##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2009
 Commission file number 0-28572.
 
 OPTIMAL GROUP INC.
  
 Canada
    
    98-0160833(State or other jurisdiction
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification No.)
 
 3500 de Maisonneuve Blvd. West, Suite 800,
    
    (514) 738-8885Montreal, Quebec, Canada, H3Z 3C1(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 Each Class
    
    Name of Each Exchange on Which RegisteredClass A shares, no par value
    
    Nasdaq Stock Market
 
 Securities registered pursuant to Section 12(g) of the Act:
None
 
 o þ
 o þ
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 þ
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##### 



TABLE OF CONTENTS
 PagePART IITEM 1. BUSINESS
    
    
    4ITEM 1A. RISK FACTORS
    
    
    11ITEM 1B. UNRESOLVED STAFF COMMENTS
    
    
    20ITEM 2. PROPERTIES
    
    
    20ITEM 3. LEGAL PROCEEDINGS
    
    
    20ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    20PART IIITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
    
    
    21ITEM 6. SELECTED FINANCIAL DATA
    
    
    22ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
    
    
    23ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
    
    
    37ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    38ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
    
    
    91ITEM 9A. CONTROLS AND PROCEDURES
    
    
    91ITEM 9B. OTHER INFORMATION
    
    
    91PART IIIITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
    
    
    92ITEM 11. EXECUTIVE COMPENSATION
    
    
    95ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
    
    
    99ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
AND DIRECTOR INDEPENDENCE
    
    
    100ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
    
    
    101PART IVITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
    
    
    102EX-3.1EX-21EX-23.1EX-31.1EX-31.2EX-32.1EX-32.2
   2




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##### Table of Contents



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, references to our common
shares are to our Class A shares and all references to our consolidated financial statements
are to our audited consolidated financial statements, which are included in Item 8. Financial
Statements and Supplementary Data.
  Cautionary Statements Regarding Forward-Looking Statements
  
    
    our ability to continue as a going concern;
 
    
    general economic, legal and business conditions in the markets we serve;
 
    
    our existing cash and cash equivalents could prove to be inadequate to meet our
funding requirements;
 
    
    our ability to continue to satisfy Nasdaqs conditions for continued listing of our
common shares on The NASDAQ Global Market;
 
    
    our ability to complete, integrate and benefit from acquisitions, divestitures,
joint ventures and strategic alliances;
 
    
    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;
 
    
    increased competition;
 
    
    our ability to protect our intellectual property;
 
    
    currency exchange rate fluctuations;
 
    
    the price and supply of raw materials used to manufacture WowWees products;
 
    
    economic, social and political conditions in China, where WowWees products are
manufactured;
 
    
    existing and future government regulations and disputes with governmental
authorities;
    
    product liability claims and product recalls;
    
    litigation;
 3




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
    
    our ability to retain key personnel;
    
    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 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; and
 
    
    the other risks, uncertainties, trends and other factors discussed under the
headings Item 7. Managements Discussion and Analysis of Financial Condition and
Results of Operations, Item 1A. Risk Factors and Item 1. Business and elsewhere in
this annual report.
    
 PART I
 
 ITEM 1.
    
    BUSINESS
 Company Overview
   4




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Our Corporate Organization
  WowWee
 Our Products
   
    
    WowWee Robotics
 
    
    WowWee Alive
 
    
    WowWee Entertainment
 
    
    Think Wow Toys
 
    
    WowWee Technologies
 WowWee Robotics
  
    
    Robosapien, a robotic humanoid
 
    
    Roboraptor, a robotic dinosaur
 
    
    Tri-bot, a quick-moving, talkative, interactive robot
 
    
    Roborover, a tread-based, talking, roving explorer robot complete with sensor-based
LED headlights
  
    
    Roboscooper, a six wheeled, animated recycling robot with scooper hands who
detects and picks up small household objects and deposits them in his flatbed
   5




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WowWee Alive
            WowWee Entertainment
  The 2010 line will include guitars, drums, amplifiers and guitar straps.
 Think Wow Toys
     6




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WowWee Technologies
  Our Competitive Strengths
    Our Business Strategy
  
    
    expanding sales and distribution through a broadening of the sales channels,
particularly outside North America;
 
    
    shifting reliance on an international distributor network to direct sales and
distribution;
 
    
    refining product design, development and production capabilities to produce a
broader assortment of products at varying price points;
 
    
    adjusting and smoothing out the seasonality of revenues
   7




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Our Customers
  
    
    Best Buy
 
    
    Costco
 
    
    Home Shopping
 
    
    J.C. Penney
 
    
    Macys
 
    
    QVC
 
    
    Radio Shack
 
    
    Sams Club
 
    
    Sears/K-Mart
 
    
    Target
 
    
    Toys R Us
 
    
    Wal-Mart
 Manufacturing
     Suppliers
  Sales, Marketing and Distribution
  8




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Research and Development; Product Development
 
     9




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Government Regulation
  Competition
  Intellectual Property
   Employees
 
 Financial Information About Segments and Geographic Areas
  Where You Can Find Additional Information
  10




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http://www.sec.gov www.optimalgrp.com
 
 ITEM 1A.
    
    RISK FACTORS
 An investment in our common shares involves a high degree of risk. You should carefully
consider the risks described below before making an investment decision. Our business, financial
condition and results of operations could be materially and adversely affected by any of these
risks. The trading price of our common shares could decline due to any of these risks or other
factors, and you may lose all or part of your investment. The risks described below are those that
we currently believe may materially affect us.
 We may be unable to continue as a going concern.
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If the current global economic conditions continue to deteriorate and the current financial crisis
deepens, WowWees business and our financial results may continue to be adversely affected.
 .
 We may be subject to litigation from the Internet gambling merchants that used our former payments
processing business for their U.S. Internet gambling business activities seeking to force us to pay
to them related processing reserve account balances.
  12




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Liquidity problems or bankruptcy of WowWees key customers could have a material adverse effect on
WowWees business, our financial condition and our results of operations.
  If the bid price for our common stock fall below $1.00 per share, we may not be able to maintain
our listing on the NASDAQ Global Market, which would subject the trading of our common share to the
SECs penny stock rules and would decrease the liquidity of our common shares.
   The obligations of United Bank Card Inc. under the Purchase and Sale Option Agreement among Optimal
Payments Corp., United Bank Card, Inc. and Jared Isaacman, dated as of February 2, 2009, are
unsecured and there is a risk that we will not receive payment in full of the purchase price
payable thereunder.
  13




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Our business depends upon the services of key personnel.
   We may be unable to find suitable acquisition candidates and we may not be able to successfully
integrate businesses we acquire into our operations.
  
    
    the time and expense associated with identifying and evaluating an acquisition,
 
    
    the diversion of managements attention from day-to-day operations,
 
    
    the difficulty in integrating widely dispersed operations with distinct corporate
cultures,
 
    
    the potential loss of key employees of the acquired business,
 
    
    the difficulty of incorporating acquired technologies successfully,
 
    
    the potential impairment of relationships with employees, customers and strategic
partners, and
 
    
    the inability to maintain uniform standards, controls, procedures and policies.
  We are subject to the risk that a taxation authority could challenge certain filing positions we
have taken, and that a successful challenge could require us to pay significant additional taxes.
  We are subject to exchange rate fluctuations between the U.S. dollar and the Canadian dollar and
Euros.
  Our operating strategy for WowWee might not succeed and the anticipated benefits to us from our
acquisition of WowWee might not be realized.
  
    
    Expanding sales and distribution through a broadening of WowWees sales channels,
particularly outside North America in emerging markets;
 14




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
    
    Expanding product design, development and production capabilities to produce an
increased number of products at varying price points;
 
    
    Broadening development initiatives into products that combine computer connectivity,
utility and entertainment; and
 
    
    Embarking on branded entertainment initiatives, licensing, publishing and
merchandising; and
  If WowWee does not satisfy consumer preferences our results of operations may be adversely
affected.
  WowWees business is seasonal and its annual operating results depend, in large part, upon the
relatively brief holiday season in the fourth quarter of the year.
  Tighter inventory management by retailers resulting in shorter lead times for production and
possible shipping disruptions during peak demand times may adversely affect WowWees ability to
deliver its products in time to meet retailer demands.
  WowWees sales are concentrated among a relatively small number of major retailer customers, which
exposes WowWee to any financial difficulties or changes in purchasing preferences or policies of
these customers.
   All of WowWees products are manufactured in China and we are subject to the risk that political
developments, including currency revaluation and trade relations between China and the markets in
which WowWees products are sold, could increase the costs of producing and delay or prevent
shipping such products.
  15




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A reduction or interruption in the supply of raw materials, parts and components or a significant
increase in the price of supplies used to produce WowWees products could negatively affect
WowWees gross profit margins.
  As a developer and supplier of consumer products, WowWee is subject to various government
regulations, violation of which could subject us to sanctions.
  WowWee could be the subject of future product liability suits or product recalls, which could harm
WowWee.
  Failure by WowWee to protect its proprietary intellectual property and information could have a
material adverse effect on WowWee, our financial condition and results of operations.
  Optimal Payments is at risk of loss due to fraud, disputes and merchant insolvency
  16




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Optimal Payments may not be able to safeguard against security and privacy breaches in its
electronic transactions.
   
    
    expose Optimal Payments to liability and to potentially costly litigation;
 
    
    cause Optimal Payments to incur expenses relating to the remediation of these
breaches; and
 
    
    cause Optimal Payments customers to lose confidence in its services, harm its
reputation, and deter customers from using Optimal Payments services.
   Optimal Payments payments systems might be used for illegal or improper purposes.
 
 Optimal Payments must comply with credit card association rules and practices, which could impose
additional costs and burdens on its payments business
  17




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The failure of Optimal Payments systems, the systems of third parties or the Internet could
negatively impact its business and harm its reputation for reliability.
  If Optimal Payments relationships with its banking partner deteriorates, its ability to process
transactions could be impaired or halted
  Optimal Payments operates in a competitive market for its services
   Optimal Payments relies upon non-exclusive arrangements with independent sales agents to acquire
and retain its customers
  Optimal Payments business is subject to fluctuations in general business conditions.
   18




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The legal status of online gaming is uncertain in some of the jurisdictions in which Optimal
Payments has provided settlement processing services for online gaming activities. Future
enforcement proceedings may subject us to substantial penalties. Reports of enforcement proceedings
that are unfavorable to Optimal Payments or to its customers or suppliers may adversely affect the
trading price of our common shares.
  Optimal Payments status under certain financial services regulations is unclear.
  We have a material amount of intangible assets which, if they become impaired, would result in a
reduction in our net income.
   We may be subject to additional litigation stemming from our operation of the U-scan self-checkout
business.
 U-Scan
 19




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ITEM 1B.
    
    UNRESOLVED STAFF COMMENTS
  
 ITEM 2.
    
    PROPERTIES
 Facilities
 th st
   
 ITEM 3.
    
    LEGAL PROCEEDINGS
 Legal Proceedings
    
 ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  20




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PART II
 
 ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
 Market Information
  Nasdaq Global Market$ High
    
    $ Low20094th Quarter
    
    
    3.59
    
    
    
    1.563rd Quarter
    
    
    3.80
    
    
    
    1.602nd Quarter
    
    
    3.85
    
    
    
    1.351st Quarter
    
    
    4.40
    
    
    
    1.1220084th Quarter
    
    
    9.65
    
    
    
    2.163rd Quarter
    
    
    13.70
    
    
    
    8.302nd Quarter
    
    
    17.10
    
    
    
    10.451st Quarter
    
    
    23.30
    
    
    
    13.75
 Holders
  Dividends
  21




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Performance Graph
  
 Dec-04(1)
    
    
    Dec-05(1)
    
    
    Dec-06(1)
    
    
    Dec-07(1)
    
    
    Dec-08(1)
    
    
    Dec-09Optimal Group Inc. common shares
    
    
    
    100.00
    
    
    
    
    171.99
    
    
    
    
    80.81
    
    
    
    
    35.23
    
    
    
    
    4.07
    
    
    
    
    3.23Nasdaq Composite Index
    
    
    
    100.00
    
    
    
    
    101.37
    
    
    
    
    111.03
    
    
    
    
    121.92
    
    
    
    
    72.49
    
    
    
    
    104.31
 (1)
    
    December 31, 2004 to December 31, 2008 have been restated to reflect the one for five stock
split in August 2009. Purchases of Equity Securities
  
 ITEM 6.
    
    SELECTED FINANCIAL AND OTHER DATA
  22




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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    Overview
     23




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Matters Arising Subsequent to December 31, 2009
   WowWee
  24




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Seasonality
   25




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Critical Accounting Policies and Estimates
  Basis of Presentation and Going Concern
       26




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Goodwill and Other Intangibles
         Allowance for Doubtful Accounts
  27




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Revenue Recognition
  Reserve for Inventory Obsolescence
    Income Taxes
   Stock-based Compensation
  28




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Contingent liabilities
      Recent Accounting Pronouncements
 (a)
    
    Accounting Framework
   29




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(b)
    
    New Accounting PoliciesSFAS No. 165  Subsequent Events
 Subsequent
Events, Subsequent Events
 SFAS No. 141R  Business combinations
 Business Combinations, Business Combinations
 SFAS No. 160  Non-controlling interest in consolidated financial statements
 Non-controlling Interest in
Consolidated Financial Statements, Consolidations
   SFAS No. 161  Disclosures about derivative instruments and hedging activities, an amendment
to FASB Statement No. 133
 Disclosures about derivative
instruments and hedging activities, an amendment to FASB Statement No. 133 derivatives and hedging
 30




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SFAS No. 162  The hierarchy of generally accepted accounting principles and SFAS 163 -
Accounting for financial guarantee insurance contracts
 The hierarchy of generally accepted
accounting principles generally
accepted accounting principles
 SFAS No. 168  The FASB Accounting Standards Codification and Hierarchy of Generally
Accepted Accounting Principles
 SFAS No. 168, The FASB Accounting Standards Codification
and Hierarchy of Generally Accepted Accounting Principles Generally Accepted Accounting Principles.
 SFAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or
the Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly
 Determining Fair Value When the
Volume and Level of Activity for the Asset or the Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly Fair Value Measurements and Disclosures.
 SFAS 115-2 and SFAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments
 Recognition and
Presentation of Other-Than-Temporary Impairments , Investments
 Goodwill and Other Intangible Assets; Research and Development Costs
 Goodwill and Intangible Assets Goodwill and Other Intangible Assets Research and Development Costs
 EIC-173  Credit Risk and the Fair Value of Financial Assets and Financial Liabilities
 Credit Risk and the Fair Value of
Financial Assets and Financial Liabilities,
 31




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(c)
    
    Future Accounting Pronouncements
  SFAS No. 166, Accounting for Transfers of Financial
Assets Transfers and Servicing Accounting for the Transfers and Servicing of Financial
Assets and the Extinguishments of Liabilities,
 International Financial Reporting StandardsThe Accounting Standards Board of the Canadian Institute of Chartered Accountants (CICA)
has announced its decision to require all publicly accountable enterprises to report under
International Financial Reporting Standards (IFRS) for the years beginning on or after
January 1, 2011. However, we are a domestic registrant in the U.S. and therefore file our
financial statements in accordance with U.S. GAAP. As such, we will not report under IFRS by
2011 and will continue to report under U.S. GAAP. The SEC staff released a work plan to
evaluate the impact that IFRS will have on the U.S. financial reporting system. In 2011,
after the SEC staffs fact gathering is completed, as outlined in the work plan, and certain
convergence projects are successfully completed, the SEC will consider whether, and if so,
how to incorporate IFRS into the U.S. financial reporting system.
 Financial Condition
     32




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(U.S. dollars, in thousands)
    
    2009
    
    2008Cash and cash equivalents
    
    $
    19,915
    
    
    $
    32,849Short-term investments
    
    
    
    
    
    
    6,29619,915
    
    
    
    39,145Less:Bank indebtedness
    
    
    (8,848
    )
    
    
    (11,547
    )Net
    
    $
    11,067
    
    
    $
    27,598
  Basis of Presentation and Going Concern
     33




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Results of Operations
 2009 Compared with 2008 (excluding amounts classified as discontinued operations)
          34




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Liquidity and Capital Resources
  35




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36




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
    
    Business acquisition in 2008
 Decreases:
 
    
    Proceeds from disposition of payment processing business
    
    Purchase of property and equipment
   
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  37




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 OPTIMAL GROUP INC.
   38




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KPMG LLP
    
    Telephone
    
    (514) 840-2100Chartered Accountants
    
    Fax
    
    (514) 840-2187600 de Maisonneuve Blvd. West
    
    Internet
    
    www.kpmg.caSuite 1500Tour KPMGMontréal, Quebec H3A 03A
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
       
    
 *
    
    CA Auditor permit no 20408




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OPTIMAL GROUP INC.
 
 Financial Statements
 Consolidated Balance Sheets
    
    
    41Consolidated Statements of Operations and Comprehensive Loss
    
    
    42Consolidated Statements of Shareholders Equity
    
    
    43Consolidated Statements of Cash Flows
    
    
    44Notes to Consolidated Financial Statements
    
    
    45
 40




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OPTIMAL GROUP INC.
 
  
  2009
    
    
    2008AssetsCurrent assets:Cash and cash equivalents
    
    $
    19,915
    
    
    $
    32,849Short-term investments (note 6)
    
    
    
    
    
    
    6,296Accounts and other receivables (note 7)
    
    
    14,573
    
    
    
    24,155Inventories (note 8)
    
    
    12,813
    
    
    
    19,364Prepaid expenses
    
    
    1,802
    
    
    
    1,817Current assets related to discontinued operations
    
    
    1,009
    
    
    
    4,37250,112
    
    
    
    88,853Balance of sale receivable (note 5 (b) (i))
    
    
    3,500
    
    
    
    Property and equipment (note 9)
    
    
    3,512
    
    
    
    4,219Intangible assets (note 10)
    
    
    18,821
    
    
    
    44,834Long-term assets related to discontinued operations
    
    
    147
    
    
    
    31,112$
    76,092
    
    
    $
    169,018Liabilities and Shareholders EquityCurrent liabilities:Bank indebtedness (note 11)
    
    $
    8,848
    
    
    $
    11,547Accounts payable and accrued liabilities (note 12)
    
    
    30,396
    
    
    
    34,497Accounts payable and accrued liabilities related to discontinued operations
    
    
    4,263
    
    
    
    5,569Current portion of long-term debt (note 13)
    
    
    179
    
    
    
    1,010Income taxes payable
    
    
    1,063
    
    
    
    2,225Deferred income taxes (note 18)
    
    
    
    
    
    
    83844,749
    
    
    
    55,686Deferred income taxes (note 18)
    
    
    6,298
    
    
    
    6,965Long-term debt (note 13)
    
    
    3,319
    
    
    
    2,005Long-term liabilities related to discontinued operations
    
    
    
    
    
    
    10,871Shareholders equity:Share capital
    
    
    252,488
    
    
    
    252,488Warrants
    
    
    2,696
    
    
    
    2,696Additional paid-in capital
    
    
    65,746
    
    
    
    64,173Deficit
    
    
    (296,187
    )
    
    
    (222,849
    )Accumulated other comprehensive loss
    
    
    (3,017
    )
    
    
    (3,017
    )21,726
    
    
    
    93,491Basis of presentation and going concern (note 2)Commitments, contingencies and guarantees (note 16)Subsequent events (note 27)$
    76,092
    
    
    $
    169,018
   /s/ HOLDEN L. OSTRIN
    
    Director
    
    /s/ NEIL S. WECHSLER
    
    Director
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OPTIMAL GROUP INC.
 
  
  2009
    
    
    2008Revenues
    
    $
    66,442
    
    
    $
    93,395Other revenues (note 24 (e))
    
    
    3,097
    
    
    
    29,308Expenses:Cost of sales
    
    
    59,334
    
    
    
    66,401Selling, general and administrative, excluding amortization and stock-based compensation
    
    
    38,896
    
    
    
    38,889Stock-based compensation pertaining to selling, general
and administrative (note 17)
    
    
    1,573
    
    
    
    3,339Research and development
    
    
    3,033
    
    
    
    2,931Operating leases
    
    
    2,014
    
    
    
    1,365Amortization (note 24 (g))
    
    
    12,893
    
    
    
    14,498Transaction processing costs
    
    
    
    
    
    
    26,218Impairment losses (note 10)
    
    
    16,419
    
    
    
    43,847Impairment of balance of sale receivable (note 5 (b) (i))
    
    
    6,504
    
    
    
    140,666
    
    
    
    197,488Loss from continuing operations before undernoted items
    
    
    (71,127
    )
    
    
    (74,785
    )Investment income
    
    
    1,197
    
    
    
    1,238Loss from continuing operations before income taxes
    
    
    (69,930
    )
    
    
    (73,547
    )Income tax recovery (note 18)
    
    
    2,180
    
    
    
    3,500Net loss from continuing operations
    
    
    (67,750
    )
    
    
    (70,047
    )Net loss from discontinued operations, net of income taxes
(note 5 (b))
    
    
    (5,588
    )
    
    
    (40,956
    )Net loss and comprehensive loss
    
    $
    (73,338
    )
    
    $
    (111,003
    )Weighted average number of shares:Basic and diluted
    
    
    5,148,735
    
    
    
    5,172,026(Loss) per share:Continuing operations:Basic and diluted
    
    $
    (13.16
    )
    
    $
    (13.54
    )Discontinued operations:Basic and diluted
    
    
    (1.08
    )
    
    
    (7.92
    )Net:Basic and diluted
    
    
    (14.24
    )
    
    
    (21.46
    )
  42




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OPTIMAL GROUP INC.
 
     Accu-mulatedAddi-
    
    
    
    
    
    
    othertional
    
    
    
    
    
    
    compre-Class A shares
    
    
    
    
    
    
    paid-in
    
    
    
    
    
    
    hensiveNumber
    
    
    Dollars
    
    
    Warrants
    
    
    capital
    
    
    Deficit
    
    
    loss
    
    
    TotalBalance, December 31, 2007
    
    
    5,196,630
    
    
    $
    254,454
    
    
    
    2,696
    
    
    $
    59,418
    
    
    $
    (111,846
    )
    
    $
    (3,017
    )
    
    $
    201,705Cancellation of shares pursuant
to stock buyback program (note
14)
    
    
    (48,185
    )
    
    
    (1,966
    )
    
    
    
    
    
    
    1,416
    
    
    
    
    
    
    
    
    
    
    
    (550
    )Stock-based compensation (note 17)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,339
    
    
    
    
    
    
    
    
    
    
    
    3,339Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (111,003
    )
    
    
    
    
    
    
    (111,003
    )Balance, December 31, 2008
    
    
    5,148,445
    
    
    
    252,488
    
    
    
    2,696
    
    
    
    64,173
    
    
    
    (222,849
    )
    
    
    (3,017
    )
    
    
    93,491Shares issued pursuant to share
consolidation (note 14)
    
    
    290
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation (note 17)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,573
    
    
    
    
    
    
    
    
    
    
    
    1,573Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (73,338
    )
    
    
    
    
    
    
    (73,338
    )Balance, December 31, 2009
    
    
    5,148,735
    
    
    $
    252,488
    
    
    
    2,696
    
    
    $
    65,746
    
    
    $
    (296,187
    )
    
    $
    (3,017
    )
    
    $
    21,726
  43




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##### Table of Contents



OPTIMAL GROUP INC.
 
  
  2009
    
    
    2008Cash flows (used in) from operating activities:Net loss
    
    $
    (73,338
    )
    
    $
    (111,003
    )Add: loss from discontinued operations
    
    
    (5,588
    )
    
    
    (40,956
    )Net loss from continuing operations
    
    
    (67,750
    )
    
    
    (70,047
    )Adjustments for items not affecting cash:Amortization
    
    
    12,893
    
    
    
    14,498Deferred income taxes
    
    
    (2,180
    )
    
    
    (3,526
    )Impairment losses
    
    
    22,923
    
    
    
    43,847Stock-based compensation
    
    
    1,573
    
    
    
    3,339Foreign exchange
    
    
    (98
    )
    
    
    415Net change in operating assets and liabilities (note 24 (a))
    
    
    12,845
    
    
    
    (17,518
    )Operating cash flows from discontinued operations
    
    
    5,182
    
    
    
    5,783(14,612
    )
    
    
    (23,209
    )Cash flows (used in) from financing activities:(Decrease) increase in bank indebtedness
    
    
    (2,921
    )
    
    
    6,156Repayment of long-term debt
    
    
    (322
    )
    
    
    (79
    )Repurchase of Class A shares
    
    
    
    
    
    
    (550
    )(3,243
    )
    
    
    5,527Cash flows (used in) from investing activities:Purchase of property and equipment
    
    
    (2,212
    )
    
    
    (4,780
    )Other business acquisitions
    
    
    (944
    )
    
    
    (6,557
    )Net proceeds from maturity of short-term investments
    
    
    6,296
    
    
    
    6,181Proceeds from sale of property and equipment
    
    
    
    
    
    
    1,834Proceeds from disposal of payment processing businesses (note 5 (b))
    
    
    1,035
    
    
    
    8,500Proceeds from balance of sale receivable
    
    
    469
    
    
    
    Transaction costs related to business acquisitions and disposals
    
    
    (126
    )
    
    
    (583
    )Investing cash flows used in discontinued operations
    
    
    
    
    
    
    (361
    )4,518
    
    
    
    4,234Effect of exchange rate changes on cash and cash equivalents during the year
    
    
    403
    
    
    
    (896
    )Net decrease in cash and cash equivalents
    
    
    (12,934
    )
    
    
    (14,344
    )Cash and cash equivalents, beginning of year
    
    
    32,849
    
    
    
    47,193Cash and cash equivalents, end of year
    
    $
    19,915
    
    
    $
    32,849
   44




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##### Table of Contents



OPTIMAL GROUP INC.
 
  
  1.
    
    Nature of operations:
 Optimal Group Inc. (the Company) is incorporated under the Canada Business Corporations Act.
The Companys principal activities are to design, develop, market and distribute innovative
high-tech consumer robotic, toy and entertainment products and to provide payment processing
services.
 2.
    
    Basis of presentation and going concern:
 The accompanying consolidated financial statements have been prepared on a going concern basis
in accordance with U.S. generally accepted accounting principles (U.S. GAAP). The
going-concern basis of presentation assumes that the Company will continue its operations for
the foreseeable future and be able to realize its assets and discharge its liabilities and
commitments in the normal course of business.The Company incurred a net loss from continuing operations of $67,750 and a net cash outflows
from operating activities excluding discontinued operations of $19,794. The recent banking and
financial crisis and the global economic recession have created an extremely challenging retail
and economic environment in the United States, Canada and Europe, which has negatively impacted
the Companys operating performance and potentially that of our customers and suppliers. The
Companys ability to continue as a going concern depends on the success of managements plans to
overcome these conditions, ultimately achieve positive cash flows from operations and become
profitable.The Company currently funds the majority of its operations from its cash and cash equivalents
and bank indebtedness. The majority of its bank indebtedness is based on qualifying accounts
receivable and is otherwise not fully available to be drawn on during seasonal low sale periods
due to the lack of accounts receivable available at the time. The Company has been unable to
secure any new sources of financing not secured by accounts receivable which will be required
during low seasonal sale periods of the year. The Companys balance of cash and cash equivalents
generally decreases during the second and third quarters of the year, as cash is used to fund
product development and production, and increases in the fourth and first quarters in connection
with the shipping and collection periods.If operating performance continues its current trend, the Company will require financing in
order to meet its cash flow requirements and fund its operations especially during the second
and third quarters of 2010. However, additional financing may not be available in amounts or on
terms that are acceptable to the Company. Without financing, the Company may be unable to fund
product development and the production of inventory required for sales in the third and fourth
quarters and therefore will not be able to capitalize on potential future sales. Refer to note
27, Subsequent events, for the details of a take-over bid which is being supported by the
Company. If the Company is unable to obtain additional financing in the near term, it may be
required to curtail operations in order to offset the lack of available funding, which could
have a material adverse impact on the Company, and, consequently, there is a substantial doubt
about the Companys ability to continue as a going concern.
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##### Table of Contents



OPTIMAL GROUP INC.
  
  2.
    
    Basis of presentation and going concern (continued):
 The accompanying consolidated financial statements do not reflect adjustments that would be
necessary if the going concern basis was not appropriate. If the going concern basis was not
appropriate for these consolidated financial statements, then significant adjustments would be
necessary in the carrying value of assets and liabilities, the reported revenues and expenses,
and the balance sheet classifications used. The appropriateness of the going concern basis is
dependent upon, among other things, future profitable operations, the ability to negotiate new
sources of financing, and the ability to generate sufficient cash from operations and financing
arrangements to meet its obligations.The results of certain payment processing portfolios which were sold in 2009, as well as the
card-not-present and the Canadian card-present payment processing businesses sold in 2008,
are presented separately under discontinued operations in the consolidated statements of
operations and comprehensive loss for the current and prior periods. The balance sheet also
presents the assets and liabilities related to the discontinued operations separately for
current and prior years.The effect of the takeover transaction as described in note 27, Subsequent events, on the
Companys financial position and future cash flows was not considered in the preparation of the
consolidated financial statements for the year ended December 31, 2009.
 3.
    
    Changes in accounting policies:
 (a)
    
    Accounting framework:Effective January 1, 2009, the Company prepares its consolidated financial statements in
accordance with U.S. GAAP with reconciliation to Canadian generally accepted accounting
principles (Canadian GAAP) as described in note 25. The comparative periods have also been
prepared and presented pursuant to U.S. GAAP. Previously, the Companys accounting
principles conformed to Canadian GAAP and reconciled differences with U.S. GAAP through its
financial statement disclosures. There was no effect on the Companys results for 2009 and
2008 as a consequence of this change.(b)
    
    New accounting policies:SFAS No. 165  Subsequent events:The Company adopted Statement of Financial Accounting Standards (SFAS) No. 165, Subsequent
Events, which was primarily codified into the Financial Accounting Standards Board (FASB)
ASC Topic 855, Subsequent Events, which is effective for periods ended after June 15, 2009.
SFAS No. 165 establishes general standards for accounting for, and disclosure of, events
that occur after the balance sheet date but before financial statements are issued. SFAS No.
165 sets forth the period after the balance sheet date during which the management of a
reporting entity should evaluate events or transactions that may occur for potential
recognition in the financial statements, identifies the circumstances under which an entity
should recognize events or transactions occurring after the balance sheet date in its
financial statements, and the disclosures that should be made about events or transactions
that occur after the balance sheet date.
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##### Table of Contents



OPTIMAL GROUP INC.
  
  3.
    
    Changes in accounting policies (continued):
 (b)
    
    New accounting policies (continued):SFAS No. 141R  Business combinations:Effective January 1, 2009, the Company adopted SFAS No. 141R, Business Combinations,which
was primarily codified into FASB ASC Topic 805, Business Combinations, on a prospective
basis. The major changes to accounting for business combinations include the following: all
business acquisitions would be measured at fair value; the existing definition of a business
would be expanded; pre-acquisition contingencies would be measured at fair value; most
acquisition-related costs would be recognized as expenses as incurred (they would no longer
be part of the purchase consideration); obligations for contingent consideration would be
measured and recognized at fair value at the acquisition date; non-controlling interests
would be measured at fair value at the date of acquisition (i.e., 100% of the assets and
liabilities would be measured at fair value even when an acquisition is for less than 100%);
goodwill, if any, arising on a business combination reflects the excess of the fair value of
the acquiree, as a whole, over the net amount of the recognized identifiable assets acquired
and liabilities assumed, and would be allocated to the acquirer and the non-controlling
interest. The adoption of this standard did not have an impact on the Companys results as
there were no business acquisitions in the year ended December 31, 2009.SFAS No. 160  Non-controlling interest in consolidated financial statements:Effective January 1, 2009, the Company adopted SFAS No. 160, Non-controlling Interest in
Consolidated Financial Statements,which was primarily codified into FASB ASC Topic 810,
Consolidations. This statement specifies that non-controlling interests are to be treated as
a separate component of equity, not as a liability or other item outside of equity. Because
non-controlling interests are an element of equity, increases and decreases in the parents
ownership interest that leave control intact are accounted for as capital transactions
rather than as step acquisitions or generating dilution gains or losses. The carrying
amount of the non-controlling interests is adjusted to reflect the changes in ownership
interests, and any difference between the amount by which the non-controlling interests are
adjusted and the fair value of the consideration paid or received is recognized directly in
equity attributable to the controlling interests.This standard requires net income and comprehensive income to be displayed for both the
controlling and the non-controlling interests. Additional required disclosures and
reconciliations include a separate schedule that shows the effects of any transactions with
the non-controlling interest on the equity attributable to the controlling interests.This standard is applied prospectively to all non-controlling interests, including any that
arose before the effective date. The adoption of this standard did not have an impact on the
Companys results.
 47




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##### Table of Contents



OPTIMAL GROUP INC.
  
  3.
    
    Changes in accounting policies (continued):
 (b)
    
    New accounting policies (continued):SFAS No. 161  Disclosures about derivative instruments and hedging activities, an
amendment to FASB Statement No. 133:Effective January 1, 2009, the Company adopted SFAS No. 161, Disclosures About Derivative
Instruments and Hedging Activities, an Amendment to FASB Statement No. 133,which was
primarily codified into FASB ASC Topic 815, Derivatives and Hedging. This standard requires
qualitative disclosures about objectives and strategies for using derivatives, quantitative
disclosures about fair value amounts of gains and losses on derivative instruments, and
disclosures about credit-risk related contingent features on derivative agreements. The
adoption of this standard did not have an impact on the Companys disclosures.SFAS No. 162  The Hierarchy of Generally Accepted Accounting Principles and SFAS 163 -
Accounting for Financial Guarantee Insurance Contracts:Effective January 1, 2009, the Company adopted SFAS No. 162, The Hierarchy of Generally
Accepted Accounting Principles, which was primarily codified into FASB ASC Topic 105,
Generally Accepted Accounting Principles. The adoption of this standard did not have an
impact on the Companys results.SFAS No. 168  The FASB Accounting Standards Codification and Hierarchy of Generally
Accepted Accounting Principles:In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and
Hierarchy of Generally Accepted Accounting Principles, which was primarily codified into
FASB ASC Topic 105, Generally Accepted Accounting Principles. SFAS No. 168 replaces SFAS No.
162, The Hierarchy of Generally Accepted Accounting Principles, to establish the FASB
Accounting Standards Codification (Codification) as the source of authoritative accounting
principles recognized by the FASB to be applied by non-governmental entities in preparation
of financial statements in conformity with generally accepted accounting principles in the
United States of America. This standard is effective for interim and annual reporting
periods ended after September 15, 2009. The adoption of this standard did not have an impact
on the Companys results.
 48




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##### Table of Contents



OPTIMAL GROUP INC.
  
  3.
    
    Changes in accounting policies (continued):
 (b)
    
    New accounting policies (continued):FSP No. SFAS 157-4  Determining Fair Value When the Volume and Level of Activity for
the Asset or the Liability Have Significantly Decreased and Identifying Transactions That
Are Not Orderly:In April 2009, the FASB issued FSP No. SFAS 157-4, Determining Fair Value When the Volume
and Level of Activity for the Asset or the Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly,which was primarily codified into FASB ASC
Topic 820, Fair Value Measurements and Disclosures. FSP No. SFAS 157-4 amends SFAS No. 157
to provide additional guidance on (i) estimating fair value when the volume and level of
activity for an asset or liability have significantly decreased in relation to normal market
activity for the asset or liability, and (ii) circumstances that may indicate that a
transaction is not orderly. FSP No. SFAS 157-4 also requires additional disclosures about
fair value measurements in interim and annual reporting periods. FSP No. SFAS 157-4 is
effective for interim and annual reporting periods ending after June 15, 2009. The adoption
of FSP No. SFAS 157-4 did not have an impact on the Companys results.SFAS 115-2 and SFAS 124-2  Recognition and Presentation of Other-Than-Temporary
Impairments:In April 2009, the FASB issued FSP No. SFAS 115-2 and SFAS 124-2, Recognition and
Presentation of Other-Than-Temporary Impairments(FSP No. SFAS 115-2), which were
primarily codified into FASB ASC Topic 320,Investments. FSP No. SFAS 115-2 provides
additional guidance on the timing of impairment recognition and greater clarity about the
credit and non-credit components of impaired debt securities that are not expected to be
sold. FSP No. SFAS 115-2 also requires additional disclosures about impairments in interim
and annual reporting periods. FSP No. SFAS 115-2 is effective for interim and annual
reporting periods ended after June 15, 2009. The adoption of FSP No. SFAS 115-2 did not have
a material effect on the Companys results.
 49




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##### Table of Contents



OPTIMAL GROUP INC.
  
  3.
    
    Changes in accounting policies (continued):
 (c)
    
    Recent accounting pronouncements:In September 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial
Assets, which was primarily codified into FASB ASC Topic 860, Transfers and Servicing. SFAS
No. 166 amends SFAS No. 140, Accounting for the Transfers and Servicing of Financial Assets
and the Extinguishments of Liabilities, and seeks to improve the relevance and comparability
of the information that a reporting entity provides in its financial statements about
transfers of financial assets; the effects of the transfer on its financial position,
financial performance, and cash flows; and a transferors continuing involvement, if any, in
transferred financial assets. SFAS No. 166 eliminates the concept of a qualifying
special-purpose entity, creates more stringent conditions for reporting a transfer of a
portion of a financial asset as a sale, clarifies other sale-accounting criteria, and
changes the initial measurement of a transferors interest in transferred financial assets.
SFAS No. 166 is effective for interim and annual reporting periods beginning after November
15, 2009. The Company has not completed its evaluation, but does not expect the adoption of
SFAS No. 166 will have a material impact on its consolidated financial statements.The Accounting Standards Board of the Canadian Institute of Chartered Accountants (CICA)
has announced its decision to require all publicly accountable enterprises to report under
International Financial Reporting Standards (IFRS) for the years beginning on or after
January 1, 2011. However, the Company is a domestic registrant in the U.S. and files its
financial statements in accordance with U.S. GAAP. As such, the Company will not report
under IFRS by 2011 and will continue to report under U.S. GAAP. The SEC staff released a
work plan to evaluate the impact that IFRS will have on the U.S. financial reporting system.
In 2011, after the SEC staffs fact gathering is completed, as outlined in the work plan,
and certain convergence projects are successfully completed, the SEC will consider whether
and, if so, how to incorporate IFRS into the U.S. financial reporting system.
 4.
    
    Significant accounting policies:
 These consolidated financial statements have been prepared in accordance with U.S. GAAP. These
principles conform, in all material respects, with Canadian GAAP, except as described in note
25. The significant accounting policies of the Company are summarized as follows:
 (a)
    
    Principles of consolidation:These consolidated financial statements include the accounts of the Companys wholly-owned
subsidiaries. All intercompany balances and transactions have been eliminated on
consolidation.(b)
    
    Cash and cash equivalents:Cash and cash equivalents consist of cash on hand and balances with financial institutions
and highly liquid debt instruments with original terms to maturity of three months or less.
Cash and cash equivalents are recorded at fair value each period with changes recorded in
the statement of operations and comprehensive loss.
 50




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##### Table of Contents



OPTIMAL GROUP INC.
  
  4.
    
    Significant accounting policies (continued):
 (c)
    
    Short-term investments:Short-term investments include investments with maturities of less than one year and are
recorded at fair value each period. Changes in fair value on these available-for-sale assets
are recorded in other comprehensive income until the assets are sold or there is an
impairment in fair value of these assets which is other-than-temporary. In such cases, the
amounts are recorded in the statement of operations and comprehensive loss.(d)
    
    Derivatives:Derivatives are recorded as either assets or liabilities measured at their fair value unless
exempted from derivative treatment as a normal purchase and sale. Certain derivatives
embedded in other contracts must also be measured at fair value. All changes in the fair
value of derivatives are recognized in earnings unless specific hedge criteria are met,
which requires that a company must formally document, designate and assess the effectiveness
of transactions that receive hedge accounting. The Company has elected not to apply hedge
accounting.(e)
    
    Inventories:Inventories are measured at the lower of cost (weighted average cost) and net realizable
value.(f)
    
    Property and equipment:Property and equipment are recorded at cost. Amortization is provided for over the
estimated useful lives of the assets using the straight-line method at the following annual
rates:
 Computer equipment and software
    
    
    33% - 50
    %Equipment
    
    
    10% - 33
    %Moulds
    
    
    33% - 50
    %Leasehold improvements

    Lower of lease term and economic life
 51




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##### Table of Contents



OPTIMAL GROUP INC.
  
  4.
    
    Significant accounting policies (continued):
 (g)
    
    Goodwill and other intangible assets:Goodwill:Goodwill is the residual amount that results when the purchase price of an acquired business
exceeds the sum of the amounts allocated to the assets acquired, less liabilities assumed,
based on their fair values. Goodwill is allocated, as of the date of the business
combination, to the Companys reporting units that are expected to benefit from the
synergies of the business combination.Goodwill is not amortized but is tested for impairment annually, or more frequently, if
events or changes in circumstances indicate that the asset may be impaired. The impairment
test is carried out in two steps. In the first step, the carrying amount of the reporting
unit is compared with its fair value. When the fair value of a reporting unit exceeds its
carrying amount, goodwill of the reporting unit is considered not to be impaired, and the
second step of the impairment test is not required. The second step is performed when the
carrying amount of a reporting unit exceeds its fair value, in which case, the implied fair
value of the reporting units goodwill is compared with its carrying amount to measure the
impairment loss, if any. When the carrying amount of the reporting units goodwill exceeds
the implied fair value of goodwill, an impairment loss is recognized in an amount equal to
the excess and is presented as a separate line item on the consolidated statement of
operations. The Company currently has no intangible assets with infinite useful lives.Other intangible assets:Intangible assets acquired either individually or with a group of other assets are initially
recognized and measured at cost. The cost of a group of intangible assets, including those
acquired in a business combination that meet the specified criteria for recognition apart
from goodwill, is allocated to the individual assets based on their fair values.Intangible assets with finite useful lives are amortized using the straight-line method over
the following periods:
 Customer relationships and service agreements
    
    24 - 120 monthsISO/ISA relations
    
    84 monthsIntellectual property
    
    36 monthsTradename
    
    60 monthsOther
    
    36 months
 52




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##### Table of Contents



OPTIMAL GROUP INC.
  
  4.
    
    Significant accounting policies (continued):
 (g)
    
    Goodwill and other intangible assets (continued):Other intangible assets (continued):As at December 31, 2009, estimated amortization expense for each of the next five years is
expected to be as follows:
 2010
    
    $
    4,4352011
    
    
    4,4352012
    
    
    3,7932013
    
    
    1,2742014
    
    
    1,274
 Estimated future amortization expense is based on the amount of other intangible assets
recorded as of December 31, 2009. Actual amounts will increase or decrease if additional
amortizable intangible assets are acquired or disposed of, or become impaired.(h)
    
    Impairment of long-lived assets:Long-lived assets, consisting of property and equipment and intangible assets with finite
useful lives, are reviewed whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. An impairment is recognized for
long-lived assets when the carrying amount of an asset to be held and used exceeds the sum
of the undiscounted cash flows expected from its use and disposal; the impairment recognized
is measured as the amount by which the carrying amount of the asset exceeds its fair value.(i)
    
    Income taxes:The Company provides for income taxes using the asset and liability method of tax
allocation. Under this method, deferred income tax assets and liabilities are determined
based on deductible or taxable temporary differences between financial statement values and
tax values of assets and liabilities using enacted income tax rates expected to be in effect
for the year in which the differences are expected to reverse.The Company establishes a valuation allowance against future income tax assets if, based on
available information, it is more-likely-than-not that some or all of the future income tax
assets will not be realized.(j)
    
    Revenue recognition:Revenue from the sale of consumer robotic, toy and entertainment products is recognized when
(i) persuasive evidence of an arrangement exists; (ii) products are shipped to a customer
who assumes risk of loss; (iii) collection of the respective receivable is probable; and
(iv) the sales price is fixed or determinable. Accruals for customer discounts, rebates,
incentives and allowances are recorded as the related revenues are recognized as a reduction
of revenues.
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##### Table of Contents



OPTIMAL GROUP INC.
  
  4.
    
    Significant accounting policies (continued):
 (j)
    
    Revenue recognition (continued):Payment service revenues are generated primarily from fees charged to merchants for payment
processing services. Merchants are charged a discount fee or rate, which is based upon the
merchants monthly charge volume and risk profile, and this fee is calculated as a
percentage of the dollar amount of each transaction. Other payment service revenues are
derived from a variety of fixed transaction or service fees, including fees for monthly
minimum charge volume requirements, statement fees, annual fees and fees for other
miscellaneous services. Discount and other fees related to payment transactions are
recognized at the time the merchants transactions are processed. Revenues derived from
service fees are recognized at the time the service is performed.Where the Company is the primary party responsible for providing payment processing
services, revenue is recorded on a gross basis and amounts paid to the acquiring processing
suppliers are recorded as part of transaction processing expenses. Where the Company is not
the primary party in providing a merchant with payment processing services, the Company
records revenue net of amounts paid to the acquiring processing supplier.(k)
    
    Foreign currency translation:The functional currency and reporting currency of the Company is the U.S. dollar. Monetary
assets and liabilities denominated in currencies other than the U.S. dollar are translated
into U.S. dollars at the rates of exchange prevailing at the balance sheet dates. Other
assets and liabilities denominated in currencies other than the U.S. dollar are translated
into U.S. dollars at the rate of exchange prevailing when the assets were acquired or the
liabilities incurred. Revenue and expense transactions denominated in currencies other than
the U.S. dollar are translated into U.S. dollars at the average rate of exchange in effect
for the period during which the transaction occurred, except for amortization which is
translated into U.S. dollars at the rate of exchange in effect when the related transaction
occurred. Foreign exchange gains and losses are included in the determination of net loss.(l)
    
    Stock-based compensation:The fair value-based method is used to account for all transactions whereby goods and
services are received in exchange for stock-based compensation and other stock-based
payments. Under the fair value-based method, compensation cost is measured at fair value at
the date of grant and is expensed over the awards vesting periods, with a credit to
additional paid-in capital.(m)
    
    Research and development expenses:Research costs, which include all costs incurred to establish technological feasibility, are
charged to operations in the period in which they are incurred. Once technological
feasibility has been established, development costs are evaluated for deferral and
subsequent amortization over the estimated period of benefit. As at December 31, 2009 and
2008, the Company had no deferred development costs.
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OPTIMAL GROUP INC.
  
  4.
    
    Significant accounting policies (continued):
 (n)
    
    Other costs of operations:The costs of advertising, promotion and marketing programs are charged to operations in the
period incurred.Costs related to shipment and handling of goods to customers are included in cost of sales
and are expensed as incurred.Products design and development costs are charged to operations as incurred.(o)
    
    Earnings per share:Basic earnings per share are determined using the weighted average number of Class A
shares outstanding during the period. Diluted earnings per share are computed in a
manner consistent with basic earnings per share, except that the weighted average shares
outstanding are increased to include additional shares from the assumed exercise of options
and warrants, if dilutive, using the treasury stock method. The number of additional shares
is calculated by assuming that outstanding options and warrants were exercised, and that the
proceeds from such exercises, including unrecognized compensation costs of stock-based
option grants attributed to future services, are used to repurchase Class A shares at the
average market price during the reporting period.(p)
    
    Use of estimates:The preparation of financial statements in conformity with U.S. GAAP requires management to
make estimates and assumptions based on existing knowledge that affect the reported amounts
of assets and liabilities and disclosures at the date of the financial statements and
revenues and expenses during the reporting periods. Significant areas requiring the use of
management estimates and assumptions include: determining the allowance for doubtful
accounts and reserves for obsolescence and sales allowances; determining the recoverability
of the balance of sale receivable; estimating the useful lives of long-lived assets,
including property and equipment and intangible assets; estimating the fair value of
identifiable intangibles acquired in a business acquisition; estimating stock-based
compensation costs; assessing goodwill, as well as the recoverability of long-lived assets,
research and development tax credits receivable and deferred tax assets; and the resolution
of contingent liabilities. The reported amounts and note disclosures are determined to
reflect the most probable set of economic conditions and planned courses of action. It is
reasonably possible that managements reassessments of these and other estimates and
assumptions in the near term as well as actual results could require a material change in
reported amounts and disclosures in the consolidated financial statements of future periods.
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OPTIMAL GROUP INC.
  
  5.
    
    Business acquisitions and disposals:
 (a)
    
    Acquisitions:
 (i)
    
    2008 acquisitions:On August 29, 2008, the Company acquired all the outstanding shares of Sablon
Distribution S.A. (Sablon), a Belgium-based toy distributor operating in the Benelux
countries, France and Germany. In July 2008, the Company purchased certain assets and
liabilities of a toy operation based in New York, USA.The total purchase price for both acquisitions was $8,502, consisting of cash
consideration paid of $6,557 and transaction costs of $271 and, in connection with the
Sablon acquisition, additional consideration payable of approximately $1,674 (EUR
1,200), of which approximately $944 (EUR 715) was paid in 2009 and $694 (EUR 485) in
long-term debt. Additional contingent consideration is also payable in each of 2009 and
2010 based on the consolidated net revenues of Sablon in these years. No additional
consideration is payable as at December 31, 2009 as the contingent consideration
criteria were not met. In connection with the toy operation acquisition, the agreement
provides for an additional payment payable upon the achievement of defined financial
milestones. No additional consideration has been paid in the period for this
acquisition. Any additional contingent consideration paid for these acquisitions will be
accounted for as goodwill which will be subject to impairment testing at the time it is
recorded.
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OPTIMAL GROUP INC.
  
  5.
    
    Business acquisitions and disposals (continued):
 (a)
    
    Acquisitions (continued):
 (i)
    
    2008 acquisitions (continued):The acquisitions were accounted for using the purchase method, and the results were
consolidated with those of the Company from the date of acquisition. The following table
presents the estimated fair value of the assets purchased and liabilities assumed at the
date of acquisition in connection with these acquisitions:
 Assets acquired:Cash and cash equivalents
    
    $
    23Accounts receivable
    
    
    4,099Inventories
    
    
    7,491Income tax receivable
    
    
    322Property and equipment
    
    
    2,447Customer relationships
    
    
    2,600Non-compete agreement
    
    
    1,892Future income taxes
    
    
    993Goodwill
    
    
    3,96523,832Liabilities assumed:Bank indebtedness
    
    
    5,703Accounts payable and accrued liabilities
    
    
    5,242Customer deposits
    
    
    313Long-term debt
    
    
    3,254Future income taxes
    
    
    81815,330Net assets acquired
    
    $
    8,502Consideration:Cash
    
    $
    6,557Additional consideration payable in cash
    
    
    1,674Transaction costs
    
    
    271Total purchase price
    
    $
    8,502
 Goodwill recorded in connection with these transactions is not expected to be
deductible for tax purposes and was fully impaired and expensed during the year ended
December 31, 2008.
 57




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OPTIMAL GROUP INC.
  
  5.
    
    Business acquisitions and disposals (continued):
 (b)
    
    Disposals:
 (i)
    
    2009 disposals:Sale of Payment Processing Portfolios:On February 2, 2009, the Company entered into an agreement with a buyer, giving the
Company the right to cause the buyer to purchase, and giving the buyer the right to
cause the Company to sell, a portfolio of residual payments from merchants processing
credit card-present transactions. In substance, the transaction represented the sale of
a portfolio of residual payments from merchants processing credit card-present
transactions for proceeds of approximately $11,000.The aggregate amount of monthly residuals earned on the portfolio, net of a service fee,
will be set off against and will reduce the balance of sale receivable. The agreement
established that the calculation be based on the results of this portfolio from November
2008 onwards. The adjustment of $1,077 for the amount earned between November 2008 to
the transaction date is reflected as a reduction to the proceeds. The discounted balance
of sale receivable is increased monthly by a rate of interest of 1% per month. The
interest income earned on the balance of sale receivable is included in other income in
the consolidated statement of operations and comprehensive loss. The Companys right to
cause the buyer to purchase (to effectively settle the balance of sale) may be exercised
any time on or after February 2, 2011. The buyers right to cause the Company to sell
the portfolio (to effectively settle the balance of sale) may be exercised at any time
up to December 31, 2014. Under the terms of this agreement, the Company has also
received a warrant, exercisable for a nominal consideration, giving the Company the
right to acquire treasury shares, representing up to 3.5% of the outstanding shares of
the purchaser, if the purchase price is not settled prior to specified dates.During the year, the monthly residuals earned on the underlying portfolio, which are
applied to the balance of sale receivable, decreased significantly compared to amounts
initially forecasted. Furthermore, the Company will exercise its warrants to acquire
treasury shares representing 1% of the outstanding shares of the purchaser due to the
purchase price not being settled by March 2, 2010. In the fourth quarter, the Company
has concluded that the asset is impaired and, based on the present value of estimated
future cash flows, has recorded a provision of $6,504 to write down the receivable to
its estimated recoverable amount of $3,500. If the monthly residuals earned on the
underlying portfolio decrease significantly compared to the revised forecast, this asset
could become further impaired in the near term.Effective February 4, 2009, the Company sold a portfolio of merchant processing
contracts and associated sales channel contracts for a cash consideration of
approximately $1,035.On October 31, 2009, the Company entered into an agreement to dispose of the contractual
rights relating to a U.S. card-present portfolio of merchants forming part of its
remaining payment processing business. Proceeds on sale comprised a total cash
consideration of up to $300 payable on an earn-out basis over the two-year period
following closing of the transaction, and the assumption of certain liabilities.
 58




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OPTIMAL GROUP INC.
  
  5.
    
    Business acquisitions and disposals (continued):
 (b)
    
    Disposals (continued):
 (i)
    
    2009 disposals (continued):Sale of Payment Processing Portfolios (continued):At December 31, 2009, the Company continues to operate one merchant portfolio that
previously formed part of the payment processing segment.(ii)
    
    2008 disposals:

Sale of Canadian Card-Present and Card-Not-Present businesses:Effective October 1, 2008, the Company sold substantially all of the payment processing
assets that were used exclusively in the business of processing payments for
card-not-present transactions for a cash consideration of $7,000 and, effective August
5, 2008, sold substantially all of the payment processing assets that were used
exclusively in the business of processing payments for Canadian card-present business
for a cash consideration of $1,500. In connection with the second transaction,
additional proceeds of $500 may be received by the Company based on the achievement of
certain earnings goals by the purchaser. As at December 31, 2009, the earnings goals
were not achieved and no additional payments were received.
 The following table summarizes the book value of the assets and liabilities relating to the
businesses sold by the Company in 2009 and 2008:
 2009
    
    
    2008Current assets:Cash and short-term investments held in reserve
    
    $
    
    
    
    $
    6,010Settlement assets
    
    
    
    
    
    
    1,679Accounts receivable
    
    
    168
    
    
    
    3,622Inventories
    
    
    74
    
    
    
    12Prepaid expenses and deposits
    
    
    
    
    
    
    215242
    
    
    
    11,538Long-term assets:Property and equipment
    
    
    72
    
    
    
    738Intangible assets
    
    
    11,286
    
    
    
    81111,358
    
    
    
    1,549Current liabilities:Accounts payable and accrued liabilities
    
    
    
    
    
    
    4,169Customer reserves and security deposits
    
    
    
    
    
    
    7,868
    
    
    
    12,037Net assets sold
    
    
    11,600
    
    
    
    1,050Proceeds from sale, net of transaction cost of
$126 and adjustments of $1,019 (2008 - $312)
    
    
    10,890
    
    
    
    8,188Net (loss) gain on sale of net assets
    
    $
    (710
    )
    
    $
    7,138
 59




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OPTIMAL GROUP INC.
  
  5.
    
    Business acquisitions and disposals (continued):
 (b)
    
    Disposals (continued):
 (ii)
    
    2008 disposals (continued):The remaining assets and liabilities of these segments are classified separately as
assets and liabilities of discontinued operations in the consolidated balance sheet.The results of operations of the businesses disposed of for the years ended December 31,
2009 and 2008 were as follows:
 2009
    
    
    2008Revenues
    
    $
    5,098
    
    
    $
    61,799Costs and expenses:Transaction processing, service costs and cost of sales
    
    
    3,648
    
    
    
    33,459Selling, general and administrative
    
    
    1,481
    
    
    
    15,525Research and development
    
    
    
    
    
    
    2,073Amortization of property, equipment and intangibles
    
    
    423
    
    
    
    9,815Operating leases
    
    
    
    
    
    
    847Impairment losses
    
    
    
    
    
    
    41,342Loss on settlement of litigation
    
    
    9,541
    
    
    
    15,093
    
    
    
    103,061Loss before income taxes
    
    
    (9,995
    )
    
    
    (41,262
    )Income tax recovery (provision)
    
    
    5,117
    
    
    
    (6,832
    )Net loss from discontinued operations before undernoted items
    
    
    (4,878
    )
    
    
    (48,094
    )Net (loss) gain on disposal of assets
    
    
    (710
    )
    
    
    7,138Net loss from discontinued operations
    
    $
    (5,588
    )
    
    $
    (40,956
    )
 60




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OPTIMAL GROUP INC.
  
  5.
    
    Business acquisitions and disposals (continued):
 (b)
    
    Disposals (continued):
 (ii)
    
    2008 disposals (continued):The results of operations include management assumptions and adjustments related to cost
allocations, which are inherently subjective. The Loss on settlement of litigation
includes the write-off of long-term assets of $19,183 as well as the reversal of
long-term liabilities of $9,642 from the previously discontinued payment processing
business related to online gambling.At June 30, 2008, the Company tested goodwill for impairment in the payment processing
segment as the Company determined that there was a more likely than not expectation that
a significant portion, or this entire segment, would be sold over the course of the
following 12 months. As a result of this analysis, the goodwill in the segment was
determined to be impaired since the estimated fair value to be realized as proceeds from
transactions would be less than the carrying value of the segment including goodwill.
Consequently, the Company recorded a non-cash goodwill impairment loss of $29,097 in the
second quarter of 2008 related to the Canadian Card-Present and Card-Not-Present
businesses.In addition, the Company tested the remaining intangibles held in the payment processing
segment at December 31, 2008 for impairment as the Company determined that there was a
more likely than not expectation that a significant portion of these intangibles would
be sold over the course of the next twelve months. As a result of this analysis, the
Company recorded a non-cash impairment charge of $12,245 at December 31, 2008 based on
the estimated fair value to be realized as proceeds from these transactions.
 6.
    
    Short-term investments:
 2009
    
    
    2008Notes denominated in U.S. dollars with a weighted average
effective yield of 1.70% and matured on March 9, 2009
    
    $
    
    
    
    $
    6,296
 7.
    
    Accounts and other receivables:
 2009
    
    
    2008Trade accounts receivable, net of provision for doubtful accounts
of $369 (2008 - $758)
    
    $
    14,302
    
    
    $
    22,780Other
    
    
    271
    
    
    
    1,375$
    14,573
    
    
    $
    24,155
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OPTIMAL GROUP INC.
  
  8.
    
    Inventories:
 2009
    
    
    2008Raw materials
    
    $
    2,763
    
    
    $
    7,286Finished goods
    
    
    10,050
    
    
    
    12,078$
    12,813
    
    
    $
    19,364
 9.
    
    Property and equipment:
 2009
    
    
    2008Cost:Equipment
    
    $
    443
    
    
    $
    437Computer equipment and software
    
    
    1,841
    
    
    
    1,615Leasehold improvements
    
    
    1,280
    
    
    
    1,353Moulds
    
    
    5,068
    
    
    
    6,7818,632
    
    
    
    10,186Accumulated amortization:Equipment
    
    
    216
    
    
    
    151Computer equipment and software
    
    
    1,050
    
    
    
    750Leasehold improvements
    
    
    542
    
    
    
    334Moulds
    
    
    3,312
    
    
    
    4,7325,120
    
    
    
    5,967Net book value
    
    $
    3,512
    
    
    $
    4,219
 10.
    
    Goodwill and intangible assets:
 2009Grosscarrying
    
    
    Accumulated
    
    
    Net bookamount
    
    
    amortization
    
    
    valueCustomer relationships and service agreements
    
    $
    23,228
    
    
    $
    10,944
    
    
    $
    12,284ISO/ISA relations
    
    
    5,608
    
    
    
    4,118
    
    
    
    1,490Tradename
    
    
    11,459
    
    
    
    6,412
    
    
    
    5,047Other
    
    
    299
    
    
    
    299
    
    
    
    $
    40,594
    
    
    $
    21,773
    
    
    $
    18,821
 62




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OPTIMAL GROUP INC.
  
  10. Goodwill and intangible assets (continued):
 2008Grosscarrying
    
    
    Accumulated
    
    
    Net bookamount
    
    
    amortization
    
    
    valueCustomer relationships and service agreements
    
    $
    34,857
    
    
    $
    10,210
    
    
    $
    24,647ISO/ISA relations
    
    
    7,180
    
    
    
    3,334
    
    
    
    3,846Intellectual property
    
    
    5,520
    
    
    
    2,147
    
    
    
    3,373Tradename
    
    
    14,797
    
    
    
    3,453
    
    
    
    11,344Other
    
    
    2,179
    
    
    
    555
    
    
    
    1,624$
    64,533
    
    
    $
    19,699
    
    
    $
    44,834
 63




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##### Table of Contents



OPTIMAL GROUP INC.
  
  10.
    
    Goodwill and intangible assets (continued):
 Excluding amounts included in discontinued operations, changes in goodwill and intangible assets
were as follows:
 Customerrelationshipsand service
    
    
    ISO/ISA
    
    
    Intellectual
    
    
    Trade-Goodwill
    
    
    agreements
    
    
    relations
    
    
    property
    
    
    name
    
    
    Other
    
    
    TotalBalance,
December 31, 2007
    
    $
    37,113
    
    
    $
    28,342
    
    
    $
    4,872
    
    
    $
    5,213
    
    
    $
    14,305
    
    
    $
    
    
    
    $
    89,845Acquisitions:WowWee
    
    
    342
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    342Sablon (note 5)
    
    
    3,965
    
    
    
    2,600
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,565Other (note 5)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,892
    
    
    
    1,892Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    293
    
    
    
    293Impairment losses:WowWee
    
    
    (37,455
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (37,455
    )Sablon
    
    
    (3,965
    )
    
    
    (2,427
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,392
    )Amortization
    
    
    
    
    
    
    (3,868
    )
    
    
    (1,026
    )
    
    
    (1,840
    )
    
    
    (2,961
    )
    
    
    (561
    )
    
    
    (10,256
    )Balance,
December 31, 2008
    
    
    
    
    
    
    24,647
    
    
    
    3,846
    
    
    
    3,373
    
    
    
    11,344
    
    
    
    1,624
    
    
    
    44,834Acquisitions:WowWee
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    12Impairment losses:Payments
processing
business
    
    
    
    
    
    
    (2,428
    )
    
    
    (1,572
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,000
    )WowWee
    
    
    
    
    
    
    (6,602
    )
    
    
    
    
    
    
    (1,533
    )
    
    
    (3,338
    )
    
    
    
    
    
    
    (11,473
    )Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (946
    )
    
    
    (946
    )Amortization
    
    
    
    
    
    
    (3,333
    )
    
    
    (784
    )
    
    
    (1,840
    )
    
    
    (2,959
    )
    
    
    (690
    )
    
    
    (9,606
    )Balance,
December 31, 2009
    
    $
    
    
    
    $
    12,284
    
    
    $
    1,490
    
    
    $
    
    
    
    $
    5,047
    
    
    $
    
    
    
    $
    18,821
 64




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OPTIMAL GROUP INC.
 
  10. Goodwill and intangible assets (continued):
     11. Bank indebtedness:
    65




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OPTIMAL GROUP INC.
 
  11. Bank indebtedness (continued):
  12. Accounts payable and accrued liabilities:
 2009
    
    
    2008Trade accounts payable
    
    $
    20,524
    
    
    $
    19,330Accrued trade liabilities
    
    
    2,825
    
    
    
    5,207Accrued salaries and benefits
    
    
    1,963
    
    
    
    2,769Reserve for sales returns and allowances
    
    
    3,201
    
    
    
    3,879Other
    
    
    1,883
    
    
    
    3,312$
    30,396
    
    
    $
    34,497
 13. Long-term debt:
 2009
    
    
    2008Long-term loan payable to a selling shareholder,
repayable in installments of $716 (EUR 500) per year
beginning in 2011, maturing in 2014, bearing interest
at 7% (EUR 2,000 [2008 - EUR 1,600])
    
    $
    2,863
    
    
    $
    2,231Other loans, bearing interest at rates ranging from 5%
to 7.9% (2008 - 5% to 8.85%) (EUR 443) [2008 - EUR
562])
    
    
    635
    
    
    
    7843,498
    
    
    
    3,015Less current portion
    
    
    179
    
    
    
    1,010Long-term debt
    
    $
    3,319
    
    
    $
    2,005
  66




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OPTIMAL GROUP INC.
 
  13. Long-term debt (continued):
  14. Share capital:
  
    
    The Class A shares are designated as common shares.
    
    The Class B preference shares are voting, non-participating and redeemable at the
option of the Company for the amount paid up thereon. In the event of the liquidation,
dissolution or wind-up of the Company, the Class B preference shares rank in priority to
all other classes.
    
    The Class C preference shares are issuable in series with rights, privileges,
restrictions and conditions designated by the directors. In the event of the liquidation,
dissolution or wind-up of the Company, the Class C preference shares rank in priority to
the common shares.
     67




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OPTIMAL GROUP INC.
 
  15. 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. The maximum number of options that may be granted under the plan
is 1,800,000. Options may be granted with exercise prices at the then current market price.During 2009, the Company cancelled 975,042 options under the plan. This cancellation
resulted in an expense of $1,486, representing the remaining unrecognized stock-based
compensation cost related to the cancelled options. All approvals required for these
cancellations were obtained during the year.Details of outstanding stock options are as follows:
 WeightedaverageexerciseNumber of
    
    
    priceoptions
    
    
    per shareOptions outstanding, December 31, 2007
    
    
    1,107,708
    
    
    $
    31.30Expired
    
    
    (13,333
    )
    
    
    38.65Options outstanding, December 31, 2008
    
    
    1,094,375
    
    
    
    31.20Expired
    
    
    (91,933
    )
    
    
    32.20Cancelled
    
    
    (975,042
    )
    
    
    31.45Options outstanding, December 31, 2009
    
    
    27,400
    
    
    $
    21.05
 For the years ended December 31, 2009 and 2008, no options were granted.At December 31, 2009, 27,400 (2008  1,094,375) stock options were excluded from the
calculation of diluted earnings per share because they were anti-dilutive.The remaining options have a weighted average remaining contract life of 4.88 years, and all
of these options were exercisable as at December 31, 2009.
 68




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OPTIMAL GROUP INC.
 
  15. Stock options and warrants (continued):
 (a)
    
    Optimal Group Inc. (continued):At December 31, 2009, there are 164,000 warrants outstanding, exercisable at an exercise
price of $27.80. These warrants expire in November 2014. All of these warrants could
potentially dilute basic earnings per share in the future. All of these warrants were
excluded from the calculation of diluted earnings per share because they were anti-dilutive
for the years ended December 31, 2009 and 2008.The intrinsic value of all options and warrants was nil as at December 31, 2009 and 2008.(b)
    
    Terra Payments Inc.:Under the terms of the 2004 Combination Agreement with Terra Payments Inc. (Terra), the
Company assumed Terras stock option plan, whereby stock options governed by this plan would
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 0.0906 of the Companys Class A shares for each share of
Terra.Details of the stock options outstanding under the Terra plan are as follows:
 U.S. dollar exercise price
    
    
    Canadian dollar exercise priceWeighted averageExercise price
    
    
    
    
    
    
    exercise priceNumber
    
    
    per share
    
    
    Number
    
    
    per shareBalance, December 31, 2007
    
    
    26,823
    
    
    $
    37.15
    
    
    
    28,142
    
    
    $
    41.30Expired/cancelled
    
    
    
    
    
    
    
    
    
    
    (17,265
    )
    
    
    32.90Balance, December 31, 2008
    
    
    26,823
    
    
    
    37.15
    
    
    
    10,877
    
    
    
    54.60Expired/cancelled
    
    
    (26,823
    )
    
    
    37.15
    
    
    
    (10,877
    )
    
    
    54.60Balance, December 31, 2009
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
 During 2008, the outstanding 4,396 warrants, with a weighted average exercise price of
CA$0.05, expired in March 2008.As at December 31, 2008, 37,699 stock options were excluded from the calculation of diluted
earnings per share because they were anti-dilutive.
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OPTIMAL GROUP INC.
 
  16. Commitments, contingencies and guarantees:
 (a)
    
    Operating leases and other commitments:The Company has entered into operating leases for its premises and certain office equipment.
Minimum lease payments for the next four years and thereafter are approximately as follows:
 2010
    
    $
    1,6102011
    
    
    7092012
    
    
    5772013
    
    
    242Thereafter
    
    
    $
    3,138
 In addition, the Company is also responsible for operating costs and taxes under the
operating leases.The Company also has licensing commitments with the following minimum payments for the next
three years: 2010  $841, 2011  $134 and 2012  $134.(b)
    
    The Company has granted letters of guarantee, issued by highly rated financial
institutions to indemnify third parties in the event the Company does not perform its
contractual obligations. As at December 31, 2009, the maximum potential liabilities under
these letters of guarantee were $110 [2008  $110 and $1,232 (CA$1,500)].The Company recorded no liability with respect to these guarantees, as the Company does not
expect to make any payment for the aforementioned items. Management believes that the fair
value of the non-contingent obligations, to stand ready to perform in the event that
specified triggering events or conditions occur, approximates the cost of obtaining the
letter of guarantee.(c)
    
    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
its financial position or results of operations. 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.(d)
    
    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. No provision has been made in these
financial statements with respect to this item as the Company does not expect to make any
payments for these items and the standby liability is nominal.
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OPTIMAL GROUP INC.
 
  16. Commitments, contingencies and guarantees (continued):
 (e)
    
    As previously announced, immediately following the enactment of the Unlawful Internet
Gambling Enforcement Act of 2006 (the Act) on October 13, 2006, the Companys then
majority-owned subsidiary, OPIL, ceased to process settlement transactions originating from
United States consumers. This represented a substantial portion of its revenues derived
from processing transactions from online gambling. The Company is exposed to adverse
consequences as a result of possible enforcement proceedings, governmental investigations
or lawsuits initiated against it in jurisdictions where online gambling is restricted or
prohibited.Following announcements by the U.S. Attorneys Office in the Southern District of New York
relating to its investigation of the U.S. Internet gambling industry, the Company announced
on May 8, 2007 that it had initiated discussions with the U.S. Attorneys Office in the
Southern District of New York and it was in the process of responding to a voluntary request
for information issued by the U.S. Attorneys Office. In connection with such ongoing
investigation, the Company announced on May 11, 2007 that it had received a copy of warrants
of seizure issued by the U.S. Attorneys Office against funds of certain payment processors
that were on deposit with two U.S. banks. These funds included $19,183 on deposit to the
credit of the Companys affiliates. The total amount seized of $19,183 was presented as
long-term asset related to discontinued operations on the consolidated balance sheets. On
October 30, 2009, the Company announced that it has entered into a non-prosecution agreement
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 $19,183 was forfeited to the United
States by the Company and its subsidiaries, as disgorgement of property involved in and
proceeds received from the payment processing services that were provided by the Companys
subsidiaries to Internet gambling merchants in relation to U.S. customers of such merchants.
The Company and the U.S. Attorneys Office have agreed that the $19,183 previously seized be
applied to satisfy the forfeiture obligation. Accordingly, the long-term asset of $19,183
was considered fully impaired with the expense included in the net loss from discontinued
operations.Furthermore, the Company had long-term liabilities related to discontinued operations of
$9,642, which represented payment processing reserve account balances payable to Internet
gambling merchants of its former payments processing business, which liabilities resulted
from the payment processing services that the Companys subsidiaries provided to such
merchants in relation to their U.S. customers. Pursuant to the non-prosecution agreement
that the Company entered into with the U.S. Attorneys Office, it recognized that the
services provided by these merchants violated certain United States laws; on the basis of
advice received by management that a court would not enforce the Companys obligation to pay
these merchants their respective processing reserve account balances, should they attempt to
enforce payment, these liabilities in the amount of $9,642 were derecognized (reversed)
during the year ended December 31, 2009. Certain of these merchants may nevertheless
initiate legal proceedings against the Company in an attempt to enforce payment of the
liabilities that have been derecognized (reversed), which the Company would be forced to
defend. The Company has not recorded any provision in relation to these potential
proceedings because the amount of loss, if any, is not determinable.
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OPTIMAL GROUP INC.
 
  16. Commitments, contingencies and guarantees (continued):
 (f)
    
    On March 20, 2008, the Company entered into a settlement agreement with Fujitsu, which
resolved all potential claims by Fujitsu and brought arbitration proceedings to an end. The
amount that the Company paid to settle Fujitsus claims is not considered to be material to
the Company.(g)
    
    OGOP Payments Inc. (formerly Optimal Payments Inc.) has received a request for
information from the U.S. Attorneys Office in the Eastern District of New York pertaining
to its former involvement in processing transactions for internet pharmacies. OGOP
Payments Inc. has had discussions with that Office relating to those processing activities.
No provision has been recorded by OGOP Payments Inc. for this matter because the outcome
of these discussions and the amount of any loss, if any, are not determinable.
 17. Stock-based compensation:
  2009
    
    
    2008Expense related to cancellation of options in 2009
    
    $
    1,486
    
    
    $
    Expense related to options granted in 2004 and amended in 2008 (i)
    
    
    
    
    
    
    1,356Expense related to options granted in 2007
    
    
    87
    
    
    
    1,983$
    1,573
    
    
    $
    3,339
 (i)
    
    In June 2008, the shareholders approved a modification to the expiry date of 768,008
options exercisable at $35.50 per share from April 29, 2009 to April 2014. Since these
options were vested at the date of modification, the incremental value of $1,356 of the
fair value of the modified option over the value of the old option immediately before its
terms were modified was expensed in the second quarter of 2008.
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OPTIMAL GROUP INC.
 
  18. Income taxes:
  2009
    
    
    2008Loss from continuing operations before income taxes
    
    $
    (69,930
    )
    
    $
    (73,547
    )Combined Canadian federal and provincial
income taxes at 31% (2008 - 31%)
    
    $
    21,608
    
    
    $
    22,726Foreign exchange(1)
    
    
    438
    
    
    
    (459
    )Change in valuation allowance
    
    
    (11,925
    )
    
    
    (2,133
    )Difference in tax rates in foreign jurisdictions
    
    
    (5,038
    )
    
    
    (7,267
    )Non-deductible stock-based compensation
    
    
    (486
    )
    
    
    (1,006
    )Non-deductible goodwill impairment loss
    
    
    
    
    
    
    (7,528
    )Non-deductible Impairment of balance of sale receivable
    
    
    (2,342
    )
    
    
    Permanent differences and other
    
    
    (75
    )
    
    
    (833
    )Income tax recovery related to continuing operations
    
    $
    2,180
    
    
    $
    3,500
 (1)
    
    For purposes of calculating the income tax provision of the Company, a tax
recovery 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 tax purposes. As these financial statements are presented in
U.S. dollars, these foreign exchange gains or losses do not impact loss 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
income or recovery taxes thereon.
  2009
    
    
    2008Current income taxes
    
    $
    
    
    
    $
    (26
    )Deferred income taxes
    
    
    2,180
    
    
    
    3,526$
    2,180
    
    
    $
    3,500
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OPTIMAL GROUP INC.
 
  18. Income taxes (continued):
  2009
    
    
    2008Domestic
    
    $
    (11,030
    )
    
    $
    (6,743
    )Foreign
    
    
    (58,900
    )
    
    
    (66,804
    )$
    (69,930
    )
    
    $
    (73,547
    )
  2009
    
    
    2008Deferred income tax assets (liabilities):Intangible assets
    
    $
    15,454
    
    
    $
    14,792Non-capital losses
    
    
    28,829
    
    
    
    19,016Capital losses
    
    
    12,799
    
    
    
    10,237Reserves
    
    
    729
    
    
    
    786Foreign exchange and other
    
    
    3,333
    
    
    
    61,144
    
    
    
    44,831Less valuation allowance
    
    
    (58,664
    )
    
    
    (44,831
    )2,480
    
    
    
    Intangible assets and other
    
    
    (8,778
    )
    
    
    (7,803
    )Net deferred income tax liability
    
    $
    (6,298
    )
    
    $
    (7,803
    )Presented as:Current liabilities
    
    $
    
    
    
    $
    (838
    )Long-term liabilities
    
    
    (6,298
    )
    
    
    (6,965
    )$
    (6,298
    )
    
    $
    (7,803
    )
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OPTIMAL GROUP INC.
 
  18. Income taxes (continued):
  Foreign
    
    
    CanadaLoss carryforwards:Expiry between 2010 and 2018
    
    $
    20
    
    
    $
    18,000Expiry between 2019 and 2029
    
    
    64,800
    
    
    
    45,000$
    64,820
    
    
    $
    63,000
    19. Segmented information:
 (a)
    
    Operating segments:During the year ended December 31, 2009, the Company operated in the consumer robotic, toy
and entertainment products segment. In 2008, the Company also operated in the payment
processing segment, which is now considered a discontinued operation with the exception of
one residual portfolio (refer to note 24 (e)).
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OPTIMAL GROUP INC.
 
  19. Segmented information (continued):
 (b)
    
    Geographic information is as follows:
 Property andequipment, andRevenues
    
    
    intangibles2009
    
    
    2008
    
    
    2009
    
    
    2008United States
    
    $
    36,932
    
    
    $
    52,613
    
    
    $
    4,015
    
    
    $
    11,655Europe
    
    
    26,877
    
    
    
    31,499
    
    
    
    662
    
    
    
    657Central America
    
    
    240
    
    
    
    2,202
    
    
    
    
    
    
    
    Canada
    
    
    309
    
    
    
    2,333
    
    
    
    524
    
    
    
    638Hong Kong
    
    
    104
    
    
    
    128
    
    
    
    17,132
    
    
    
    36,103Other
    
    
    1,980
    
    
    
    4,620
    
    
    
    
    
    
    
    $
    66,442
    
    
    $
    93,395
    
    
    $
    22,333
    
    
    $
    49,053
 Revenues are attributed to countries based on the location of the customers. The Other
caption includes countries in Africa, Australia and Asia (excluding Hong Kong).(c)
    
    Major customers:The Company has two major customers in the current period from which 10% or more of total
revenue is derived:
 2009Customer 1
    
    $
    13,471Customer 2
    
    
    7,016
 In 2008, the Company had one major customer, from which 10% or more of total revenues were
derived. The revenue from this customer was approximately $12,216.
 20. Related party transactions:
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OPTIMAL GROUP INC.
 
  20. Related party transactions (continued):
  21. Capital disclosures:
    22. Financial risk management:
  (a)
    
    Interest rate risk:Interest rate risk is the risk that the fair value or future cash flows of a financial
instrument will fluctuate because of changes in market interest rates.Short-term investments consist of short-term notes invested at fixed interest rates. The
risk that the Company will realize a loss as a result of a decline in the fair value of
these investments is limited because, although available for sale, these investments are
short-term and are generally held to maturity. The balance of sale receivable and long-term
debt are subject to fixed interest rates. Any change in market rates for similar long-term
receivables and debt will impact the fair value of these instruments but will have no impact
on results from operations as these instruments are carried at amortized cost.The Company is exposed primarily to interest rate fluctuations as a result of cash and bank
indebtedness which bears interest at variable interest rates. A 0.5% increase or decrease
would have a nominal effect to the results from operations during 2009 and 2008.
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OPTIMAL GROUP INC.
 
  22. Financial risk management (continued):
 (b)
    
    Foreign currency risk:A significant portion of the Companys cash flows and financial assets and liabilities are
denominated in U.S. dollars, which is the Companys functional and reporting currency.
Foreign currency risk is limited to the portion of the Companys business transactions
denominated in currencies other than U.S. dollars, primarily for head office expenses in
Canada and European operations. For the Companys foreign currency transactions,
fluctuations in the respective exchange rates relative to the U.S. dollar will create
volatility in the Companys cash flows and the reported amounts for revenues and selling,
general and administrative expenses in its consolidated statement of operations on a
period-to-period basis. Additional earnings variability arises from the translation of
monetary assets and liabilities denominated in currencies other than the U.S. dollar at the
rates of exchange at each balance sheet date, the impact of which is reported as a foreign
exchange gain and loss which is included as part of selling, general and administrative
expenses in the statement of operations and comprehensive loss.The Companys objective in managing its foreign currency risk is to minimize its net
exposures to foreign currency cash flows, by transacting with third parties in U.S. dollars
to the maximum extent possible and practical and holding cash and cash equivalents in U.S.
dollars. The Company monitors and forecasts the values of net foreign currency cash flow and
balance sheet exposures and manages its cash flow to hold on hand sufficient levels of
foreign currencies to meet its obligations. From time to time, the Company engages in the
use of derivative financial instruments to manage its currency exposure.The following table provides an indication of the Companys significant foreign currency
exposures expressed in U.S. dollars:
 December 31, 2009CAD
    
    
    GBP
    
    
    EUROCash and cash equivalents
    
    
    962
    
    
    
    128
    
    
    
    797Bank indebtedness
    
    
    
    
    
    
    
    
    
    
    (8,272
    )Accounts payable and accrued liabilities
    
    
    (2,422
    )
    
    
    
    
    
    
    (1,833
    )Current liabilities related to
discontinued operations
    
    
    (2,114
    )
    
    
    (135
    )
    
    
    (167
    )Long-term debt
    
    
    
    
    
    
    
    
    
    
    (3,498
    )Balance sheet exposure
    
    
    (3,574
    )
    
    
    (7
    )
    
    
    (12,973
    )
 In addition to the foreign currency exposures noted above, the Company also incurs a portion
of its operating costs in its consumer robotic, toy and entertainment products segment, in
Hong Kong dollars. However, the Company does not view its exposure to the Hong Kong dollar
as a significant foreign exchange risk since the Hong Kong dollar is pegged to the U.S.
dollar and historically has not fluctuated significantly.
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OPTIMAL GROUP INC.
 
  22. Financial risk management (continued):
 (b)
    
    Foreign currency risk (continued):The following are the exchange rates applied during the year ended December 31, 2009:
 Average rate
    
    
    Rate as atduring 2009
    
    
    December 31, 2009CAD to USD
    
    
    0.8757
    
    
    
    0.9515GBP to USD
    
    
    1.5590
    
    
    
    1.6162EUR to USD
    
    
    1.3884
    
    
    
    1.4316
 Based on the Companys foreign currency exposures noted above, varying the above exchange
rates to reflect a 5% weakening of the U.S. dollar would affect earnings and comprehensive
earnings as follows:
 CAD
    
    
    GBP
    
    
    EUROYear ended
    
    
    Year ended
    
    
    Year endedDecember 31, 2009
    
    
    December 31, 2009
    
    
    December 31, 2009Increase in net loss
    
    $
    (179
    )
    
    $
    
    
    
    $
    (649
    )
 An assumed 5% strengthening of the U.S. dollar would have an equal but opposite effect on
the above currencies to the amounts shown above.
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OPTIMAL GROUP INC.
 
  22. Financial risk management (continued):
 (c)
    
    Credit risk:Credit risk is the risk of an unexpected loss if a customer or counterparty to a financial
instrument fails to meet its contractual obligations. Financial instruments that potentially
subject the Company to concentrations of credit risk consist primarily of cash and cash
equivalents, short-term investments and accounts receivable, including the balance of sale
receivable.
 (i)
    
    Cash and cash equivalents and short-term investments:The credit risk relating to cash and cash equivalents is limited because the
counterparties are highly-rated American and European financial institutions. The credit
risk related to short-term investments is limited because they consist of discounted
notes issued by high-credit, quality corporations. The Company has investment policies
to provide guidance on investing available cash resources. In general, these policies
stress the preservation of capital with investments allowed in notes issued by
corporations with credit rankings of not less than R-1 mid.(ii)
    
    Accounts receivable:Credit risk in the consumer robotic, toy and entertainment business arises primarily
from trade receivables. Allowances are provided for potential losses. The amounts
disclosed in the balance sheet are net of these allowances for bad debts. Accounts
receivable are assessed for impairment on a case-by-case basis when they are past due or
when objective evidence is received that a customer will default. The Company takes into
consideration the customers payment history, its creditworthiness and the current
economic environment in which the customer operates to assess impairments. All bad debts
are charged to selling, general and administrative expenses in the statement of
operations and comprehensive loss.The credit risk for trade receivables is concentrated as the majority of sales are to a
relatively small group of wholesale distributors and mass market retailers. However, the
majority of these wholesale distributors and mass market retailers are large companies
which have been customers of the acquired business for a number of years. Customers
generally do not provide collateral in exchange for credit, but some customers provide
letters of credit for purchase orders.
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OPTIMAL GROUP INC.
 
  22. Financial risk management (continued):
 (c)
    
    Credit risk (continued):
 (ii)
    
    Accounts receivable (continued):Included in accounts and other receivables are trade receivables in the consumer
robotic, toy and entertainment segment of $14,302. The aging of the trade receivables
at the reporting date was as follows:
 2009
    
    
    2008Not past due
    
    $
    8,554
    
    
    $
    9,665Past due 0-30 days
    
    
    4,363
    
    
    
    5,763Past due 31-60 days
    
    
    968
    
    
    
    5,970Past due 61-120 days
    
    
    417
    
    
    
    1,382Trade receivables
    
    $
    14,302
    
    
    $
    22,780
 A breakdown of trade receivables by type of customer is presented below:
 2009
    
    
    2008Distributors
    
    $
    1,097
    
    
    $
    3,225Mass-market retailers
    
    
    13,205
    
    
    
    19,555$
    14,302
    
    
    $
    22,780
 The Company is exposed to credit risk on a balance of sale receivable. Refer to note 5
(b) (i) for a description of the terms of repayment and impairment provisions recorded
during the year. The credit risk of the buyer has been considered in calculating the net
estimated recoverable amount at December 31, 2009. Changes in the financial condition of
the buyer and the revenues of the underlying portfolio will affect the credit risk
associated with this receivable and the need for further impairment provisions in the
future.
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OPTIMAL GROUP INC.
 
  22. Financial risk management (continued):
 (d)
    
    Liquidity risk:Liquidity risk is the risk that the Company will not be able to meet its financial
obligations as they fall due. The Company manages liquidity risk through the management of
its capital structure and by continuously monitoring actual and projected cash flows. During
2009, the Company has delayed payments to its suppliers in order to manage cash. In the
prior years, the Company has financed its acquisitions through mainly internally-generated
funds as well as credit facilities entered into by its Belgium and Hong Kong operations.As at December 31, 2009, the Company has $19,915 of cash, cash equivalents, and has an
outstanding balance of $8,848 on its credit facilities.The following are the contractual maturities of financial liabilities at December 31, 2009:
 Carrying
    
    
    0 to 12
    
    
    1 to 3
    
    
    4 to 5amount
    
    
    months
    
    
    years
    
    
    yearsBank indebtedness
    
    $
    8,848
    
    
    $
    8,848
    
    
    $
    
    
    
    $
    Accounts
payable and accrued
liabilities
    
    
    30,396
    
    
    
    30,396
    
    
    
    
    
    
    
    Long-term debt
    
    
    3,498
    
    
    
    179
    
    
    
    2,585
    
    
    
    734Current liabilities
related to
discontinued
operations
    
    
    4,263
    
    
    
    4,263
    
    
    
    
    
    
    
    Total
    
    $
    47,005
    
    
    $
    43,686
    
    
    $
    2,585
    
    
    $
    734
 The Company has incurred operating cash flow deficiencies in 2009 and its current financial
position requires additional sources of financing to support operations in 2010 as further
discussed in note 2.
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OPTIMAL GROUP INC.
 
  23. Financial instruments:
 (a)
    
    Fair values:The Company has determined that the fair value of its short-term financial assets and
liabilities approximates their respective fair values as at the balance sheet dates because
of the short-term maturity of those instruments. The fair value of long-term loan payable
to a selling shareholder is not determinable as the terms were agreed to by related parties.(b)
    
    SFAS No. 157  Fair value measurements:On January 1, 2008, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 157, Fair Value Measurements, which was primarily codified into
FASB ASC Topic 820, Fair Value Measurements and Disclosures, for all financial assets
and liabilities and non-financial assets and non-financial liabilities that are
recognized or disclosed at fair value in the financial statements on a recurring basis.
Effective January 1, 2009, the Company adopted SFAS No. 157 for all non-financial
assets and liabilities that are measured at fair value on a non-recurring basis, such
as goodwill and intangible assets. SFAS No. 157 clarifies the principle that fair value
should be based on the assumptions market participants would use when pricing an asset
or liability and establishes a fair value hierarchy that prioritizes the information
used to develop those assumptions. Under the standard, fair value measurements would
be separately disclosed by level within the fair value hierarchy.The fair value of intangibles of $18,821, determined in connection with the
impairments (note 10), was based in part on significant unobservable inputs (level 3).
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OPTIMAL GROUP INC.
 
  23. Financial instruments (continued):
 (c)
    
    Financial income:The following components of income and expense relating to financial instruments are
included in the statement of operations and comprehensive loss:
 (i)
    
    Interest income:
 2009
    
    
    2008Interest income on available-for-sale
financial assets
    
    $
    85
    
    
    $
    1,238Balance of sale receivable
    
    
    1,112
    
    
    
    
 Interest income on available-for-sale financial assets consists of interest earned from
cash and cash equivalents and short-term investments in short-term deposits.(ii)
    
    Impairment losses recognized on trade receivables in consumer robotic, toy and
entertainment products:The Company recorded a bad debt expense of $102 for the year ended December 31, 2009
(2008  $1,046) in Selling, general and administrative expenses in the statement of
operations and comprehensive loss.
 (d)
    
    Other:At December 31, 2009, the Company had entered into forward and future contracts to buy US
dollars with a notional amount of $5,010 (2008  $3,350) at rates ranging from 1.4555 to
1.4560 US/EUR (2008  1.281 to 1.4386). The contracts mature at various dates to February
16, 2010 (2008  matured in March 2009). The Company has also entered into an interest rate
swap contract (from variable rate receive to fixed rate pay) on a notional amount of EUR
1,000. This contract matures in March 2013. This same interest rate swap contract was also
outstanding as at December 31, 2008. At December 31, 2009 and 2008, the fair value of these
contracts was not significant.
 84




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OPTIMAL GROUP INC.
 
  24. Supplemental disclosure of cash flows and other information:
 (a)
    
    Net change in operating assets and liabilities:
 2009
    
    
    2008Accounts receivable
    
    $
    9,582
    
    
    $
    52Inventories
    
    
    6,551
    
    
    
    (9,145
    )Prepaid expenses
    
    
    15
    
    
    
    703Accounts payable and accrued liabilities
    
    
    (2,815
    )
    
    
    (6,869
    )Income taxes payable
    
    
    (488
    )
    
    
    (2,259
    )Net change in operating assets and liabilities
    
    $
    12,845
    
    
    $
    (17,518
    )
 (b)
    
    Cash paid for interest and income taxes:
 2009
    
    
    2008Interest
    
    $
    507
    
    
    $
    439Income taxes
    
    
    18
    
    
    
    450
 (c)
    
    Non-cash transactions:
 2009
    
    
    2008Additional consideration payable on Sablon acquisition
    
    $
    
    
    
    $
    1,674Addition of property, equipment and intangibles included
in accounts payable and accrued liabilities
    
    
    374
    
    
    
    199Adjustments to WowWee purchase price equation to goodwill
    
    
    
    
    
    
    342
 (d)
    
    Cash and cash equivalents:
 2009
    
    
    2008Cash and cash equivalents consist of:Cash balances with banks
    
    $
    14,745
    
    
    $
    26,925Short-term investments, bearing nominal interest (2008 - 2.57%)
    
    
    5,170
    
    
    
    5,924$
    19,915
    
    
    $
    32,849
 85




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OPTIMAL GROUP INC.
 
  24. Supplemental disclosure of cash flow and other information (continued):
 (e)
    
    Other revenues:At December 31, 2009, the Company continues to operate a merchant portfolio that formed part
of the payment processing segment. Effective January 1, 2009, the results of operations of
this remaining merchant portfolio are presented on a net basis and as part of Other
Revenues in the consolidated statement of operations and comprehensive loss.Included in other revenues for the year ended December 31, 2009 are gross revenues of
$24,966, net of transaction processing costs and commissions of $21,869. Other expenses
related to the merchant portfolio and not included in Other Revenues are amortization of
intangibles of $1,994 (2008  $2,609), an impairment loss on intangibles of $4,000 (2008 -
nil) and selling, general and administrative expenses of $586 (2008  $5,398). For the year
ended December 31, 2008, the results of this portfolio are presented on a gross basis and
$2,526 of selling costs are included in transaction processing costs.Included in intangible assets in the consolidated balance sheets are $3,791 (2008  $9,786)
of customer and ISO/ISA relations, related to the remaining portfolio. Total assets related
to this portfolio are comprised mainly of intangible assets.(f)
    
    Foreign exchange:Included in Selling, general and administrative expenses in the consolidated statement of
operations is a foreign exchange loss of $1,638 in 2009 (2008  a loss of $98).(g)
    
    Amortization:
 2009
    
    
    2008Amortization of intangibles pertaining to cost of sales
    
    $
    7,612
    
    
    $
    7,647Amortization of intangibles pertaining to transaction processing
    
    
    1,994
    
    
    
    2,609Amortization of equipment pertaining to cost of sales
    
    
    2,232
    
    
    
    3,622Amortization of equipment pertaining to selling, general and
administrative
    
    
    1,055
    
    
    
    620$
    12,893
    
    
    $
    14,498
 (h)
    
    Advertising expense:
 2009
    
    
    2008Advertising expense
    
    $
    5,072
    
    
    $
    8,397
 86




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OPTIMAL GROUP INC.
 
  24. Supplemental disclosure of cash flow and other information (continued):
 (i)
    
    Provisions:The rollforward of valuation and qualifying accounts is as follows:
 Balance,
    
    
    Net
    
    
    Balance,December 31,
    
    
    increase
    
    
    December 31,2008
    
    
    (decrease)
    
    
    2009Allowance for doubtful accounts
    
    $
    758
    
    
    $
    (389
    )
    
    $
    369Inventory obsolescence
    
    
    5,429
    
    
    
    3,005
    
    
    
    8,434Reserve for sales returns and allowances
    
    
    3,879
    
    
    
    1,451
    
    
    
    5,330
 25. Canadian/U.S. reporting differences:
 The consolidated financial statements of the Company are prepared in accordance with U.S. GAAP,
which conform, in all material respects, with Canadian GAAP, except as described below:
 (a)
    
    Consolidated balance sheets:Differences between U.S. and Canadian GAAP in the presentation of share capital, additional
paid-in capital and deficit are as follows:
 (i)
    
    Share capital:
 2009
    
    
    2008Share capital in accordance with U.S. GAAP
    
    $
    252,488
    
    
    $
    252,488Stock-based compensation costs on options exercised: (1)Cumulative effect of prior years
    
    
    (39,868
    )
    
    
    (39,868
    )Change in reporting currency (2)
    
    
    (2,588
    )
    
    
    (2,588
    )Share capital in accordance with Canadian GAAP
    
    $
    210,032
    
    
    $
    210,032
 (ii)
    
    Additional paid-in capital:
 2009
    
    
    2008Additional paid-in capital in accordance with U.S. GAAP
    
    $
    65,746
    
    
    $
    64,173Stock-based compensation costs: (1)Cumulative effect of prior years
    
    
    (68,757
    )
    
    
    (68,757
    )Stock-based compensation costs on options exercised: (1)Cumulative effect of prior years
    
    
    39,868
    
    
    
    39,868Change in reporting currency (2)
    
    
    (968
    )
    
    
    (968
    )Additional paid-in capital in accordance with Canadian GAAP
    
    $
    35,889
    
    
    $
    34,316
 87




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OPTIMAL GROUP INC.
 
  25.
    
    Canadian/U.S. reporting differences (continued):
 (a)
    
    Consolidated balance sheets (continued):
 (iii)
    
    Deficit:
 2009
    
    
    2008Deficit in accordance with U.S. GAAP
    
    $
    (296,187
    )
    
    $
    (222,849
    )Stock-based compensation costs: (1)Cumulative effect of prior years
    
    
    68,757
    
    
    
    68,757Stock-based compensation to non-employees (1)
    
    
    834
    
    
    
    834Change in reporting currency(2)
    
    
    1,189
    
    
    
    1,189Deficit in accordance with Canadian GAAP
    
    $
    (225,407
    )
    
    $
    (152,069
    )
 
 (1)
    
    Stock-based compensation:The Company accounted for its stock-based compensation plans using the recognition
and measurement provisions of APB No. 25, Accounting for Stock Issued to Employees,
and Related Interpretations, versus a settlement accounting basis followed for
Canadian GAAP up to January 1, 2003. Effective January 1, 2003, the Company adopted
the fair value recognition provisions of SFAS No. 123, Share-based Payments, which
was primarily codified into FASB ASC Topic 718, Compensation  Stock Compensation,
and CICA Handbook 3870, Stock-based Compensation and Other Stock-based Payments, and
therefore there were no further differences between Canadian GAAP and U.S. GAAP.A description of the Companys stock option plans is presented in note 15.(2)
    
    Change in reporting currency:In 1998, the Company adopted the U.S. dollar as its reporting currency. Under
Canadian GAAP, at the time of change in reporting currency, the historical financial
statements were presented using a translation of convenience. Under U.S. GAAP, the
financial statements, including prior years, are translated using the current rate
method. Accordingly, the cumulative translation account included as part of
accumulated other comprehensive income in shareholders equity under Canadian GAAP
does not exist for U.S. GAAP purposes. 
 88




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OPTIMAL GROUP INC.
 
  25.
    
    Canadian/U.S. reporting differences (continued):
 (b)
    
    Accumulated other comprehensive loss:Accumulated other comprehensive loss under Canadian GAAP is $(1,484) as at December 31, 2009
and December 31, 2008, which resulted solely from the translation of the financial
statements up to September 30, 2000, the date on which the Company adopted the United States
dollar as its functional currency, in accordance with the current rate method. Prior to the
change in functional currency which occurred as of September 30, 2000, the Company adopted
the United States dollar as its reporting currency during 1998, and used the current rate
method under US GAAP compared to a translation of convenience method under Canadian GAAP.(c)
    
    New accounting policies:Effective January 1, 2009, the Company adopted the Canadian Institute of Chartered
Accountants (CICA) Handbook Section 3064, Goodwill and Intangible Assets, which replaces
Section 3062, Goodwill and Other Intangible Assets, and Section 3450, Research and
Development Costs. The standard provides guidance on the recognition of intangible assets in
accordance with the definition of an asset and the criteria for asset recognition, as well
as clarifying the application of the concept of matching revenues and expenses, whether
these assets are separately acquired or internally developed. The adoption of this standard
did not have a significant impact on the Companys financial results.Effective January 1, 2009, the Company adopted CICA EIC-173, Credit Risk and the Fair Value
of Financial Assets and Financial Liabilities, which clarifies that the credit risk of
counterparties should be taken into account in determining the fair value of derivative
financial instruments. The adoption of this standard did not have a significant impact on
the Companys financial results.
 26. Comparative figures:
 Certain of the comparative figures have been reclassified in order to conform with the current
years presentation.
 89




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##### Table of Contents



OPTIMAL GROUP INC.
 
  27. Subsequent events:
 On March 16, 2010, the Company entered into a Support Agreement with a corporation (the
Offeror) established by two directors of the Companys wholly-owned subsidiaries. Under the
terms of the Support Agreement, the Offeror has agreed to make an offer by way of a takeover bid
for all of the outstanding shares of the Company at an offer price of $2.40 per share, paid in
cash and the Company has agreed to support the Offer. As a result of the directors involvement
with the Offeror, the offer will be an insider bid and a going private transaction for
purposes of applicable securities laws. Under the terms of the Support Agreement, the Company
has agreed to pay a termination fee of approximately $500 to the Offeror if the Support
Agreement is terminated in certain circumstances. The takeover bid circular containing the full
terms of the offer is expected to be mailed to shareholders on or before March 31, 2010. The
offer will remain open for acceptance for a period of not less than 35 days following the
mailing of the offer. There were 5,148,735 shares outstanding as of March 16, 2010.
 In connection with the offer, certain senior officers of the Company have entered into an
agreement with the Offeror whereby they will receive certain assets of the Company in partial
satisfaction of the severance payments that will be owing to them upon the closing of the
transaction. Included in the assets to be transferred to the senior officers are the balance of
sale receivable and other intangible assets related to the discontinued payment processing
business with a carrying value of $7,291 at December 31, 2009.
 90




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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
 Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
  Managements Report on Internal Control Over Financial Reporting
     
 ITEM 9B. OTHER INFORMATION
  91




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PART III
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  Name
    
    Age
    
    PositionNeil S. Wechsler
    
    43
    
    Co-Chairman, Chief Executive Officer and DirectorHolden L. Ostrin
    
    50
    
    Co-Chairman and DirectorGary S. Wechsler, C.A.
    
    52
    
    Treasurer and Chief Financial OfficerO. Bradley McKenna, C.A
    
    60
    
    Vice-President, Administration and Human ResourcesTommy Boman(1)(2)(4)
    
    71
    
    DirectorJames S. Gertler(1)(2)(3)(4)
    
    43
    
    DirectorHenry M. Karp
    
    55
    
    DirectorThomas D. Murphy(1)(2)(3)(4)
    
    56
    
    DirectorJonathan J. Ginns(2)(3)(4)
    
    45
    
    Director
 
 (1)
    
    Member of Compensation Committee(2)
    
    Member of the Nominating Committee(3)
    
    Member of Audit Committee(4)
    
    Independent Director     Neil S. Wechsler
 Holden L. Ostrin
 Gary S. Wechsler,
 O. Bradley McKenna,
 Tommy Boman
 James S. Gertler
 Henry M. Karp
 92




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##### Table of Contents



Thomas D. Murphy
 Jonathan J. Ginns
 Audit Committee Report
 The following Audit Committee Report does not constitute soliciting material and should not be
deemed filed or incorporated by reference into any other filing of ours under the 1933 Act or the
Exchange Act, except to the extent we specifically incorporate this Report by reference therein.
  
    
    discussed the quarterly and year-to-date financial information contained in each
quarterly earnings announcement with senior members of our financial management and
KPMG, independent auditors, prior to public release;
    
    reviewed our audited consolidated financial statements as of and for the year ended
December 31, 2009, as well as the quarterly unaudited consolidated financial statements
and earnings release with senior members of our financial management and KPMG;
    
    reviewed with our financial management and KPMG their judgments as to the quality,
not just the acceptability, of our accounting principles;
    
    discussed with KPMG the overall scope and plan for their audit;
    
    reviewed our financial controls and financial reporting process;
    
    reviewed our litigation matters;
    
    reviewed significant financial reporting issues and practices, including judgmental
items, change in accounting principles and disclosure practice;
    
    pre-approve all services performed by KPMG;
    
    met with KPMG, without management present, to discuss the results of their audit;
and
    
    met with our financial management, without KPMG present, to discuss the quality of
services provided by KPMG.
   THE AUDIT COMMITTEE
 
  93




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Audit Committee Financial Expert
  Section 16(a) Beneficial Ownership Reporting Compliance
  Complaint procedures for accounting and auditing matters
  Code of Ethics
  94




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ITEM 11. EXECUTIVE COMPENSATION
 2009 SUMMARY COMPENSATION TABLE
 Non-
    
    Change inequity
    
    pension valueincentive
    
    and non-plan
    
    qualifiedOption
    
    compen
    
    deferred
    
    All otherName and Principal
    
    
    
    
    
    Salary ($)
    
    Bonus
    
    Stock
    
    Awards
    
    -sation
    
    compensation
    
    compen-Position
    
    Year
    
    (1)
    
    ($)
    
    Awards ($)
    
    ($)
    
    ($)
    
    earnings ($)
    
    sation ($)
    
    Total ($)Neil S. Wechsler
    
    
    2009
    
    
    
    1,155,867
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    13,127
    (4)(6)
    
    
    1,168,994Co-Chairman and Chief 
Executive Officer
    
    
    2008
    
    
    
    1,407,129
    
    
    
    0
    
    
    
    0
    
    
    
    782,973
    (2)
    
    
    0
    
    
    
    0
    
    
    
    13,176
    
    
    
    2,203,279Holden L. Ostrin
    
    
    2009
    
    
    
    1,155,867
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    45,565
    (4)(5)
    
    
    1,201,432Co-Chairman
    
    
    2008
    
    
    
    1,407,129
    
    
    
    0
    
    
    
    0
    
    
    
    782,973
    (2)
    
    
    0
    
    
    
    0
    
    
    
    50,691
    
    
    
    2,240,793Gary S. Wechsler
    
    
    2009
    
    
    
    563,485
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    563,485Treasurer and ChiefFinancial Officer
    
    
    2008
    
    
    
    685,976
    
    
    
    0
    
    
    
    0
    
    
    
    370,329
    (2)
    
    
    0
    
    
    
    0
    
    
    
    0
    (3)
    
    
    1,056,305Peter Yanofsky
    
    
    2009
    
    
    
    750,000
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    750,000President, WowWee
USA, Inc.
    
    
    2008
    
    
    
    750,000
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    (3)
    
    
    750,000Richard Yanofsky
    
    
    2009
    
    
    
    750,000
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    750,000President, WowWee
Canada Inc.
    
    
    2008
    
    
    
    750,000
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    (3)
    
    
    750,000
 
 (1)
    
    We pay salary in Canadian dollars. The average exchange rate used for 2008 and 2009 used to
convert these salaries into dollars were: US$1.00=Cdn$1.0600 (2008) and US$1.00=Cdn$1.1420
(2009).(2)
    
    Amounts shown in this column represent the value of stock options deemed granted in 2008 as a
result of the extension of the expiration date for previously issued options, based on the
grant date fair value computed in accordance with FASB ASC Topic 718. Please see Note 27(c)
to the Consolidated Financial Statements included in the companys Annual Report on Form 10-K
for the year ended December 31, 2008 for more information on how amounts in this column were
calculated.(3)
    
    The dollar value of all perquisites and other personal benefits or property was less than
$10,000.(4)
    
    Perquisites for both the Co-Chairman and Chief Executive Officer and the Co-Chairman include
the payment of life insurance premiums. See Executive Employment and Separation Agreements.(5)
    
    The perquisites include the interest free benefit of a home loan granted in 1996 amounting to
$740 and life insurance premiums amounting to $43,545.(6)
    
    The perquisites include life insurance premiums amounting to $11,855. OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END  DECEMBER 31, 2009 (1)
 Option awards
    
    Stock awardsEquityEquity
    
    incentiveincentive
    
    planNumber of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    plan
    
    awards:securities
    
    
    
    
    
    
    
    
    
    Number
    
    Market
    
    awards:
    
    Market orunder-
    
    
    
    
    
    
    
    
    
    of shares
    
    value of
    
    Number of
    
    payout valueNumber of
    
    lying
    
    
    
    
    
    
    
    
    
    or units
    
    shares or
    
    unearned
    
    of unearnedsecurities
    
    unexer-
    
    
    
    
    
    
    
    
    
    of stock
    
    units
    
    shares, units
    
    shares, unitsunderlying
    
    cised
    
    Option
    
    
    
    
    
    that have
    
    that have
    
    or other
    
    or otherunexercised
    
    options (#)
    
    exercise
    
    
    
    
    
    not
    
    not
    
    rights that
    
    rights thatoptions (#)
    
    Unexerci-
    
    price ($)
    
    
    
    
    
    vested
    
    vested
    
    have not
    
    have notName
    
    Exercisable
    
    sable
    
    USD
    
    Option expiration date
    
    (#)
    
    (#)
    
    vested (#)
    
    vested ($)Neil S. Wechsler

Co-Chairman and

Chief Executive Officer
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Holden L. Ostrin

Co-Chairman
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Gary S. Wechsler

Treasurer and Chief
Financial Officer
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Peter Yanofsky

President
WowWee USA, Inc.
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Richard Yanofsky

President
WowWee Canada Inc.
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
 
 (1)
    
    During 2009, we cancelled all options for these Named Executive Officers. 95




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Executive Employment and Separation Agreements
  Neil S. Wechsler
     Holden L. Ostrin
   96




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Gary S. Wechsler
     Peter Yanofsky
    Richard Yanofsky
   97




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Compensation of Directors
  DIRECTOR COMPENSATION
 Change inNon-Equity
    
    Pension ValueIncentive
    
    & NonqualifiedFees Earned
    
    Stock
    
    Option
    
    Plan
    
    Deferred
    
    All Otheror
    
    Awards
    
    Awards
    
    Compensation
    
    Compensation
    
    Compen-Name
    
    Year
    
    Paid in Cash
    
    ($)
    
    ($)
    
    ($)
    
    Earnings
    
    sation ($)
    
    Total ($)Tommy Boman
    
    
    2009
    
    
    
    59,000
    
    
    
    0
    
    
    
    
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    $
    59,000James S. Gertler
    
    
    2009
    
    
    
    72,000
    
    
    
    0
    
    
    
    
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    $
    72,000Jonathan J. Ginns
    
    
    2009
    
    
    
    57,000
    
    
    
    0
    
    
    
    
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    $
    57,000Henry M. Karp
    
    
    2009
    
    
    
    48,000
    
    
    
    0
    
    
    
    
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    $
    48,000Thomas D. Murphy
    
    
    2009
    
    
    
    71,000
    
    
    
    0
    
    
    
    
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    $
    71,000
 Options to Purchase Securities
    98




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Equity Compensation Plan Information
   Number ofsecuritiesNumber of
    
    Weighted-
    
    remainingsecurities to be
    
    average exercise
    
    available forissued upon
    
    price of
    
    future issuanceexercise of
    
    outstanding
    
    under equityoutstanding
    
    options,
    
    compensationoptions,
    
    warrants and
    
    plans (excludingwarrants and
    
    rights
    
    securities reflectedPlan Category
    
    rights
    
    ($/Share)
    
    in first column)(1)Equity compensation plans approved by security holders (1)
    
    
    27,400
    
    
    
    21.05
    
    
    
    1,123,394Total
    
    
    27,400
    
    
    
    21.05
    
    
    
    1,123,394
 
 (1)
    
    The 1997 Plan (referred to under Executive Compensation  Options to Purchase
Securities, above), is our only equity compensation plan that has been approved by
shareholders. 
 ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
  Amount and Nature of
    
    Percent ofBeneficial Ownership
    
    Ownership inName and Address of Beneficial Owner
    
    in Optimal Group
    
    Optimal GroupRenaissance Technologies LLC
800 Third Avenue
New York, NY 10022
    
    
    316,779
    (1)
    
    
    6.15
    %Paul J. Solit
825 Third Avenue, 33rd Floor
New York, NY 10022
    
    
    288,203
    (2)
    
    
    5.60
    %Neil S. Wechsler
3500 de Maisonneuve Blvd West, 8th Floor,
Westmount, PQ, H3Z 3C1
    
    
    36,121
    
    
    
    *
    *Holden L. Ostrin
3500 de Maisonneuve Blvd West, 8th Floor,
Westmount, PQ, H3Z 3C1
    
    
    28,571
    
    
    
    *
    *
 99




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##### Table of Contents



Amount and Nature of
    
    Percent ofBeneficial Ownership
    
    Ownership inName and Address of Beneficial Owner
    
    in Optimal Group
    
    Optimal GroupHenry M. Karp
3500 de Maisonneuve Blvd West, 8th Floor,
Westmount, PQ, H3Z 3C1
    
    
    28,571
    
    
    
    
    **Gary S. Wechsler
3500 de Maisonneuve Blvd West, 8th Floor,
Westmount, PQ, H3Z 3C1
    
    
    38,571
    
    
    
    
    **Peter Yanofsky
875 Prospect Street, 2nd Floor,
La Jolla, CA 92037
    
    
    135,318
    (3)
    
    
    2.61
    %Richard Yanofsky
3500 de Maisonneuve Blvd West, 8th Floor,
Westmount, PQ, H3Z 3C1
    
    
    142,318
    (3)
    
    
    2.74
    %James S. Gertler
62 West 62nd Street
New York, NY, 10023
    
    
    60
    
    
    
    
    **Jonathan J. Ginns
1133 Connecticut Avenue, NW Suite 700,
Washington, DC, 200036
    
    
    0
    
    
    
    
    **Thomas D. Murphy
1208 Highcrest Lane,
Colorado Springs, CO, 80921
    
    
    11,000
    
    
    
    
    **Tommy Boman
30 Oyster Landing Road,
Hilton Head, SC, 29928
    
    
    634
    
    
    
    
    **All directors and executive officers as a group
(9 persons)
    
    
    730,650
    
    
    
    2.84
    %
 
 **
    
    Does not exceed one percent (1%)(1)
    
    The address of this beneficial owner is 800 Third Avenue, New York,
NY, 10022. According to the Schedule 13G/A, dated February 12, 2010, filed with the
United States Securities and Exchange Commission by Renaissance Technologies LLC and
James H. Simons, Renaissance Technologies LLC is an investment advisor and James H.
Simons is a control person of Renaissance Technologies LLC. Each of Renaissance
Technologies LLC and James H. Simons has sole voting power and sole dispositive
power over 316,779 shares. The information in this table is based exclusively on the
most recent Schedule 13G/A filed by this beneficial owners with the United States
Securities and Exchange Commission. We make no representation as to the accuracy or
completeness of the information reported.(2)
    
    The address of this beneficial owner is 825 Third Avenue. According to the
Schedule 13G/A, dated March 27, 2009, filed with the United States Securities and
Exchange Commission by this beneficial owner, Potomac Capital Management, LLC,
Potomac Capital Management II, LLC and Potomac Capital Management, Inc., Paul J.
Solit holds sole voting power over and dispositive power over 50,420 shares and
shared voting power over 237,783 shares. The information in this table is based
exclusively on the most recent Schedule 13G/A filed by this beneficial owner with the
United States Securities and Exchange Commission. We make no representation as to the
accuracy or completeness of the information reported.(3)
    
    Includes 37,392 common shares underlying vested warrants.  
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
  100




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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
  Fees Incurred by our Company for KPMG
 (1)
 2009
    
    
    2008Audit Fees(2)
    
    $
    845,324
    
    
    $
    814,151Audit-Related Fees(3)
    
    
    17,513
    
    
    
    23,964Tax Fees(4)
    
    
    102.635
    
    
    
    121,266All Other Fees(5)
    
    
    19,212
    
    
    
    65,608Total
    
    $
    984,684
    
    
    $
    1,024,990
 
 (1)
    
    We pay fees to KPMG in Canadian dollars. The respective average exchange rates for
2009 and 2008 used to convert these fees into dollars were: US$1.00=Cdn$1.142 (2009)
and US$1.00=Cdn$1.060 (2008).(2)
    
    Audit fees represent fees for professional services provided in connection
with the audit of our consolidated financial statements, the review of our quarterly
financial statements and the statutory audit of various foreign subsidiaries.(3)
    
    Audit-related fees represent primarily fees for sundry accounting
consultations.(4)
    
    Tax fees related to assistance in preparing corporate tax returns, claiming
research and development tax credits and sundry tax consultations.(5)
    
    All other fees relates primarily to financial due diligence in connection
with acquisitions.  101




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##### Table of Contents



PART IV
 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
 ExhibitNumber
    
    Exhibit3.1
    
    
    Certificate and Articles of Continuance as amended.3.2
    
    
    By-laws as amended (incorporated by reference to Exhibit 3.2 to the
Companys Quarterly Report on Form 10-Q, for the quarterly period ended
September 30, 2009, filed with the Commission on November 13, 2009)4
    
    
    Specimen certificate of the common shares (incorporated by reference to
Exhibit 1.1 to the Companys Registration Statement on Form 8, File No.
0-28572, filed with the Commission on July 17, 1996)10.1
    
    
    Employment Agreement with Leon P. Garfinkle (incorporated by reference to
Exhibit 10.13 to the Companys Annual Report on Form 10-K for the year
ended December 31, 2002, filed with the Commission on March 31, 2003)10.2
    
    
    Employment Agreement with Neil S. Wechsler (incorporated by reference to
Exhibit 10.14 to the Companys Annual Report on Form 10-K for the year
ended December 31, 2003, filed with the Commission on March 10, 2004)10.3
    
    
    Employment Agreement with Henry M. Karp (incorporated by reference to
Exhibit 10.15 to the Companys Annual Report on Form 10-K for the year
ended December 31, 2003, filed with the Commission on March 10, 2004)10.4
    
    
    Employment Agreement with Holden L. Ostrin (incorporated by reference to
Exhibit 10.16 to the Companys Annual Report on Form 10-K for the year
ended December 31, 2003, filed with the Commission on March 10, 2004)10.5
    
    
    Employment Agreement with Gary S. Wechsler (incorporated by reference to
Exhibit 10.17 to the Companys Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2004, filed with the Commission on April
30, 2004)10.6
    
    
    Combination Agreement between Optimal Robotics Corp. and Terra Payments
Inc. (incorporated by reference to Exhibit 10.18 to the Companys
Quarterly Report on Form 10-Q for the quarterly period ended March 31,
2004, filed with the Commission on April 30, 2004)10.7
    
    
    Asset Purchase Agreement among NCR Corporation, and certain of its
affiliates, and Optimal Robotics Corp. and certain of its affiliates
(incorporated by reference to Exhibit 10.19 to the Companys Quarterly
Report on Form 10-Q for the quarterly period ended March 31, 2004, filed
with the Commission on April 30, 2004)10.8
    
    
    Asset Purchase Agreement among Fujitsu Transaction Solutions Inc., Optimal
Robotics Corp. and Optimal Robotics Inc. (incorporated by reference to
Exhibit 10.20 to the Companys Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2004, filed with the Commission on August
9, 2004)10.9
    
    
    Amendment to Asset Purchase Agreement among Fujitsu Transaction Solutions
Inc., Optimal Robotics Corp. and Optimal Robotics Inc. (incorporated by
reference to Exhibit 10.21 to the Companys Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 2004, filed with the Commission on
August 9, 2004)10.10
    
    
    Asset Purchase Agreement among Optimal Payments Corp. and NPS Holdings
LLC, NPS Manager, Inc. and The Members of NPS Holdings LLC (incorporated
by reference to Exhibit 10.22 to the Companys Quarterly Report on Form
10-Q for the quarterly period ended September 30, 2004, filed with the
Commission on November 4, 2004)10.11
    
    
    Purchase Agreement dated May 6, 2005 among United Bank Card, Inc. and
Optimal Payments Corp. (incorporated by reference to Exhibit 2.1 to the
Companys Form 8-K, filed with the Commission on May 11, 2005)10.12
    
    
    Placing Agreement relating to placing of ordinary shares of FireOne Group
plc dated May 27, 2005 (incorporated by reference to Exhibit 99.1 to the
Companys Form 8-K, filed with the Commission on June 2, 2005)10.13
    
    
    Tax Deed relating to placing of ordinary shares of FireOne Group plc dated
May 27, 2005 (incorporated by reference to Exhibit 99.2 to the Companys
Form 8-K, filed with the Commission on June 2, 2005)10.14
    
    
    Purchase Agreement dated October 5, 2005 among Moneris Solutions, Inc. and
Optimal Payments Corp. (incorporated by reference to Exhibit 2.1 to the
Companys Form 8-K, filed with the Commission on October 11, 2005)
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##### Table of Contents



ExhibitNumber
    
    Exhibit10.15
    
    
    Recommended cash offer by Optimal Acquisition Inc. for FireOne Group plc
(incorporated by reference to Exhibit 99 to the Companys Form 8-K, filed
with the Commission on December 18, 2006)10.16
    
    
    Employment Agreement with Douglas P. Lewin (incorporated by reference to
Exhibit 10.16 to the Companys Annual Report on Form 10-K for the year
ended December 31, 2006, filed with the Commission on March 15, 2007)10.17
    
    
    Amendment to Employment Agreement with Douglas P. Lewin (incorporated by
reference to Exhibit 10.17 to the Companys Annual Report on Form 10-K for
the year ended December 31, 2006, filed with the Commission on March 15,
2007)10.18
    
    
    Employment Agreement with Benjamin A. Dalfen (incorporated by reference to
Exhibit 10.18 to the Companys Annual Report on Form 10-K for the year
ended December 31, 2006, filed with the Commission on March 15, 2007)10.19
    
    
    Asset Purchase Agreement dated September 26, 2007 among Optimal Group
Inc., Wow Wee Limited, Wow Wee Group Company, WowWee Marketing, Inc.,
Power Assets Pacific Ltd., Richard Yanofsky, Peter Yanofsky, David
Goldhar, and Eric Lau Tung Ching (incorporated by reference to Exhibit 2.1
to the Companys Form 8-K, filed with the Commission on October 2, 2007)10.20
    
    
    Amendment dated as of November 7, 2007 to Asset Purchase Agreement dated
September 26, 2007 among Optimal Group Inc., Wow Wee Limited, Wow Wee
Group Company, WowWee Marketing, Inc., Power Assets Pacific Ltd., Richard
Yanofsky, Peter Yanofsky, David Goldhar, and Eric Lau Tung Ching
(incorporated by reference to Exhibit 2.1 to the Companys Form 8-K, filed
with the Commission on November 13, 2007)10.21
    
    
    Asset Purchase Agreement among Optimal Payments Inc., Optimal Payments
Limited, Optimal Payments (Ireland) Limited, Optimal Payments Corp. and
7012985 Canada Inc., on its behalf and/or that of a designee, with the
interventions of Card One Plus Ltd. and Optimal Group Inc., dated August
5, 2008 (incorporated by reference to Exhibit 2.1 to the Companys Form
8-K, filed with the Commission on August 11, 2008)10.22
    
    
    Amendment dated as of September 30, 2008 to Asset Purchase Agreement among
Optimal Payments Inc., Optimal Payments Limited, Optimal Payments
(Ireland) Limited, Optimal Payments Corp. and 7012985 Canada Inc., on its
behalf and/or that of a designee, with the interventions of Card One Plus
Ltd. and Optimal Group Inc., dated August 5, 2008 (incorporated by
reference to Exhibit 2.2 to the Companys Form 8-K, filed with the
Commission on October 7, 2008)10.23
    
    
    Purchase and Sale Option Agreement among Optimal Payments Corp., United
Bank Card, Inc. and Jared Isaacman, dated as of February 2, 2009
(incorporated by reference to Exhibit 2.1 to the Companys Form 8-K, filed
with the Commission on February 6, 2009)10.24
    
    
    Warrant issued by United Bank Card, Inc. to Optimal Payments Corp. dated
February 2, 2009 (incorporated by reference to Exhibit 2.2 to the
Companys Form 8-K, filed with the Commission on February 6, 2009)10.25
    
    
    Base salary reduction agreement with Neil S. Wechsler (incorporated by
reference to Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 2009, filed with the
Commission on November 13, 2009)10.26
    
    
    Base salary reduction agreement with Holden L. Ostrin (incorporated by
reference to Exhibit 10.2 to the Companys Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 2009, filed with the
Commission on November 13, 2009)10.27
    
    
    Base salary reduction agreement with Gary S. Wechsler (incorporated by
reference to Exhibit 10.3 to the Companys Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 2009, filed with the
Commission on November 13, 2009)21
    
    
    List of Subsidiaries23.1
    
    
    Consent of KPMG LLP31.1
    
    
    Certification required under Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    
    Certification required under Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    
    Certification pursuant to Section 1350, Chapter 63 of Title 18, United
States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
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ExhibitNumber
    
    Exhibit32.2
    
    
    Certification pursuant to Section 1350, Chapter 63 of Title 18, United
States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.99.1
    
    
    Audit Committee Charter (incorporated by reference to Exhibit 99.1 to the
Companys Annual Report on Form 10-K for the year ended December 31, 2003,
filed with the Commission on March 10, 2004)
 104




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##### Table of Contents



SIGNATURES
  March 31, 2010
    Optimal Group Inc.By:
    /s/ NEIL S. WECHSLERNeil S. Wechsler,Co-Chairman and Chief Executive Officer
(Principal Executive Officer)By:
    /s/ GARY S. WECHSLERGary S. Wechsler,Chief Financial Officer(Principal Accounting Officer)  March 31, 2010
    
    By:
    
    /s/ NEIL S. WECHSLER

Neil S. Wechsler, DirectorMarch 31, 2010
    
    By:
    
    /s/ HOLDEN L. OSTRIN

Holden L. Ostrin, DirectorMarch 31, 2010
    
    By:
    
    /s/ TOMMY BOMAN

Tommy Boman, DirectorMarch 31, 2010
    
    By:
    
    /s/ JAMES S. GERTLER

James S. Gertler, DirectorMarch 31, 2010
    
    By:
    
    /s/ JONATHAN J. GINNS

Jonathan J. Ginns, DirectorMarch 31, 2010
    
    By:
    
    /s/ HENRY M. KARP

Henry M. Karp, DirectorMarch 31, 2010
    
    By:
    
    /s/ THOMAS D. MURPHY

Thomas D. Murphy, Director
 105