| UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 |
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| FORM 10-K |
| (Mark One) |
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the fiscal year ended December 31, 2004 | |
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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. |
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| OPTIMAL GROUP INC. |
| (Exact name of registrant as specified in its charter) |
| Canada | 98-0160833 |
| (State or other jurisdiction | (I.R.S. Employer |
| of incorporation or organization) | Identification No.) |
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| 3500 de Maisonneuve Blvd. West, Suite 1700, Montreal, Quebec, Canada, H3Z 3C1 |
(514) 738-8885 |
| (Address of principal executive offices and postal code) | (Registrant telephone number, including area code:) |
| Securities registered pursuant to Section 12(b) of the Act: | |
| Title of class: | None |
| Securities registered pursuant to Section 12(g) of the Act: | |
| Title of class: | Class “A” shares, no par value |
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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 No |
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form | |
| 10-K | |
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Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule | |
| 12b-2). | Yes No |
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Aggregate market value of the voting stock of the registrant held by non-affiliates of the registrant as of June 30, 2004 (computed by reference to the last reported sale price of the Class “A” shares on the Nasdaq Stock Market on such date): $164,295,521. For purposes of this calculation, only executive officers and directors are deemed to be affiliates of the registrant. Number of Class “A” shares outstanding at February 28, 2005: 22,501,486 DOCUMENTS INCORPORATED BY REFERENCE: NONE | |
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In this Form 10-K, except where otherwise indicated, references to “dollars” or “$” are to United States dollars, references to “Cdn$” are to Canadian dollars, and references to our “common shares” are to our Class “A” shares. PART I Item 1. BUSINESS Company Overview Optimal Group Inc. is a leading payments and services company with operations throughout North America and the United Kingdom. Through Optimal Payments, we provide technology and services that businesses require to accept credit card, electronic check and direct debit payments. Optimal Payments processes credit card, electronic check and direct debit payments for Internet businesses, mail-order/telephone-order and retail point-of-sale merchants. Through Optimal Services Group, we provide depot repair and field services to retail, financial services and other third-party accounts. In fiscal 2004, we completed a number of business acquisitions and disposals in pursuit of our strategy to reposition our business activities with the goal of enhancing long-term financial results. We believe the completion of these transactions has realigned our company into a strong payments and services company with a more balanced and stable business mix. We plan to continue to grow our core businesses on a strategic basis, both organically and through acquisition. Furthermore, by leveraging our strong balance sheet, we intend to take advantage of strategic and transactional opportunities that may arise, with a focused approach on potential acquisitions. The primary business acquisitions and disposals made during the year were as follows (see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview and Strategy – Significant Developments”): |
| • | On April 6, 2004, we completed the amalgamation of a wholly-owned subsidiary with Terra Payments Inc (“Terra Payments”). The amalgamated company is a wholly-owned subsidiary of Optimal Group Inc. and has continued its business under the name of Optimal Payments Inc. | |
| • | On April 8, 2004, we completed the sale of our U-Scan® self-checkout business to Fujitsu Transaction Solutions, Inc. for $35 million plus the assumption of certain liabilities. | |
| • | On July 1, 2004, Optimal Payments completed the acquisition of National Processing Services LLC (“NPS”), a Detroit, Michigan-based registered Visa® and MasterCard® independent sales organization for $15 million. The portfolios acquired in this transaction include approximately 4,500 merchants, processing in excess of $1 billion in annual credit and debit card volume. |
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We currently operate in two segments; payments, through Optimal Payments, and hardware maintenance and repair outsourcing services, through Optimal Services Group (“OSG”). Our Corporate Information Our company was formed in 1984 and is incorporated under the federal laws of Canada. We entered the payments segment through the acquisition of Terra Payments in April 2004. Our principal office is located at 3500 de Maisonneuve Blvd. West, Suite 1700, Montreal, Quebec, H3Z 3C1, and our telephone number is (514) 738-8885. We have 14 subsidiaries of which the following six currently carry on regular business: Optimal Robotics Inc., a wholly-owned Delaware corporation and Optimal Services Group Inc., a wholly-owned Canadian corporation, which together form our hardware maintenance and repair outsourcing services business segment; and, Optimal Payments Inc., a wholly-owned Canadian corporation, FireCash Ltd., a wholly-owned Bermuda corporation, Optimal Payments Corp., a wholly-owned Delaware corporation, and Optimal Payments Limited, a wholly-owned United Kingdom corporation, which together form our payments business segment. |
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Our Industry Segments Our payments business segment, Optimal Payments, is a growing presence in the payments processing industry and provides technology and services that businesses require to accept credit card, electronic check and direct debit payments. Optimal Payments processes credit card payments for card-not-present and card-present (or, “swipe”) transactions, including Internet businesses, mail-order/telephone-order (MOTO) merchants, and retail point-of-sale merchants. Optimal Payments also processes checks and direct debits online and by telephone. Our hardware maintenance and repair outsourcing services business segment, OSG, offers its customers a single-source solution for many of their computer maintenance and technology support requirements, including hardware maintenance services, software support, end-user/help desk services, network support and other technology support services. OSG also provides multi-vendor parts repair, refurbishment and inventory management services as part of its logistics services portfolio. OSG delivers services through its repair depots located in the United States and Canada and an extensive field service organization maintained throughout Canada. Our Payments Business Segment Our Services We provide technology and services that businesses require to accept credit card, electronic check and direct debit payments. We process credit and debit card payments for card-not-present and card-present transactions, including Internet businesses, mail-order/telephone-order merchants and retail point-of-sale merchants. For those merchants wanting to accept payments in a card-not-present environment, we provide them with the technology to integrate into their website, training, on-going technical support, risk management to help detect and prevent fraudulent transactions, real-time online reporting and administrative tools and settlement services. For those merchants wanting to accept payments in a card-present environment, we provide them with the necessary hardware, training, on-going technical support and settlement services. Our consumer product, FirePay® Personal Accounts, is an electronic wallet/stored value offering used for general e-commerce and licensed online gaming. FirePay® Personal Accounts are electronic debit accounts for consumers that can be securely funded from electronic checks drawn on U.S. financial institutions, and can be redeemed at many Internet sites of merchants who have subscribed to our service. This solution allows consumers to pay for products and services on the Internet without having to divulge sensitive bank account information to unknown merchants. Consumers receive transaction confirmations by e-mail and can access their accounts any time they are connected to the Internet. Our Competitive Advantages Our competitive advantages include our ability to provide merchants with both card-present and card-not-present processing options, our risk management expertise, specifically pertaining to card-not-present transactions, our proprietary processing technology platform, specifically pertaining to our card-not-present transactions, and our focus on our merchant customers. As we offer both card-present and card-not-present payment processing solutions, we offer merchants the simplicity of having one supplier for both of these offerings. This significantly reduces the administration associated with having multiple payment processing suppliers and allows merchants to focus on their core business. The strength of our payment solutions resides in our proprietary risk management expertise developed to reduce the inherently higher level of risk associated with processing credit card and electronic check payments |
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received by Internet or telephone. Our proprietary risk management tools and processes have been designed to handle a wide variety of transactions, the performance profiles of which vary. These transactions may originate from consumers (authorization and purchase), merchants (settlement and credit) or internal users (query). However, the greatest proportion of transactions are those initiated by the consumer, since there are comparatively more consumers than there are merchants, and since merchant transactions relate to previously submitted consumer transactions. With this knowledge, we have developed a unique proprietary transaction processor with an emphasis on the easy handling of customer-submitted authorization and purchase transactions. In order to further mitigate our risk exposure, we retain a portion of amounts owed to certain merchants based on processing dollar volume for a period of six months to cover potential merchant credit losses, which can arise as a result of, among other things, disputes between consumers and merchants or association fines related to chargeback activity. The aggregate amount withheld is referred to as “reserves” and our liability to refund our customers is included in the line item “Customer reserves and security deposits” on the balance sheet contained in the consolidated financial statements included in this report. In the case of a dispute between a merchant and a customer, if the dispute is not resolved in the merchant’s favour, the disputed transaction amount is refunded to the merchant’s customer and charged back to us. If we are unable to collect a chargeback amount from the merchant, we bear the credit risk for this amount. As a result, our acquiring processing suppliers require us to maintain certain amounts with them as reserves. Amounts withheld by our acquiring processing suppliers as reserves are included in cash and short-term investments on our balance sheet as “held as reserve”. For merchants who continue to use our services, we withhold and refund reserves on a rolling basis so that as new transactions are processed, we withhold a portion as the reserve, while at the same time refunding previously withheld reserves for which the six-month period has expired. We have developed our own proprietary transaction processing technology, which is tailored to our merchants’ needs. Having our own technology platform provides us with the flexibility to be able to tailor our offerings to the various demands of our merchants and internal users. Our network operations center is mission critical, fully redundant and benefits from automated 24/7 network monitoring. Our transaction processing engine includes an Internet merchant account, payment gateway, real-time authorization, risk management and fraud protection, as well as back-end reporting tools that help merchants manage their operations. Our electronic payment services can be integrated into a merchant’s existing business systems. As our investment in our technology has been significant, barriers to entry, specifically in the card-not-present processing industry, are high. Our internal account management staff is focused on meeting the needs of our merchant customers. Our larger merchant customers are assigned an account manager, with a view to ensuring merchants’ expectations are met or exceeded. For card-not-present merchants, we understand the importance of 24/7 uptime, therefore our account managers ensure their availability and timely responses to any merchant inquiries. Our Business Strategy Our business strategy is to focus on providing small and medium sized merchants with the ability to process a variety of electronic transactions, including both card-present and card-not-present credit and debit transactions. With our existing infrastructure and supplier relationships, we can accommodate the expected industry growth. Our available capacity and infrastructure allows us to take advantage of operational efficiencies as we grow our processing volume. Our Customers Our customers include both merchants, as well as consumers who utilize our FirePay® Personal Accounts offering. We provide our services to over 15,000 merchants. Our merchant base consists primarily of small to medium sized businesses. As well, we have developed a niche in processing transactions for licensed Internet gaming merchants, which merchants represent the only industry for which we have any significant concentration of volume. |
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Suppliers Our key suppliers are our transaction processing suppliers, being primarily financial institutions. These financial institutions are members of the Visa® and MasterCard® credit card associations and the National Automated Clearing House Association. The relationships provide us with the ability to connect to the various payment networks. We have multiple relationships, enabling us to process various types of transactions and in various geographic areas. Sales and Marketing Our sales efforts are initiated by way of direct sales, independent sales agents and strategic partnerships. We employ an in-house sales force whose focus is to sell our full range of products and services directly to our customers. As part of our strategy, we have entered into numerous agreements with independent sales agents. These agents refer merchants to us in return for a commission based on processing volume. In addition, we utilize a distribution mechanism that relies on various strategic partnerships, alliances and ‘‘leveraged distribution agreements.’’ The partnership agreements that we enter into are designed to attract large volumes of merchants toward our offerings, with a view to growing our core transaction processing base and generating service fee revenues. We generate revenues primarily from fees charged to merchants for processing services, as well as from fees charged to consumers who utilize our FirePay® Personal Account stored-value offering. Fees charged to merchants typically include a discount rate, based upon a percentage of the dollar amounts processed, and a variety of fixed transaction or service fees. Merchant fees are based upon the merchant’s volume and risk profile. Consumer fees are based on fixed transaction amounts. Revenue is recognized at the time the transaction or service is performed. Where we are the primary party responsible for providing processing services, revenue is recorded on a gross basis and amounts paid to the acquiring processing supplier are recorded as part of our transaction processing expenses. Where we are not the primary party in providing a merchant with processing services, we record revenue net of amounts paid to the acquiring processing supplier. Research and Development We believe in the importance of having access to strong technology in order to be able to develop advanced products for our customers, independent sales agents and for our own internal use. We maintain a team of development engineers, quality assurance professionals and technical code writers. As of December 31, 2004, approximately 27 employees were engaged in such activities. Government Regulation As electronic commerce in general and most of the products and services that we offer are relatively new, the manner in which existing state, provincial, federal and foreign government regulations may be applied is uncertain and difficult to predict. Due to the relatively recent development of Internet gaming, there are few laws or regulations that deal directly with the payment processing of this application and there is uncertainty as to the legal status of Internet gaming. While some jurisdictions have taken the position that Internet gaming is legal and have adopted or are in the process of reviewing legislation to regulate Internet gaming in such jurisdictions, other jurisdictions have taken the opposite view and enacted legislation to attempt to restrict or prohibit Internet gaming. For example, in the United States for the past several years there have been conflicting efforts to clarify the status of Internet gaming. The impact of those efforts cannot be predicted. Should the United States government decide to enact legislation making the funding of Internet gaming activities by U.S. residents unlawful, it would have a significant negative impact on us. As a result, we have taken the initiative and continue to invest in the diversification of our revenue base towards the continued diminishing of our reliance on Internet gaming payments emanating from U.S. residents. Competition We believe that the payments market is growing at a meaningful rate. Companies that either have developed or are developing product offerings in competition with us include Click2Pay GmbH, Gateway |
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Financial Services Ltd., iPayment Inc., NETeller PLC, PayPal Inc., TeleCheck International Inc., TransFirst Holdings Inc. and WorldPay Inc. Certain of our competitors are larger and have greater financial, technical and other resources. Intellectual Property We regard our software as proprietary and attempt to protect it, where applicable, with copyrights, trade secret measures and nondisclosure agreements. Despite these protections, it may be possible for competitors or users to copy aspects of our intellectual property or to obtain information that we regard as trade secrets. Existing copyright laws afford only limited practical protection for computer software. The laws of foreign countries generally do not protect our proprietary rights in our products to the same extent as the laws of the United States and Canada. In addition, we may experience more difficulty in enforcing our proprietary rights in certain foreign jurisdictions. Employees As of December 31, 2004, we employed approximately 150 full time employees in our payments business segment. Our employees are not represented by any collective bargaining unit and we have never experienced a work stoppage. We believe that our employee relations are good. Our Hardware Maintenance and Repair Outsourcing Services Business Segment Our Services We provide hardware maintenance and repair outsourcing services, for various types of hardware, both at the customer’s site, as well as at our own depot repair facilities. In addition, we provide our customers with logistics management services for their equipment. For those customers requiring on-site service, when hardware under contract requires maintenance or repair, we dispatch a qualified technician to either repair or, as required, exchange the equipment. Should the service call result in the hardware being exchanged, the defective unit is returned to our depot repair facility for repair or destruction, as instructed by our customer. In remote locations, we offer service through independent service companies with whom we have contracted and who are trained and certified by us. For those customers who do not require on-site service, but do require maintenance and repair, we provide service within our depot repair facilities (see “Item 2. Description of Properties – Facilities” below). Our Competitive Advantages In the hardware services market, competition among providers, both original equipment manufacturers (“OEMs”) and independent service organizations, is intense. We believe that the primary competitive factors in the hardware services industry are the quality of a company’s services, the ability to service a wide range of products supplied by a variety of vendors, the geographic coverage of a company’s services and the cost to the customer of those services. We believe that customers are increasingly looking for service providers capable of providing a single-source solution for their increasingly complex multi-vendor systems. We believe that our widespread service coverage, call management system and comprehensive equipment repair capabilities offer all the advantages of a high quality service provider. Our customers benefit from a dedicated project management team, web-based solutions and sophisticated tracking tools. We offer our customers a single-source solution for virtually all of their computer maintenance and technology support requirements, including hardware maintenance services, software support, end-user/help desk services, network support and other technology support services. We also provide multi-vendor parts repair and refurbishment and inventory management services as part of our logistics services portfolio. |
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Our Business Strategy Our principal business strategy for the hardware maintenance and repair outsourcing services segment is to provide a service solution that will not only meet, but exceed customer needs. All elements of our business are designed to minimize client hardware concerns. Our intention is to grow organically and, on an opportunistic basis, examine those acquisition prospects that will enable us to leverage our existing assets and enhance growth and financial results. Our Customers Our customer base is comprised primarily of North American companies, who desire to have their hardware maintained and repaired by an outsourced third party provider. Our most significant hardware maintenance and repair outsourcing services customers have been financial institutions, retailers, government agencies and OEMs, including Moneris Solutions Corporation, Fujitsu Transaction Solutions Inc. and Societe des loteries video du Quebec Inc. Suppliers Repair and replacement parts for our hardware maintenance and repair outsourcing services segment are purchased from a number of suppliers without dependence on any one supplier. Sales and Marketing Our primary source of revenue is contracted computer maintenance and technology support services. These contracts typically have a stipulated monthly fee over a fixed initial term, and continue thereafter unless canceled by either party. In addition, we enter into per-incident contracts with customers. Per-incident contracts can cover a range of services for computer maintenance or support services or can be for a specific service. Another form of per-incident service revenue is time and material billings for services provided on an as needed basis, principally for maintenance and repair. We also derive revenue from the repair of hardware and components at our logistics services and depot repair facilities. Pricing of these services is based on various factors, including equipment failure rates and costs of parts and labor. We customize our contracts to the customer, in general, based upon the nature of the customer’s requirements, the term of the contract and the services which are provided. Revenue is recognized upon the completion of services performed on a per-incident basis and ratably for contracts under which we charge a monthly fee. We market our services directly to prospective customers through our own sales personnel. As contracts are typically for multi-year terms and involve high volumes of equipment usually in various locations, the sales cycle typically covers several months for larger contracts. Larger customers will frequently establish a bid process whereby we, along with other potential suppliers, will respond to requests for proposals in order to be selected as the supplier and enter the negotiation phase to finalize a contract. Competition Competition for our service offerings is significant and similar offerings are available from many other service providers, including some OEMs that maintain their own internal service organization. Certain of our competitors are larger and have greater financial, technical and other resources. Employees As of December 31, 2004, we employed approximately 750 full time employees in our hardware maintenance and repair outsourcing services segment. |
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Our employees are not represented by any collective bargaining unit and we have never experienced a work stoppage. We believe that our employee relations are good. Financial Information About Segments and Geographic Areas See note 21 of the notes to our consolidated financial statements, which are included in Item 8 – “Financial Statements and Supplementary Data.” Where You Can Find Additional Information We are required to furnish to our shareholders annual reports containing audited consolidated financial statements certified by our auditors in Canada and quarterly reports containing unaudited financial data for the first three quarters of each fiscal year following the end of the respective fiscal quarter. 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. You may request a copy of these filings at no cost, by writing or telephoning us at the following address or telephone number: |
| Optimal Group Inc. | |
| 3500 de Maisonneuve Boulevard West | |
| Suite 1700 | |
| Montreal, Quebec, H3Z 3C1 |
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We file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K with the Securities and Exchange Commission. You may read and copy any materials we file with the Securities and Exchange Commission at the Commission’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. You may obtain information on the hours of operation of the Securities and Exchange Commission’s Public Reference Room by calling the Commission at 1-800-SEC-0330. The Securities and Exchange Commission maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the Commission. Such reports and all amendments to such reports regarding the Company are available free of charge or through the Company’s website, www.optimalgrp.com, as soon as reasonably practicable after such reports are electronically filed with the Securities and Exchange Commission. Information contained in or otherwise accessed through our website does not form part of this Report. All such references to our website are inactive textual references only. |
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Item 2. DESCRIPTION OF PROPERTIES Facilities Our corporate headquarters are located in approximately 6,000 square feet of leased space at 3500 de Maisonneuve Blvd West, Suite 1700, Montreal, Quebec under a lease that expires on October 30, 2010. Our payments business segment’s head office is located in approximately 38,000 square feet of leased space at 3500 de Maisonneuve Blvd West, Montreal, Quebec, under a lease that expires on October 30, 2010. Our payments business segment also has a development office in Hull, Quebec, and sales offices in Markham, Ontario, Houston, Texas, Bloomfield Hills, Michigan, Hartland, Wisconsin, Miami, Florida and Cambridge, England. Our hardware maintenance and repair outsourcing services business segment is headquartered at 7350 Trans Canada, Montreal, Quebec in a leased facility of approximately 110,000 square feet, which includes a repair center, bring in center and administrative offices under a lease which expires on October 31, 2010. We also have a repair and logistics facility located in approximately 66,000 square feet of leased space in Santa Ana, California, under a lease that expires on September 30, 2006. Other repair facilities are situated in Toronto, Ontario and Calgary, Alberta. We also maintain parts storage facilities in 16 states and 9 Canadian provinces. Additional hub facilities may be opened and existing hub facilities may be expanded, in the United States and Canada, to the extent required to support current and future installations and service. Item 3. LEGAL PROCEEDINGS Legal Proceedings We received a demand letter in 1999, and again in February 2001 from the same party, alleging a patent infringement related to the U-Scan® self-checkout business that we were operating at that time. In March 2003, this party sent a third demand letter to us alleging infringement of additional patents. Although, after consultation with counsel, we believe that this claimant should not prevail if a lawsuit is brought to assert its claims and that the assertion of 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 U-Scan ® self-checkout system infringes upon such claimant’s rights. We sold our self-checkout business on April 8, 2004, and no longer market or sell the U-Scan ® self-checkout system. Nevertheless, we remain responsible for this claim. In connection with the sale of our U-Scan® self-checkout business on April 8, 2004 to Fujitsu Transaction Solutions Inc., orders were obtained from the Superior Court of Quebec permitting us to submit the sale to Fujitsu to our shareholders for approval in lieu of the originally proposed sale to NCR Corporation. NCR appealed these decisions in May 2004, but has since done nothing to advance its appeals. Although we believe that these appeals, if pursued by NCR, will not prevail, no assurance can be given that the Court of Appeal of Quebec would not overturn the Superior Court’s decisions. Should NCR pursue and succeed in its appeal, it could result in a material adverse consequence to us. NCR has also delivered a notice of dispute under its now terminated purchase agreement alleging a breach by us of the non-solicitation provisions of that agreement. We believe that such allegations are without merit and intend to vigorously defend ourselves in any arbitration proceedings that may ensue. We believe that, even if NCR were successful in any such arbitration proceedings, it would not result in any material adverse consequence to us. On March 11, 2005 we received a letter from Fujitsu claiming recovery of expenses allegedly incurred and forecast by Fujitsu to be incurred in relation to the operation of our former U-Scan self-checkout business. We are reviewing the claim with counsel and have not yet formed an opinion as to its merit or materiality. 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. |
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Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER |
| (a) | Market Information | |
| Our common shares trade on the Nasdaq National Market under the symbol “OPMR.” The following table sets forth the range of high and low bid prices for our common shares as reported by the Nasdaq Stock Market. These quotations reflect inter-dealer prices without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. | ||
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| 2004 | ||||||
| 4th Quarter | 12.32 | 8.99 | ||||
| 3rd Quarter | 9.35 | 6.55 | ||||
| 2ndQuarter | 7.95 | 6.57 | ||||
| 1stQuarter | 9.20 | 7.20 | ||||
| 2003 | ||||||
| 4th Quarter | 9.00 | 7.00 | ||||
| 3rd Quarter | 9.67 | 6.30 | ||||
| 2ndQuarter | 8.35 | 5.75 | ||||
| 1stQuarter | 6.50 | 5.67 | ||||
| (b) | Holders | |
| At February 28, 2005, there were 610 stockholders of record of our common shares. | ||
| (c) | Dividends |
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Our policy is to retain all earnings, if any are realized, for the development and growth of our business. We have never declared or paid cash dividends on our common shares and we do not anticipate paying cash dividends in the foreseeable future. Any determination to pay dividends will be at the discretion of our Board of Directors and will depend upon our financial condition, results of operations, capital requirements, limitations contained in loan agreements, if any, and such other factors as our Board of Directors deems relevant. During fiscal 2004, we issued 31,724 common shares as a result of the exercise of warrants. The proceeds of approximately $0.2 million will be used for general corporate purposes. The holders of the warrants were not located in the United States and were not a “U.S. Person” within the meaning of Regulation S, and, accordingly, the issuance of common shares pursuant to the exercise of the warrants was not subject to the registration requirements of the Securities Act of 1933. We did not repurchase any of our common shares during fiscal 2004. |
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Item 6. SELECTED FINANCIAL AND OTHER DATA The following selected financial data as of December 31, 2004 and 2003 and for the years ended December 31, 2004, 2003 and 2002 are derived from and are qualified by reference to our audited consolidated financial statements, which are included in Item 8—“Financial Statements and Supplementary Data.” The following selected financial data as of December 31, 2002, 2001 and 2000 and for the years ended December 31, 2001 and 2000 are derived from our audited financial statements, which are not included herein, as adjusted to present the results of operations of the U-Scan® self-checkout business as discontinued operations. The data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our consolidated financial statements, the related notes and the other financial information included elsewhere in this Form 10-K. Our consolidated financial statements are prepared on the basis of Canadian generally accepted accounting principles (“GAAP”), which is different in some regards from U.S. GAAP. For a description of the material differences between Canadian GAAP and U.S. GAAP in regard to our consolidated financial statements, see note 25 of the notes to our consolidated financial statements, which are included in Item 8—“Financial Statements and Supplementary Data.” |
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| 2004 (1) | 2003 | 2002 | 2001 | 2000 | ||||||||||||
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| Audited | | | Unaudited | ||||||||||||||
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| Consolidated Statement of Operations Data: | ||||||||||||||||
| Revenues | $ | 99,397 | $ | 15,666 | $ | 8,631 | $ | 5,000 | $ | — | ||||||
| Transaction processing and service costs | 58,443 | 10,872 | 6,152 | 3,811 | — | |||||||||||
| Inventory write-downs pertaining to service costs | 2,931 | — | — | — | — | |||||||||||
| Amortization of intangibles pertaining to transaction processing and service costs | 2,844 | 299 | 157 | 168 | — | |||||||||||
| Selling, general and administrative | 32,433 | 11,419 | 7,900 | 7,127 | 3,976 | |||||||||||
| Stock-based compensation pertaining to selling, general and administrative expenses(2) |
5,736 | — | — | — | — | |||||||||||
| Research and development | 1,511 | — | — | — | — | |||||||||||
| Operating leases | 3,629 | 970 | 520 | 322 | — | |||||||||||
| Restructuring costs | 1,325 | 109 | — | — | — | |||||||||||
| Amortization of property and equipment | 2,257 | 606 | 430 | 128 | — | |||||||||||
| Foreign exchange (gain) loss | (1,014 | ) | 333 | 6 | 90 | (1,507 | ) | |||||||||
| Investment income | (1,599 | ) | (981 | ) | (1,817 | ) | (3,148 | ) | (3,897 | ) | ||||||
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| (Loss) earnings from continuing operations before income taxes | (9,099 | ) | (7,961 | ) | (4,717 | ) | (3,498 | ) | 1,428 | |||||||
| Income tax (recovery) | 1,188 | (3,215 | ) | (1,676 | ) | — | 546 | |||||||||
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| Net (loss) earnings from continuing operations | (10,287 | ) | (4,746 | ) | (3,041 | ) | (3,498 | ) | 882 | |||||||
| Earnings (loss) from discontinued operations, net of income taxes | (3,130 | ) | (1,422 | ) | (2,286 | ) | 12,804 | 3,914 | ||||||||
| Gain on disposal of net assets from discontinued operations, net of income taxes |
(4,164 | ) | — | — | — | — | ||||||||||
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| Net (loss) earnings | $ | (9,253 | ) | $ | (6,168 | ) | $ | (5,327 | ) | $ | 9,306 | $ | 4,796 | |||
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| Weighted average number of common shares outstanding (thousands) |
20,290 | 14,936 | 15,059 | 14,705 | 13,104 | |||||||||||
| Weighted average diluted number of common shares | ||||||||||||||||
| outstanding (thousands) | 20,426 | 14,937 | 15,101 | 15,573 | 14,499 | |||||||||||
| Basic net (loss) earnings per common share | $ | (0.46 | ) | $ | (0.41 | ) | $ | (0.35 | ) | $ | 0.63 | $ | 0.37 | |||
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| Diluted net (loss) earnings per common share(3) | $ | (0.46 | ) | $ | (0.41 | ) | $ | (0.35 | ) | $ | 0.60 | $ | 0.33 | |||
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11 |
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Balance Sheet Data: |
December 31, | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
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| 2004 (1) | 2003 | 2002 | 2001 | 2000 | ||||||||||||
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| Audited | | | Unaudited | ||||||||||||||
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| (U.S. dollars, in thousands) | ||||||||||||||||
| Cash, cash equivalents, short-term investments and settlement assets | $ | 165,525 | $ | 78,514 | $ | 85,762 | $ | 104,104 | $ | 76,149 | ||||||
| Cash and short-term investments held as reserves and in escrow | 24,379 | — | — | — | — | |||||||||||
| Working capital (excluding cash and short-term investments held as reserves and in escrow) |
65,103 | 92,745 | 108,650 | 124,550 | 100,030 | |||||||||||
| Total assets | 295,244 | 135,543 | 129,691 | 147,691 | 111,273 | |||||||||||
| Bank indebtedness | 8,301 | 10,726 | — | — | — | |||||||||||
| Customer reserves and security deposits | 77,574 | — | — | — | — | |||||||||||
| Shareholders’ equity | 176,681 | 113,293 | 119,461 | 133,473 | 104,746 | |||||||||||
|
U.S. GAAP Financial Data: |
Year ended December 31, | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
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| 2004 (1) | 2003 | 2002 | 2001 | 2000 | ||||||||||||
| Audited | | | Unaudited | ||||||||||||||
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| (U.S. dollars, in thousands except per share data) | ||||||||||||||||
| Revenues | $ | 99,397 | $ | 15,666 | $ | 8,631 | $ | 5,000 | $ | — | ||||||
| Net (loss) earnings | (9,253 | ) | (6,168 | ) | 4,451 | (23,294 | ) | < | ||||||||