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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2003
Commission file number 0-28572
OPTIMAL ROBOTICS CORP.
(Exact name of registrant as specified in its charter)
CANADA 98-0160833
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
4700 de la Savane, Suite 101, Montreal, Quebec, Canada H4P 1T7
(514) 738-8885
(Registrant's Telephone Number, including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes |X| No |_|
At October 30, 2003, the registrant had 14,936,235 Class "A" shares (without
nominal or par value) outstanding.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- 2 -
OPTIMAL ROBOTICS CORP.
Consolidated Balance Sheets
(Unaudited)
September 30, 2003 and December 31, 2002
(expressed in US dollars)
========================================================================================================
September 30, December 31,
2003 2002
- --------------------------------------------------------------------------------------------------------
(Audited)
Assets
Current assets:
Cash $ 9,986,277 $ 9,615,348
Short-term investments 66,531,393 76,146,586
Accounts receivable, net of allowance for doubtful accounts of
$243,188 ($316,494 at December 31, 2002) 13,572,186 5,812,656
Income taxes receivable 2,855,023 1,481,977
Tax credits receivable 1,104,408 728,408
Inventories (note 4) 23,762,767 22,656,666
Future income taxes -- 243,470
Prepaid expenses and deposits 1,082,617 493,499
---------------------------------------------------------------------------------------------------
118,894,671 117,178,610
Property and equipment 7,535,332 6,562,344
Goodwill and other intangible assets (note 5) 11,036,377 4,399,924
Future income taxes 2,838,853 1,549,856
- --------------------------------------------------------------------------------------------------------
$ 140,305,233 $ 129,690,734
========================================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Bank indebtedness (note 6) $ 5,882,308 $ --
Accounts payable and accrued liabilities 10,011,716 7,134,379
Deferred revenue 3,934,540 1,394,455
Future income taxes 56,638 --
Current portion of long-term debt (note 7) 2,384,182 --
---------------------------------------------------------------------------------------------------
22,269,384 8,528,834
Long-term debt (note 7) 1,361,924 --
Future income taxes 520,759 1,700,870
Shareholders' equity:
Share capital (note 8) 122,102,244 122,102,244
Additional paid-in capital 5,282 5,282
Deficit (4,469,889) (1,162,025)
Cumulative translation adjustment (1,484,471) (1,484,471)
---------------------------------------------------------------------------------------------------
116,153,166 119,461,030
Contingencies (note 9)
- --------------------------------------------------------------------------------------------------------
$ 140,305,233 $ 129,690,734
========================================================================================================
See accompanying notes to unaudited consolidated financial statements.
- 3 -
OPTIMAL ROBOTICS CORP.
Consolidated Statements of Operations
(Unaudited)
Periods ended September 30, 2003 and 2002
(expressed in US dollars)
=========================================================================================================
Three months ended Nine months ended
September 30, September 30,
------------------------------ ------------------------------
2003 2002 2003 2002
- ---------------------------------------------------------------------------------------------------------
Revenues $ 15,385,299 $ 21,390,215 $ 48,265,011 $ 61,309,059
Cost of sales 10,507,148 14,266,242 32,856,633 40,242,297
- ---------------------------------------------------------------------------------------------------------
Gross margin 4,878,151 7,123,973 15,408,378 21,066,762
Expenses (income):
Selling, general and
administrative 5,624,688 7,209,416 17,958,103 20,690,925
Research and development
(note 10) 268,053 46,338 790,805 1,155,257
Amortization 712,154 673,590 2,043,977 1,939,028
Restructuring (note 11) 501,830 -- 749,330 --
Operating lease 438,868 383,746 1,263,802 1,148,389
Investment income (205,146) (332,072) (716,244) (1,512,254)
Foreign exchange 22,337 (71,619) 195,469 (36,125)
----------------------------------------------------------------------------------------------------
7,362,784 7,909,399 22,285,242 23,385,220
- ---------------------------------------------------------------------------------------------------------
Loss before income taxes (2,484,633) (785,426) (6,876,864) (2,318,458)
(Recovery of) provision for
income tax (note 12) (375,000) 616,101 (3,569,000) (955,507)
- ---------------------------------------------------------------------------------------------------------
Net loss $ (2,109,633) $ (1,401,527) $ (3,307,864) $ (1,362,951)
=========================================================================================================
Weighted average number of shares:
Basic 14,936,235 14,936,235 14,936,235 15,099,748
Plus impact of stock options 831 2,655 419 57,136
- ---------------------------------------------------------------------------------------------------------
Diluted 14,937,066 14,938,890 14,936,654 15,156,884
=========================================================================================================
Loss per share (note 13):
Basic $ (0.14) $ (0.09) $ (0.22) $ (0.09)
Diluted (0.14) (0.09) (0.22) (0.09)
=========================================================================================================
See accompanying notes to unaudited consolidated financial statements.
- 4 -
OPTIMAL ROBOTICS CORP.
Consolidated Statements of Deficit
(Unaudited)
Periods ended September 30, 2003 and 2002
(expressed in US dollars)
=======================================================================================================
Three months ended Nine months ended
September 30, September 30,
---------------------------- ----------------------------
2003 2002 2003 2002
- -------------------------------------------------------------------------------------------------------
(Deficit) retained earnings,
beginning of period $(2,360,256) $ 4,203,781 $(1,162,025) $ 8,475,146
Net loss (2,109,633) (1,401,527) (3,307,864) (1,362,951)
Excess of purchase price over
book value of shares (note 8 (a)) -- -- -- (4,309,941)
- -------------------------------------------------------------------------------------------------------
(Deficit) retained earnings,
end of period $(4,469,889) $ 2,802,254 $(4,469,889) $ 2,802,254
=======================================================================================================
See accompanying notes to unaudited consolidated financial statements.
- 5 -
OPTIMAL ROBOTICS CORP.
Consolidated Statements of Cash Flows
(Unaudited)
Periods ended September 30, 2003 and 2002
(expressed in US dollars)
======================================================================================================================
Three months ended Nine months ended
September 30, September 30,
---------------------------- ------------------------------
2003 2002 2003 2002
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net loss $(2,109,633) $(1,401,527) $ (3,307,864) $ (1,362,951)
Adjustments for:
Amortization 712,154 673,590 2,043,977 1,939,028
Future income taxes (155,000) 808,148 (2,169,000) (452,960)
Changes in operating assets and liabilities:
Accounts receivable 1,721,252 (3,710,154) (4,280,173) (14,139,066)
Income taxes (105,627) (181,484) (1,373,046) (4,672,243)
Tax credits receivable (46,000) (862,665) (376,000) (268,016)
Inventories 473,304 1,302,496 1,116,034 (1,947,245)
Prepaid expenses and deposits 288,528 238,568 (300,114) 416,668
Accounts payable and
accrued liabilities (326,097) (3,939,820) (799,754) (593,346)
Deferred revenue (2,225,853) (2,483,733) 1,842,631 1,154,489
-----------------------------------------------------------------------------------------------------------------
(1,772,972) (9,556,581) (7,603,309) (19,925,642)
Cash flows from financing activities:
Proceeds from demand loan 5,882,308 -- 5,882,308 --
Repurchase of common shares -- -- -- (8,684,330)
-----------------------------------------------------------------------------------------------------------------
5,882,308 -- 5,882,308 (8,684,330)
Cash flows from investing activities:
Business acquisition (5,882,268) -- (5,882,268) --
Additions to property and equipment
and intangible assets (306,560) (772,408) (1,640,995) (2,810,586)
Decrease in short-term
investments 7,706,377 7,996,591 9,615,193 27,064,414
-----------------------------------------------------------------------------------------------------------------
1,517,549 7,224,183 2,091,930 24,253,828
- ----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash during
the period 5,626,885 (2,332,398) 370,929 (4,356,144)
Cash, beginning of period 4,359,392 7,592,684 9,615,348 9,616,430
- ----------------------------------------------------------------------------------------------------------------------
Cash, end of period $ 9,986,277 $ 5,260,286 $ 9,986,277 $ 5,260,286
======================================================================================================================
Supplemental disclosure to cash flow statement:
Income taxes paid $ -- $ -- $ -- $ 3,380,258
======================================================================================================================
See accompanying notes to unaudited consolidated financial statements.
- 6 -
OPTIMAL ROBOTICS CORP.
Notes to Consolidated Financial Statements
(Unaudited)
Periods ended September 30, 2003 and 2002
(expressed in US dollars)
================================================================================
1. Interim financial information:
These consolidated financial statements have been prepared by management
in accordance with Canadian generally accepted accounting principles. The
unaudited balance sheet as at September 30, 2003 and the unaudited
statements of operations, deficit and cash flows for the periods ended
September 30, 2003 and 2002 reflect all adjustments which, in the opinion
of management, are necessary to a fair statement of the results of the
interim periods presented. The results of operations and cash flows for
any quarter are not necessarily indicative of the results or cash flows
for an entire year. These interim consolidated financial statements follow
the same accounting policies and methods of their application as described
in note 2 of the annual consolidated financial statements for the year
ended December 31, 2002. The interim consolidated financial statements do
not include all disclosures required for annual financial statements and
should be read in conjunction with the most recent annual consolidated
financial statements of the Company as at and for the year ended December
31, 2002.
All amounts in the attached notes are unaudited unless specifically
identified.
2. Significant accounting policies:
(a) Guarantees:
On January 1, 2003, the Company adopted the new recommendations of
the Canadian Institute of Chartered Accountants ("CICA"), Accounting
Guideline 14, Disclosure of Guarantees, which clarifies disclosure
requirements for certain guarantees. The guideline does not provide
guidance on the measurement and recognition of a guarantor's
liability for obligations under guarantees. The guideline defines a
guarantee to be a contract (including an indemnity) that
contingently requires the Company to make payments to a third party
based on (i) changes in an underlying interest rate, foreign
exchange rate, equity or commodity instrument, index or other
variable, that is related to an asset, a liability or an equity
security of the counterparty, (ii) failure of another party to
perform under an obligating agreement or (iii) failure of another
party to pay its indebtedness when due.
As explained in note 9 (a), the Company is contractually bound to
indemnify a customer without limitiations for damages incurred in
connection with a civil action. A reasonable estimate of the maximum
potential amount the Company could be required to pay to
counterparties cannot be made given the nature of the
indemnification.
- 7 -
OPTIMAL ROBOTICS CORP.
Notes to Consolidated Financial Statements, Continued
(Unaudited)
Periods ended September 30, 2003 and 2002
(expressed in US dollars)
================================================================================
2. Significant accounting policies (continued):
(b) Long-lived assets:
In December 2002, the CICA issued Handbook Section 3063, Impairment
or Disposal of Long-Lived Assets" and revised Section 3475, Disposal
of Long-Lived Assets and Discontinued Operations. Together, these
two Sections supersede the write-down and disposal provisions of
Section 3061, Property, Plant and Equipment as well as Section 3475,
Discontinued Operations. Section 3063 amends existing guidance on
long-lived asset impairment measurement and establishes standards
for the recognition, measurement and disclosure of the impairment of
long-lived assets held for use by the Company. It requires that an
impairment loss be recognized when the carrying amount of an asset
to be held and used exceeds the sum of the undiscounted cash flows
expected from its use and disposal; the impairment recognized is
measured as the amount by which the carrying amount of the asset
exceeds its fair value. Section 3475 provides a single accounting
model for long-lived assets to be disposed of by sale. Section 3475
provides specified criteria for classifying an asset as
held-for-sale and requires assets classified as held-for-sale to be
measured at the lower of their carrying amounts or fair value, less
costs to sell. Section 3475 also broadens the scope of businesses
that qualify for reporting as discontinued operations to include any
disposals of a component of an entity, which comprises operations
and cash flows that can be clearly distinguished from the rest of
the Company, and changes the timing of recognizing losses on such
operations. The new standards contained in Section 3063 on the
impairment of long-lived assets held for use are applicable for
years beginning on or after April 1, 2003. The revised standards
contained in Section 3475 on disposal of long-lived assets and
discontinued operations are applicable to disposal activities
initiated by the Company's commitment to a plan on or after May 1,
2003. The Company does not expect that the adoption of these
standards will have a material effect on its financial statements.
3. Business acquisition:
On September 30, 2003, the Company acquired substantially all of the
assets and the ongoing business of RBA Inc. ("RBA"), a company that
provides hardware maintenance outsourcing services, including debit/credit
card system maintenance and computer maintenance services, across Canada.
The net assets acquired for cash are approximately $5.9 million (CA$8.0
million), subject to the determination of certain post closing
adjustments, if any. The acquisition is accounted for by the Company using
the purchase method and the results of RBA are consolidated with those of
the Company from the date of acquisition.
- 8 -
OPTIMAL ROBOTICS CORP.
Notes to Consolidated Financial Statements, Continued
(Unaudited)
Periods ended September 30, 2003 and 2002
(expressed in US dollars)
================================================================================
3. Business acquisition (continued):
The following table summarizes the estimated fair value of the assets
acquired and liabilities assumed at date of acquisition. The Company is in
the process of finalizing its valuation of the net assets acquired,
including the allocation to goodwill and to other intangible assets; thus,
the allocation of the purchase price is subject to final modifications.
=========================================================================
Assets acquired:
Accounts receivable $ 3,479,357
Inventories 2,222,135
Property and equipment 1,798,528
Prepaid expenses and deposits 289,004
Goodwill and other intangible assets 6,213,895
---------------------------------------------------------------------
14,002,919
Liabilities assumed:
Accounts payable and accrued liabilities (3,677,091)
Deferred revenue (697,454)
Current portion of long-term debt (2,384,182)
Long-term debt (1,361,924)
---------------------------------------------------------------------
(8,120,651)
-------------------------------------------------------------------------
Net assets acquired for cash $ 5,882,268
=========================================================================
4. Inventories:
=========================================================================
September 30, December 31,
2003 2002
--------------------------------------------------------------------------
(Audited)
Finished goods $ 1,176,355 $ 1,647,505
Work in process 958,503 355,853
Raw materials 4,295,151 4,468,785
Replacement parts 17,332,758 16,184,523
--------------------------------------------------------------------------
$ 23,762,767 $ 22,656,666
=========================================================================
- 9 -
OPTIMAL ROBOTICS CORP.
Notes to Consolidated Financial Statements, Continued
(Unaudited)
Periods ended September 30, 2003 and 2002
(expressed in US dollars)
================================================================================
5. Goodwill and other intangible assets:
====================================================================================
September 30,
2003
------------------------------------------------------------------------------------
Gross carrying Accumulated Net book
amount amortization value
------------------------------------------------------------------------------------
Goodwill $ 3,171,903 $ 141,750 $ 3,030,153
Customer list 786,414 301,245 485,169
Patent costs 1,061,827 83,744 978,083
License 371,266 42,189 329,077
Goodwill and other intangible assets
from acquisition (note 3) 6,213,895 -- 6,213,895
------------------------------------------------------------------------------------
$11,605,305 $ 568,928 $11,036,377
====================================================================================
====================================================================================
December 31,
2002
------------------------------------------------------------------------------------
(Audited)
Gross carrying Accumulated Net book
amount amortization value
------------------------------------------------------------------------------------
Goodwill $ 3,171,903 $ 141,750 $ 3,030,153
Customer list 786,414 183,283 603,131
Patent costs 803,143 36,503 766,640
------------------------------------------------------------------------------------
$ 4,761,460 $ 361,536 $ 4,399,924
====================================================================================
6. Bank indebtedness:
The Company has credit facilities in the amount of approximately CA$11
million (US$8.1 million), which can be utilized in the form of loans or
bankers' acceptances in Canadian dollars. At September 30, 2003, the
Company utilized $5,882,308 of the facilities. The borrowings are due on
demand and bear interest either at the bank's prime rate or the market
rate for bankers' acceptances plus an acceptance fee of 0.75% per annum,
depending on the form of the facility utilized. The facilities are secured
by a first ranking moveable hypothec on short-term investments.
- 10 -
OPTIMAL ROBOTICS CORP.
Notes to Consolidated Financial Statements, Continued
(Unaudited)
Periods ended September 30, 2003 and 2002
(expressed in US dollars)
================================================================================
7. Long-term debt:
=================================================================================================
2003 2002
-------------------------------------------------------------------------------------------------
Loans from suppliers as a result of the acquisition, bearing
interest at 8%, unsecured, repayable in monthly instalments $ 2,938,260 $ --
Obligations under capital leases as a result of the acquisition,
bearing interest at rates ranging from 7% to 13.6% 807,846 --
-------------------------------------------------------------------------------------------------
3,746,106 --
Less current portion 2,384,182 --
-------------------------------------------------------------------------------------------------
$ 1,361,924 $ --
=================================================================================================
Repayments on long-term debt are as follows:
=================================================================================================
Loans from Capital
suppliers leases Total
-------------------------------------------------------------------------------------------------
Year ended September 30:
2004 $ 1,958,839 $ 425,343 $ 2,384,182
2005 979,421 278,873 1,258,294
2006 -- 103,630 103,630
-------------------------------------------------------------------------------------------------
$ 2,938,260 $ 807,846 $ 3,746,106
=================================================================================================
8. Share capital:
(a) Changes in the issued and outstanding share capital were as follows:
=============================================================================================
September 30, 2003 December 31, 2002
--------------------------- -----------------------------
Number Dollars Number Dollars
---------------------------------------------------------------------------------------------
(Audited)
Balance, December 31,
2002 and 2001 14,936,235 $122,102,244 15,471,335 $ 126,476,633
Stock repurchase plan (i) -- -- (535,100) (4,374,389)
---------------------------------------------------------------------------------------------
Balance, September 30, 2003
and December 31, 2002 14,936,235 $122,102,244 14,936,235 $ 122,102,244
=============================================================================================
- 11 -
OPTIMAL ROBOTICS CORP.
Notes to Consolidated Financial Statements, Continued
(Unaudited)
Periods ended September 30, 2003 and 2002
(expressed in US dollars)
================================================================================
8. Share capital (continued):
(a) (continued):
(i) On February 26, 2002, the Board of Directors approved a stock
repurchase plan authorizing the Company to purchase up to
750,000 of the Company's Class "A" shares in the open market
commencing March 5, 2002 and ending March 4, 2003. During the
nine months ended September 30, 2003, no shares were
repurchased. As at December 31, 2002, 535,100 shares having a
book value of $4,374,389 were repurchased for a total
consideration of $8,684,330. The excess of the purchase price
over book value of the shares in the amount of $4,309,941 was
charged to retained earnings.
(b) Stock options:
Details of all outstanding stock options are as follows:
====================================================================
Weighted average
exercise price
Number per share
--------------------------------------------------------------------
Balance, December 31, 2002 4,799,525 $ 22.88
Expired/cancelled (4,794,525) 22.89
--------------------------------------------------------------------
Balance, September 30, 2003 5,000 $ 6.40
====================================================================
On July 16, 2003, the Board of Directors approved the cancellation
of all options issued and outstanding under the Company's stock
option plan, subject to the agreement of the option holders. All
such options were cancelled as of July 31, 2003. The 5,000 stock
options that remain outstanding were issued outside of the Company's
stock option plan, to two consultants who are not employees of the
Company.
9. Contingencies:
(a) In 1995 and 1996, the Company received demand letters from the same
claimant alleging patent infringement. In July 1999, the claimant
filed a civil action alleging patent infringement in the United
States District Court for the District of Utah against the Company
and PSC Inc., one of the Company's suppliers. In addition, the
claimant has filed a similar suit in the State of Utah against one
of the Company's customers. The Company is contractually bound to
indemnify the customer for any damages it incurs in connection with
such suit. At the Company's expense, the Company's legal counsel is
defending this suit. The Company also received a lawyer's letter
from another party in 1999, and again in February 2001, alleging
infringement of another patent. In March 2003, this claimant also
sent a third demand letter alleging infringement of additional
patents.
- 12 -
OPTIMAL ROBOTICS CORP.
Notes to Consolidated Financial Statements, Continued
(Unaudited)
Periods ended September 30, 2003 and 2002
(expressed in US dollars)
================================================================================
9. Contingencies:
(a) (continued):
No amounts have been specified in these actions. Consequently, it is
not possible at this time to make an estimate of the amount of
damages, if any, that may result and, accordingly, no provision has
been made in these financial statements with respect to the above
claims. The Company believes the first claimant's action and the
second claimant's 1999 and 2001 claims to be without merit and
intends to vigorously defend its position. The Company is finalizing
its review of the second claimant's March 2003 claim with counsel,
and has not yet formed an opinion as to its merit or materiality to
the Company's business.
(b) The Company is party to litigation arising in the normal course of
operations. The Company does not expect the resolution of such
matters to have a materially adverse effect on the financial
position or results of operations of the Company.
10. Research and development:
=======================================================================================
Three months ended Nine months ended
September 30, September 30,
------------------------ ----------------------------
2003 2002 2003 2002
---------------------------------------------------------------------------------------
Research and development
expenses $ 314,053 $ 909,003 $ 1,166,805 $ 2,317,922
Less tax credits (46,000) (862,665) (376,000) (1,162,665)
---------------------------------------------------------------------------------------
$ 268,053 $ 46,338 $ 790,805 $ 1,155,257
=======================================================================================
11. Restructuring:
In February and August 2003, the Company reduced its workforce in an
effort to increase operating efficiencies, decrease overall general and
administrative expenses and improve financial results. In total, the
Company incurred charges of $749,330 related primarily to severance in
2003, of which a provision of $68,953 is included in accounts payable and
accrued liabilities at September 30, 2003 in the consolidated balance
sheets.
- 13 -
OPTIMAL ROBOTICS CORP.
Notes to Consolidated Financial Statements, Continued
(Unaudited)
Periods ended September 30, 2003 and 2002
(expressed in US dollars)
================================================================================
12. Income taxes:
The income tax provision differs from the amount computed by applying the
combined Canadian federal and provincial tax rates to earnings before
income taxes. The reasons for the difference and the related tax effects
are as follows:
==================================================================================================
Three months ended Nine months ended
September 30, September 30,
---------------------------- ----------------------------
2003 2002 2003 2002
--------------------------------------------------------------------------------------------------
Loss before income taxes $(2,484,633) $ (785,426) $(6,876,864) $(2,318,458)
==================================================================================================
Combined Canadian federal and
provincial income taxes $ (823,904) $ (282,753) $(2,280,368) $ (834,645)
Foreign exchange (1) (77,542) 1,393,952 (1,496,524) 67,789
Benefit of losses not recorded 580,209 -- 829,252 --
Permanent differences and other 24,102 (421,317) (327,859) (65,031)
Difference in tax rates in
foreign jurisdictions (77,865) (73,781) (293,501) (123,620)
--------------------------------------------------------------------------------------------------
(Recovery of) provision for
income tax $ (375,000) $ 616,101 $(3,569,000) $ (955,507)
==================================================================================================
(1) For purposes of calculating the income tax provision of the Company,
a tax liability is recognized when foreign exchange gains arise on
the conversion into Canadian dollars of the net monetary assets
denominated in U.S. dollars which is required for tax purposes.
Because these financial statements are presented in U.S. dollars,
these foreign exchange gains do not impact earnings before income
taxes even though the income tax provision would include a tax
liability for these gains. Future fluctuations in the foreign
exchange rate between the Canadian and U.S. dollar will change the
amount of the foreign exchange and may impact the provision for or
recovery of income taxes thereon.
The (recovery of) provision for income taxes is composed of the following:
==================================================================================================
Three months ended Nine months ended
September 30, September 30,
--------------------------- ----------------------------
2003 2002 2003 2002
--------------------------------------------------------------------------------------------------
Current income taxes $ (220,000) $ (192,047) $ (1,400,000) $ (502,547)
Future income taxes (155,000) 808,148 (2,169,000) (452,960)
--------------------------------------------------------------------------------------------------
$ (375,000) $ 616,101 $ (3,569,000) $ (955,507)
==================================================================================================
- 14 -
OPTIMAL ROBOTICS CORP.
Notes to Consolidated Financial Statements, Continued
(Unaudited)
Periods ended September 30, 2003 and 2002
(expressed in US dollars)
================================================================================
13. Earnings per share:
Stock-based compensation:
If the fair value-based accounting method under CICA Handbook Section 3870
had been used to account for stock-based compensation costs relating to
exempt options issued to employees during the three-month and nine-month
periods ended September 30, 2003 and 2002, the net earnings and related
earnings per share figures would be as follows:
========================================================================================================
Three months ended Nine months ended
September 30, September 30,
--------------------------------- ---------------------------------
2003 2002 2003 2002
--------------------------------------------------------------------------------------------------------
Reported loss $ (2,109,633) $ (1,401,527) $ (3,307,864) $ (1,362,951)
Deduct:
Total stock-based employee
compensation expense
determined under fair
value-based method for all
awards, net of related
taxes of nil (690,667) (814,824) (1,393,340) (17,756,274)
--------------------------------------------------------------------------------------------------------
$ (2,800,300) $ (2,216,351) $ (4,701,204) $ (19,119,225)
========================================================================================================
Loss per share:
Basic:
As reported $ (0.14) $ (0.09) $ (0.22) $ (0.09)
Pro forma (0.19) (0.15) (0.31) (1.27)
Diluted:
As reported (0.14) (0.09) (0.22) (0.09)
Pro forma (0.19) (0.15) (0.31) (1.27)
========================================================================================================
No options were granted in the period prior to July 16, 2003, the date the
Board of Directors approved the cancellation of all options issued and
outstanding under the Company's stock option plan (see note 8 (b)). The
pro forma adjustment relates to the amortization of compensation cost for
options granted after January 1, 2002 over the vesting periods.
- 15 -
OPTIMAL ROBOTICS CORP.
Notes to Consolidated Financial Statements, Continued
(Unaudited)
Periods ended September 30, 2003 and 2002
(expressed in US dollars)
================================================================================
14. Segmented information:
The Company operates in one segment, the development, marketing,
installation, servicing and sale of automated transaction products
designed for use in the retail sector. Substantially all of the Company's
revenue is derived from sales to retailers located in the United States
and is denominated in U.S. dollars.
Revenues and cost of sales by products are as follows:
=================================================================================================
Three months ended Nine months ended
September 30, September 30,
------------------------------- -------------------------------
2003 2002 2003 2002
-------------------------------------------------------------------------------------------------
Revenues:
Systems, parts and
others $ 10,785,092 $ 17,497,693 $ 35,261,144 $ 49,780,132
Hardware and software
maintenance 4,600,207 3,892,522 13,003,867 11,528,927
-------------------------------------------------------------------------------------------------
$ 15,385,299 $ 21,390,215 $ 48,265,011 $ 61,309,059
=================================================================================================
Cost of sales:
Systems, parts and
others $ 7,109,864 $ 10,513,195 $ 23,326,454 $ 29,850,393
Hardware and software
maintenance 3,397,284 3,753,047 9,530,179 10,391,904
-------------------------------------------------------------------------------------------------
$ 10,507,148 $ 14,266,242 $ 32,856,633 $ 40,242,297
=================================================================================================
Property and equipment, goodwill and other intangible assets by geographic
area are as follows:
=================================================================================================
September 30, December 31,
2003 2002
-------------------------------------------------------------------------------------------------
(Audited)
Canada $ 13,802,474 $ 5,811,631
United States 4,769,236 5,150,637
-------------------------------------------------------------------------------------------------
$ 18,571,710 $ 10,962,268
=================================================================================================
- 16 -
OPTIMAL ROBOTICS CORP.
Notes to Consolidated Financial Statements, Continued
(Unaudited)
Periods ended September 30, 2003 and 2002
(expressed in US dollars)
================================================================================
15. Additional disclosures required by U.S. GAAP and differences between
Canadian GAAP and U.S. GAAP:
(a) Consolidated statement of operations:
The reconciliation of earnings reported in accordance with Canadian
GAAP with U.S. GAAP is as follows:
===================================================================================================
Three months ended Nine months ended
September 30, September 30,
-------------------------------- ------------------------------
2003 2002 2003 2002
---------------------------------------------------------------------------------------------------
Net loss in accordance
with Canadian GAAP $ (2,109,633) $ (1,401,527) $ (3,307,864) $(1,362,951)
Stock-based
compensation (i) -- -- -- 9,778,143
---------------------------------------------------------------------------------------------------
Net (loss) earnings in
accordance with
U.S. GAAP $ (2,109,633) $ (1,401,527) $ (3,307,864) $ 8,415,192
===================================================================================================
(Loss) earnings per share:
Basic $ (0.14) $ (0.09) $ (0.22) $ 0.56
Diluted (0.14) (0.09) (0.22) 0.56
===================================================================================================
The weighted average number of common shares outstanding for
purposes of determining basic and diluted earnings (loss) per share
is the same as that disclosed for Canadian GAAP purposes.
(i) Stock-based compensation:
For stock-based compensation plans with employees, as
permitted by Statement of Financial Accounting Standards No.
123 (SFAS 123), the Company has chosen to use the intrinsic
value method, which requires compensation costs to be
recognized on the difference, if any, between the quoted
market price of the stock at the grant date and the amount the
individual must pay to acquire the stock. Prior to the
cancellation of the outstanding stock options referred to in
note 8 (b), certain of the Company's stock options were
variable because the exercise price was not known until the
options were exercised. As a result, compensation cost was
measured on the date the options are exercised.
Under Canadian GAAP, the Company uses the settlement method of
accounting for options and compensation expense is not
recognized.
- 17 -
OPTIMAL ROBOTICS CORP.
Notes to Consolidated Financial Statements, Continued
(Unaudited)
Periods ended September 30, 2003 and 2002
(expressed in US dollars)
================================================================================
15. Additional disclosures required by U.S. GAAP and differences between
Canadian GAAP and U.S. GAAP (continued):
(a) Consolidated statement of operations (continued):
(i) Stock-based compensation (continued):
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
earnings and related earnings per share figures under U.S.
GAAP would be as follows for the three-month and nine-month
periods ended September 30:
=======================================================================================================
Three months ended Nine months ended
September 30, September 30,
--------------------------------- ----------------------------------
2003 2002 2003 2002
-------------------------------------------------------------------------------------------------------
Reported net (loss)
earnings $ (2,109,633) $ (1,401,527) $ (3,307,864) $ 8,415,192
Add: Stock-based
employee compensation
(income)
determined under the
intrinsic value method
included in reported
net earnings, net of
related taxes of nil -- -- -- (9,778,143)
Deduct: Total stock-based
employee compensation
expense determined
under fair value method
for all awards, net of
related taxes of nil (878,182) (622,462) (10,134,477) (30,754,928)
-------------------------------------------------------------------------------------------------------
Pro forma net loss $ (2,987,815) $ (2,023,989) $ (13,442,341) $ (32,117,879)
=======================================================================================================
(Loss) earnings per share:
Basic:
As reported $ (0.14) $ (0.09) $ (0.22) $ 0.56
Pro forma (0.20) (0.14) (0.90) (2.13)
Diluted:
As reported (0.14) (0.09) (0.22) 0.56
Pro forma (0.20) (0.14) (0.90) (2.13)
=======================================================================================================
- 18 -
OPTIMAL ROBOTICS CORP.
Notes to Consolidated Financial Statements, Continued
(Unaudited)
Periods ended September 30, 2003 and 2002
(expressed in US dollars)
================================================================================
15. Additional disclosures required by U.S. GAAP and differences between
Canadian GAAP and U.S. GAAP (continued):
(a) Consolidated statement of operations (continued):
(ii) Recent accounting pronouncements:
In January 2003, the FASB issued Interpretation No. 46
"Consolidation of Variable Interest Entities" (FIN 46). Its
consolidation provisions are applicable for all newly created
entities and are applicable to existing entities as of the
beginning of the first interim or annual reporting period
beginning after December 15, 2003. With respect to entities
that do not qualify to be assessed for consolidation based on
voting interests, FIN 46 generally requires a company that has
a variable interest that will absorb a majority of the
entity's expected losses if they occur, receive a majority of
the entity's expected residual returns if they occur, or both,
to consolidate that variable interest entity. For periods
prior to FIN 46's effective date, certain disclosures will be
required if it is reasonably possible that the Company will
have a significant variable interest in or be the primary
beneficiary of a variable interest entity when FIN 46 guidance
is effective. The Company does not expect that the adoption of
this standard will have a material impact on its financial
statements.
(b) Consolidated balance sheets:
======================================================================================================
September 30, 2003 December 31, 2002
-------------------------------- --------------------------------
Canadian US Canadian US
GAAP GAAP GAAP GAAP
------------------------------------------------------------------------------------------------------
(Audited)
Shareholders' equity:
Share capital $ 122,102,244 $ 164,558,807 $ 122,102,244 $ 164,558,807
Additional paid-in
capital 5,282 29,862,009 5,282 29,862,009
Deficit (4,469,889) (75,249,417) (1,162,025) (71,941,553)
Cumulative translation
adjustment (1,484,471) -- (1,484,471) --
Accumulated other
comprehensive loss -- (3,018,233) -- (3,018,233)
------------------------------------------------------------------------------------------------------
$ 116,153,166 $ 116,153,166 $ 119,461,030 $ 119,461,030
======================================================================================================
16. Comparative figures:
Certain of the comparative figures have been reclassified in order to
conform with the current period's presentation.
- 19 -
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Quarterly Report on Form 10-Q contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
which are intended to be covered by the safe harbors created thereby. These
statements are based on current expectations and assumptions that are subject to
risks and uncertainties. Actual results could differ materially because of the
various factors discussed in our Annual Report on Form 10-K for the year ended
December 31, 2002, including, without limitation, the following: we principally
depend on one line of products and we could be harmed significantly if the
U-Scan(R) systems experience significant problems, competition from superior
technology or customer resistance; one significant customer, through its various
divisions and affiliates, accounted for approximately 44% of our revenues in
2002 and we rely on this customer's continued willingness to purchase our U-Scan
systems; our U-Scan systems are assembled at a single facility and any
disruption of operations at this facility would have a short-term adverse effect
on our business and results of operations; the barriers to entering the
self-checkout industry may be low and competition could reduce revenue from the
U-Scan system; in the event that general economic conditions continue to result
in reduced demand in our industry, our competitors could develop more aggressive
pricing practices, which, in turn, could result in price reductions, negatively
affecting our operating results, reducing our profit margins and potentially
leading to a loss of market share; and we are currently a defendant in an action
alleging that the U-Scan system infringes upon the claimant's patent, and a
second party has sent demand letters to us alleging different patent
infringements. The adverse resolution of any specific lawsuit could have a
material adverse effect on our business, results of operations, and financial
condition.
Additional risks and uncertainties relating to the provision of hardware
maintenance and repair services, and the anticipated increase in the proportion
of our overall revenues and expenses that will be attributable to service as a
result of our recent acquisition of the RBA hardware maintenance outsourcing
services business (see "Overview - Acquisition of RBA" below), include the
following: we might not successfully integrate the RBA business into our service
organization; our ability to successfully integrate the RBA business is
dependent on the services of a certain of our senior officers and key personnel,
the loss of any of whom could adversely effect our business and results of
operations; the majority of our service revenues are contract-based - any
reduction in contract-based revenue, whether due to our failure to renew
existing customer contracts or to enter into contracts with new customers, or
our inability to properly estimate our costs in establishing our fixed fees
under such contracts, would negatively effect our operating results; the
hardware maintenance and repair service industry is highly competitive;
end-users and original equipment manufacturers (each, an "OEM") of hardware
systems could determine to reduce their outsourcing of maintenance and repair
services, which would have an adverse effect on our business and results of
operations; we from time to time will have only a single supplier for a
particular spare part which, in some cases, may be the OEM for such spare part.
Should a supplier be unwilling or unable to supply any part or component in a
timely manner, our business could be adversely affected; and we must maintain a
large inventory of spare parts in order to service our customers. Any decrease
in demand for our services or changes in technology used by our customers could
result in spare parts becoming excess, obsolete or otherwise unusable, which
could have a material adverse effect on our business, financial results and
results of operations.
The foregoing factors and those discussed in our Annual Report on Form
10-K for the year ended December 31, 2002, are not intended to represent a
complete list of the general or specific factors that may affect us. It should
be recognized that other factors, including general economic factors and
business strategies, may be significant, presently or in the future, and the
factors discussed above and in our 2002 Annual Report may affect us to a greater
extent than indicated. All forward-looking statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety by the
cautionary statements set forth herein. Except as required by law, we undertake
no obligation to
- 20 -
update any forward-looking statement, whether as a result of new information,
future events or otherwise.
The following discussion of our financial condition and results of
operations should be read in conjunction with our audited consolidated financial
statements for the year ended December 31, 2002, and the foregoing factors. All
dollar amounts are expressed in U.S. dollars and, other than those expressed in
millions of dollars, have been rounded to the nearest thousand.
We prepare our consolidated financial statements in accordance with
accounting principles which are generally accepted in Canada with a
reconciliation to accounting principles generally accepted in the United States,
as disclosed in note 15 of the notes to our interim consolidated financial
statements for the period ended September 30, 2003, which are included in Part
1, Item 1. "Financial Statements."
Overview
We are a leading North American provider of self-checkout systems to
retailers and field services to retail, financial services and other third-party
accounts. Our principal product is the U-Scan automated self-checkout system,
which enables shoppers to scan, bag and pay for their purchases with little or
no assistance from store personnel. We also provide hardware maintenance and
repair throughout North America through a network of field technicians and our
repair facilities, located in Santa Ana, California and in Canada in Montreal,
Quebec, Toronto, Ontario and Calgary, Alberta.
The U-Scan system can be operated quickly and easily by shoppers and makes
the checkout process more convenient. The U-Scan system reduces the cost of
checkout transactions to retailers and addresses labour shortage problems by
replacing manned checkout counters with our automated self-checkout stations.
We have traditionally targeted supermarket and supercenter chains in the
United States, and more recently have targeted such chains in Canada. In 2002,
our Business Development Group was established to support our efforts to expand
our self-checkout business into new markets, which include drug stores,
convenience stores (including gas station mini-marts), big box retailers
(including warehouse stores and home improvement stores), electronics stores,
office superstores, toy stores and general merchandise stores. Through our
United Kingdom subsidiary, we have installed systems in the stores of a leading
independent co-operative society and another customer has scheduled initial
store installations for this year and is working on a roll out schedule. Several
other U.K. retailers have or are about to install our U-Scan systems in their
stores on a trial basis.
Acquisition of RBA
On September 30, 2003, we acquired substantially all the assets and the
ongoing business of RBA Inc. ("RBA"), a privately held company based in
Montreal, Quebec, which provides hardware maintenance outsourcing services,
including debit/credit card system maintenance and computer maintenance services
across Canada. The net assets acquired for cash is approximately CA$8.0 million,
or US$5.9 million, subject to the determination of certain post-closing
adjustments, if any. See note 3 of the notes to our interim consolidated
financial statements for the period ended September 30, 2003, which are included
in Part 1, Item 1. "Financial Statements." The acquisition was completed on the
last day of the third quarter and therefore had no impact on our earnings for
the quarter.
We believe that the RBA acquisition presents a number of synergies. The
acquisition expands our customer base in Canada and allows us to increase our
service offerings to customers. For the existing customers of the RBA business,
we expect that our broader base of knowledge and greater resources will allow us
to provide increased service levels and thereby increase customer satisfaction.
- 21 -
The acquired business employs approximately 550 people and operates a
network of approximately 35 hubs across Canada.
New accounting policy
On January 1, 2003, we adopted the new recommendations of the Canadian
Institute of Chartered Accountants ("CICA"), Accounting Guideline 14,
"Disclosure of Guarantees", which clarifies disclosure requirements for certain
guarantees. The guideline does not provide guidance on the measurement and
recognition of a guarantor's liability for obligations under guarantees. The
guideline defines a guarantee to be a contract that contingently requires us to
make payments to a third party based on (i) changes in an underlying interest
rate, foreign exchange rate, equity or commodity instrument, index or other
variable, that is related to an asset, a liability or an equity security of the
counterparty, (ii) failure of another party to perform under an obligating
agreement or (iii) failure of another party to pay its indebtedness when due.
See note 2(a) of the notes to our interim consolidated financial statements for
the period ended September 30, 2003, which are included in Part 1, Item 1.
"Financial Statements."
Trends in our revenues and cost of sales
Our most important customers, the retail supermarket chains, continue to
deal with difficult economic and competitive conditions. This has caused the
retail supermarket industry to significantly reduce generalized spending. As a
result, capital spending continues to lag and retailer demand for self-checkout
remains fragile. Under these current business conditions, we do not expect
demand for self-checkout to increase in the near future and we believe that our
business will continue to be challenging. In an effort to improve operating
efficiency and productivity in the face of our currently declining revenue base
from product sales, we reduced our workforce by approximately 45 people in
February 2003 and again by approximately 45 people in August 2003, for a total
approximating 17% of our workforce as at the beginning of the year. We also
reduced, starting in the fourth quarter, compensation for management and certain
of our employees. We anticipate annual savings of approximately $5.5 million
from these initiatives. Service revenue from hardware and software maintenance
increased by $1,475,000, or 13%, from 2002 to 2003. See "Results of Operations -
First Nine Months of 2003 Compared with First Nine Months of 2002" below.
Service revenue from hardware maintenance will increase significantly during the
fourth quarter of 2003 and thereafter due to our acquisition of the RBA
business.
Financial Condition
Our cash and short-term investment portfolio amounted to $76,518,000 as at
September 30, 2003, compared to $85,762,000 as at December 31, 2002. The
decrease is mainly attributable to cash used in operations, and additions to
property and equipment and other intangible assets in the first nine months of
2003. Our portfolio of short-term investments consists of short-term discounted
notes. Our investments are liquid and of the highest investment grade. The
portfolio is invested in U.S. and Canadian dollar denominated securities, which
are short-term to minimize interest rate risk.
On September 30, 2003, we acquired substantially all of the assets and the
ongoing business of RBA. See "Overview - Acquisition of RBA" above. The
acquisition was financed with available credit facilities. See note 3 of the
notes to our interim consolidated financial statements for the period ended
September 30, 2003, which are included in Part 1, Item 1. "Financial
Statements."
Our inventory position at September 30, 2003 was $23,763,000, up from
$22,657,000 at the end of 2002. The increase is primarily due to the acquisition
of replacement parts inventory pursuant to the RBA acquisition. We believe that,
considering our current installed base, the level of replacement parts is
appropriate for the current servicing and support of our customers.
- 22 -
We have long-term debt of $3,746,000, which we assumed in partial
satisfaction of the RBA acquisition purchase price. We had no long-term debt as
at December 31, 2002. Shareholders' equity as at September 30, 2003 was
$116,153,000 as compared to $119,461,000 as at December 31, 2002. The decrease
is primarily attributable to the net loss for the nine-month period.
Results of Operations
First Nine Months of 2003 Compared with First Nine Months of 2002
Total revenues decreased by $13,044,000, or 21%, in the first nine months
of the year compared to last year. Systems and parts revenues declined by
$14,519,000, or 29%, due to a decrease in orders from customers, which we
attribute primarily to the reluctance of major retailers to spend on capital as
a result of the continued economic weakness throughout North America. Service
revenue from hardware and software maintenance increased by $1,475,000, or 13%,
from 2002 to 2003, primarily due to the increase in the number of U-Scan(R)
self-checkout systems installed in the stores of our existing customers. In
total, service revenue accounted for approximately 27% of our total revenues in
2003 as compared to approximately 19% for the same period in 2002.
Total cost of sales decreased by $7,386,000, or 18%, in the nine-month
period ended September 30, 2003 compared to the nine-month period ended
September 30, 2002. The decrease was consistent with the decrease in sales.
Overall, gross margins decreased as a percentage of sales from 34% to 32%. The
decrease was mainly attributable to changes in our revenue mix, specifically the
increased percentage of total revenues attributable to service, and to increased
price competition for systems and parts.
Gross research and development expenses decreased by $1,151,000, or 50%,
from 2002 to 2003, primarily due to the decrease in our workforce. As a
percentage of total revenues, gross research and development expenses decreased
from 3.8% to 2.4%. Notwithstanding the reduction in our workforce, research and
development activities during the nine-month period ended September 30, 2003
included the continuing development of the U-Scan Mobile Attendant(TM) device;
development of alternative security verification techniques; the development of
attendant functions integrated into self-checkout units; a lower profile,
smaller footprint U-Scan system; the integration of the U-Scan systems to new
point of sales systems; the improvement of the graphical user interface (GUI);
and the development of the U-Scan Max(TM), a dual takeaway belted station.
Selling, general, administrative and operating lease expenses decreased by
$2,617,000, or 12%, in 2003 compared to 2002. The decrease is primarily
attributable to the closure of our facilities in Kentucky and Phoenix in
December 2002, the reductions in our workforce made in February and August 2003,
as well as an overall budgeted decrease in spending. As a percentage of total
revenues, these expenses increased from 36% to 40%, due to the decrease in our
revenues in 2003 compared to 2002.
We reduced our workforce in an effort to increase operating efficiencies,
decrease overall general and administrative expenses and improve financial
results. During the nine months ended September 30, 2003, we incurred
restructuring charges of approximately $749,000 related primarily to severance.
Our net loss was $3,308,000 in the nine-month period ended September 30,
2003 compared to a net loss of $1,363,000 in the corresponding period in 2002.
On a per share basis, we lost $0.22 (basic and diluted) compared to a loss of
$0.09 (basic and diluted) in 2002. For the nine-month period ended September 30,
2003, we recorded a tax recovery of $3,569,000. Included in that amount was a
recovery of $1,497,000, which resulted from the reversal of previously recorded
foreign exchange
- 23 -
gains that arose, for Canadian tax purposes, on the conversion into Canadian
dollars of our net monetary assets denominated in U.S. dollars.
Third Quarter of 2003 Compared with Third Quarter of 2002
Total revenues decreased by $6,005,000, or 28%, in the third quarter of
the year compared to last year. Systems and parts revenues declined $6,713,000,
or 38%, due to a decrease in orders from customers, which we attribute primarily
to the reluctance of major retailers to spend on capital, as a result of the
continued economic weakness throughout North America. Service revenue from
hardware and software maintenance increased $708,000, or 18%, from 2002 to 2003,
due to the increase in the number of U-Scan self-checkout systems installed in
the stores of our existing customers. In total, service revenue accounted for
approximately 30% of our total revenues in the third quarter of 2003 as compared
to approximately 18% in the third quarter of 2002.
Total cost of sales decreased by $3,759,000, or 26%, in the third quarter
of 2003 as compared to the same period last year. The decrease was consistent
with the decrease in sales. Overall, gross margins decreased as a percentage of
sales from 33% to 32%. The decrease was mainly attributable to changes in our
revenue mix, specifically the increased percentage of total revenues
attributable to service, and to increased price competition for systems and
parts.
Gross research and development expenses decreased by $595,000, or 65%,
from 2002 to 2003, primarily due to the decrease in our workforce. As a
percentage of total revenues, gross research and development expenses decreased
from 4% to 2%. Notwithstanding the reduction in our workforce, research and
development activities during the three-month period ended September 30, 2003
included the continuing development of the U-Scan Mobile Attendant device;
development of alternative security verification techniques; the development of
attendant functions integrated into self-checkout units; a lower profile,
smaller footprint U-Scan system; the integration of the U-Scan systems to new
point of sales systems; the improvement of the graphical user interface (GUI);
and the development of the U-Scan Max, a dual takeaway belted station.
Selling, general, administrative and operating lease expenses decreased by
$1,530,000, or 20%, in 2003 compared to 2002. The decrease is primarily
attributable to the closure of our facilities in Kentucky and Phoenix in
December 2002, the reductions in our workforce made in February and August 2003,
as well as an overall budgeted decrease in spending.
We incurred a net loss of $2,110,000 in the quarter compared to net loss
of $1,402,000 in 2002. On a per share basis, we lost $0.14 (basic and diluted)
compared to $0.09 (basic and diluted) in 2002.
Liquidity and Capital Resources
As of September 30, 2003, we had cash and short-term investments of
$76,518,000 (December 31, 2002 - $85,762,000), and working capital of
$96,625,000 (December 31, 2002 - $108,650,000).
Operating activities used $7,603,000 of cash in the first nine months of
2003, compared to $19,926,000 used during the first nine months of 2002. The
reduction in the use of cash resulted primarily from lower balances of operating
assets and liabilities, primarily accounts receivable at September 30, 2003
compared to September 30, 2002.
During the first nine months of 2003, we did not repurchase any shares for
cancellation, whereas during the first nine months of 2002, through our stock
repurchase program, we repurchased for cancellation 535,100 Class "A" shares at
an average price of $16.23, for a total consideration of $8,684,000.
- 24 -
In the first nine months of 2003, we invested $1,641,000 (2002-
$2,811,000), to purchase property and equipment and intangible assets, which
principally related to computer equipment, leasehold improvements, software,
patents and license agreements. The cash portion of the RBA acquisition purchase
price was financed with available bank credit facilities. We intend to reimburse
this financing using cash flow from operations.
We believe that our cash and short-term investments will be adequate to
meet our needs for at least the next 12 months.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes to market risk, as discussed in our
Form 10-K annual report for the year ended December 31, 2002.
Item 4. Controls and Procedures
As of September 30, 2003 (the "Evaluation Date"), under the supervision
and with the participation of our management, including our Chief Executive
Officer and our Chief Financial Officer, we evaluated the effectiveness of the
design and operation of our disclosure controls and procedures, as defined in
Rule 13a-14(c) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Based upon this evaluation, our Chief Executive Officer and our
Chief Financial Officer concluded that, as of the Evaluation Date, our
disclosure controls and procedures were adequate to ensure that information
required to be disclosed by us in the reports filed or submitted by us under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms.
Additionally, our Chief Executive Officer and Chief Financial Officer have
determined that there have been no significant changes in our internal controls
or in other factors that could significantly affect our internal controls
subsequent to the Evaluation Date.
- 25 -
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In each of 1995 and 1996, we received a demand letter from the same
claimant alleging that the U-Scan system infringes upon the claimant's patent.
In July 1999, this claimant, International Automated Systems, Inc. ("IAS"),
filed a civil action in the United States District Court for the District of
Utah against us and PSC, the former assembler of the U-Scan system, alleging
patent infringement. A second party also sent a demand letter to us in 1999, and
again in February 2001, alleging a different patent infringement. Although after
consultation with counsel, we believe that the former claimant should not
prevail in its lawsuit and that the latter claimant should not prevail if a
lawsuit is brought to assert its claim, and that these claims will not have a
material adverse effect on our business or prospects, no assurance can be given
that a court will not find that the system infringes upon one or both of such
claimants' rights. A determination by a court that the system infringes upon
either of the claimant's rights would have a material adverse effect on our
business and results of operations.
Kroger and three of its subsidiaries have also been sued by IAS in the
State of Utah based upon the same issues underlying its suit filed against us in
1999. At our expense, our counsel is also defending Kroger and its subsidiaries
in such action. Furthermore, we are contractually bound to indemnify Kroger for
any damages that it may incur in connection with such suit.
In March 2003, the claimant that sent the demand letters of 1999 and 2001
sent a third demand letter to us alleging infringement of additional patents. We
are finalizing our review of the claim asserted in the March 2003 demand letter
with counsel and have not yet formed an opinion as to its merit or materiality
to our business.
We are also party to litigation arising in the normal course of
operations. We do not expect the resolution of such matters to have a materially
adverse effect on our financial position or results of operations.
Item 2. Changes in Securities
The registrant has nothing to report under this item.
Item 3. Defaults Upon Senior Securities
The registrant has nothing to report under this item.
Item 4. Submission of Matters to a Vote of Security Holders
The registrant has nothing to report under this item.
Item 5. Other Information
As disclosed in our Annual Report on Form 10-K for the year ended December
31, 2002, filed with the Commission on March 31, 2003, we were not a foreign
private issuer under the rules and regulations of the Commission as of December
31, 2002. However, we regained our status as a foreign private issuer on March
31, 2003. As in the past, we intend to voluntarily file annual reports on Form
10-K and quarterly reports on Form 10-Q.
- 26 -
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Exhibit
------ --------------------------------------------------------------------
10.14 Asset Purchase Agreement dated September 30, 2003 among Optimal
Services Group Inc., RBA Inc. and Richard Besner , to which Optimal
Robotics Corp. intervened.
31.1 Certification pursuant to Section 302 of the Sarbanes - Oxley Act of
2002.
31.2 Certification pursuant to Section 302 of the Sarbanes - Oxley Act of
2002.
32.1 Certification pursuant to Section 1350, Chapter 63 of Title 18,
United States Code, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification pursuant to Section 1350, Chapter 63 of Title 18,
United States Code, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
- 27 -
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OPTIMAL ROBOTICS CORP.
Dated: October 30, 2003 By: /s/ Holden L. Ostrin
----------------------------------
Holden L. Ostrin
Co-Chairman
By: /s/ Gary S. Wechsler
----------------------------------
Gary S. Wechsler
Treasurer and Chief Financial
Officer
- 28 -