wechsler, C.A. .............. 305,500(3)(6) 2.6% 75,000(6) 230,500(3)(6) 1.7%
St. Denis J. Villere & Company(7).... 826,000 7.2% 826,000 6.2%
Vanguard Horizon Funds--
Vanguard Capital Opportunity
Fund(11)............................ 580,000 5.1% 580,000 4.3%
Leon P. Garfinkle.................... 50,000(3)(8) * 50,000(3)(8) *
James S. Gertler..................... 30,000(9) * 30,000(9) *
All directors and officers as a group
(9 people).......................... 2,527,000(3)(10) 18.8% 1,852,000(3)(10) 12.5%
</TABLE>
- --------
* less than one percent (1%)
(1) Assumes no issuance of common shares reserved for issuance under
outstanding options and warrants, except for those held by the director or
officer.

(2) Excludes unvested options to purchase 140,000 common shares. Mr. Wechsler
holds vested options to purchase 538,000 common shares and will obtain the
200,000 shares to be sold by him by exercising options.

(3) On May 5, 1997, an option to purchase 94,000 common shares granted to each
of Messrs. N. Wechsler, Ostrin and Karp, an option to purchase 20,000
common shares granted to Mr. G. Wechsler and an option to purchase 5,000
common shares granted to Mr. Garfinkle, were each granted upon terms which
provide that upon its exercise, the option shall be automatically replaced
with an option for an equal number of shares, at an exercise price equal
to the then current market value of the common shares. This replacement
mechanism can operate twice during the term of the option. The common
shares currently underlying these replacement options have been included
in the number of common shares beneficially owned by these optionees.

(4) Excludes unvested options to purchase 140,000 common shares. Mr. Ostrin
holds vested warrants to purchase 100,000 common shares and vested options
to purchase 538,000 common shares. Mr. Ostrin will obtain the 200,000
shares to be sold by him by exercising options.

(5) Excludes unvested options to purchase 140,000 common shares. Mr. Karp
holds vested options to purchase 598,000 common shares and, through a
personal holding company, vested warrants to purchase 40,000 common
shares. Mr. Karp will obtain 140,000 of the 200,000 shares to be sold by
him by exercising options to acquire 100,000 shares and by exercising the
warrants.

38
<PAGE>

(6) Excludes unvested options to purchase 42,500 common shares. Mr. Wechsler
holds vested options and options vesting within 60 days to purchase 92,500
common shares and will obtain 20,000 of the 75,000 shares to be sold by
him by exercising options.

(7) Based upon a Schedule 13G/A dated February 15, 2000 filed by St. Denis J.
Villere & Company ("Villere & Company"). The Schedule 13G states that
Villere & Company has sole voting and dispositive power with respect to
75,800 shares and shared voting and dispositive power with respect to
750,200 shares. We make no representation as to the accuracy or
completeness of the information reported. The business address of Villere
& Company is 210 Baronne Street, Suite 808, New Orleans, Louisiana 70112-
1727.

(8) Includes vested options to purchase 50,000 common shares. Excludes
unvested options to purchase 5,000 common shares.

(9) Includes vested options to purchase 30,000 common shares. Excludes
unvested options to purchase 5,000 common shares.

(10) Includes vested options and warrants, and options vesting within 60 days,
to purchase an aggregate of 2,004,000 common shares (1,444,000 common
shares after this offering). Excludes unvested options to purchase 503,750
common shares.

(11) Based upon a Schedule 13G dated February 8, 2000 filed by Vanguard Horizon
Funds--Vanguard Capital Opportunity Fund ("Vanguard"). The Schedule 13G
states that Vanguard has sole voting power with respect to 580,000 shares
and shared dispositive power with respect to 580,000 shares. We make no
representation as to the accuracy or completeness of the information
reported. The business address of Vanguard is P.O. Box 2600, Valley Forge,
Pennsylvania 19482.

39
<PAGE>

DESCRIPTION OF SHARE CAPITAL

Our authorized capital stock consists of an unlimited number of Class "A"
shares without par value (being referred to throughout this prospectus as the
"common shares"), an unlimited number of Class "B" shares without par value
(the "Class B Preferred Stock") and an unlimited number of Class "C" shares
without par value (the "Class C Preferred Stock"), of which 11,460,933 common
shares were issued and outstanding as of February 23, 2000.

The following is a description of the material rights of our authorized
capital stock. This description does not purport to be complete and is
qualified in its entirety by reference to our Articles of Incorporation, a copy
of which has been previously filed with the Commission.

Common shares

Dividend Rights

Holders of common shares shall be entitled to receive, as and when declared
by Optimal's Board of Directors, but subject to the prior rights of the Class C
Preferred Stock and any other class of shares ranking prior to the common
shares, dividends in such amounts to be determined by Optimal's Board of
Directors in its sole discretion.

Voting Rights

Holders of common shares are entitled to cast one vote for each common share
held of record on all matters acted upon at any shareholders' meeting (except
meetings at which only the holders of another specified class or series of
shares are entitled to vote pursuant to the Canada Business Corporations Act
(the "CBCA")).

Liquidation Rights

The holders of common shares are entitled to receive the remaining property
of Optimal in the event of its liquidation, dissolution or winding up or other
distribution of its assets for the purpose of winding up its affairs, subject
to the prior rights of any other class of shares ranking prior to the common
shares in such circumstances.

Class B Preferred Stock

Dividend Rights

The holders of the Class B Preferred Stock are not entitled to receive any
dividends thereon.

Voting Rights

Holders of the Class B Preferred Stock are entitled to cast one vote for each
such share held of record on all matters acted upon at any shareholders'
meeting (except meetings at which only the holders of another specified class
or series of shares are entitled to vote pursuant to the CBCA).

Redemption

The Class B Preferred Stock at any time outstanding is redeemable at our
option, in whole or in part, at any time or from time to time, upon payment to
the holders of the shares to be redeemed of a sum equal to the amount paid-up
thereon.

Liquidation Rights

The Class B Preferred Stock shall rank, with respect to the return of the
amount paid-up thereon, in priority to the common shares, Class C Preferred
Stock and all shares ranking junior to the Class B Preferred Stock in the event
of the liquidation, dissolution or winding up of Optimal or other distribution
of Optimal's assets for the purpose of winding up its affairs.

40
<PAGE>

Class C Preferred Stock

The Class C Preferred Stock may be issued from time to time in one or more
series, the terms of each series including the number of shares, designation,
rights, privileges, restrictions and conditions to be determined at the time of
creation of each such series by Optimal's Board of Directors without
shareholder approval, provided that all Class C Preferred Stock will rank, with
respect to dividends and return of capital in the event of liquidation,
dissolution or winding up of Optimal or other distribution of assets of Optimal
for the purpose of winding up its affairs, pari passu among themselves and in
priority to all common shares or shares of any class ranking junior to the
Class C Preferred Stock.

Transfer Agent and Registrar

The co-transfer agents and co-registrars for the common shares are Montreal
Trust Company of Canada and The Bank of Nova Scotia Trust Company of New York.

Indemnification

Our By-laws provide the following:

Subject to the provisions of the CBCA, every director and officer of Optimal
(including those who have acted at Optimal's request as an officer or director
of a body corporate of which Optimal is or was a shareholder or creditor) and
his heirs and legal representatives shall from time to time be indemnified and
saved harmless by Optimal from and against all costs, charges and expenses
reasonably incurred by him in respect of any civil, criminal or administrative
action or proceeding to which he is made a party by reason of being or having
been a director or officer of Optimal or such body corporate (including without
limitation all losses, liabilities, costs, charges and expenses incurred by him
in respect of any act or proceeding for the recovery of claims of employees or
former employees of Optimal or such body corporate or in respect of any claim
based upon the failure of Optimal to deduct, withhold, remit or pay any amount
for taxes, assessments and other charges of any nature whatsoever as required
by law), if

(a) he acted honestly and in good faith with a view to the best interests
of Optimal; and

(b) in the case of a criminal or administrative action or proceeding that
is enforced by a monetary penalty, he had reasonable grounds for
believing that his conduct was lawful.

The By-laws also contain a provision eliminating the liability of directors
or officers for losses, damages or other misfortunes of Optimal arising out of
the execution of the duties of his office or in relation thereto, unless
occasioned by his own wilful neglect or default (subject to compliance with the
mandatory obligations and duties imposed by the CBCA and the regulations
thereunder and the liability imposed for any breach thereof).

Optimal shall also indemnify such person in such other circumstances as the
CBCA may require.

41
<PAGE>

CERTAIN CANADIAN AND UNITED STATES INCOME TAX CONSIDERATIONS

Canadian Federal Income Tax Considerations

The following is a general summary prepared by Goodman Phillips & Vineberg,
Montreal, Quebec, of the material Canadian federal income tax considerations
under the Income Tax Act (Canada) (the "Canadian Tax Act") to holders of common
shares who are not resident nor deemed to be resident in Canada, who deal at
arm's length with Optimal, who are not affiliated with Optimal within the
meaning of the Canadian Tax Act, who hold the common shares as capital property
and who do not use or hold, and are not deemed to use or hold, the common
shares in connection with a trade or business carried on, or deemed to be
carried on in Canada at any time ("Non-Resident Holders"). In general, common
shares will be considered to be capital property of a holder unless the holder
holds the common shares as part of an adventure or concern in the nature of
trade. This summary does not apply to any Non-Resident Holder who formerly
resided in Canada and owned common shares upon ceasing to reside in Canada. Nor
does this summary discuss special rules which may apply to a Non-Resident
Holder that is an insurer, a "financial institution" or a "specified financial
institution" within the meaning of the Canadian Tax Act, and accordingly, such
persons should consult their own tax advisors.

This summary is based upon the current provisions of the Canadian Tax Act,
the regulations thereunder, proposed amendments thereto publicly announced by
the Department of Finance, Canada prior to the date hereof, the provisions of
the Canada-U.S. Income Tax Convention (1980) (the "Convention") and the current
administrative practices of the Canada Customs and Revenue Agency (the "CCRA").
It has been assumed that the proposed amendments to the Canadian Tax Act and
the regulations thereunder will be enacted and that there will be no other
relevant amendments thereto. However, no assurance can be given in this
respect. This summary does not otherwise take into account or anticipate any
changes in law, whether by legislative, governmental or judicial action or
changes in administrative practice of the CCRA.

This summary is of a general nature only and is not intended to be, and
should not be construed to be, legal or tax advice to any prospective investor
and no representation with respect to the tax consequence to any particular
investor is made. The summary does not address any aspect of any provincial or
local tax laws or the tax laws of jurisdictions outside Canada or the tax
considerations applicable to persons other than Non-Resident Holders.
Accordingly, prospective investors should consult with their own tax advisors
for advice with respect to the income tax consequences of an investment in
common shares arising under any provincial or local tax laws or the tax laws of
jurisdictions outside Canada. This summary assumes the common shares are listed
and will continue to be listed on a prescribed stock exchange (which is
currently contemplated to include the National Association of Securities
Dealers Automated Quotation System (commonly known as "Nasdaq")).

For purposes of the Canadian Tax Act, all amounts must be expressed in
Canadian dollars, including dividends, adjusted cost base and proceeds of
disposition; amounts denominated in U.S. dollars must be converted into
Canadian dollars based on the currency exchange rate generally prevailing at
the time such amounts arise.

Dividends

Amounts in respect of common shares paid or credited or deemed to be paid or
credited as, on account or in lieu of payment of, or in satisfaction of,
dividends to a Non-Resident Holder will generally be subject to Canadian non-
resident withholding tax. Such withholding tax is levied at a basic rate of
25%, which may be reduced pursuant to the terms of an applicable tax treaty
between Canada and the country of residence of the Non-Resident Holder.
Currently, under the Convention, the rate of Canadian non-resident withholding
tax is 15% on the gross amount of dividends beneficially owned by a Non-
Resident Holder who is a resident of the United States for the purpose of the
Convention and whose common shares in respect of which the dividends are paid
are not effectively connected to a "permanent establishment" or "fixed base" in
Canada. However, under the Convention, where such a beneficial owner is a
company which owns at least 10% of the voting stock of Optimal, the rate of
such withholding is reduced to 5%. In the case of certain tax exempt entities
which are residents of the United States for purposes of the Convention, the
withholding tax on dividends may be eliminated in those circumstances
prescribed by the Convention.

42
<PAGE>

A purchase of common shares by Optimal (other than a purchase of common
shares by Optimal on the open market in the manner in which shares are normally
purchased by a member of the public) will give rise to a deemed dividend under
the Canadian Tax Act equal to the difference between the amount paid by Optimal
on the purchase and the paid-up capital of such shares determined in accordance
with the Canadian Tax Act. The paid-up capital of such shares may be less than
the Non-Resident Holder's cost of such shares. Any such dividend deemed to have
been received by a Non-Resident Holder will be subject to non-resident
withholding tax as described above. The amount of any such deemed dividend will
reduce the proceeds of disposition of the common shares to the Non-Resident
Holder for purposes of computing the amount of the Non-Resident Holder's
capital gain or loss under the Canadian Tax Act. However, as described below, a
loss on the disposition of the common shares may not be available to be used to
offset capital gains arising from the disposition of other property.

Disposition of Shares

A Non-Resident Holder will not be subject to tax under the Canadian Tax Act
in respect of any capital gain on a disposition or deemed disposition of common
shares (including the death of the Non-Resident Holder) unless at the time of
such disposition such shares constitute taxable Canadian property of the Non-
Resident Holder for purposes of the Canadian Tax Act and such Non-Resident
Holder is not entitled to relief under an applicable tax treaty. Provided the
common shares are listed on a prescribed stock exchange at the time of
disposition, such shares will generally not constitute taxable Canadian
property of a Non-Resident Holder at the time of a disposition of such shares
unless the Non-Resident Holder uses or holds or is deemed to use or hold such
shares in or in the course of carrying on business in Canada or, at any time
during the five-year period immediately preceding the disposition of such
shares, not less than 25% of the issued shares of any class or series of the
capital of Optimal belonged to the Non-Resident Holder, to persons with whom
the Non-Resident Holder did not deal at arm's length, or to the Non-Resident
Holder and persons with whom the Non-Resident Holder did not deal at arm's
length (taking into account any interest in or option in respect of such
shares). In any event, under the Convention, gains derived by a Non-Resident
Holder who is a resident of the United States (within the meaning of the
Convention) from the disposition of common shares will generally not be taxable
in Canada unless the value of the common shares is derived principally from
real property situated in Canada. If the common shares held by a Non-Resident
Holder do not constitute taxable Canadian property or if a capital gain in
respect of the common shares would because of a tax treaty be exempt from tax
under the Canadian Tax Act, any capital loss arising upon the disposition of
the common shares will not be available to be used to offset a capital gain
realized in respect of another property, which may be subject to tax under the
Canadian Tax Act. To the extent the common shares disposed of constitute
taxable Canadian property, the Non-Resident Holder will be required to file a
Canadian tax return, even if the gain arising from such a disposition is exempt
from tax because of a tax treaty.

U.S. Federal Income Tax Considerations

The following is a general summary prepared by Goodman Phillips & Vineberg,
New York of the material U.S. federal income tax considerations applicable to
an investment in common shares by U.S. Holders. This summary is based on the
U.S. Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Regulations promulgated thereunder, and judicial and administrative
interpretations thereof, all as in effect on the date hereof and all of which
are subject to change (possibly on a retroactive basis) and to differing
interpretations. The summary does not address all aspects of U.S. federal
income taxation that may be relevant to a particular U.S. investor based on
such investor's particular circumstances. In particular, the following summary
does not address the tax treatment of U.S. investors who are broker-dealers or
who own, directly, indirectly or constructively, 10% or more of Optimal's
outstanding voting stock, and certain U.S. investors (including without
limitation, insurance companies, tax-exempt organizations, financial
institutions, qualified retirement plans, real estate investment trusts,
regulated investment companies and persons subject to the alternative minimum
tax) who may be subject to special rules not discussed below. For purposes of
this discussion, "U.S. Holder" means an individual citizen or resident of the
United States, a corporation organized under the laws of the United States or
any political subdivision thereof, an estate the income of which is includable
in gross income for U.S. federal income tax purposes regardless of its source,
a trust if a court within the United States is able to exercise supervision
over the administration of the trust and one or more

43
<PAGE>

U.S. persons have the authority to control all substantial decisions of the
trust, or any other U.S. person as defined under the Code or that is otherwise
subject to U.S. federal income tax on a net income basis in respect of the
common shares.

This summary is of a general nature only and is not intended to be, and
should not be construed to be, legal or tax advice to any prospective investor
and no representation with respect to the U.S. federal income tax consequences
to any particular investor is made. The summary does not address any aspect of
any state or local tax laws or the tax laws of jurisdictions outside the United
States or the tax considerations applicable to non-U.S. Holders. Accordingly,
prospective investors should consult with their own tax advisers for advice
with respect to the income tax consequences to them having regard to their own
particular circumstances, including any consequences of an investment in common
shares arising under any state or local tax laws or the tax laws of
jurisdictions outside the United States.

For U.S. federal income tax purposes, a U.S. Holder of common shares
generally will realize, to the extent of Optimal's current and accumulated
earnings and profits, ordinary income on the receipt of cash dividends on the
common shares equal to the dollar value of such dividends on the date of
receipt (based on the exchange rate on such date) without reduction for any
Canadian withholding tax. To the extent, if any, that distributions made by
Optimal to a U.S. Holder exceed the current and accumulated earnings and
profits of Optimal, such distribution will be treated as a tax-free return of
capital to the extent of such U.S. Holder's adjusted basis for such shares, and
to the extent in excess of adjusted basis, as capital gain. Dividends paid on
the common shares will not be eligible for the dividends received deduction
available in certain cases to U.S. corporations. Generally, in the case of
foreign currency received as a dividend that is not converted by the recipient
into dollars on the date of receipt, a U.S. Holder will have a tax basis in the
foreign currency equal to its dollar value on the date of receipt. Any gain or
loss recognized upon a subsequent sale or other disposition of the foreign
currency, including an exchange for dollars, will be ordinary income or loss.

Subject to certain requirements and limitations imposed by the Code, a U.S.
Holder may elect to claim the Canadian tax withheld or paid with respect to
dividends on the common shares either as a deduction or as a foreign tax credit
against the U.S. federal income tax liability of such U.S. Holder. In general,
a U.S. Holder may utilize foreign tax credits only to the extent its tax
liability results from including in taxable income its foreign source income,
which would include any dividends paid by Optimal but generally would not
include any gain realized upon a disposition of common shares. The requirements
and limitations imposed by the Code with respect to the foreign tax credit are
complex and beyond the scope of this summary, and consequently, prospective
purchasers of common shares should consult with their own advisers to determine
whether and to what extent they would be entitled to such credit.

For U.S. federal income tax purposes, upon a sale or exchange of common
shares, a U.S. Holder will recognize gain or loss equal to the difference
between the amount realized on such sale or exchange (or its U.S. dollar
equivalent, determined by reference to the spot rate of exchange on the date of
disposition, if the amount realized is denominated in a foreign currency) and
the tax basis of such common shares. Subject to the passive foreign investment
company rules discussed below, if the common shares are held as a capital
asset, any such gain or loss will be capital gain or loss, and will be long-
term capital gain or loss if the U.S. Holder has held such common shares for
more than one year. Moreover, any such gain or loss will generally be treated
as U.S. source income.

If, for any taxable year of Optimal, 75% or more of Optimal's gross income
consists of certain types of "passive" income or the average value during a
taxable year of "passive assets" (generally assets that produce or are held to
produce passive income) is 50% or more of the average value of all Optimal's
assets, Optimal would be treated as a "passive foreign investment company"
("PFIC") for such year and succeeding years with respect to such U.S. Holders
who were shareholders of Optimal during any taxable year in which Optimal was a
PFIC. If Optimal is treated as a PFIC, U.S. Holders who do not make a special
election to be taxed currently on their pro rata share of Optimal's income and
gains, whether or not distributed, will be subject to increased tax liability
upon the receipt of certain dividends or upon the sale or other disposition of
their common shares.

44
<PAGE>

Moreover, any gain upon the disposition by U.S. Holders of their common shares
will be characterized as ordinary income and taxed at ordinary income rates.
Although Optimal does not anticipate being classified as a PFIC for U.S.
federal income tax purposes, no assurance can be given as to its current or
future PFIC status. Accordingly, U.S. Holders are urged to consult with their
own tax advisers concerning the impact, if any, of the PFIC rules on their
investment in Optimal's common shares.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, Optimal will have outstanding 13,345,933
common shares, assuming no exercise of the underwriters' over-allotment option
or any other options or warrants. Of these shares, only 224,268 are restricted
securities and all the rest (including the 2,000,000 common shares being sold
in this offering) will be freely tradeable by persons other than "affiliates"
of Optimal without restriction or further registration under the Act. Of these
freely tradeable common shares, 408,000 will be subject to "lock-up"
arrangements. Lock-up arrangements with respect to the selling shareholders
expire on February 24, 2001 and lock-up arrangements with respect to our other
directors and officers expire 90 days after the date of this prospectus. In
addition, Gerard Klauer holds warrants with respect to 253,420 common shares.
Gerard Klauer has agreed to delay the sale of any shares underlying these
warrants until 90 days after the effective date of the registration statement
of which this prospectus forms a part. See "Risk Factors--Future sales of
common shares could depress the price of the common shares" and "Underwriting."
Upon completion of this offering, we will also have 2,299,882 common shares
available for issuance upon the exercise of outstanding options and warrants,
not including the 300,000 common shares subject to the underwriters' over-
allotment option.

The "restricted securities" as defined in Rule 144 under the Act, in the
absence of an effective registration statement, may only be sold pursuant to an
exemption from registration, including Rule 144 or Regulation S. In general,
under Rule 144 as currently in effect, a stockholder, including an affiliate of
Optimal, who has beneficially owned restricted securities for at least one year
from the later of the date such securities were acquired from either Optimal or
an affiliate of Optimal, as applicable, is entitled to sell, within any three-
month period, a number of common shares that does not exceed the greater of one
percent of the then outstanding common shares (approximately 133,000 after the
offering) or the average weekly trading volume of the common shares during the
four calendar weeks preceding the date on which notice of such sale was filed
under Rule 144, provided that certain procedural and information requirements
are also met. In addition, if a period of at least two years has elapsed
between the later of the date that the restricted securities were acquired from
Optimal or an affiliate of Optimal, a stockholder who is not an affiliate of
Optimal and has not been an affiliate of Optimal for at least three months
prior to the sale of the securities is entitled to sell the securities
immediately without compliance with the foregoing requirements under Rule 144.

We have filed a registration statement on Form S-8 with respect to our 1997
Stock Option Plan and other plans. Common shares issued upon the exercise of
stock options contemplated by the Form S-8 are eligible for resale in the
public market without restriction, except that sales by affiliates of Optimal
will be subject to the Rule 144 limitations described above and the
aforementioned lock-up agreements.

No prediction can be made as to the effect, if any, that market sales of
common shares, or the availability of the common shares for sale, will have on
the market price of the common shares prevailing from time to time.
Nevertheless, sales of significant numbers of common shares in the public
market, or the perception that such sales could occur, could adversely affect
the market price of the common shares and impair our future ability to raise
capital through an offering of our equity securities. See "Risk Factors--Future
sales of common shares could depress the price of the common shares."

45
<PAGE>

UNDERWRITING

Under the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus, the underwriters named below, for
whom Gerard Klauer Mattison & Co., Inc., The Robinson-Humphrey Company, LLC and
Raymond James & Associates, Inc. are acting as representatives, have severally,
but not jointly, agreed to purchase from us and the selling shareholders the
following respective numbers of common shares:

<TABLE>
<CAPTION>
Number
Of
Name Shares
- ---- ------
<S> <C>
Gerard Klauer Mattison & Co., Inc.....................................
The Robinson-Humphrey Company, LLC....................................
Raymond James & Associates, Inc.......................................

---------
Total............................................................... 2,000,000
=========
</TABLE>

The underwriting agreement provides that the obligations of the underwriters
are subject to some conditions precedent, and that the underwriters will be
obligated to purchase all of the common shares offered in this prospectus
(other than those shares covered by the over-allotment option described below)
if any are taken. The underwriting agreement provides that in the event of a
default by an underwriter, in some circumstances the purchase commitments of
non-defaulting underwriters may be increased.

The underwriters propose to offer the common shares to the public initially
at the public offering price set forth on the cover page of this prospectus and
to some dealers at a price that represents a concession not in excess of $
per share. The underwriters may allow and some dealers may reallow a concession
not in excess of $ per share to some other dealers. After the initial
offering of the common shares, the offering price and concession and discount
to dealers may be changed by the representatives of the underwriters.

We have granted to the underwriters an option exercisable by the
representatives of the underwriters, expiring at the close of business on the
30th day after the date of this prospectus, to purchase up to
300,000 additional common shares at the offering price, less underwriting
discounts and commissions, all as set forth on the cover page of this
prospectus. This option may be exercised only to cover over-allotments in the
sale of the common shares. To the extent that the option is exercised, each
underwriter will become obligated, subject to some conditions, to purchase a
number of additional common shares proportionate to each underwriter's initial
amount reflected in the foregoing table.

The following table summarizes the compensation to be paid to the
underwriters by us.

<TABLE>
<CAPTION>
Without With
Over-Allotment Over-Allotment
-------------- --------------
<S> <C> <C>
Underwriting discounts and commissions paid by
us............................................. $ $
Underwriting discounts and commissions paid by
the selling shareholders....................... $ $
</TABLE>

We estimate that the total expenses of this offering, excluding underwriting
discounts and commissions, will be approximately $925,000, all of which will be
paid by Optimal.

46
<PAGE>

Optimal and its directors and officers other than the selling shareholders
have agreed that they will not offer, sell, contract to sell, announce their
intention to sell, pledge or otherwise dispose of, directly or indirectly, any
common shares or securities convertible into or exchangeable or exercisable for
any common shares, without the prior written consent of Gerard Klauer for the
90-day period commencing with the date of this prospectus. The selling
shareholders have agreed that they will refrain from any such activities until
February 24, 2001.

The representatives of the underwriters on behalf of the underwriters may
engage in over-allotment, stabilizing transactions, syndicate covering
transactions, penalty bids and "passive" market making in accordance with
Regulation M under the Securities Exchange Act of 1934. Over-allotment involves
syndicate sales in excess of the offering size, which creates a syndicate short
position. Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a specified maximum.
Syndicate covering transactions involve purchases of the common shares in the
open market after the distribution has been completed in order to cover
syndicate short positions. Penalty bids permit the representatives of the
underwriters to reclaim a selling concession from a syndicate member when the
common shares originally sold by these syndicate members are purchased in a
syndicate covering transaction to cover syndicate short positions. In "passive"
market making, market makers in the securities offered hereby who are
underwriters or prospective underwriters may, subject to some limitations, make
bids for or purchases of such securities until the time, if any, at which a
stabilizing bid is made. These stabilizing transactions, syndicate covering
transactions, penalty bids, and other permissible purchases of common shares by
or on behalf of the underwriters may cause the price of the common shares to be
higher than it would otherwise be in the absence of these transaction. These
transactions may be effected on the Nasdaq National Market or otherwise and, if
commenced, may be discontinued at any time.

We have agreed to indemnify the underwriters against some liabilities,
including civil liabilities under the Securities Act.

The common shares are listed on the Nasdaq National Market under the symbol
"OPMR".

Gerard Klauer acted as lead underwriter to Optimal in connection with its
initial U.S. public offering in 1996 and received a customary fee in connection
therewith, as well as warrants to purchase up to 240,600 common shares. The
shares underlying these warrants and other warrants issued by Optimal to third
parties since transferred to Gerard Klauer are registered on a registration
statement filed by Optimal in January 2000, which registration statement has
not yet become effective. Gerard Klauer has agreed to waive its rights to sell
any common shares pursuant to such registration statement or otherwise for the
90-day period commencing with the effectiveness of the registration statement
of which this prospectus forms a part. The Robinson-Humphrey Company and Gerard
Klauer acted as lead underwriters in Optimal's 1999 public offering and
received a customary fee in connection therewith.

LEGAL MATTERS

Certain legal matters in connection with the common shares have been passed
upon for us by Goodman Phillips & Vineberg, Montreal, Quebec. Leon P.
Garfinkle, a partner in Goodman Phillips & Vineberg, is a director of Optimal.
Certain matters in connection with the common shares have been passed upon for
the underwriters by Smith, Gambrell & Russell, LLP, Atlanta, Georgia.

EXPERTS

The financial statements included in this prospectus as of December 31, 1999
and 1998 and for each of the years ended December 31, 1999, 1998 and 1997 have
been audited by PricewaterhouseCoopers LLP, Chartered Accountants in Canada,
and are included in reliance upon such reports given upon the authority of
PricewaterhouseCoopers LLP as experts in auditing and accounting.

47
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of PricewaterhouseCoopers LLP........................................ F-1

Consolidated Balance Sheets................................................. F-2

Consolidated Statements of Operations....................................... F-3

Consolidated Statements of Deficit.......................................... F-4

Consolidated Statements of Cash Flows....................................... F-5

Notes to Consolidated Financial Statements.................................. F-6
</TABLE>
<PAGE>

AUDITORS' REPORT

To the Directors of
Optimal Robotics Corp.

We have audited the consolidated balance sheets of Optimal Robotics Corp. as
at December 31, 1999 and 1998 and the consolidated statements of operations,
deficit and cash flows for each of the years in the three-year period ended
December 31, 1999. 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 Canadian 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,
1999 and 1998 and the results of its operations and its cash flows for each of
the years in the three-year period ended December 31, 1999 in accordance with
Canadian generally accepted accounting principles.

/s/ PricewaterhouseCoopers LLP
Chartered Accountants
Montreal, Quebec, Canada
February 4, 2000

F-1
<PAGE>

OPTIMAL ROBOTICS CORP.

CONSOLIDATED BALANCE SHEETS

As at December 31, 1999 and 1998
(expressed in U.S. dollars)

<TABLE>
<CAPTION>
1999 1998
---------- ----------
$ $
---------- ----------
ASSETS
------
Current assets
<S> <C> <C>
Cash.................................................. 3,934,243 --
U.S. Treasury bill, at cost........................... 564,841 538,490
Short-term investments (note 15)...................... 24,636,606 5,524,819
Accounts receivable, net of allowance for doubtful
accounts of nil (note 4)............................. 4,641,566 1,219,716
Inventory (note 5).................................... 3,363,943 1,401,049
Tax credits receivable................................ 252,520 114,494
Future income taxes (note 13)......................... 3,012,997 --
Prepaid expenses...................................... 127,017 2,935
---------- ----------
40,533,733 8,801,503
Loans receivable (note 6)............................. 155,643 161,807
Deferred share issue costs............................ 56,985 --
Future income taxes (note 13)......................... 2,112,028 --
Capital assets (note 7)............................... 1,347,903 365,869
---------- ----------
44,206,292 9,329,179
========== ==========
LIABILITIES
-----------
Current liabilities
Accounts payable and accrued liabilities (note 8)..... 3,659,189 1,233,014
Deferred revenue...................................... 592,271 124,784
Current portion of contract advance (note 9).......... 250,000 125,000
---------- ----------
4,501,460 1,482,798
Contract advance (note 9)............................. -- 250,000
---------- ----------
4,501,460 1,732,798
---------- ----------
Commitments and contingency (note 12)
Shareholders' Equity
Share capital (note 10)............................... 44,657,833 16,850,531
Other capital......................................... 20,559 23,240
Cumulative translation adjustment..................... 652,062 --
Deficit............................................... (5,625,622) (9,277,390)
---------- ----------
39,704,832 7,596,381
---------- ----------
44,206,292 9,329,179
========== ==========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-2
<PAGE>

OPTIMAL ROBOTICS CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

For each of the years in the three-year period ended December 31, 1999
(expressed in U.S. dollars)

<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
$ $ $
---------- ---------- ----------
(note 2) (note 2)
<S> <C> <C> <C>
Revenues
Systems................................. 28,301,590 5,154,961 1,670,967
Hardware................................ -- -- 1,472,559
Development and customization........... 335,387 202,204 218,917
Hardware and software maintenance....... 997,269 142,562 23,439
Other................................... -- 118,286 10,835
---------- ---------- ----------
29,634,246 5,618,013 3,396,717
---------- ---------- ----------
Cost of sales
Systems................................. 22,343,753 4,778,815 1,190,450
Hardware................................ -- -- 1,447,357
Development and customization........... 116,861 84,082 70,982
Hardware and software maintenance....... 996,799 179,913 --
Other................................... -- 92,267 --
---------- ---------- ----------
23,457,413 5,135,077 2,708,789
---------- ---------- ----------
Gross margin.............................. 6,176,833 482,936 687,928
---------- ---------- ----------
Gross research and development expenses... 960,440 324,868 393,501
Research and development tax credits (note
12)...................................... (740,484) (114,494) (99,600)
Selling, general and administrative
expenses................................. 5,444,831 4,847,804 2,542,336
Operating lease expense................... 232,471 211,399 113,811
Write-down of inventory................... 604,364 -- --
Amortization of capital assets............ 344,718 205,684 123,818
Investment income......................... (893,694) (449,244) (584,285)
Foreign exchange loss (gain).............. 104,002 (632,317) (420,516)
---------- ---------- ----------
6,056,648 4,393,700 2,069,065
---------- ---------- ----------
Earnings (loss) before income taxes....... 120,185 (3,910,764) (1,381,137)
Income tax recovery (note 13)............. 3,531,583 -- --
---------- ---------- ----------
Net earnings (loss) for the year.......... 3,651,768 (3,910,764) (1,381,137)
========== ========== ==========
Weighted average number of common shares
outstanding.............................. 9,699,385 7,463,984 7,409,522
========== ========== ==========
Net earnings (loss) per common share
Basic................................... 0.38 (0.52) (0.19)
========== ========== ==========
Fully diluted........................... 0.35 (0.52) (0.19)
========== ========== ==========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-3
<PAGE>

OPTIMAL ROBOTICS CORP.

CONSOLIDATED STATEMENTS OF DEFICIT

For each of the years in the three-year period ended December 31, 1999
(expressed in U.S. dollars)

<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
$ $ $
---------- ---------- ----------
(note 2) (note 2)
<S> <C> <C> <C>
Deficit--Beginning of year.................. (9,277,390) (5,366,626) (3,985,489)
Net earnings (loss) for the year............ 3,651,768 (3,910,764) (1,381,137)
---------- ---------- ----------
Deficit--End of year........................ (5,625,622) (9,277,390) (5,366,626)
========== ========== ==========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-4
<PAGE>

OPTIMAL ROBOTICS CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For each of the years in the three-year period ended December 31, 1999
(expressed in U.S. dollars)

<TABLE>
<CAPTION>
1999 1998 1997
----------- ---------- -----------
$ $ $
----------- ---------- -----------
(note 2) (note 2)
<S> <C> <C> <C>
Cash provided by (used for)
Operating activities
Net earnings (loss) for the year........ 3,651,768 (3,910,764) (1,381,137)
Items not affecting cash
Write-down of inventory................ 604,364 -- --
Amortization of capital assets......... 344,718 205,684 123,818
Unrealized foreign exchange loss (gain)
on contract advance................... (14,016) 53,414 --
Non-refundable tax credits............. (490,438) -- --
Future income taxes.................... (3,531,583) -- --
Change in non-cash operating working
capital items
Increase in accounts receivable........ (3,271,239) (380,271) (506,860)
Decrease (increase) in inventory....... (2,441,539) (1,376,724) 112,279
Decrease (increase) in tax credits
receivable............................ (128,289) (14,894) 90,952
Decrease (increase) in prepaid
expenses.............................. (120,936) 16,265 (10,984)
Decrease in unrealized foreign exchange
gain on forward contract.............. -- -- 171,592
Increase (decrease) in accounts payable
and accrued liabilities............... 2,029,510 902,972 (493,927)
Increase (decrease) in deferred
revenue............................... 449,257 124,784 (17,609)
----------- ---------- -----------
(2,918,423) (4,379,534) (1,911,876)
----------- ---------- -----------
Financing activities
Issuance of common shares............... 29,467,094 435,596 --
Share issue costs....................... (2,793,434) -- --
Deferred share issue costs.............. (55,616) -- --
Repayment of loans under Employee Stock
Purchase Arrangement................... 141,348 -- --
Decrease in contract advance............ (125,000) (125,000) --
----------- ---------- -----------
26,634,392 310,596 --
----------- ---------- -----------
Investing activities
Purchase of capital assets.............. (1,012,586) (234,207) (437,732)
Decrease (increase) in short-term
investments............................ (18,460,828) 4,558,988 (10,083,807)
Issuance of loan receivable............. -- -- (166,308)
Repayment of loans receivable........... 15,088 12,854 1,766
----------- ---------- -----------
(19,458,326) 4,337,635 (10,686,081)
----------- ---------- -----------
Increase (decrease) in cash and cash
equivalents during the year............. 4,257,643 268,697 (12,597,957)
Effect of exchange rate changes on cash
and cash equivalents.................... (297,049) -- --
Cash and cash equivalents--Beginning of
year.................................... 538,490 269,793 12,867,750
----------- ---------- -----------
Cash and cash equivalents--End of year... 4,499,084 538,490 269,793
=========== ========== ===========
Cash and cash equivalents is comprised
of:
Cash.................................... 3,934,243 -- 269,793
U.S. Treasury bill...................... 564,841 538,490 --
----------- ---------- -----------
4,499,084 538,490 269,793
=========== ========== ===========
Supplementary information
Cash paid during the year for interest.. 38,786 1,182 1,163
=========== ========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.

F-5
<PAGE>

OPTIMAL ROBOTICS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For each of the years in the three-year period ended December 31, 1999
(expressed in U.S. dollars, unless otherwise noted)

1 Nature of operations

The Company is engaged in the development, marketing, installation and
servicing of automated transaction software and systems designed for use in the
retail sector. The Company's principal product focus is its U-Scan(R) Express
system, a self-service checkout system for the retail industry. The Company
also develops, markets and services its 6300 POS for the supermarket industry.

The U-Scan(R) Express system allows shoppers to scan, bag and pay for their
purchases with limited or no assistance from store personnel. The 6300 POS is
an open architecture, PC-based point-of-sale system designed to replace
proprietary cash registers at high volume retailers.

The U-Scan(R) Express system is currently assembled under contract by a third
party which is a full-line manufacturer of bar code reading equipment. The U-
Scan(R) Express system is marketed by the Company and sold both directly by the
Company and indirectly by two third parties under contract.

2 Summary of significant accounting policies

Basis of presentation

These financial statements have been prepared in accordance with accounting
principles generally accepted in Canada. These principles conform, in all
material respects, with accounting principles generally accepted in the United
States, except as described in note 16. The principal accounting policies of
the Company, which have been consistently applied, are summarized as follows:

Use of estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results could differ
from those estimates.

Principles of consolidation

These consolidated financial statements include the accounts of the Company
and its wholly owned U.S. subsidiary, Optimal Robotics, Inc., which was
incorporated on October 7, 1999. The subsidiary had no active operations during
1999.

Cash and cash equivalents

Cash and cash equivalents consist of cash on hand and balances with banks and
all highly liquid debt instruments with original maturities of three months or
less.

Short-term investments

Short-term investments are carried at the lower of cost and market value.

Revenue recognition

Sales of systems are recognized upon completion of installation and customer
acceptance. Post-installation maintenance and service revenue (hardware and
software) is recognized over the term of the related agreements. Hardware sales
are recognized upon shipment of the product. Development fees related to the
Company's 6300 POS system are recognized as the services are rendered.

F-6
<PAGE>

OPTIMAL ROBOTICS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

For each of the years in the three-year period ended December 31, 1999
(expressed in U.S. dollars, unless otherwise noted)

Deferred share issue costs

Deferred share issue costs relate to the proposed public offering of common
shares pursuant to a registration statement which the Company expects to file
with the Securities and Exchange Commission in fiscal 2000. These costs will be
recorded as a reduction of the gross proceeds of the offering during the period
in which the common shares are issued.

Capital assets

Capital assets are recorded at cost. Amortization is provided for over the
estimated useful lives of the capital assets on a straight-line basis as
follows:

<TABLE>
<S> <C>
Test units and computer equipment............................ 33%
Equipment.................................................... 10%
Leasehold improvements....................................... over lease term
Patents...................................................... 5%
</TABLE>

Foreign currency translation

Reporting currency

The functional currency of the Company is the Canadian dollar. Accordingly,
the Company's consolidated financial statements for the year ended December 31,
1999 have been translated into the reporting currency as follows: assets and
liabilities have been translated at the exchange rate in effect at the end of
the year and revenues and expenses have been translated at the average exchange
rate for the year. All gains or losses from translation of the consolidated
financial statements into the reporting currency have been included in the
cumulative translation adjustment in shareholders' equity. Changes in the
cumulative translation adjustment during the year result solely from the
application of this translation method.

The financial statements of the Company were presented in Canadian dollars up
to December 31, 1997. Effective December 31, 1998, the U.S. dollar was adopted
as the reporting currency. Comparative financial information for 1998 and 1997
has been presented in U.S. dollars in accordance with a translation of
convenience method using the representative exchange rate at December 31, 1998
of US$1.00 = Cdn$1.5333. The translated amount for non-monetary items as at
December 31, 1998 became the historical basis for those items in subsequent
years.

Foreign subsidiary

The Company's wholly owned subsidiary is considered to be integrated. As a
result, the subsidiary's accounts are translated into Canadian dollars using
the temporal method. Under this method, monetary assets and liabilities are
translated at the exchange rates in effect at the balance sheet date. Non-
monetary assets and liabilities are translated at historical rates. Revenue and
expenses are translated at the average rate for the period. Gains and losses
resulting from translation are reflected in the statement of operations.

Foreign currency transactions

Transactions denominated in foreign currencies are translated into the
functional currency using the temporal method.

F-7
<PAGE>

OPTIMAL ROBOTICS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

For each of the years in the three-year period ended December 31, 1999
(expressed in U.S. dollars, unless otherwise noted)

Tax credits

The Company is entitled to scientific research and experimental development
("SRED") tax credits granted by the Canadian federal government ("Federal") and
the government of the Province of Quebec ("Provincial"). Federal SRED tax
credits are earned on qualified Canadian SRED expenditures at a rate of 20%
which can only be used to offset Federal income taxes otherwise payable.
Provincial SRED tax credits are earned on qualified SRED salaries in the
Province of Quebec at a rate of 20%. These tax credits are refundable.

SRED tax credits are accounted for as a reduction of the related
expenditures. The refundable portion of SRED tax credits is recorded in the
year in which they are earned. The non-refundable portion of SRED tax credits
is recorded at such time as the Company has reasonable assurance that the
credits will be realized.

Income taxes

The Company provides for income taxes using the liability method of tax
allocation. Under this method, future income tax assets and liabilities are
determined based on deductible or taxable temporary differences between
financial statement values and tax values of assets and liabilities using
enacted income tax rates expected to be in effect for the year in which the
differences are expected to reverse.

The Company establishes a valuation allowance against future income tax
assets if, based on available information, it is more likely than not that some
or all of the future income tax assets will not be realized.

Research and development expenses

Research costs, which include all costs incurred to establish technological
feasibility, are charged to operations in the year in which they are incurred.
Technological feasibility has been defined as the completion of the product
design for the computer software.

Once technological feasibility has been established, development costs are
evaluated for deferral and subsequent amortization. As at December 31, 1999,
the Company has not deferred any development costs.

Inventory

Replacement parts inventory is stated at the lower of landed cost and
replacement cost. U-Scan(R) Express systems inventory is stated at the lower of
cost and net realizable value. Cost is determined on the basis of actual costs.

Stock-based compensation plan

The Company maintains a stock-based compensation plan, which is described in
note 11. Under accounting principles generally accepted in Canada, no
compensation expense is recognized for this plan when stock options or shares
are issued to employees. Any consideration received from plan participants upon
exercise of stock options is credited to capital stock.

F-8
<PAGE>

OPTIMAL ROBOTICS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

For each of the years in the three-year period ended December 31, 1999
(expressed in U.S. dollars, unless otherwise noted)

Earnings per share

Basic earnings (loss) per share is determined using the weighted average
number of common shares outstanding during the period.

Fully diluted earnings (loss) per share is determined using the weighted
average number of common shares and dilutive common share equivalents, such as
stock options and warrants, outstanding during the period. Earnings for the
period are increased by the estimated additional earnings, net of applicable
income taxes, on the proceeds from the exercise of dilutive common share
equivalents.

3 Change in accounting policy

During 1999, the Company retroactively adopted the revised recommendations of
the Canadian Institute of Chartered Accountants regarding accounting for income
taxes. Under these revised recommendations, income taxes are now accounted for
using the liability method. These new recommendations are consistent with those
of SFAS 109 under accounting principles generally accepted in the United
States.

The adoption of these revised recommendations did not result in any changes
to prior years' earnings, shareholders' equity or cash flows. However, certain
additional disclosures have been provided. The effect of these recommendations
on the current year is the recognition of tax assets of $4,824,824 of which
approximately $3.5 million was recorded as an income tax recovery in the
consolidated statement of operations.

4 Accounts receivable

<TABLE>
<CAPTION>
1999 1998
--------- ---------
$ $
--------- ---------
<S> <C> <C>
Trade accounts receivable................................ 4,305,188 1,095,819
Accrued interest......................................... 176,019 35,956
Current portion of loan receivable....................... 13,592 12,853
Other.................................................... 146,767 75,088
--------- ---------
4,641,566 1,219,716
========= =========
</TABLE>

5 Inventory

<TABLE>
<CAPTION>
1999 1998
--------- ---------
$ $
--------- ---------
<S> <C> <C>
Replacement parts........................................ 2,763,261 910,234
U-Scan(R) Express systems................................ 600,682 490,815
--------- ---------
3,363,943 1,401,049
========= =========
</TABLE>

6 Loans receivable

These loans are as follows:

a) To an employee to purchase common shares of the Company in the
amount of Cdn$24,391 (1998 - Cdn$27,099). This loan is non-interest
bearing and is repayable in annual instalments of Cdn$2,708 until
June 30, 2008; and

F-9
<PAGE>

OPTIMAL ROBOTICS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

For each of the years in the three-year period ended December 31, 1999
(expressed in U.S. dollars, unless otherwise noted)

b) To an officer/director to purchase a home in the amount of
Cdn$221,000 (1998 - Cdn$238,000). This loan is non-interest bearing
and is repayable in annual instalments of Cdn$17,000 until July 1,
2012. This loan is forgivable if the officer/director leaves the
employment of the Company for any reason.

7 Capital assets
<TABLE>
<CAPTION>
1999 1998
--------- ---------
$ $
--------- ---------
<S> <C> <C>
Cost
Test units............................................. 443,931 242,317
Equipment.............................................. 331,775 41,105
Leasehold improvements................................. 499,105 265,391
Leasehold improvements under construction.............. 275,862 --
Computer equipment..................................... 516,286 163,828
Patents................................................ 13,686 12,942
--------- ---------
2,080,645 725,583
--------- ---------
Accumulated amortization
Test units............................................. 268,670 143,954
Equipment.............................................. 33,322 18,314
Leasehold improvements................................. 253,756 131,242
Leasehold improvements under construction.............. -- --
Computer equipment..................................... 164,050 54,609
Patents................................................ 12,944 11,595
--------- ---------
732,742 359,714
--------- ---------
Net carrying amount...................................... 1,347,903 365,869
========= =========
</TABLE>

8 Accounts payable and accrued liabilities

<TABLE>
<CAPTION>
1999 1998
--------- ---------
$ $
--------- ---------
<S> <C> <C>
Trade accounts payable................................... 2,923,123 802,653
Accrued salaries, vacation pay and benefits.............. 100,632 121,089
Outstanding cheques...................................... 635,434 309,272
--------- ---------
3,659,189 1,233,014
========= =========
</TABLE>

9 Contract advance

Pursuant to an exclusive, worldwide assembly and marketing agreement, the
Company received a non-interest-bearing advance of $500,000. On April 1, 1998,
the agreement was replaced with an exclusive assembly agreement which
terminates on December 31, 2000. The remaining balance of the advance of
$250,000 is repayable on December 31, 2000.

F-10
<PAGE>

OPTIMAL ROBOTICS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

For each of the years in the three-year period ended December 31, 1999
(expressed in U.S. dollars, unless otherwise noted)

10 Share capital

The Company's authorized share capital consists of an unlimited number of
Class "A" shares, and Class "B" and Class "C" preference shares.

The Class "A" shares are designated as common shares.

The Class "B" preference shares are voting, non-participating and redeemable
for the amount paid up thereon. In the event of the liquidation, dissolution or
wind-up of the Company, the Class "B" preference shares rank in priority to all
other classes.

The Class "C" preference shares are issuable in series with rights,
privileges, restrictions and conditions designated by the directors. In the
event of the liquidation, dissolution or wind-up of the Company, the Class "C"
preference shares rank in priority to the common shares.

<TABLE>
<CAPTION>
Issued
Common
Shares $
---------- ----------
<S> <C> <C>
Balance - December 31, 1996............................ 7,417,022 16,411,360
Cancellation of shares under Employee Stock Purchase
Arrangement.......................................... (9,000) (51,360)
Cancellation of loan receivable under Employee Stock
Purchase Arrangement................................. -- 51,360
---------- ----------

Balance - December 31, 1997............................ 7,408,022 16,411,360
Issued for cash pursuant to exercise of stock
options.............................................. 1,000 2,998
Issued pursuant to exercise of warrants............... 70,256
Ascribed value from other capital.................... 3,575
Cash................................................. 432,598
Cancellation of shares under Employee Stock Purchase
Arrangement.......................................... (4,000) (22,827)
Cancellation of loan receivable under Employee Stock
Purchase Arrangement................................. -- 22,827
---------- ----------

Balance - December 31, 1998............................ 7,475,278 16,850,531
Issued for cash pursuant to exercise of stock
options.............................................. 934,271 2,393,538
Issued pursuant to exercise of warrants............... 27,692 --
Ascribed value from other capital.................... -- 2,681
Cash................................................. -- 73,556
Issued for cash pursuant to public offering........... 3,000,000 27,000,000
Share issue costs, net of related future income
taxes................................................ -- (1,803,821)
Repayment of loans under Employee Stock Purchase
Arrangement.......................................... -- 141,348
---------- ----------
Balance - December 31, 1999............................ 11,437,241 44,657,833
========== ==========
</TABLE>

During 1999, the Company filed a registration statement with the Securities
and Exchange Commission qualifying the issuance of 3,000,000 common shares for
gross proceeds of $9.00 per share. The net proceeds from this offering amounted
to $25,196,179, after deducting underwriting commissions and other expenses of
$1,803,821 (net of future income taxes of $989,613).

F-11
<PAGE>

OPTIMAL ROBOTICS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

For each of the years in the three-year period ended December 31, 1999
(expressed in U.S. dollars, unless otherwise noted)

On February 26, 1996, regulatory approval was received to issue 42,000 common
shares under an Employee Stock Purchase Arrangement pursuant to which certain
employees of the Company were entitled to purchase common shares of the Company
at a price of Cdn$8.75 per share. Under the Arrangement the Company provided
interest-free non-recourse loans payable according to various occurrences, but
no later than the 10th anniversary of the issuance of the shares, which loans
were secured by a pledge of the shares. These loans receivable have been
presented as a deduction from share capital. At December 31, 1999, 24,000
common shares are issued and outstanding under this Arrangement and all loans
under the Arrangement have been repaid.

11 Stock option plan/warrants

The Company has a stock option plan that provides for the granting of options
to employees and directors for the purchase of the Company's common shares.
Options may be granted by the Board of Directors for terms of up to ten years.
The Board of Directors establishes the exercise period, vesting terms and other
conditions for each grant at the grant date. Options may be granted with
exercise prices as permitted by securities regulatory authorities. A maximum of
3,000,000 common shares may be issued pursuant to options granted under this
plan. Options outstanding under the plan generally expire five years after the
date of grant and vest either immediately or over a period of up to two years.

In addition, the Company has granted options under certain employment
agreements and established certain terms for some options granted under the
1997 Stock Option Plan as follows:

a) In 1997, options to purchase 1,200,000 common shares were granted to
three senior officers. These options have an exercise price of $3.00 per
share and expire in 2002. As at December 31, 1999, options to purchase
900,000 common shares are outstanding, all of which are exercisable
(1998 - 1,200,000 outstanding, 900,000 exercisable). The employment
agreements contained the following provisions:

i) The holder was permitted to exercise the above options without
paying cash by accepting the number of shares having a value equal
to the in-the-money value of the options. This right was irrevocably
waived by the holders in 1998.

ii) If a change of control or substantial asset disposal occurred, the
unexercised options would no longer be exercisable and the holder
would have the right to acquire 4.04% of the then outstanding
shares of the Company reduced by a specified number of shares if
any of the options had been exercised. Such shares could be
acquired for nominal consideration. If the shares could not be
issued, the holders would be entitled to a cash payment based on
certain specified criteria. In January 1999, the change of control
and substantial asset disposal provisions were deleted and a new
change of control provision was inserted in the agreements. Under
the new change of control provision, if a change of control should
occur, the exercise price of all options, warrants or rights held
by these senior officers would be amended to a nominal value. If
shares cannot be issued under this change of control provision, the
Company is required to pay the holders the fair value of the shares
that would have been issued.

iii) In the event of termination by the Company without cause, the
exercise price on the options would be amended to a nominal value.

b) The 1997 employment agreements provide that in the event of termination
without cause, the exercise price of all options, warrants or rights
would be amended to a nominal value. At December 31, 1999, options to
purchase 1,812,000 (1998 - 1,692,000) common shares with a weighted
average exercise

F-12
<PAGE>

OPTIMAL ROBOTICS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

For each of the years in the three-year period ended December 31, 1999
(expressed in U.S. dollars, unless otherwise noted)

price of $10.84 (1998 - $2.80) and 140,000 (1998 - 140,000) warrants
with a weighted average exercise price of Cdn$4.64 (1998 - $4.64) were
subject to this provision of which 1,182,000 options and 140,000
warrants were exercisable (1998 - 1,392,000 options and 140,000
warrants).

c) In 1997, options to purchase 312,000 common shares were granted,
including 282,000 which were granted to three senior officers, with a
reload feature whereby upon exercise of the option, a new option is
issued with an exercise price equal to the then current market price.
Two consecutive reloads are permitted. The holder was permitted to
exercise the options without paying cash by accepting the number of
shares having a value equal to the in-the-money value of the options.
This right was irrevocably waived by the holders of options to acquire
307,000 common shares in 1998.

During 1999, 287,000 of these options were exercised and immediately
reloaded at the then current market price. As at December 31, 1999,
options subject to this provision, all of which are exercisable, are as
follows:

<TABLE>
<CAPTION>
Exercise Number of
prices options
$ outstanding
-------- -----------
<S> <C>
3.00........................................................ 20,000
16.13........................................................ 282,000(1)
24.56........................................................ 5,000(1)
-------
307,000
=======
</TABLE>
--------
(1) These options may be reloaded one more time.

d) In 1997, options to purchase 20,000 common shares were granted to an
outside consultant at an exercise price of $3.00.

Details of stock options are as follows:

<TABLE>
<CAPTION>
United States dollar exercise price Canadian dollar exercise price
------------------------------------------- --------------------------------
Weighted Weighted
average average
exercise price exercise price
Number of per share Number of per share
options $ options Cdn$
------------- -------------------- ------------- ------------------
<S> <C> <C> <C> <C>
Balance - December 31,
1996 -- -- 360,000 2.08
Granted................. 1,571,000 3.00 -- --
------------------- --------------- -------- ----
Balance - December 31,
1997 1,571,000 3.00 360,000 2.08
Granted................. 105,000 5.78 -- --
Expired................. (10,000) 3.00 -- --
------------------- --------------- -------- ----
Balance - December 31,
1998 1,666,000 3.18 360,000 2.08
Granted................. 1,028,000 19.81 -- --
Expired................. (1,000) 3.00 -- --
Exercised............... (636,000) 3.13 (300,000) 2.00
------------------- --------------- -------- ----
Balance - December 31,
1999 2,057,000 11.49 60,000 2.50
=================== =============== ======== ====
</TABLE>

F-13
<PAGE>

OPTIMAL ROBOTICS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

For each of the years in the three-year period ended December 31, 1999
(expressed in U.S. dollars, unless otherwise noted)

The following table summarizes information concerning currently outstanding
options:

<TABLE>
<CAPTION>
Weighted
average
Number of Number of remaining
Exercise price options options contractual
$ outstanding exercisable life
-------------- ----------- ----------- -----------
<S> <C> <C> <C>
CDN 2.50 60,000 60,000 0.3 years
3.00 954,000 954,000 2.3 years
5.56 75,000 25,000 3.2 years
9.75 65,000 -- 4.3 years
12.88 330,000 -- 4.0 years
16.13 282,000 282,000 2.3 years
24.56 5,000 5,000 2.3 years
31.25 346,000 -- 4.9 years
--------- ---------
2,117,000 1,326,000
========= =========
</TABLE>

The following table summarizes the weighted average grant-date fair value per
share for options granted.

<TABLE>
<CAPTION>
Weighted
average
grant-date
fair value
Number of per share
options $
--------- ----------
<S> <C> <C>
1997
Exercise price per share less than market price per
share (1)........................................... 1,220,000 3.58
Exercise price per share equal to market price per
share............................................... 351,000 1.47

1998
Exercise price per share less than market price per
share............................................... 100,000 5.22
Exercise price per share equal to market price per
share............................................... 5,000 5.60

1999
Exercise price per share equal to market price per
share............................................... 1,028,000 11.60
</TABLE>
- --------
(1) Of these 1,220,000 options, (i) an aggregate of 1.2 million options was
granted at an exercise price of $3.00 per share pursuant to employment
agreements made as of May 5, 1997 (the substance of which was agreed to
prior to May 5, 1997) with three senior executives of the Company (the
market price per share was $2.75 per share on May 4, 1997), which
agreements were formally ratified and confirmed by the Board of Directors
of the Company on September 24, 1997 (on which date the market price per
share was $5.75); and (ii) 20,000 options were granted at an exercise price
of $3.00 per share to a consultant to the Company pursuant to a consulting
arrangement agreed to as of June 26, 1997 (the market price per share on
June 25, 1997 was $4.25), which options were formally ratified and
confirmed by the Board of Directors of the Company on October 31, 1997 (on
which date the market price per share was $5.50).

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes pricing model with the following weighted-average assumptions
used for grants in 1999, 1998 and 1997: dividend yield of nil, risk-free
interest rate of 5.58%, 4.85% and 5.70% to 6.57% respectively, expected
volatility of 80%, 77% to 85% and 80% to 87% respectively, and expected lives
of 3.44, 5.0 and 5.0 years respectively.

F-14
<PAGE>

OPTIMAL ROBOTICS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

For each of the years in the three-year period ended December 31, 1999
(expressed in U.S. dollars, unless otherwise noted)

Details of warrants are as follows:

<TABLE>
<CAPTION>
United States
dollar exercise Canadian dollar
price exercise price
------------------ ------------------
Weighted Weighted
average average
exercise exercise
price price
Number per Number per
of share of share
warrants $ warrants Cdn$
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance - December 31, 1996 and
1997............................... 331,023 6.58 220,000 5.69
Exercised......................... (10,256) 6.50 (60,000) 9.46
Expired........................... (13,500) 6.60 -- --
------- ---- ------- ----
Balance - December 31, 1998......... 307,267 6.58 160,000 4.28
Exercised......................... (7,692) 6.50 (20,000) 1.75
------- ---- ------- ----
Balance - December 31, 1999......... 299,575 6.58 140,000 4.64
======= ==== ======= ====
</TABLE>

During 1997, no warrants were granted or exercised, and none expired.

The following table summarizes information concerning currently outstanding
warrants:

<TABLE>
<CAPTION>
Number of Weighted
warrants average
Exercise outstanding remaining
price and contractual
$ exercisable life
-------- ----------- -----------
<S> <C> <C>
CDN 3.75 40,000 0.8 years
5.00 100,000 1.7 years
6.50 58,975 2.8 years
6.60 240,600 1.8 years
-------
439,575
=======
</TABLE>

The warrants expire at various dates to October 24, 2002.

12 Other disclosures

Research and development tax credits

Research and development tax credits include:

<TABLE>
<CAPTION>
1999 1998 1997
------- ------- ------
$ $ $
------- ------- ------
(note 2)(note 2)

<S> <C> <C> <C>
Refundable tax credits.............................. 250,046 114,494 99,600
Non-refundable tax credits realizable against future
income taxes related to
Current year expenditures......................... 171,473 -- --
Prior years' expenditures not previously
recognized....................................... 318,965 -- --
------- ------- ------
740,484 114,494 99,600
======= ======= ======
</TABLE>

F-15
<PAGE>

OPTIMAL ROBOTICS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

For each of the years in the three-year period ended December 31, 1999
(expressed in U.S. dollars, unless otherwise noted)

Commitments

a) The Company has entered into operating leases for its premises and
certain office equipment. The minimum amounts payable for each of the
next four years, excluding the Company's proportionate share of common
operating costs, are as follows:

b) The U.S. Treasury bill in the amount of $564,841 has been pledged in
respect of corporate credit card facilities and an unused line of credit
in the amount of Cdn$500,000.

Uncertainty due to the Year 2000 Issue

The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information
using year 2000 dates is processed. In addition, similar problems may arise in
some systems which use certain dates in 1999 to represent something other than
a date. Although the change in date has occurred, it is not possible to
conclude that all aspects of the Year 2000 Issue that may affect the Company,
including those related to the efforts of customers, suppliers, or other third
parties, will be fully resolved.

Contingency

In each of 1995 and 1996, the Company received demand letters from the same
claimant alleging patent infringement. In June 1999, this same claimant filed a
civil action alleging patent infringement in the United States District Court
for the District of Utah against the Company and PSC. In addition, a similar
suit has been filed in the State of Utah against one of the Company's
customers. At the Company's expense, the Company's counsel is defending this
suit. The Company is also contractually bound to indemnify the customer for any
damages it incurs in connection with such suit. The Company also received a
lawyer's letter from another party alleging infringement of another patent. The
Company believes these claims to be without merit and intends to vigorously
defend its position. Consequently, no provision has been made in these
financial statements with respect to the above claims.

13 Income taxes

The income tax recovery is composed of the following:

<TABLE>
<CAPTION>
1999 1998 1997
---------- -------- --------
$ $ $
---------- -------- --------
(note 2) (note 2)
<S> <C> <C> <C>
Current......................................... -- -- --
Future, before undernoted item.................. 65,758 -- --
Benefit of prior years' non-capital
losses not previously recognized............ (3,597,341) -- --
---------- ------ ------
(3,531,583) -- --
========== ====== ======
</TABLE>

F-16
<PAGE>

OPTIMAL ROBOTICS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

For each of the years in the three-year period ended December 31, 1999
(expressed in U.S. dollars, unless otherwise noted)

The reconciliation of the combined Canadian federal and Quebec provincial
income tax rate to the income tax recovery is as follows:

<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
$ $ $
---------- ---------- ----------
(note 2) (note 2)
<S> <C> <C> <C>
Earnings (loss) before income taxes.... 120,185 (3,910,764) (1,381,137)
---------- ---------- ----------
Combined Canadian federal and Quebec
provincial income taxes at 38%...... 45,670 (1,486,090) (524,832)
Unrecorded benefit of non-capital
losses................................ -- 1,475,785 515,868
Future benefit of previously
unrecognized non-capital losses of
prior years......................... (3,597,341) -- --
Other.................................. 20,088 10,305 8,964
---------- ---------- ----------
(3,531,583) -- --
========== ========== ==========
</TABLE>

The future income tax balances are summarized as follows:

<TABLE>
<CAPTION>
1999 1998
--------- ----------
$ $
--------- ----------
<S> <C> <C>
Current future income tax assets
Non-refundable research and development tax credits
(net of related income taxes)....................... 310,201 --
Non-capital losses................................... 2,500,000 --
Share issue costs.................................... 202,796 --
--------- ----------
Current future income tax assets..................... 3,012,997 --
--------- ----------
Long-term future income tax assets
Research and development expenses.................... 739,146 503,489
Non-refundable research and development tax credits
(net of related income taxes)....................... -- 188,482
Non-capital losses................................... 678,481 2,831,800
Share issue costs.................................... 608,388 --
Capital assets....................................... 96,013 --
--------- ----------
2,122,028 3,523,771
Valuation allowance.................................. -- (3,523,771)
--------- ----------
Long-term future income tax assets................... 2,122,028 --
--------- ----------
Total future income tax assets....................... 5,135,025 --
========= ==========
</TABLE>

F-17
<PAGE>

OPTIMAL ROBOTICS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

For each of the years in the three-year period ended December 31, 1999
(expressed in U.S. dollars, unless otherwise noted)

As at December 31, 1999, for Canadian federal and Quebec provincial income
tax purposes, the Company has non-capital loss carryforwards of approximately
Cdn$12,417,000 which can be carried forward to reduce future taxable income and
which expire as follows:

Certain eligible scientific research and development expenditures incurred by
the Company may be deferred and deducted in future years. These unclaimed
deductions, which can be carried forward indefinitely, amounted to
Cdn$2,420,000 for Canadian federal purposes and Cdn$4,010,000 for Quebec
provincial purposes as at December 31, 1999.

As at December 31, 1999, the Company has non-refundable research and
development tax credits of Cdn$728,644 which can be carried forward to reduce
Canadian federal income taxes payable and expire in various years until 2009.

The future tax benefits of these carryforwards and tax credits have been
recognized in the financial statements.

The carryforwards and the tax credits claimed are subject to review and
possible adjustment by the Canadian federal and Quebec provincial government
authorities.

14 Segmented information

Substantially all of the Company's revenue is derived from export sales to
supermarket retailers in the United States and is denominated in U.S. dollars.
Substantially all of the Company's operations and assets are located in Canada.

Major customers

Sales to major customers (customers from which 10% or more of total revenue
is derived during the specified period) are summarized as follows:

<TABLE>
<CAPTION>
1998 1998 1997
---------- --------- ---------
$ $ $
---------- --------- ---------
(note 2) (note 2)
<S> <C> <C> <C>
Customer 1.................................... 15,909,477 4,035,080 1,277,239
Customer 2.................................... 8,267,126 725,420 N/A
Customer 3.................................... N/A N/A 1,094,966
</TABLE>

F-18
<PAGE>

OPTIMAL ROBOTICS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

For each of the years in the three-year period ended December 31, 1999
(expressed in U.S. dollars, unless otherwise noted)

15 Financial instruments

Credit risk

Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of cash, the U.S. Treasury bill, short-term
investments and accounts receivable. Cash is maintained with a high-credit
quality financial institution. Short-term investments consist of short-term
discounted notes issued by high-credit quality corporations. For accounts
receivable, the Company performs periodic credit evaluations and typically does
not require collateral. Allowances are maintained for potential credit losses
consistent with the credit risk, historical trends and other information.

Interest rate risk

The Company's exposure to interest rate risk is as follows:

<TABLE>
<S> <C>
Cash Non-interest bearing
U.S. Treasury bill Fixed interest rate
Short-term investments Fixed interest rate
Accounts receivable Non-interest bearing
Unused line of credit Interest rate of prime plus 1%
Accounts payable and accrued liabilities Non-interest bearing
Contract advance Non-interest bearing
</TABLE>

Short-term investments

Short-term investments consist of the following:

<TABLE>
<CAPTION>
1999 1998
---------- ---------
$ $
---------- ---------
<S> <C> <C>
Short-term discounted notes denominated in U.S. dollars
with an effective yield of 5.8% (1998 - 7.625%),
maturing on April 3, 2000
(1998 - December 1, 1999)............................. 4,354,219 5,524,819
Short-term discounted notes denominated in Canadian
dollars with an effective yield of 5.1%, maturing on
March 7 and 14, 2000.................................. 20,282,387 --
---------- ---------
24,636,606 5,524,819
========== =========
</TABLE>

Fair value

Due to their short-term maturities, the carrying values of cash, the U.S.
Treasury bill, short-term investments, accounts receivable, and accounts
payable and accrued liabilities are reasonable estimates of their fair values.

The fair value of the contract advance at December 31, 1999 is approximately
$227,000 (1998 - $332,000) based on discounted cash flows.

F-19
<PAGE>

OPTIMAL ROBOTICS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

For each of the years in the three-year period ended December 31, 1999
(expressed in U.S. dollars, unless otherwise noted)

16 Additional disclosures required by U.S. GAAP and differences between
Canadian GAAP and U.S. GAAP

These financial statements have been prepared in accordance with Canadian
generally accepted accounting principles ("Canadian GAAP") that conform, in all
material respects, with generally accepted accounting principles in the United
States ("U.S. GAAP") during the periods presented, except with respect to the
following:

New accounting standards

In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities". The Standard, which is effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999, is not expected to
have a material impact on the Company's disclosure or accounting.

Accounting for stock-based compensation

For stock-based compensation plans with employees (including directors), the
Company has chosen to use the intrinsic value method (APB Opinion No. 25),
which requires compensation costs to be recognized on the difference, if any,
between the quoted market price of the stock as at the grant date and the
amount the individual must pay to acquire the stock. Variable stock option
plans require subsequent increases in the fair value of the underlying stock to
be recorded as additional compensation costs. The options issued by the Company
in 1997 have a cashless exercise option, as described in note 11, and
accordingly, they are accounted for as variable stock option plans. On April
22, 1998, certain option holders irrevocably waived the cashless exercise
option; therefore, subsequent changes in the fair value of the underlying stock
are no longer recorded as an increase or decrease of compensation costs, until
these options are exercised.

If the fair value-based accounting method under SFAS No. 123 had been used to
account for stock-based compensation costs relating to options and warrants
issued to employees, the net income figures and related earnings per share
figures under U.S. GAAP would be as follows for the years ended December 31,
1999, 1998 and 1997:

<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
$ $ $
---------- ---------- ----------
<S> <C> <C> <C>
Net loss for the year in accordance
with U.S. GAAP........................ (1,629,811) (5,685,587) (4,575,788)
Basic and fully diluted net loss per
common share in accordance with U.S.
GAAP.................................. (0.17) (0.76) (0.62)
</TABLE>

Change in reporting currency

As mentioned in note 2, in 1998 the Company adopted 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.

Under Canadian GAAP, the statement of operations for the years ended December
31, 1998 and 1997 were translated into U.S. dollars using an exchange rate of
US$1.00 = Cdn$1.5333. Under U.S. GAAP, revenues and expenses would be
translated at exchange rates prevailing at the respective transaction dates.
Average exchange rates for the years ended December 31, 1998 and 1997 were
US$1.00 = Cdn$1.4835 and Cdn$1.3844, respectively.

F-20
<PAGE>

OPTIMAL ROBOTICS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

For each of the years in the three-year period ended December 31, 1999
(expressed in U.S. dollars, unless otherwise noted)

Net earnings (loss) per share

Under U.S. GAAP, fully diluted net earnings (loss) per share is calculated
based on the weighted average number of shares outstanding during the year,
plus the effects of dilutive common share equivalents, such as options and
warrants outstanding during the year. This method requires that fully diluted
net earnings (loss) per share be calculated, using the treasury stock method,
as if all common share equivalents had been exercised at the beginning of the
reporting period, or period of issue, as the case may be, and that the funds
obtained thereby were used to purchase common shares of the Company at the
average trading price of the common shares during the period.

Reconciliation of net earnings (loss) to conform with U.S. GAAP

The following summary sets out the material adjustments to the Company's
reported net earnings (loss) and net earnings (loss) per common share which
would be made to conform with U.S. GAAP.

<TABLE>
<CAPTION>
1999 1998 1997
---------- ----------- ----------
$ $ $
---------- ----------- ----------
<S> <C> <C> <C>
Net earnings (loss) for the year in
accordance with Canadian GAAP........ 3,651,768 (3,910,764) (1,381,137)
Stock-based compensation costs........ (9,227,197) (12,371,637) (5,273,053)
Change in reporting currency.......... -- (120,255) (151,603)
---------- ----------- ----------
Net loss for the year in accordance
with U.S. GAAP....................... (5,575,429) (16,402,656) (6,805,793)
Other comprehensive income (loss)
Foreign currency translation
adjustments.......................... 652,062 (690,003) (530,984)
---------- ----------- ----------
Comprehensive loss.................... (4,923,367) (17,092,659) (7,336,777)
========== =========== ==========
Basic and fully diluted net loss per
common share in accordance with U.S.
GAAP................................. (0.57) (2.20) (0.92)
========== =========== ==========
</TABLE>

Balance sheet

Loans receivable

Under U.S. GAAP, loans provided in exchange for shares issued are required to
be reflected as an offset to shareholders' equity.

Share issue costs

Under U.S. GAAP, SFAS No. 123, transactions in which an entity acquires goods
and services from non-employees in exchange for equity instruments are required
to be recorded at fair value. On May 31, 1996, 45,000 warrants were granted to
an outside consultant and on October 24, 1996, 240,600 warrants were granted to
a non-related party. The fair values of these warrants were $205,472 and
$628,447 respectively, which have been charged to deficit as share issue costs.

F-21
<PAGE>

OPTIMAL ROBOTICS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

For each of the years in the three-year period ended December 31, 1999
(expressed in U.S. dollars, unless otherwise noted)

As a result of the above adjustments to net earnings (loss), loans receivable
and share issue costs, differences with respect to the balance sheet under U.S.
GAAP are as follows:

Share capital

<TABLE>
<CAPTION>
1999 1998
---------- ----------
$ $
---------- ----------
<S> <C> <C>
Share capital in accordance with Canadian GAAP..... 44,657,833 16,850,531
Stock-based compensation costs on options exercised
during the year................................... 15,111,792 --
Change in reporting currency
Current year...................................... -- 15,048
Cumulative effect of prior years.................. 2,587,999 2,572,951
Loan receivable.................................... (14,953) (17,674)
---------- ----------
Share capital in accordance with U.S. GAAP......... 62,342,671 19,420,856
========== ==========
</TABLE>

Other capital

<TABLE>
<CAPTION>
1999 1998
----------- ----------
$ $
----------- ----------
<S> <C> <C>
Other capital in accordance with Canadian GAAP.... 20,559 23,240
Stock-based compensation costs
Current year..................................... 9,227,197 12,371,637
Cumulative effect of prior years................. 17,807,290 5,435,653
Stock-based compensation costs on options
exercised during the year....................... (15,111,792) --
Change in reporting currency
Current year..................................... -- (425)
Cumulative effect of prior years................. 968,350 968,775
----------- ----------
Other capital in accordance with U.S. GAAP........ 12,911,604 18,798,880
=========== ==========
</TABLE>

Deficit

<TABLE>
<CAPTION>
1999 1998
----------- -----------
$ $
----------- -----------
<S> <C> <C>
Deficit in accordance with Canadian GAAP........... (5,625,622) (9,277,390)
Share issue costs.................................. (833,919) (833,919)
Stock-based compensation costs
Current year...................................... (9,227,197) (12,371,637)
Cumulative effect of prior years.................. (17,807,290) (5,435,653)
Change in reporting currency
Current year...................................... -- (120,255)
Cumulative effect of prior years.................. (1,188,668) (1,068,413)
----------- -----------
Deficit in accordance with U.S. GAAP............... (34,682,696) (29,107,267)
=========== ===========
</TABLE>

F-22
<PAGE>

OPTIMAL ROBOTICS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

For each of the years in the three-year period ended December 31, 1999
(expressed in U.S. dollars, unless otherwise noted)

Accumulated other comprehensive income (loss)

Accumulated other comprehensive income (loss), which results solely from the
translation of the financial statements in accordance with the current rate
method, is summarized as follows:

<TABLE>
<CAPTION>
1999 1998
---------- ----------
$ $
---------- ----------
<S> <C> <C>
Opening balance..................................... (1,533,762) (843,759)
Change during the year.............................. 652,062 (690,003)
---------- ----------
Closing balance..................................... (881,700) (1,533,762)
========== ==========
</TABLE>

Shareholders' equity

<TABLE>
<CAPTION>
1999 1998
---------- ---------
$ $
---------- ---------
<S> <C> <C>
Shareholders' equity in accordance with Canadian
GAAP.............................................. 39,704,832 7,596,381
Loan receivable.................................... (14,953) (17,674)
---------- ---------
Shareholders' equity in accordance with U.S. GAAP.. 39,689,879 7,578,707
========== =========
</TABLE>

Statement of cash flows

Under Canadian GAAP, the statement of cash flows for the years ended December
31, 1998 and 1997 was translated into U.S. dollars using an exchange rate of
US$1.00 = Cdn$1.5333. Under U.S. GAAP, the historical exchange rates on the
dates of the cash flow activities would be used. Following is a summary cash
flow statement for each of 1998 and 1997 under U.S. GAAP.

<TABLE>
<CAPTION>
1998 1997
---------- -----------
<S> <C> <C>
Operating activities.............................. (5,130,768) (2,651,258)
Financing activities.............................. 325,219 --
Investing activities.............................. 5,054,858 (11,454,805)
---------- -----------
Increase (decrease) in cash and cash equivalents
during the year.................................. 249,309 (14,106,063)
Cash and cash equivalents--Beginning of year...... 289,181 14,395,244
---------- -----------
Cash and cash equivalents--End of year............ 538,490 289,181
========== ===========
</TABLE>

17 Subsequent events

In January 2000, the Company issued 7,692 common shares pursuant to the
exercise of warrants at an exercise price of $6.50, for total gross cash
proceeds of $49,998. In addition, the Company issued 16,000 common shares
pursuant to the exercise of options at a weighted average exercise price of
$5.40 per share for gross cash proceeds of $86,438.

Also in January 2000, the Company filed a registration statement with the
Securities and Exchange Commission in order to register common shares
underlying 253,420 outstanding warrants with a weighted average exercise price
of $6.59 per share.

F-23
<PAGE>

INSIDE BACK COVER

[The background is blue. The graphs that appear, clockwise from the top
left corner, are: bar graph showing Total U-Scan Systems Installed at
year-end for 1997, 1998 and 1999; Revenue (in millions) for 1997, 1998
and 1999; Total U-Scan/(R)/ Checkout Stations at year-end for 1997, 1998
and 1999; and U-Scan/(R)/ Shopper Transactions (in millions) for 1998
and 1999. In the center of the page and these four graphs is a schematic
picture of the United States indicating, in dark blue, states in which
we have installed U-Scan Express, with the remaining states in white.]
<PAGE>

BACK COVER

[Logo] [The back cover will have a blue background getting darker from
the top of the cover to the bottom.]

[A picture of the U-Scan Express will appear, with the following phrases
each with a line pointing to the relevant component in the system
(clockwise, from the lower left corner): Security Weighing Platform, POS
Receipt Printer, Bill & Coin Dispenser, a Pinpad, Bill & Coin
Acceptor, Video Surveillance Monitor, Touchscreen Monitor,
Scanner/Scale]

<PAGE>

PART II

INFORMATION NOT REQUIRED IN THE PROSPECTUS

Item 14. Other Expenses of Issuance and Distribution

The estimated expenses payable by the registrant in connection with the
issuance and distribution of the securities being registered are as follows:

<TABLE>
<S> <C>
SEC Registration Fee............................................... $ 22,770
Nasdaq National Market Listing Fee................................. $ 8,780
NASD Registration Fee.............................................. $ 17,500
Accounting Fees and Expenses....................................... $250,000
Printing and Engraving Expenses.................................... $175,000
Legal Fees and Expenses............................................ $350,000
Miscellaneous Expenses............................................. $100,950
--------
Total............................................................ $925,000
========
</TABLE>

Item 15. Indemnification of Directors and Officers

The Company's By-laws provide the following:

Subject to the provisions of the Canada Business Corporations Act (the
"CBCA"), every director and officer of the Company (including those who have
acted at the Company's request as an officer or director of a body corporate
of which the Company is or was a shareholder or creditor) and his heirs and
legal representatives shall from time to time be indemnified and saved
harmless by the Company from and against all costs, charges and expenses
reasonably incurred by him in respect of any civil, criminal or administrative
action or proceeding to which he is made a party by reason of being or having
been a director or officer of the Company or such body corporate (including
without limitation all losses, liabilities, costs, charges and expenses
incurred by him in respect of any act or proceeding for the recovery of claims
of employees or former employees of the Company or such body corporate or in
respect of any claim based upon the failure of the Company to deduct,
withhold, remit or pay any amount for taxes, assessments and other charges of
any nature whatsoever as required by law), if

(a) he acted honestly and in good faith with a view to the best interests
of the Company; and

(b) in the case of a criminal or administrative action or proceeding that
is enforced by a monetary penalty, he had reasonable grounds for
believing that his conduct was lawful.

The By-laws also contain a provision eliminating the liability of directors
or officers for losses, damages or other misfortunes of the Company arising
out of the execution of the duties of his office or in relation thereto,
unless occasioned by his own wilful neglect or default (subject to compliance
with the mandatory obligations and duties imposed by the CBCA and the
regulations thereunder and the liability imposed for any breach thereof).

The Company shall also indemnify such person in such other circumstances as
the CBCA may require.

II-1
<PAGE>

Item 16. Exhibits

<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------- -------
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Articles
3.2 By-laws
4 Specimen certificate of the common shares
5 Opinion of Goodman Phillips & Vineberg*
23.1 Consent of Goodman Phillips & Vineberg (included in Exhibit 5)*
23.2 Consent of PricewaterhouseCoopers LLP
23.3 Consent of CT Corporation
Power of attorney (included on the signature page of the registration
24.1 statement)
</TABLE>
- --------
* To be filed by amendment

Item 17. Undertakings

(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.

(b) The undersigned registrant hereby undertakes that (i) for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof; (ii) for purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rules 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective; and (iii) for
the purposes of determining any liability under the Securities Act of 1933,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.

II-2
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets the
requirements for filing on Form F-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Montreal, Province of Quebec, on the 6th day of
March, 2000.

Optimal Robotics Corp.
(Registrant)

/s/ Holden L. Ostrin
By: _________________________________

Holden L. Ostrin

Co-Chairman

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----

<C> <S> <C>
* Director (Principal March 6, 2000
_____________________________________ Executive Officer)
Neil S. Wechsler

/s/ Holden L. Ostrin Director March 6, 2000
_____________________________________
Holden L. Ostrin

* Director March 6, 2000
_____________________________________
Henry M. Karp

* Director March 6, 2000
_____________________________________
Leon P. Garfinkle

* Director (Authorized March 6, 2000
_____________________________________ Representative in the
James S. Gertler United States)

* Principal Financial and March 6, 2000
_____________________________________ Accounting Officer
Gary S. Wechsler

/s/ Holden L. Ostrin
*By: ________________________________
Holden L. Ostrin
Under Power-of-Attorney
</TABLE>

II-3
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------- -------
<C> <S>
1 Form of Underwriting Agreement**

3.1 Certificate and Articles of Continuance (incorporated by reference to
Exhibit 3.1 to the Company's registration statement on Form F-1, file
333-4950, filed with the Commission on October 24, 1996)

3.2 By-laws (incorporated by reference to Exhibit 3.2 to the Company's
Annual Report on Form 10-K, File No. 0-28572, filed with the
Commission on March 8, 1999)

4 Specimen certificate of the common shares (incorporated by reference
to Exhibit 1.1 to the Company's Registration Statement on Form 8, File
No. 0-28572, filed with the Commission on July 17, 1996)

5 Opinion of Goodman Phillips & Vineberg*

23.1 Consent of Goodman Phillips & Vineberg (included in Exhibit 5)*

23.2 Consent of PricewaterhouseCoopers LLP**

23.3 Consent of CT Corporation**

24.1 Power of attorney (included on the signature page of the registration
statement)**
</TABLE>
- --------
* To be filed by amendment

** Previously filed