Optimal Group Inc. (NASDAQ: OPMR) today announced its financial
results for the third quarter ended September 30, 2009. All
references are in U.S. dollars.
Revenues for the third quarter ended September 30, 2009 were
$33.3 million compared to $52.1 million for the third quarter ended
September 30, 2008. The year-over-year decrease in revenues in the
third quarter is attributed primarily to: the desire by retailers
to maintain lower levels of inventory, resulting in their issuing
purchase orders and accepting delivery only later in the buying
season; continuing changes in our business model whereby we attempt
to sell more goods directly to consumers and; a generally
unfavourable retail environment.
Net loss in the third quarter ended September 30, 2009 was $27.1
million or $ (5.25) per share compared to a net earnings of $1.7
million or $0.33 per share in the third quarter ended September 30,
2008.
The net loss for the third quarter ended September 30, 2009
includes a charge of approximately $19.2 million in connection with
the non-prosecution agreement entered into by the Company on
October 30, 2009 with the Office of the United States Attorney for
the Southern District of New York. Under the terms of the
non-prosecution agreement, a total of approximately $19.2 million
will be forfeited to the United States by us and our subsidiaries,
as disgorgement of property involved in and proceeds received from
the payment processing services that were provided by our
subsidiaries to Internet gambling merchants in relation to U.S.
customers of such merchants. We and the U.S. Attorney's Office have
agreed that the approximately $19.2 million previously seized and
reported as restricted cash in our long-term assets related to
discontinued operations shall be applied to satisfy the forfeiture
obligation.
At September 30, 2009, the Company had cash and cash equivalents
of $21.2 million, bank indebtedness of $14.1 million, working
capital of $14.6 million and shareholders' equity of $41.0 million,
or $7.96 per issued and outstanding share.
Optimal expects revenues to remain under pressure in 2009 as a
result of continuing retail softness driven by a continued
pull-back in consumers' willingness to spend and retailers' desire
to reduce inventories, weakening foreign exchange in international
markets, and the sale of fewer toy and entertainment-related
products.
About Optimal Group
Optimal Group Inc. has operated and, through various
subsidiaries, has actively managed a variety of businesses.
Optimal Group Inc. currently operates:
The WowWee group of companies, with operations in Hong Kong,
Carlsbad, California, Brussels, Belgium and Montreal, Quebec.
WowWee Group Limited, based in Hong Kong, is a leading designer,
developer, marketer and distributor of technology-based consumer
robotic, toy and entertainment products.
For more information about Optimal, please visit the Company's
website at www.optimalgrp.com.
Cautionary Statements Regarding Forward-Looking Statements
This press release contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Words such as
"expects", "intends", "anticipates", "plans", "believes", "seeks",
"estimates", or variations of such words and similar expressions
are intended to identify such forward-looking statements.
Forward-looking statements include, but are not limited to,
statements about our current expectations with respect to our
future growth strategies, results, opportunities and prospects,
competitive position and industry environment. These
forward-looking statements are subject to a number of risks,
uncertainties and other factors that could cause our actual
results, performance, prospects or opportunities, or those of the
markets we serve, to differ materially from those expressed in, or
implied by, these forward-looking statements, including:
- general economic, legal and business conditions in the markets
we serve;
- while we believe that our cash and cash equivalents will be
adequate to meet our operating needs for at least the next 12
months, our existing cash and cash equivalents could prove to be
inadequate to meet our funding requirements;
- existing and future governmental regulations and disputes with
governmental authorities;
- our ability to continue to satisfy Nasdaq's conditions for
continued listing of our common shares on The NASDAQ Global
Market;
- consumer confidence in the security of financial information
transmitted via the Internet;
- levels of consumer and merchant fraud, disputes between
consumers and merchants and merchant insolvency;
- liability for merchant chargebacks;
- our ability to safeguard against breaches of privacy and
security when processing electronic transactions and use of our
payments systems for illegal purposes;
- the imposition of and our compliance with rules and practice
procedures implemented by credit card associations;
- our ability to protect our intellectual property;
- our relationships with our suppliers and the banking
associations that we rely upon to process our electronic
transactions;
- disruptions in the function of our electronic payments systems
and technological defects;
- our ability to complete, integrate and benefit from
acquisitions, divestitures, joint ventures and strategic
alliances;
- our ability to retain key personnel;
- currency exchange rate fluctuations;
- our ability to successfully implement our strategies for our
WowWee business;
- changing consumer preferences for electronics and play
products;
- the seasonality of retail sales;
- concentration among our major retail customers for the
products of our
WowWee business;
- economic, social and political conditions in China, where
WowWee's products are manufactured;
- the price and supply of raw materials used to manufacture
WowWee's products;
- product liability claims and product recalls;
- increased competition;
- litigation; and
- the factors described under Item 1A "Risk Factors" in our
Annual Report on Form 10-K for the year ended December 31, 2008,
our Quarterly Report on Form 10-Q for the three months ended
September 30, 2009.
There may be additional risks and uncertainties and other
factors that we do not currently view as material or that are not
necessarily known. The forward looking statements made in this
document are only made as of the date of this document.
Except as required by applicable securities laws, we undertake
no obligation to publicly update or revise any forward-looking
statement, whether as a result of new information, future events,
changes in circumstances or any other reason after the date of this
press release.
The Private Securities Litigation Reform Act of 1995 provides a
"safe harbor" for forward-looking statements to encourage companies
to provide prospective information about their companies without
fear of litigation. We are relying on the "safe harbor" provisions
of the Private Securities Litigation Reform Act in connection with
the forward-looking statements included in this press release.
Condensed Consolidated Balance Sheets, Condensed Statements of
Operations and Comprehensive Loss and Condensed Statements of Cash
Flows follow:
OPTIMAL GROUP INC.
Condensed Consolidated Balance Sheets
September 30, 2009 and December 31, 2008
(expressed in thousands of U.S. dollars)
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September 30, December 31,
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2009 2008
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(Unaudited) (Audited)
Assets
Current assets:
Cash and cash equivalents $21,192 $32,849
Short-term investments - 6,296
Accounts and other receivables (net of
allowance for doubtful accounts
of $390; 2008 - $758) 26,593 24,169
Current portion of balance of sale receivable 2,127 -
Inventories 21,948 19,364
Prepaid expenses and othersz 1,575 1,817
Current assets related to discontinued operations 1,495 4,358
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74,930 88,853
Balance of sale receivable 8,000 -
Property and equipment 3,988 4,219
Intangible assets 33,651 45,109
Long-term assets related to
discontinued operations - 30,837
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$120,569 $169,018
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Liabilities and Shareholders' Equity
Current liabilities:
Bank indebtedness $14,140 $11,547
Accounts payable and accrued liabilities 37,008 34,518
Accounts payable and accrued liabilities
related to discontinued operations 3,944 5,548
Current portion of long-term debt 915 1,010
Income taxes payable 3,499 2,225
Deferred income taxes 838 838
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60,344 55,686
Deferred income taxes 6,892 6,965
Long-term debt 1,966 2,005
Long-term liabilities related to
discontinued operations 10,383 10,871
Shareholders' equity:
Share capital 252,488 252,488
Warrants 2,696 2,696
Additional paid-in capital 65,727 64,173
Deficit (276,910) (222,849)
Accumulated other comprehensive loss (3,017) (3,017)
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40,984 93,491
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$120,569 $169,018
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OPTIMAL GROUP INC.
Condensed Consolidated Statements of Operations and Comprehensive (Loss)
Earnings
(Unaudited)
Three and nine months ended September 30, 2009 and 2008
(expressed in thousands of U.S. dollars, except per share amounts)
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Three months ended Nine months ended
September 30, September 30,
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2009 2008 2009 2008
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Revenues $33,252 $52,135 $41,919 $72,521
Other revenues 829 8,712 2,499 28,040
Expenses:
Cost of sales 28,348 38,308 36,167 52,768
Selling, general
and administrative 9,945 10,633 27,250 25,342
Stock-based
compensation
pertaining to
selling,
general and
administrative 49 517 1,554 2,895
Research and
development 1,020 861 2,447 2,136
Operating leases 277 268 838 742
Amortization 3,322 3,868 10,032 11,236
Transaction
processing costs - 7,566 - 25,028
Impairment loss - - 4,000 -
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Loss from continuing
operations before
undernoted item (8,880) (1,174) (37,870) (19,586)
Other income 297 260 884 1,097
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Loss from continuing
operations before
income taxes (8,583) (914) (36,986) (18,489)
Income taxes (recovery) (118) (211) (754) 692
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Net loss from
continuing operations (8,465) (703) (36,232) (19,181)
Net (loss) earnings
from discontinued
operations, net of
income taxes (18,590) 2,410 (17,829) (35,552)
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Net (loss) earnings
and comprehensive
(loss) earnings $(27,055) $1,707 $(54,061) $(54,733)
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Weighted average
number of shares:
Basic and diluted 5,148,735 5,165,818 5,148,735 5,176,589
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(Loss) earnings per
share:
Continuing
operations:
Basic and diluted (1.64) (0.14) (7.04) (3.70)
Discontinued
operations:
Basic and diluted (3.61) 0.47 (3.46) (6.87)
Net:
Basic and diluted (5.25) 0.33 (10.50) (10.57)
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OPTIMAL GROUP INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three and nine months ended September 30, 2009 and 2008
(expressed in thousands of U.S. dollars)
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Three months ended Nine months ended
September 30, September 30,
-------------------------------------------------------------------------
2009 2008 2009 2008
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Cash flows (used in)
from operating
activities:
Net (loss)
earnings $(27,055) $1,707 $(54,061) $(54,733)
(Add) deduct
(loss) earnings
from discontinued
operations (18,590) 2,410 (17,829) (35,552)
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Net loss from
continuing
operations (8,465) (703) (36,232) (19,181)
Adjustments for
items not
affecting cash:
Amortization 3,322 3,868 10,032 11,236
Deferred income
taxes 472 546 (73) 11,370
Impairment of
intangibles - - 4,000 -
Stock-based
compensation 49 517 1,554 2,895
Foreign exchange 436 (161) 94 (181)
Net change in
operating assets
and liabilities (1,805) (10,121) (1,293) (10,939)
Operating cash
flows from (used in)
discontinued
operations 384 1,728 2,397 (4,802)
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(5,607) (4,326) (19,521) (9,602)
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Cash flows from
(used in)
financing
activities:
Increase in bank
indebtedness 3,809 4,802 2,362 7,283
Repayment of long-
term debt (47) - (275) -
Repurchase of
Class "A" shares - - - (471)
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3,762 4,802 2,087 6,812
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Cash flows (used in)
from investing
activities:
Purchase of
property,
equipment and
intangible assets (917) (755) (2,049) (3,918)
Business acquisitions - (6,534) - (6,534)
Net proceeds from
maturity of short-
term investments - 1,167 6,296 11,261
Proceeds from
disposition of
payment
processing
businesses - - 1,035 -
Proceeds from
balance of
sale receivable 94 - 345 -
Transaction costs
related to
business
acquisitions and
disposals - (112) (126) (112)
Investing cash flows
(used in) from
discontinued operations - (38) - 113
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(823) (6,272) 5,501 810
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Effect of exchange
rate changes on cash
and cash equivalents
during the period (11) (98) 276 (107)
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Net decrease in cash
and cash equivalents (2,679) (5,894) (11,657) (2,087)
Cash and cash
equivalents,
beginning of period 23,871 51,000 32,849 47,193
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Cash and cash
equivalents, end of
period $21,192 $45,106 $21,192 $45,106
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Contacts: Optimal Group Inc. Brad McKenna Vice-President,
Administration 514-738-8885 bradir@optimalgrp.com
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