10-Q 1 form10q.htm FORM 10Q



 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2006

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to

 

Commission file number 0-28572

 

OPTIMAL GROUP INC.

(Exact name of registrant as specified in its charter)

 

Canada

98-0160833

(State or Other Jurisdiction of Incorporation)

(I.R.S. Employer Identification No.)

 

3500 de Maisonneuve Blvd. W., Suite 1700, Montreal, Québec, Canada H3Z 3C1

(Address of Principal Executive Offices, Including Zip Code)

 

(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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large Accelerated filer

 

Accelerated filer

x

Non-accelerated filer

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes

 

No

x

 

At August 8, 2006, the registrant had 23,685,698 common shares designated as Class “A” shares (without nominal or par value) outstanding.

 

1

 



 

 

OPTIMAL GROUP INC.

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

 

 

 

 

 

 

Consolidated Financial Statements of

(Unaudited)

 

OPTIMAL GROUP INC.

 

Six-month periods ended June 30, 2006 and 2005

(expressed in U.S. dollars)

 

 

2

 



 

 

OPTIMAL GROUP INC.

Consolidated Financial Statements

(Unaudited)

 

Six-month periods ended June 30, 2006 and 2005

(expressed in U.S. dollars)

 

 

Financial Statements

Consolidated Balance Sheets

4

Consolidated Statements of Operations

5

Consolidated Statements of Deficit

6

Consolidated Statements of Cash Flows

7

Notes to Consolidated Financial Statements

8

 

 

3

 



 

 

OPTIMAL GROUP INC.

 

 

 

 

Consolidated Balance Sheets

 

 

 

 

(Unaudited)

 

 

 

 

 

 

 

 

 

June 30, 2006 and December 31, 2005

 

 

 

 

(expressed in thousands of U.S. dollars)

 

 

 

 

 

 

 

 

 

 

June 30, 

December 31,  

 

 

2006 

 

2005

Assets

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

$

139,091 

$

98,236 

Cash held as reserves

 

22,160 

 

22,722 

Short-term investments

 

48,113 

 

82,361 

Short-term investments held as reserves

 

4,510 

 

3,014 

Settlement assets

 

12,833 

 

20,727 

Accounts receivable

 

7,686 

 

4,681 

Income taxes receivable and refundable investment tax credits

 

1,057 

 

1,055 

Prepaid expenses and deposits

 

1,432 

 

1,006 

Future income taxes

 

2,263 

 

2,349 

Current assets related to discontinued operations held for sale (note 4 (b))

 

9,227 

 

10,944 

 

 

 

248,372 

 

247,095 

Long-term receivables (note 5)

 

2,939 

 

3,528 

Tax credit receivable

 

396 

 

–  

Property and equipment

 

2,545 

 

2,660 

Goodwill and other intangible assets (note 6)

 

112,071 

 

117,090 

Other asset (note 3)

 

10,462 

 

10,462 

Long-term assets related to discontinued operations held for sale (note 4 (b))

 

2,880 

 

3,848 

 

 

 

 

 

 

$

379,665 

$

384,683 

Liabilities and Shareholders' Equity

 

 

 

 

Current liabilities:

 

 

 

 

Bank indebtedness (note 7)

$

8,863 

$

8,390 

Customer reserves and security deposits

 

98,981 

 

112,422 

Accounts payable and accrued liabilities

 

21,721 

 

21,796 

Income taxes payable

 

7,650 

 

9,003 

Future income taxes

 

618 

 

836 

Current liabilities related to discontinued operations held for sale (note 4 (b))

 

6,128 

 

6,587 

 

 

 

143,961 

 

159,034 

Non-controlling interest

 

16,440 

 

12,926 

Future income taxes

 

6,812 

 

8,958 

Long-term liabilities related to discontinued operations held for sale (note 4 (b))

 

407 

 

475 

Shareholders' equity:

 

 

 

 

Share capital (note 8)

 

200,413 

 

195,149 

Additional paid-in capital (note 9 (d))

 

22,370 

 

25,884 

Deficit

 

(9,254)

 

(16,259)

Cumulative translation adjustment

 

(1,484)

 

(1,484)

 

 

 

212,045 

 

203,290 

 

 

 

 

 

Contingencies and other (note 10)

 

 

 

 

Subsequent event (note 17)

 

 

 

 

 

 

 

 

 

 

$

379,665 

$

384,683 

 

 

See accompanying notes to unaudited consolidated financial statements.

 

 

 

 

 

 

 

 

 

4

 



 

 

OPTIMAL GROUP INC.

Consolidated Statements of Operations

(Unaudited)

 

Periods ended June 30, 2006 and 2005

(expressed in thousands of U.S. dollars, except per share amounts)

 

 

Three months ended June 30,

Six months ended June 30,

 

2006 

2005 

2006 

2005 

 

 

 

 

 

 

 

 

 

Revenues

$

52,242 

$

32,037 

$

104,664 

$

57,116 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

Transaction processing

 

24,545 

 

13,950 

 

50,053 

 

26,205 

Selling, general and administrative

 

14,550 

 

8,034 

 

26,519 

 

14,608 

Amortization of intangibles pertaining to transaction processing

 

3,050 

 

1,795 

 

6,065 

 

2,506 

Amortization of property and equipment

 

377 

 

331 

 

766 

 

710 

Stock-based compensation pertaining to selling, general and administrative (note 11)

 

335 

 

2,466 

 

335 

 

4,107 

Research and development

 

825 

 

654 

 

1,630 

 

1,272 

Operating leases

 

384 

 

343 

 

752 

 

505 

 

 

 

 

 

 

 

 

 

Earnings from continuing operations before undernoted items

 

8,176 

 

4,464 

 

18,544 

 

7,203 

 

 

 

 

 

 

 

 

 

Investment income

 

2,235 

 

494 

 

3,517 

 

831 

Gain on sale of interest in FireOne (note 3)

 

-   

 

30,578 

 

-   

 

30,578 

 

 

 

 

 

 

 

 

 

Earnings from continuing operations before income tax provision and non-controlling interest

 

10,411 

 

35,536 

 

22,061 

 

38,612 

 

 

 

 

 

 

 

 

 

Income tax provision (note 12)

 

1,852 

 

4,762 

 

4,323 

 

6,298 

 

 

 

 

 

 

 

 

 

Earnings from continuing operations before non-controlling interest

 

8,559 

 

30,774 

 

17,738 

 

32,314 

 

 

 

 

 

 

 

 

 

Non-controlling interest

 

2,037 

 

230 

 

4,157 

 

230 

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

6,522 

 

30,544 

 

13,581 

 

32,084 

 

 

 

 

 

 

 

 

 

Loss from discontinued operations (note 4 (b))

 

2,831 

 

9,822 

 

5,501 

 

11,331 

 

 

 

 

 

 

 

 

 

Net earnings

$

3,691 

$

20,722 

$

8,080 

$

20,753 

 

 

 

 

 

 

 

 

 

Weighted average number of shares:

 

 

 

 

 

 

 

 

Basic

 

23,707,648 

 

22,776,991 

 

23,517,593 

 

22,603,421 

Plus impact of stock options and warrants

 

2,074,570 

 

2,282,986 

 

2,366,788 

 

2,093,284 

 

 

 

 

 

 

 

 

 

Diluted

 

25,782,218 

 

25,059,977 

 

25,884,381 

 

24,696,705 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share:

 

 

 

 

 

 

 

 

Continuing operations:

 

 

 

 

 

 

 

 

Basic

$

0.28 

$

1.34 

$

0.58 

$

1.42 

Diluted

 

0.25 

 

1.22 

 

0.52 

 

1.30 

Discontinued operations:

 

 

 

 

 

 

 

 

Basic

 

(0.12)

 

(0.43)

 

(0.24)

 

(0.50)

Diluted

 

(0.11)

 

(0.39)

 

(0.21)

 

(0.46)

Net:

 

 

 

 

 

 

 

 

Basic

 

0.16 

 

0.91 

 

0.34 

 

0.92 

Diluted

 

0.14 

 

0.83 

 

0.31 

 

0.84 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to unaudited consolidated financial statements.

 

 

 

 

 

 

 

 

5

 



 

 

 

OPTIMAL GROUP INC.

Consolidated Statements of Deficit

(Unaudited)

 

Periods ended June 30, 2006 and 2005

(expressed in thousands of U.S. dollars)

 

 

Three months ended June 30,

Six months ended June 30,

 

2006 

2005 

2006 

2005 

 

 

 

 

 

 

 

 

 

Deficit, beginning of period

$

(12,386)

$

(16,552)

$

(16,259)

$

(16,583)

 

 

 

 

 

 

 

 

 

Net earnings

 

3,691 

 

20,722 

 

8,080 

 

20,753 

 

 

 

 

 

 

 

 

 

Excess of purchase price over book value of shares (note 8 (b))

 

(559)

 

-   

 

(1,075)

 

-   

 

 

 

 

 

 

 

 

 

(Deficit) retained earnings, end of period

$

(9,254)

$

4,170 

$

(9,254)

$

4,170 

 

 

See accompanying notes to unaudited consolidated financial statements.

 

 

 

6

 



 

 

 

OPTIMAL GROUP INC.

 

Consolidated Statements of Cash Flows

 

(Unaudited)

 

 

 

Periods ended June 30, 2006 and 2005

 

(expressed in thousands of U.S. dollars)

 

 

 

 

Three months ended June 30,

Six months ended June 30,

 

 

2006 

2005 

2006 

2005 

 

 

 

 

 

 

 

 

 

 

Cash flows from (used in) operating activities:

 

 

 

 

 

 

 

 

Net earnings

$

3,691 

$

20,722 

$

8,080 

$

20,753 

Add: loss from discontinued operations

 

2,831 

 

9,822 

 

5,501 

 

11,331 

 

Net earnings from continuing operations

 

6,522 

 

30,544 

 

13,581 

 

32,084 

 

 

 

 

 

 

 

 

 

Adjustments for items not affecting cash:

 

 

 

 

 

 

 

 

Non-controlling interest

 

2,037 

 

230 

 

4,157 

 

230 

Gain on sale of interest in FireOne

 

-   

 

(30,578)

 

-   

 

(30,578)

Amortization

 

3,427 

 

2,126 

 

6,831 

 

3,216 

Future income taxes

 

(1,988)

 

136 

 

(2,541)

 

1,260 

Stock-based compensation

 

335 

 

2,466 

 

335 

 

4,107 

Foreign exchange

 

(822)

 

301 

 

(868)

 

491 

Net change in operating assets and liabilities (note 14 (a))

 

(1,918)

 

6,048 

 

(11,473)

 

3,296 

 

 

 

7,593 

 

11,273 

 

10,022 

 

14,106 

 

 

 

 

 

 

 

 

 

Cash flows from (used in) financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of FireOne Group plc ordinary shares

 

15 

 

-   

 

21 

 

-   

Proceeds from issuance of Class "A" shares

 

217 

 

2,041 

 

4,047 

 

4,961 

FireOne Group Plc dividend paid

 

(2,107)

 

-   

 

(2,107)

 

-   

Increase (decrease) in bank indebtedness

 

1,469 

 

(2,163)

 

938 

 

(2,245)

Repurchase of Class "A" shares

 

(1,291)

 

-   

 

(2,264)

 

-   

 

 

 

(1,697)

 

(122) 

 

635 

 

2,716 

 

 

 

 

 

 

 

 

 

 

Cash flows from (used in) investing activities:

 

 

 

 

 

 

 

 

Proceeds on sale of interest in FireOne

 

-   

 

44,146 

 

-   

 

44,146 

Purchase of property, equipment and intangible assets

 

(625)

 

(320)

 

(1,698)

 

(803)

Proceeds from maturity of short-term investments

 

14,425 

 

23,798 

 

34,248 

 

60,062 

Proceeds from note receivable

 

(241)

 

49 

 

589 

 

137 

Decrease in cash held in escrow

 

-   

 

11 

 

-   

 

2,720 

Acquisition of MCA, including acquisition costs of $49

 

-   

 

-   

 

-   

 

(2,689)

Payment of balance of sale of NPS

 

-   

 

-   

 

-   

 

(1,500)

Acquisition of UBC

 

-   

 

(44,277)

 

-   

 

(44,277)

Transactions costs

 

-   

 

(4,427)

 

-   

 

(4,427)

Other

 

-   

 

165 

 

-   

 

-   

 

 

 

13,559 

 

19,145 

 

33,139 

 

53,369 

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents during the period

 

344 

 

(445)

 

402 

 

(669)

 

 

 

 

 

 

 

 

 

Cash flows of discontinued operations (revised - see note 16):

 

 

 

 

 

 

 

 

Operating cash flows

 

(2,522)

 

(2,625)

 

(3,196)

 

(3,583)

Financing cash flows

 

(26)

 

(374)

 

(65)

 

(470)

Investing cash flows

 

(11)

 

 

(82)

 

(709)

 

 

(2,559)

 

(2,996)

 

(3,343)

 

(4,762)

Net increase in cash and cash equivalents

 

17,240 

 

26,855 

 

40,855 

 

64,760 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

121,851 

 

100,842 

 

98,236 

 

62,937 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

$

139,091 

$

127,697 

$

139,091 

$

127,697 

Supplemental disclosure of cash flow information (note 14).

 

See accompanying notes to unaudited consolidated financial statements.

 

 

 

 

7

 



 

 

OPTIMAL GROUP INC.

Notes to Consolidated Financial Statements

(Unaudited)

 

Six-month periods ended June 30, 2006 and 2005

(expressed in thousands of U.S. dollars, except share and per share amounts)

 

1.

Interim financial information:

These consolidated financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles (“GAAP”). The unaudited consolidated balance sheet as at June 30, 2006 and the unaudited consolidated statements of operations, deficit and cash flows for the periods ended June 30, 2006 and 2005 reflect all adjustments which, in the opinion of management, are necessary to present a fair statement of the results of the interim periods. These interim consolidated financial statements follow the same accounting policies and methods of their application as described in note 3 to the annual audited consolidated financial statements for the year ended December 31, 2005. 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 audited consolidated financial statements of Optimal Group Inc. (the “Company”) as at and for the year ended December 31, 2005.

The Company's revenues and expenses are subject to seasonal variations. The results of operations and cash flows for any quarter are not necessarily indicative of the results or cash flows for an entire year.

All amounts in the attached notes are unaudited unless specifically identified.

 

2.

Basis of presentation:

Discontinued operations:

At the end of the first quarter of 2006, the Company decided to divest the hardware maintenance and repair outsourcing services business segment. On March 31, 2006, the Company closed its repair and logistics facility in Santa Ana, California. The net assets of this segment were written down in the third and fourth quarter of 2005 to their estimated fair values less disposal costs. The results of operations and financial position of this segment have been segregated for the current and comparative periods as discontinued operations and assets held for sale in the accompanying financial statements and related note disclosures. The Company expects to dispose of these operations in 2006. The Company continues to operate in the payment processing services segment. Refer to notes 4 (b) and 13.

 

3.

FireOne Group plc:

In April 2005, the Company created FireOne Group plc (“FireOne”) and transferred to this newly-created, wholly-owned Irish subsidiary and its subsidiaries the net assets of the payments processing business related to online gaming previously held in Optimal Payments Inc. and its subsidiaries. On May 27, 2005, the Company completed the placing of 10 million ordinary shares of FireOne, representing a 20% interest, with institutional and other shareholders. The ordinary shares of FireOne were admitted for trading on the Alternative Investment Market (AIM) of the London Stock Exchange plc on June 2, 2005.

 

8

 



 

 

OPTIMAL GROUP INC.

Notes to Consolidated Financial Statements, Continued

(Unaudited)

 

Six-month periods ended June 30, 2006 and 2005

(expressed in thousands of U.S. dollars, except share and per share amounts)

 

3.

FireOne Group plc (continued):

At June 30, 2006 and December 31, 2005, the Company's interest in FireOne was 76.2%. The Company's diluted interest in FireOne was effectively diluted after the placing as a result of the vesting of restricted share units issued by FireOne in fiscal 2005. Non-controlling interest is recorded for the minority interest's share of the carrying value of net assets and the reported net earnings of FireOne.

Taxes paid or incurred as a result of the transfer of net assets to FireOne and its subsidiaries in 2005 have been recorded as an "Other asset" in the consolidated balance sheet, which will be recognized when the Company's interest in FireOne is transferred, by sale or otherwise, outside of the consolidated group.

 

4.

Business acquisitions and disposals:

 

(a)

Acquisitions:

In 2005, Optimal Payments Inc., ("OPI") a wholly-owned subsidiary of the Company, made the following acquisitions:

 

(i)

On January 1, 2005, OPI acquired the operating assets of Merchant Card Acceptance Corp. and its affiliated companies, Precision Management Consulting Inc. and Merchant Card Interactive Corp. (collectively, "MCA"), for $3,722 subject to the determination of certain post-closing adjustments. The agreement also provides for a contingent consideration of approximately $890 (CA$1,000) based on the attainment of specified operational targets. MCA is an independent sales organization providing Canadian-based merchants with credit card and Interac PIN-based debit card acceptance;

 

(ii)

On May 6, 2005, OPI acquired a portfolio of merchant processing from United Bank Card Inc., ("UBC") for a cash consideration of $44,277;

 

(iii)

On October 6, 2005, OPI acquired a portfolio of U.S. merchant processing contracts and associated sales channel contracts from Moneris Solutions Inc., ("Moneris") for a cash consideration of $18,266.

All of the acquisitions related to the non-gaming payment processing services segment.

 

9

 



 

 

OPTIMAL GROUP INC.

Notes to Consolidated Financial Statements, Continued

(Unaudited)

 

Six-month periods ended June 30, 2006 and 2005

(expressed in thousands of U.S. dollars, except share and per share amounts)

 

4.

Business acquisitions and disposals (continued):

 

(a)

Acquisitions (continued):

The acquisition of MCA was accounted for by using the purchase method and the acquisitions of UBC and Moneris were accounted for as acquisition of assets. The following table summarizes the estimated fair value of the assets acquired at the date of acquisition:

 

 

 

MCA

 

UBC

 

Moneris

 

Total

 

 

 

 

 

 

 

 

 

Assets acquired:

 

 

 

 

 

 

 

 

Property and equipment

$

145

$

–  

$

–  

$

145

Inventory

 

23

 

–  

 

–  

 

23

Supplier contract

 

779

 

–  

 

–  

 

779

Customer relationships

 

–  

 

43,777

 

11,086

 

54,863

Customer service agreement

 

–  

 

500

 

–  

 

500

ISO/ISA relationships

 

–  

 

–  

 

7,180

 

7,180

Goodwill

 

2,775

 

–  

 

–  

 

2,775

 

 

 

 

 

 

 

 

 

 

$

3,722

$

44,277

$

18,266

$

66,265

 

(b)

Hardware maintenance and repair services segment:

As indicated in note 2, the Company decided to divest the hardware maintenance and repair services segment. The Company closed its repair and logistics facility in Santa Ana, California and intends to sell the balance of this segment, consisting of its Canadian hardware maintenance unit. The results of operations for this business segment are included in discontinued operations on the consolidated statement of operations and the assets and liabilities of the segment are classified as held for sale on the consolidated balance sheets.

 

10

 



 

 

OPTIMAL GROUP INC.

Notes to Consolidated Financial Statements, Continued

(Unaudited)

 

Six-month periods ended June 30, 2006 and 2005

(expressed in thousands of U.S. dollars, except share and per share amounts)

 

4.

Business acquisitions and disposals (continued):

 

(b)

Hardware maintenance and repair services segment (continued):

The results of operations of this business for the three and six-month periods ended June 30, 2006 and 2005 were as follows:

 

 

 

 

 

Three months

ended June 30,

 

Six months

ended June 30,

 

 

 

 

 

2006

 

2005

 

2006

 

2005

 

 

 

 

 

 

 

 

 

Revenue

$

8,514 

$

10,252 

$

18,204 

$

22,566 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

Service costs

 

7,295 

 

9,407 

 

15,276 

 

19,989 

Selling, general and administrative

 

2,113 

 

3,106 

 

4,048 

 

5,800 

Restructuring

 

811 

 

266 

 

2,383 

 

266 

 

Amortization of property, equipment

and intangibles

 

–   

 

473 

 

259 

 

1,048 

Stock-based compensation

 

–   

 

373 

 

-   

 

627 

Goodwill impairment

 

–   

 

5,305 

 

-   

 

5,305 

Operating leases

 

587 

 

786 

 

1,322 

 

1,565 

Foreign exchange

 

449 

 

460 

 

368 

 

136 

 

 

11,255 

 

20,176 

 

23,656 

 

34,736 

 

 

 

 

 

 

 

 

 

Net interest expense (income)

 

90 

 

(290)

 

(301)

 

(646)

Loss before income taxes

 

2,831 

 

9,634 

 

5,151 

 

11,524 

 

 

 

 

 

 

 

 

 

Loss on disposal of net assets from

discontinued operations

 

–   

 

188 

 

-   

 

188 

Income tax provision (recovery)

 

–   

 

-   

 

350 

 

(381)

 

 

 

 

 

 

 

 

 

Net loss from discontinued operations

$

2,831 

$

9,822 

$

5,501 

$

11,331 

 

 

 

The results of operations include management assumptions and adjustments related to cost allocations which are inherently subjective.

 

11

 



 

 

OPTIMAL GROUP INC.

Notes to Consolidated Financial Statements, Continued

(Unaudited)

 

Six-month periods ended June 30, 2006 and 2005

(expressed in thousands of U.S. dollars, except share and per share amounts)

 

4.

Business acquisitions and disposals (continued):

 

(b)

Hardware maintenance and repair services segment (continued):

The following table summarizes the carrying value of the assets and liabilities relating to discontinued operations held for sale:

 

 

 

June 30, 
2006

 

December 31,
2005

 

 

 

 

 

Current assets:

 

 

 

 

Accounts receivable

$

5,926 

$

7,159

Inventory

 

2,119 

 

2,679

Prepaid expenses and deposits

 

1,182 

 

1,106

 

 

 

9,227 

 

10,944

 

 

 

 

 

Long-term assets:

 

 

 

 

Long-term receivable

 

300 

 

500

Property and equipment

 

2,580 

 

2,998

Future tax asset

 

-   

 

350

Total assets held for sale

 

12,107 

 

14,792

 

 

 

 

 

Less:

 

 

 

 

Current liabilities:

 

 

 

 

Accounts payable and accrued liabilities

 

5,508 

 

5,682

Deferred revenues

 

450 

 

747

Obligations under capital lease

 

170 

 

158

 

 

 

6,128 

 

6,587

 

 

 

 

 

Long-term liabilities

 

407 

 

475

 

 

 

 

 

Net assets held for sale

$

5,572 

$

7,730

 

 

 

 

5.

Long-term receivables:

Included in long-term receivables is the net present value of an interest-free note received on the sale of the assets of a division of Terra Payments Inc. (“Terra”) in fiscal 2002. The repayment terms require monthly payments equal to 10% of the debtor’s sales.

 

 

12

 



 

 

OPTIMAL GROUP INC.

Notes to Consolidated Financial Statements, Continued

(Unaudited)

 

Six-month periods ended June 30, 2006 and 2005

(expressed in thousands of U.S. dollars, except share and per share amounts)

 

6.

Goodwill and other intangible assets:

 

 

 

 

 

 

June 30,

 

 

 

 

 

 

2006

 

 

Gross

 

 

 

 

 

 

carrying

 

Accumulated

 

Net book

 

 

amount

 

amortization

 

value

 

 

 

 

 

 

 

Goodwill

$

49,243

$

–   

$

49,243

Customer contracts, relationships and service agreements

 

65,441

 

12,325

 

53,116

Acquired technology

 

4,520

 

2,035

 

2,485

ISO/ISA relations

 

7,180

 

769

 

6,411

Supplier contract

 

1,376

 

560

 

816

 

 

 

 

 

 

 

 

$

127,760

$

15,689

$

112,071

 

 

 

 

 

 

 

December 31,

 

 

 

 

 

 

2005

 

 

Gross

 

 

 

 

 

 

carrying

 

Accumulated

 

Net book

 

 

amount

 

amortization

 

value

 

 

 

 

 

 

 

Goodwill

$

49,243

$

–  

$

49,243

Customer contracts, relationships and service agreements

 

64,395

 

7,398

 

56,997

Acquired technology

 

4,520

 

1,582

 

2,938

ISO/ISA relations

 

7,180

 

256

 

6,924

Supplier contract

 

1,376

 

388

 

988

 

 

 

 

 

 

 

 

$

126,714

$

9,624

$

117,090

 

7.

Bank indebtedness:

The Company has credit facilities available in the amount of $10,392 (CA$11,600), which can be utilized in the form of loans, bankers' acceptances or letters of guarantee. At June 30, 2006, the Company utilized $8,863 (CA$9,893) of the facilities in borrowings and $537 (CA$600) through the issuance of letters of guarantee. 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. The facilities are secured by a first ranking moveable hypothec on certain short-term investments.

 

 

13

 



 

 

OPTIMAL GROUP INC.

Notes to Consolidated Financial Statements, Continued

(Unaudited)

 

Six-month periods ended June 30, 2006 and 2005

(expressed in thousands of U.S. dollars, except share and per share amounts)

 

 

8.

Share capital:

 

(a)

Issued and outstanding share capital was as follows:

 

 

June 30, 2006

December 31, 2005

 

Number

 

Book value

Number 

 

Book value 

 

 

 

 

 

 

 

Class "A" shares

23,685,698

$

200,413

23,277,126 

$

195,149 

 

Changes in the issued and outstanding share capital were as follows:

 

 

 

 

Book 

 

Number 

 

Value 

 

 

 

 

Balance, December 31, 2005

23,277,126 

$

195,149 

Exercise of stock options

549,681 

 

6,453 

Cancellation of shares pursuant to stock buyback program

(141,109)

 

(1,189)

 

 

 

 

Balance, June 30, 2006

23,685,698 

$

200,413 

 

The amounts credited to share capital from the exercise of stock options in the period ended June 30, 2006 include a cash consideration of $4,047, as well as an ascribed value from additional paid-in capital of $2,406.

 

(b)

On November 7, 2005, the Company announced a stock buyback program which authorizes the Company to purchase up to 1,100,000 or approximately 4.7% of its issued and outstanding Class "A" shares. The shares may be purchased through the facilities of the Nasdaq National Market over the course of 12 months commencing November 21, 2005. All shares purchased under the program will be cancelled. For the six months ended June 30, 2006, 141,109 Class "A" shares were settled and cancelled for a total consideration of $2,264 and having a book value of $1,189. The excess of the purchase price over book value of the shares in the amount of $1,075 was charged to the deficit.

 

 

14

 



 

 

OPTIMAL GROUP INC.

Notes to Consolidated Financial Statements, Continued

(Unaudited)

 

Six-month periods ended June 30, 2006 and 2005

(expressed in thousands of U.S. dollars, except share and per share amounts)

 

 

9.

Stock options and warrants:

 

(a)

Optimal Group Inc.:

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 Class "A" shares to be issued from treasury. 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 at the then current market price. Options currently outstanding under the plan expire five years after the date of grant and are fully vested as a result of the accelerated vesting of all outstanding options in the fourth quarter of 2005. Refer to note 11.

Details of the outstanding and exercisable stock options are as follows:

 

 

 

 

Weighted average

 

 

 

exercise price

 

Number 

 

per share

 

 

 

 

Options outstanding and exercisable, December 31, 2005

4,374,623 

$

7.10

Granted

-   

 

-  

Expired/cancelled

(2,135)

 

7.10

Exercised

(379,095)

 

7.13

 

 

 

 

Options outstanding and exercisable, June 30, 2006

3,993,393 

$

7.10

 

The remaining contractual life of the options at June 30, 2006 is approximately 2.8 years.

 

(b)

Terra Payments Inc. ("Terra"):

Under the terms of the Combination Agreement with Terra, the Company assumed Terra's stock option plan, and as such, stock options governed by this plan will be exercisable for the Company's Class "A" shares. The exercise price and number of options outstanding on April 6, 2004, the effective date of the acquisition of Terra, were adjusted based on the exchange ratio of 0.4532 of the Company's Class "A" shares for each share of Terra.

 

 

15

 



 

 

OPTIMAL GROUP INC.

Notes to Consolidated Financial Statements, Continued

(Unaudited)

 

Six-month periods ended June 30, 2006 and 2005

(expressed in thousands of U.S. dollars, except share and per share amounts)

 

 

9.

Stock options and warrants (continued):

 

(b)

Terra Payments Inc. ("Terra") (continued):

Details of the outstanding and exercisable stock options under the Terra plan are as follows:

 

 

U.S. dollar exercise price

Canadian dollar exercise price

 

 

 

 

 

Weighted average

 

Exercise price

exercise price

 

Number 

 

per share

Number 

 

per share

 

 

 

 

 

 

 

Options outstanding and exercisable, December 31, 2005

217,451 

$

7.43

324,143 

$

8.56

Expired/cancelled

-   

 

(743)

 

7.28

Exercised

(68,989)

 

7.43

(101,597)

 

9.41

 

 

 

 

 

 

 

Options outstanding and

exercisable, June 30, 2006

148,462 

$

7.43

221,803 

$

8.18

 

The weighted average remaining contractual life of the options at June 30, 2006 is approximately 2.8 years.

As at December 31, 2005 and June 30, 2006, there were 28,499 and 22,212 warrants outstanding, respectively, with a weighted average exercise price of CA$0.01 and expiring on dates up to March 2008.

There are 939 Terra options and warrants that could potentially dilute basic earnings per share in the future that were not included in the computation of diluted earnings per share because to do so would have been antidilutive for the period ended June 30, 2006.

 

(c)

FireOne:

FireOne established a restricted share unit plan whereby eligible individuals are awarded rights to receive ordinary shares in FireOne to be issued from treasury for a nominal consideration. The plan is administered by FireOne’s remuneration committee. Awards are made to eligible individuals at the discretion of the remuneration committee, vest in accordance with a specified vesting schedule and terminate 7 years from date of award.

 

 

16

 



 

 

OPTIMAL GROUP INC.

Notes to Consolidated Financial Statements, Continued

(Unaudited)

 

Six-month periods ended June 30, 2006 and 2005

(expressed in thousands of U.S. dollars, except share and per share amounts)

 

 

9.

Stock options and warrants (continued):

 

(c)

FireOne (continued):

In May 2005, FireOne made an initial award of 2,443,750 restricted share units to employees, officers and directors of FireOne and the Company. In November 2005, an additional 56,248 restricted share units were awarded to the non-executive directors of FireOne. As at December 31, 2005, all restricted share units are fully vested. (Refer to note 11). In May 2006, an aggregate of 1,299,000 restricted share units were awarded to directors, officers and employees of FireOne and the Company. These restricted share units had an estimated fair value of $8,049 on the grant date which is being amortized over the vesting period. The vesting period of these restricted share units is one third on the first anniversary of the award, an additional one third on the second anniversary of the award and the remaining one third on the third anniversary of the award. In addition, in May 2006, an aggregate of 73,116 restricted share units having a fair value of $460 were awarded to restricted share unit holders as a dividend equivalent.

Changes in restricted share units were as follows:

 

 

 

 

 

Number 

 

Weighted

average

fair value

per unit

 

 

 

 

Restricted share units outstanding and exercisable,

December 31, 2005

 

1,793,667 

 

$

 

2.47

Granted

1,299,000 

 

6.23

Exercised

(857,006)

 

2.66

Expired / cancelled

(7,723)

 

6.23

Dividend equivalent

73,116 

 

6.29

 

 

 

 

Restricted share units outstanding and exercisable,

June 30, 2006

 

2,301,054 

 

$

 

4.63

 

The remaining contractual life of the restricted share units at June 30, 2006 is approximately 6.4 years.

FireOne also established a stock option plan for employees, directors and officers, which is also administered by the remuneration committee of FireOne. The number of options as well as vesting and performance requirements, if any, are set by the remuneration committee. The exercise price for stock option grants will be based on the average market price of FireOne's ordinary shares for the five days preceding the date of grant. In general, options will expire seven years from date of grant. No options have been granted under this plan.

Grants under the restricted share unit plan and the stock option plan are limited to 2.5% of the issued share capital of FireOne to any individual and to 10% of the total issued share capital of FireOne.

 

17

 



 

 

OPTIMAL GROUP INC.

Notes to Consolidated Financial Statements, Continued

(Unaudited)

 

Six-month periods ended June 30, 2006 and 2005

(expressed in thousands of U.S. dollars, except share and per share amounts)

 

 

9.

Stock options and warrants (continued):

 

(c)

FireOne (continued):

In connection with the public flotation of FireOne in 2005, the Company granted the nominated advisor the right to subscribe for up to 375,000 ordinary shares of FireOne at any time between the first and fourth anniversaries of admission to the AIM (June 2, 2005) at the placing price of 241 pence.

 

(d)

Changes in additional paid-in capital were as follows:

 

 

 

 

Balance, December 31, 2005

$

25,884 

Ascribed value credited to share capital from exercise of stock options and warrants (note 8 (a))

 

 

 

(2,406)

Ascribed value credited to non-controlling interest from exercise of restricted share units

 

(1,903)

Stock-based compensation

 

335 

Stock dividend of restricted share units issued by FireOne to non-controlling interest

 

460 

 

 

 

Balance, June 30, 2006

$

22,370 

 

10.

Contingencies and other:

 

(a)

The Company received a legal letter from a claimant in 1999, and again in February 2001, alleging infringement of a patent related to the U-Scan® self-checkout business, which the Company sold to Fujitsu on April 8, 2004. In March 2003, this claimant also sent a third demand letter alleging infringement of additional patents. The Company believes these claims to be without merit and intends to vigorously defend its position should this claimant initiate a civil action. No amounts have been specified in these claims. 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 such claims.

 

(b)

On March 11, 2005, and again on June 30, 2005, the Company received a letter from Fujitsu claiming recovery of expenses allegedly incurred and forecast by Fujitsu to be incurred in relation to the operation of the Company’s former U-Scan® self-checkout business. In December 2005, the Company was notified by Fujitsu of its intention to arbitrate its claims. In February 2006, the Company received a draft request for arbitration, detailing the claims by Fujitsu. After consultation with counsel, the Company believes that there is no basis for these claims and intends to vigorously defend its position in any arbitration proceedings that might be initiated by Fujitsu to assert its claims. Management is unable to determine the resolution of this matter or estimate the ultimate liability, if any, related thereto. Accordingly, no provision has been made in these financial statements with respect to such claims.

 

 

18

 



 

 

OPTIMAL GROUP INC.

Notes to Consolidated Financial Statements, Continued

(Unaudited)

 

Six-month periods ended June 30, 2006 and 2005

(expressed in thousands of U.S. dollars, except share and per share amounts)

 

 

10.

Contingencies and other (continued):

 

(c)

The Company is pursuing the recovery of $6,800 withdrawn from a Terra bank account by one of its credit card suppliers for various service charges assessed pertaining to periods prior to December 31, 2001. The Company believes these charges are largely unsubstantiated and is pursuing the claim through legal recourse. The amount, if any, which the Company may recover cannot be quantified until the legal process is complete.

 

(d)

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 material adverse effect on the financial position or results of operations of the Company. However, the results of legal proceedings cannot be predicted with certainty. Should the Company fail to prevail in any of these legal matters or should several legal matters be resolved against the Company in the same reporting period, the consolidated operating results of a particular reporting period could be materially adversely affected.

 

(e)

In the sale or other disposition of assets out of the ordinary course of business, in addition to possible indemnification relating to failure to perform covenants and breach of representations and warranties, the Company might agree to indemnify the buyer against claims from its past conduct of its business. Typically, the term and amount of such indemnification will be limited by agreement. The nature of these indemnification agreements prevents the Company from estimating the maximum potential liability to indemnified parties. Accordingly, no provision has been made in these financial statements with respect to this item.

 

(f)

The United States legislative and regulatory environment surrounding the role and status of financial transactions in connection with Internet gaming remains marked by uncertainty. The present Congress is currently considering one primary bill, which passed the House of Representatives in July of this year, and is currently before the Senate. The bill, as currently under consideration, would restrict the use of financial instruments or transactions connected with many forms of Internet gaming. The likelihood that this or any similar bill will become law cannot be predicted with certainty.

In addition, since the Company derives a substantial portion of its revenue from processing transactions for Internet gaming, the Company may be exposed to adverse consequences as a result of future regulation, enforcement proceedings, governmental investigations or lawsuits initiated against it in jurisdictions where Internet gaming is or becomes restricted or prohibited. In the event that the United States government decides to enact legislation making the funding of Internet gaming activities by U.S. residents unlawful, initiates enforcement proceedings, or that any adverse findings, rulings or judgments are rendered in any such investigations or lawsuits directed at the Company or at its customers or suppliers, it may have a significant negative impact on the operations of the Company's business. Future regulations or any such investigations or lawsuits may make it costly or impossible for the Company to continue processing transactions for many gaming merchants. While best estimates have been used for reporting financial statement items subject to measurement uncertainty, management considers that it is possible, based on existing knowledge, that changes in future conditions in the near term could require a material reduction in the recognized amounts of certain assets. “Near term” is considered to be within one year from the date of the financial statements.

 

19

 



 

 

OPTIMAL GROUP INC.

Notes to Consolidated Financial Statements, Continued

(Unaudited)

 

Six-month periods ended June 30, 2006 and 2005

(expressed in thousands of U.S. dollars, except share and per share amounts)

 

 

11.

Stock-based compensation:

Stock-based compensation expense in the consolidated statements of operations was comprised of:

 

 

Three months ended

Six months ended

 

June 30,

June 30,

 

2006

2005

2006

2005

Expense related to options granted  in 2004

$

–   

$

884 

$

–   

$

884 

Expense related to FireOne restricted stock unit plan

 

335 

 

1,323 

 

335 

 

2,696 

Amortization of deferred compensation

 

–   

 

259 

 

–   

 

527 

 

 

 

 

 

 

 

 

 

 

$

335 

$

2,466 

$

335 

$

4,107 

 

 

 

 

 

 

 

On November 7, 2005, the Company’s Board of Directors approved the accelerated vesting of all unvested stock options previously awarded to employees, officers and directors. As a result of the accelerated vesting, and the concurrent accelerated vesting of unvested FireOne restricted share units, the Company recorded additional stock-based compensation of approximately $14,100 in the fourth quarter of 2005. The primary purpose of the acceleration was the elimination of stock-based compensation expense in the same aggregate amount that would otherwise be required to be recognized over the period ending June 30, 2007.

In order to prevent unintended personal benefits to employees, officers and directors, the Board imposed restrictions on any shares received through the exercise of accelerated options held by those individuals. These restrictions prevent the sale of any stock obtained through exercise of an accelerated option prior to the earlier of the original vesting date or the individual's termination of employment. The Board of Directors of FireOne imposed a similar restriction upon the sale of the ordinary shares underlying the FireOne restricted share units in respect of which the vesting was accelerated.

 

 

20

 



 

 

OPTIMAL GROUP INC.

Notes to Consolidated Financial Statements, Continued

(Unaudited)

 

Six-month periods ended June 30, 2006 and 2005

(expressed in thousands of U.S. dollars, except share and per share amounts)

 

 

12.

Income taxes:

The income tax provision differs from the amount computed by applying the combined Canadian federal and Quebec provincial tax rates to earnings before income taxes. The reasons for the difference and the related tax effects are as follows:

 

 

Three months ended June 30,

Six months ended June 30,

 

 

2006 

 

2005 

 

2006 

 

2005 

 

 

 

 

 

 

 

 

 

Earnings from continuing operations before income taxes

$

10,411 

$

35,536 

$

22,061 

$

38,612 

 

 

 

 

 

 

 

 

 

Combined Canadian federal and Quebec provincial income taxes at 32% (2005 - 31%)

$

3,334 

$

11,023 

$

7,064 

$

11,978 

Foreign exchange(1)

 

(1,248)

 

(129)

 

(1,145)

 

156 

Utilization of previously unrecognized tax assets

 

–   

 

(11,043)

 

-   

 

(11,043)

Benefits of losses not recorded

 

585 

 

279 

 

515 

 

203 

Stock-based compensation not deductible for tax

 

76 

 

881 

 

76 

 

1,468 

Permanent differences and other

 

750 

 

903 

 

953 

 

790 

Differences in tax rates

 

(1,645)

 

102 

 

(3,140)

 

–   

Amortization of other asset

 

–   

 

2,746 

 

–   

 

2,746 

 

 

 

 

 

 

 

 

 

Income tax provision of continuing operations

$

1,852 

$

4,762 

$

4,323 

$

6,298 

 

 

 

(1)

For purposes of calculating the income tax provision of the Company, a tax effect is recognized on foreign exchange gains or losses which arise on the conversion into Canadian dollars of the net monetary assets denominated in U.S. dollars; such conversion is required for income tax purposes. As these financial statements are presented in U.S. dollars, these foreign exchange gains or losses do not impact earnings (losses) before income taxes even though the income tax provision would include a tax effect for these items. Future fluctuations in the foreign exchange rate between the Canadian and U.S. dollar will change the amount of the foreign exchange gains or losses and thus the provision for or recovery of income taxes thereon.

 

 

 

 

 

 

   

 

21

 



 

 

OPTIMAL GROUP INC.

Notes to Consolidated Financial Statements, Continued

(Unaudited)

 

Six-month periods ended June 30, 2006 and 2005

(expressed in thousands of U.S. dollars, except share and per share amounts)

 

 

12.

Income taxes (continued):

The provision for (recovery) of income taxes of continuing operations is composed of the following:

 

 

Three months ended June 30,

Six months ended June 30,

 

 

2006

 

2005

 

2006

 

2005 

 

 

 

 

 

 

 

 

 

Current income taxes

$

3,840 

$

4,626 

$

6,864 

$

5,038 

Future income taxes

 

(1,988)

 

136 

 

(2,541)

 

1,260 

 

 

 

 

 

 

 

 

 

 

$

1,852 

$

4,762 

$

4,323 

$

6,298 

 

13.

Segmented information:

The Company now operates in two segments, namely gaming and non-gaming payment processing services. In 2005, the Company operated in three segments that included hardware maintenance and repair outsourcing services. The net results of this segment are reported as discontinued operations. Comparative figures have been reclassified to conform with this new presentation. Transaction processing costs, administrative expenses and other fees charged among the segments are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the parties. Management measures the results of operations based on segment income before income taxes adjusted for certain non-cash and non-recurring items provided by each business segment.

 

22

 



 

 

OPTIMAL GROUP INC.

Notes to Consolidated Financial Statements, Continued

(Unaudited)

 

Six-month periods ended June 30, 2006 and 2005

(expressed in thousands of U.S. dollars, except share and per share amounts)

 

 

13.

Segmented information (continued):

 

 

(a)

Information on the operating segments is as follows:

 

 

 

 

 

 

 

 

 

Payment services

Eliminations/

 

 

 

 

Gaming

Non-gaming

Unallocated

Consolidated 

 

 

 

 

 

 

 

 

 

 

Three months ended June 30, 2006:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

$

24,790 

$

29,493 

$

(2,041)

$

52,242 

 

 

 

 

 

 

 

 

 

Transaction processing

 

8,092 

 

17,425 

 

(972)

 

24,545 

Selling, general and administrative

 

6,640 

 

9,020 

 

(1,110)

 

14,550 

Research and development

 

148 

 

677 

 

–   

 

825 

Operating leases

 

75 

 

309 

 

–   

 

384 

 

 

9,835 

 

2,062 

 

41 

 

11,938 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

214 

 

121 

 

–   

 

335 

Amortization

 

267 

 

3,157 

 

 

3,427 

 

 

9,354 

 

(1,216)

 

38 

 

8,176 

 

 

 

 

 

 

 

 

 

Investment income

 

1,272  

 

963 

 

–   

 

2,235 

 

 

 

 

 

 

 

 

 

Earnings (loss) from continuing operations before income taxes and non-controlling interest

 

10,626 

 

(253)

 

38 

 

10,411 

 

 

 

 

 

 

 

 

 

Income tax provision (recovery)

 

1,949 

 

(255)

 

158 

 

1,852 

 

 

 

 

 

 

 

 

 

Earnings (loss) from continuing operations before undernoted

 

8,677 

 

 

(120) 

 

8,559 

 

 

 

 

 

 

 

 

 

Non-controlling interest

 

2,037 

 

–   

 

–   

 

2,037 

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

6,640 

 

 

(120)

 

6,522 

 

 

 

 

 

 

 

 

 

Loss from discontinued operations (including restructuring of $811)

 

–   

 

–   

 

2,831 

 

2,831 

 

 

 

 

 

 

 

 

 

Net earnings (loss)

$

6,640 

$

$

(2,951)

$

3,691 

 

 

 

 

 

 

 

 

 

 

 

23

 



 

 

OPTIMAL GROUP INC.

Notes to Consolidated Financial Statements, Continued

(Unaudited)

 

Six-month periods ended June 30, 2006 and 2005

(expressed in thousands of U.S. dollars, except share and per share amounts)

 

 

13.

Segmented information (continued):

 

(a)

(Continued):

 

 

 

 

 

 

 

 

 

 

Payment services

Eliminations/

 

 

 

 

Gaming

Non-gaming

Unallocated

Consolidated 

 

 

 

 

 

 

 

 

 

 

Three months ended June 30, 2005:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

$

17,526 

$

15,911 

$

(1,400)

$

32,037 

 

 

 

 

 

 

 

 

 

Transaction processing

 

7,236 

 

7,550 

 

(836)

 

13,950 

Selling, general and administrative

 

2,540 

 

6,058 

 

(564)

 

8,034 

Research and development

 

450 

 

204 

 

–  

 

654 

Operating leases

 

88 

 

255 

 

–  

 

343 

 

 

7,212 

 

1,844 

 

–  

 

9,056 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

465 

 

2,001 

 

–  

 

2,466 

Amortization

 

244 

 

1,882 

 

–  

 

2,126 

 

 

6,503 

 

(2,039)

 

–  

 

4,464 

 

 

 

 

 

 

 

 

 

Investment income

 

38 

 

456 

 

–  

 

494 

 

 

 

 

 

 

 

 

 

Earnings (loss) from continuing operations before income taxes and non-controlling interest

 

6,541 

 

(1,583)

 

–  

 

4,958 

 

 

 

 

 

 

 

 

 

Income tax provision

 

2,384 

 

2,378 

 

–  

 

4,762 

 

 

 

 

 

 

 

 

 

Earnings (loss) from continuing operations before undernoted

 

4,157 

 

(3,961)

 

–  

 

196 

 

 

 

 

 

 

 

 

 

Gain on sale of FireOne

 

–  

 

–  

 

30,578 

 

30,578 

Non-controlling interest

 

(230)

 

–  

 

–  

 

(230)

 

 

 

 

 

 

 

 

 

Earnings (loss) from continuing operations

 

3,927 

 

(3,961)

 

30,578 

 

30,544 

 

 

 

 

 

 

 

 

 

Loss from discontinued operations (including restructuring of $266)

 

–  

 

–  

 

9,822 

 

9,822 

 

 

 

 

 

 

 

 

 

Net earnings (loss)

$

3,927 

$

(3,961)

$

20,756 

$

20,722 

 

 

 

 

 

 

 

 

 

 

 

 

24

 



 

 

OPTIMAL GROUP INC.

Notes to Consolidated Financial Statements, Continued

(Unaudited)

 

Six-month periods ended June 30, 2006 and 2005

(expressed in thousands of U.S. dollars, except share and per share amounts)

 

 

13.

Segmented information (continued):

 

(a)

(Continued):

 

 

 

 

 

 

 

 

 

 

Payment services

Eliminations/

 

 

 

 

Gaming

Non-gaming

Unallocated

Consolidated 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2006:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

$

49,989 

$

59,119 

$

(4,444)

$

104,664 

 

 

 

 

 

 

 

 

 

Transaction processing

 

17,042 

 

35,044 

 

(2,033)

 

50,053 

Selling, general and administrative

 

12,158 

 

16,915 

 

(2,554)

 

26,519 

Research and development

 

291 

 

1,339 

 

–   

 

1,630 

Operating leases

 

135 

 

617 

 

–   

 

752 

 

 

20,363 

 

5,204 

 

143 

 

25,710 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

214 

 

121 

 

–   

 

335 

Amortization

 

533 

 

6,293 

 

 

6,831 

 

 

19,616 

 

(1,210)

 

138 

 

18,544 

 

 

 

 

 

 

 

 

 

Investment income

 

2,120 

 

1,397 

 

–   

 

3,517 

 

 

 

 

 

 

 

 

 

Earnings from continuing operations before income taxes and non-controlling interest

 

21,736 

 

187 

 

138 

 

22,061 

 

 

 

 

 

 

 

 

 

Income tax provision

 

4,040 

 

125 

 

158 

 

4,323 

 

 

 

 

 

 

 

 

 

Earnings (loss) from continuing operations before undernoted

 

17,696 

 

62 

 

(20)

 

17,738 

 

 

 

 

 

 

 

 

 

Non-controlling interest

 

4,157 

 

–   

 

–   

 

4,157 

 

 

 

 

 

 

 

 

 

Earnings (loss) from continuing operations

 

13,539 

 

62 

 

(20)

 

13,581 

 

 

 

 

 

 

 

 

 

Loss from discontinued operations (including restructuring of $2,383)

 

–   

 

–   

 

5,501 

 

5,501 

 

 

 

 

 

 

 

 

 

Net earnings (loss)

$

13,539 

$

62 

$

(5,521)

$

8,080 

 

 

 

 

 

 

 

 

 

 

 

 

25

 



 

 

OPTIMAL GROUP INC.

Notes to Consolidated Financial Statements, Continued

(Unaudited)

 

Six-month periods ended June 30, 2006 and 2005

(expressed in thousands of U.S. dollars, except share and per share amounts)

 

 

13.

Segmented information (continued):

 

(a)

(Continued):

 

 

 

 

 

 

 

 

 

 

Payment services

Eliminations/

 

 

 

 

Gaming

Non-gaming

Unallocated

Consolidated 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2005:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

$

32,474 

$

26,839 

$

(2,197)

$

57,116 

 

 

 

 

 

 

 

 

 

Transaction processing

 

13,501 

 

14,337 

 

(1,633)

 

26,205 

Selling, general and administrative

 

4,699 

 

10,473 

 

(564)

 

14,608 

Research and development

 

910 

 

362 

 

–  

 

1,272 

Operating leases

 

168 

 

337 

 

–  

 

505 

 

 

13,196 

 

1,330 

 

–  

 

14,526 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

666 

 

3,441 

 

–  

 

4,107 

Amortization

 

485 

 

2,731 

 

–  

 

3,216 

 

 

12,045 

 

(4,842)

 

–  

 

7,203 

 

 

 

 

 

 

 

 

 

Investment income

 

108 

 

723 

 

–  

 

831 

 

 

 

 

 

 

 

 

 

Earnings (loss) from continuing operations before income taxes and non-controlling interest

 

12,153 

 

(4,119)

 

–  

 

8,034 

 

 

 

 

 

 

 

 

 

Income tax provision

 

4,497 

 

1,801 

 

–  

 

6,298 

 

 

 

 

 

 

 

 

 

Earnings (loss) from continuing operations before undernoted

 

7,656 

 

(5,920)

 

–  

 

1,736 

 

 

 

 

 

 

 

 

 

Gain on sale of FireOne

 

–   

 

–  

 

30,578 

 

30,578 

Non-controlling interest

 

(230)

 

–  

 

–  

 

(230)

 

 

 

 

 

 

 

 

 

Earnings (loss) from continuing operations

 

7,426 

 

(5,920)

 

30,578 

 

32,084 

 

 

 

 

 

 

 

 

 

Loss from discontinued operations (including restructuring of $266)

 

–   

 

–  

 

11,331 

 

11,331 

 

 

 

 

 

 

 

 

 

Net earnings (loss)

$

7,426 

$

(5,920)

$

19,247 

$

20,753 

 

 

 

 

 

 

 

 

 

 

 

 

26

 



 

 

OPTIMAL GROUP INC.

Notes to Consolidated Financial Statements, Continued

(Unaudited)

 

Six-month periods ended June 30, 2006 and 2005

(expressed in thousands of U.S. dollars, except share and per share amounts)

 

 

13.

Segmented information (continued):

 

(a)

(Continued):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment services

 

Eliminations/

 

 

 

 

Gaming 

 

Non-gaming

 

Unallocated

 

Consolidated