FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month of September, 1996
RADICA GAMES LIMITED
(Translation of registrant's name into English)
Suite R, 6/F., 2-12 Au Pui Wan Street, Fo Tan, Hong Kong
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or 40-F
Form 20-F X Form 40-F
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes No X
If "yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-
Contents:
1. Quarterly Report
2. Press Release dated September 9, 1996
This Report on Form 6-K shall be deemed to be incorporated by reference
into the Registrant's Registration Statement on Form S-8 (no. 33-86960).
<PAGE>
QUARTERLY REPORT *
For the quarterly period ending July 31, 1996
Commission File Number 0-23696
RADICA GAMES LIMITED
(Exact name of registrant as specified in charter)
Bermuda N/A
(Country of Incorporation) (I.R.S. Employer Identification No.)
Suite R, 6/F., 2-12 Au Pui Wan Street, Fo Tan, Hong Kong
(Address of principal executive offices)
Registrant's telephone number, including area code: (852) 2693 2238
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No ____
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at September 9, 1996
_______________________________________ ________________________________
Common Stock, par value $0.01 per share 20,680,000
- ----------
* As a foreign private issuer, the registrant is not required to file reports
on Form 10-Q. It intends to make voluntary quarterly reports to its stockholders
which generally follow the Form 10-Q format. Such reports, of which this is one,
are furnished to the Commission pursuant to Form 6-K.
2
<PAGE>
PART I -- FINANCIAL INFORMATION
-------------------------------
Item 1. Financial Statements
- ----------------------------
RADICA GAMES LIMITED
FORM 6-K
The accompanying consolidated financial statements have been prepared
by the Company, without audit, and reflect all adjustments which are, in the
opinion of management, necessary for a fair statement of the results for the
interim periods. The statements have been prepared in accordance with the
regulations of the Securities and Exchange Commission (the "SEC"), but omit
certain information and footnote disclosures necessary to present the statements
in accordance with accounting principles generally accepted in the United States
of America.
These financial statements should be read in conjunction with the
financial statements, accounting policies and notes included in the Form 20F for
the year ended October 31, 1995 as filed with the Securities and Exchange
Commission. Management believes that the disclosures are adequate to make the
information presented herein not misleading.
3
<PAGE>
<TABLE>
<CAPTION>
RADICA GAMES LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(US Dollars in thousands, THREE MONTHS ENDED NINE MONTHS ENDED
except per share data) JUL. 31, JUL. 31,
----------------------------- ----------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
(unaudited) (unaudited) (unaudited) (unaudited)
REVENUES: $ $ $ $
<S> <C> <C> <C> <C>
Net sales 11,989 12,662 24,959 37,504
Cost of sales (8,836) (9,401) (18,747) (23,338)
---------- ---------- ---------- ----------
Gross profit 3,153 3,261 6,212 14,166
---------- ---------- ---------- ----------
OPERATING EXPENSES:
Selling, general and
administrative expenses (2,135) (5,123) (6,646) (15,070)
Research and development (477) (595) (1,280) (1,716)
---------- ---------- ---------- ----------
Total operating expenses (2,612) (5,718) (7,926) (16,786)
---------- ---------- ---------- ----------
OPERATING INCOME/(LOSS) FROM
CONTINUING OPERATIONS 541 (2,457) (1,714) (2,620)
NET INTEREST INCOME/(EXPENSE) 23 (129) (124) (404)
---------- ---------- ---------- ----------
INCOME/(LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES
AND UNUSUAL ITEM 564 (2,586) (1,838) (3,024)
UNUSUAL ITEM (Note 3) - - 709 -
---------- ---------- ---------- ----------
INCOME/(LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME
TAXES 564 (2,586) (1,129) (3,024)
INCOME TAXES (Note 7) 104 713 91 1,035
---------- ---------- ---------- ----------
INCOME/(LOSS) FROM CONTINUING
OPERATIONS AFTER INCOME
TAXES 668 (1,873) (1,038) (1,989)
---------- ---------- ---------- ----------
DISCONTINUED OPERATIONS: (Note 8)
LOSS FROM OPERATION OF PUB POKER
BUSINESS (38) (34) (256) (142)
PROVISION FOR ESTIMATED
LOSSES DURING PHASE-OUT
PERIOD (1,456) - (1,456) -
---------- ---------- ---------- ----------
NET LOSS (826) (1,907) (2,750) (2,131)
========== ========== ========== ==========
EARNINGS/(LOSS) PER SHARE FROM
CONTINUING OPERATIONS 0.03 (0.08) (0.05) (0.09)
NET LOSS PER SHARE (0.04) (0.08) (0.13) (0.09)
AVERAGE NUMBER OF
SHARES OUTSTANDING 20,680,000 22,780,000 21,691,679 22,780,000
========== ========== ========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE>
RADICA GAMES LIMITED
CONSOLIDATED BALANCE SHEETS
ASSETS
(US Dollars in thousands except share data) JUL. 31, OCT. 31,
---------------------------------
1996 1995
------------- -------------
(unaudited)
$ $
Cash and cash equivalents 5,004 7,757
Short-term investments (Note 4) 76 3,228
Accounts receivable, net of allowances
for doubtful accounts of $553 and
$1,572 in 1996 and 1995 and estimated
customer returns of $285 and $1,790 in
1996 and 7,637 10,242
Inventories, net of provision of $11,472
in 1996 and $11,873 in 1995 (Note 5) 13,663 16,472
Prepaid expenses and other current assets 549 531
Income taxes receivable -- 1,306
------ ------
26,929 39,536
13,277 14,468
29 29
-- 21
------ ------
40,235 54,054
====== ======
Short-term borrowings (Note 9) 5,289 13,970
Current portion of long-term debt (Note 10) 235 371
Accounts payable 3,978 3,006
Accrued payroll and employee benefits 165 241
Accrued expenses 2,977 6,070
Income taxes payable/receivable 17 --
------- -------
12,661 23,658
------- -------
5 99
------- -------
Common stock
par value $0.01 each, 100,000,000 shares
authorized, 20,680,000 shares outstanding 207 228
Additional paid-in capital 28,371 28,328
Retained (deficit)/earnings (1,030) 1,720
Cumulative translation adjustment 21 21
------- -------
27,569 30,297
40,235 54,054
======= =======
See accompanying notes to the consolidated financial statements.
5
<PAGE>
RADICA GAMES LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(US Dollars in thousands) NINE MONTHS ENDED
JUL. 31,
---------------------------------
1996 1995
------------- -------------
(unaudited) (unaudited)
$ $
Cash flow from operating activities:
Net loss (2,750) (2,131)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Deferred income taxes -- 7
Depreciation and amortization 1,193 1,077
(Gain)/Loss on disposal of property,
plant and equipment (709) 74
Write off of fixed assets 563 --
Others -- 366
Provision for compensation expense
related to stock options 22 --
Changes in assets and liabilities:
Accounts receivable 2,605 16,681
Inventories 2,809 (1,764)
Prepaid expenses and other current assets (18) 840
Accounts payable 972 (7,341)
Accrued payroll and employee benefits (76) (100)
Accrued expenses (3,093) (1,361)
Income taxes receivable/payable 1,323 (3,421)
Total adjustments 5,591 5,058
Net cash provided by operating activities 2,841 2,927
Cash flow from investing activities:
Purchase of property, plant and equipment (764) (5,453)
Decrease/(Increase) in other assets -- 98
Proceeds from the sales of short-term
investments 3,152 (14)
Proceeds from sale of property, plant
and equipment 929 --
Net cash provided by/(used in)
investing activities 3,317 (5,369)
(continued)
6
<PAGE>
RADICA GAMES LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(US Dollars in thousands) NINE MONTHS ENDED
JUL. 31,
---------------------------------
1996 1995
------------- -------------
(unaudited) (unaudited)
$ $
(Continued from previous page)
Cash flow from financing activities:
(Decrease)/Increase in short-term borrowings (8,681) 3,318
Repayment of long-term debt (230) (150)
Funds from sale and leaseback
arrangements -- 488
Repayment of note payable -- (3,000)
------ ------
Net cash used in financing activities (8,911) 656
------ ------
Net decrease in cash and cash equivalents (2,753) (1,786)
Cash and cash equivalents:
Beginning of period 7,757 11,038
------ ------
End of period 5,004 9,252
====== ======
Supplementary disclosures of cash flow
information:
Cash paid during the period for:
Interest 325 979
Income taxes 66 2,379
Cash received during the period for:
Income taxes (1,480) --
See accompanying notes to the consolidated financial statements.
7
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US dollars in thousands)
1. BASIS OF CONSOLIDATION AND PREPARATION OF FINANCIAL STATEMENTS
The consolidated financial statements include the accounts of the Company
and all subsidiaries. All significant intra-group transactions and balances
have been eliminated on consolidation.
The accompanying financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America
and are presented in U.S. dollars as the Company's sales are predominantly
denominated in U.S. dollars.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and cash equivalents -- Cash and cash equivalents include cash on
hand, cash accounts, interest-bearing savings accounts, and time
certificates of deposit with a maturity at purchase date of three months or
less.
Inventories -- Inventories are stated at the lower of cost, determined by
the weighted average method, or market.
Depreciation and amortization of property, plant and equipment --
Depreciation is provided on the straight line method at rates based upon
the estimated useful lives of the property, generally not more than seven
years except for leasehold land and buildings which are 50 years, the term
of the lease. Costs of leasehold improvements and leased assets are
amortized over the life of the related asset or the term of the lease,
whichever is shorter.
Mold costs -- The Company expenses all mold costs in the year of purchase
or for internally produced molds, in the year of construction.
Revenue recognition -- Revenues are recognized as sales when merchandise is
shipped. The Company permits the return of damaged or defective products
and accepts limited amounts of product returns in certain other instances.
Accordingly, the Company provides allowances for the estimated amounts of
these returns at the time of revenue recognition, based on historical
experience adjusted for known trends.
8
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Short-term investments -- During 1995, the Company adopted the provisions
of Statement of Financial Accounting Standards No. 115 ("SFAS 115"),
"Accounting for Certain Investments in Debt and Equity Securities". In
accordance with SFAS 115, investment securities are classified as
"trading", "held-to-maturity", or "available-for-sale". Debt and equity
securities that will be held for resale in anticipation of short-term
market movements are classified as trading securities and are stated at
fair value, with unrealized holding gains and losses included in earnings.
Debt securities are classified as held-to-maturity securities when the
company has the positive intent and ability to hold the securities until
their maturity. Held-to-maturity securities are stated at their amortized
cost. Debt securities not classified as trading or held-to-maturity are
classified as available-for-sale. Available-for-sale securities are stated
at fair value, with unrealized gains and losses, net of tax, reported as a
separate component of shareholders equity. Management determines the
appropriate classification of securities at the time of purchase and
re-evaluates such classification as of each balance sheet date.
Income taxes -- Certain items are treated differently for financial
reporting purposes than for income tax purposes. Pursuant to the provision
of Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes," deferred income taxes are provided, under the liability
method, in recognition of these temporary differences, using the tax rates
expected to be in effect when the related temporary differences reverse.
Foreign currency translation -- Assets and liabilities of foreign
operations are translated using year-end exchange rates. Revenues and
expenses of foreign operations are translated using average monthly
exchange rates. The impact of exchange rate changes is shown as "Cumulative
Translation Adjustment" in shareholders' equity. Net losses from foreign
exchange transactions of $100 in the quarter ended July 31, 1996 and $77 in
the quarter ended July 31, 1995 are included in selling, general and
administrative expenses.
Post-retirement and post-employment benefits -- The Company does not
provide post-retirement benefits to employees and post-employment benefits
are immaterial.
Warranty -- Future warranty costs are provided for at the time of revenue
recognition based on management's estimate by reference to historical
experience adjusted for known trends.
3. UNUSUAL ITEM
During the second quarter of 1996, a gain of $709 was made from the sale of
a property in Hong Kong.
4. SHORT-TERM INVESTMENTS
At October 31, 1995, the Company had an investment in a money market fund
of $3,000 which was subsequently sold in December 1995.
9
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
5. INVENTORIES
Inventories by major categories are summarized as follows:
July 31, October 31,
-------- -----------
1996 1995
------- -------
(unaudited)
Raw materials $ 2,612 $ 4,036
Work in progress 3,587 2,576
Finished goods 7,464 9,860
------- -------
$13,663 $16,472
======= =======
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
July 31, October 31,
-------- -----------
1996 1995
-------- --------
(unaudited)
Land and buildings $ 9,883 $ 9,628
Plant and machinery 2,972 2,958
Furniture and equipment 2,898 2,849
Leasehold improvements 1,180 1,130
Pub Poker Units -- 476
------- -------
Total $16,933 $17,041
Less: Accumulated depreciation and
amortization (3,656) (2,573)
------- -------
Total $13,277 $14,468
======= =======
Additions, disposals and depreciation and amortization of property, plant
and equipment for the periods shown are as follows:
Nine
Months Year
Ended Ended
July 31, October
1996 31, 1995
----------- ---------
(unaudited)
Additions $ 764 $ 6,399
Disposals -- net book value 220 642
Write off of fixed assets 563 1,478
Depreciation and amortization 1,172 1,542
10
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
6. PROPERTY, PLANT AND EQUIPMENT (Continued)
Included in property, plant and equipment are assets acquired under capital
leases with the following net book values:
Nine Months Year
Ended Ended
July 31, October 31,
1996 1995
------ ------
(unaudited)
At cost:
Plant and machinery $ 968 $ 968
Less: accumulated depreciation (301) (156)
------- -------
$ 667 $ 812
======= =======
Amortization of capital lease assets, which is included in depreciation and
amortization expenses in the accompanying statements of income, was $145
for the period ended July 31, 1996 and $136 for the year ended October 31,
1995.
7. INCOME TAXES
The components of loss from continuing operations before income taxes are
as follows:
Nine Nine
Months Months
Ended Ended
July 31, July 31,
1996 1995
-------- --------
(unaudited) (unaudited)
United States $(1,418) $(2,846)
Foreign subsidiaries operating in:
People's Republic of China 374 (255)
Hong Kong (85) 77
------- -------
$(1,129) $(3,024)
======= =======
In accordance with the Hong Kong Inland Revenue Departmental Interpretation
and Practice Note No. 21, manufacturing operations carried out in the
People's Republic of China ("PRC") by Hong Kong companies under a
processing arrangement have been apportioned 50% of their income as not
subject to Hong Kong income tax.
11
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
7. INCOME TAXES (Continued)
As the Company's PRC subsidiary is a sino-foreign joint venture enterprise,
it is eligible for certain tax holidays and concessions. The PRC subsidiary
incurred a loss during the 1995 period. In addition, under the existing
processing arrangement and in accordance with the current tax regulations
in the PRC, manufacturing income generated in the PRC is not subject to PRC
income taxes.
The credit/(provision) for income taxes consists of the following:
Nine Nine
Months Months
Ended Ended
July 31, July 31,
1996 1995
-------- --------
(unaudited) (unaudited)
Hong Kong
Current $ 104 $ (18)
Deferred -- (7)
------- -------
$ 104 $ (25)
------- -------
United States
Federal income taxes $ (13) $ 998
State income taxes -- 62
Deferred -- --
------- -------
$ (13) $ 1,060
------- -------
$ 91 $ 1,035
======= =======
12
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
7. INCOME TAXES (Continued)
A reconciliation between the credit for income taxes computed by applying
the statutory tax rates in the United States for 1996 and 1995 to loss
before income taxes and the actual (provision)/credit for income taxes is
as follows:
Nine Nine
Months Months
Ended Ended
July 31, July 31,
1996 1995
-------- --------
(unaudited) (unaudited)
US Statutory Rate 34% 34%
Credit for income taxes at statutory
rate on loss for the period $ 384 $ 1,028
State income taxes -- 62
International rate differences 15 13
Accounting losses for which deferred
income tax cannot be recognised (326) (87)
Other 18 19
------- -------
Income tax credit $ 91 $ 1,035
======= =======
Deferred income taxes reflect the net tax effect of temporary differences
between the amounts of assets and liabilities for income tax purposes
compared with the respective amounts for financial statement purposes. At
July 31, 1996 and October 31, 1995 deferred income taxes comprised:
July 31, October 31,
1996 1995
------ ------
(unaudited)
Deferred tax assets (liabilities):
Excess of tax over financial
reporting depreciation $ (79) $ (79)
Tax losses 1,853 --
Bad debt allowance 203 517
Advertising allowances -- 123
Inventory obsolescence reserve 2,930 4,066
Other 851 955
------- -------
$ 5,758 $ 5,582
Valuation allowance (5,729) (5,553)
------- -------
$ 29 $ 29
======= =======
13
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
8. DISCONTINUED OPERATIONS
On July 31, 1996 the Company adopted a plan to discontinue its Pub Poker
operations. All products and raw materials relating to Pub Poker will be
disposed of by October 31, 1996 either by means of sale at discounted
prices or by scrapping. The loss from Pub Poker operations has been
accounted for as discontinued operations and the prior year financial
statement has been restated to reflect the discontinued operations. As at
July 31, 1996 the following assets which have been provided for and form a
part of the loss from cessation of business are the only remaining current
and fixed assets:
Raw materials $1,040
Finished Goods 379
"Pub Runner" computer software 7
Other 30
------
$1,456
======
In 1995 and 1994, the Pub Poker business produced operating losses of $233
and $20 respectively. Revenues from Pub Poker for the nine months ended
July 31, 1996 and the years ended October 31, 1995 and October 31, 1994
were $14, $0 and $0 respectively.
9. SHORT-TERM BORROWINGS
These include borrowings in the form of trade acceptances, and overdrafts
with various banks.
July 31, October 31,
1996 1995
-------- --------
(unaudited)
Credit facilities available at
end of period $ 7,633 $ 22,394
Utilized at end of period $ 5,288 $ 13,970
Weighted average interest rate on
borrowings at end of period 7.97% 8.74%
Interest rates are generally based on the banks' prime rate.
10. LONG-TERM DEBT
July 31, October 31,
1996 1995
-------- --------
(unaudited)
Long-term debt consists of:
Capital lease obligations
(interest at 13.35% to 13.80%) $ 240 $ 470
Current portion of long-term debt (235) (371)
-------- --------
Long-term debt, less current portion $ 5 $ 99
======== ========
14
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
11. STOCK OPTIONS
The Company's 1994 Stock Option Plan (the "Stock Option Plan") provides for
options to be granted for the purchase of an aggregate of 1,600,000 shares
of common stock at per share prices not less than 100% of the fair market
value at the date of grant as determined by the Compensation Committee of
the Board of Directors. Options under this plan are generally exercisable
ratably over five years from the date of grant unless otherwise provided.
In January 1996, due to the reduced market price of Radica Games common
stock, the company offered active employees holding outstanding options the
opportunity to exchange them for stock options at an exercisable price
equal to the fair market value at that time. As a result of the offer,
holders of 916,000 options at an exercise price of $ 8.50 returned their
options for cancellation and 916,000 options at an exercise price of
$1.375 were granted in exchange. In the third quarter of 1996, 4,000
options and 1,000 options at an exercise price of $1.375 were canceled
and vested respectively.
At July 31, 1996, 991,000 options granted under the Stock Option Plan,
exercisable at a price of $1.375, 15,000 options, exercisable at a price of
$1.50, 34,000 options, exercisable at a price of $8.50, 15,000 options,
exercisable at a price of $3.66, 90,000 options, exercisable at a price of
$11.00 and 75,200 options, exercisable at a price of $0.567 granted under
an employment agreement, are outstanding.
15
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
12. OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF CREDIT RISK AND MAJOR
CUSTOMERS
Accounts receivable of the Company are subject to a concentration of credit
risk with customers in the retail sector. This risk is limited due to the
large number of customers composing the Company's customer base and their
geographic dispersion, though the Company has two customers which accounted
for more than twenty and twenty-three percent of net sales in the nine
months ended July 31, 1996 and had three customers which accounted for more
than nineteen, thirteen and eleven percent of net sales in fiscal 1995. The
Company performs ongoing credit evaluations of its customers' financial
condition and, generally, requires no collateral from its customers.
13. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of the Statement of
Financial Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments." The estimated fair value amounts have been
determined by the Company, using available market information and
appropriate valuation methodologies. The estimates presented herein are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange.
The carrying amounts of cash and short-term investments, accounts
receivable, accounts payable and a note payable are reasonable estimates of
their fair value.
At July 31, 1996, the Company has letters of credit outstanding totaling
$775 which guarantee various trade activities. The contract amount of the
letters of credit is a reasonable estimate of the fair value since the
value for each is fixed over the life of the commitment.
14. RETIREMENT PLAN
The Company has defined contribution retirement plans covering
substantially all employees in Hong Kong. Under these plans, eligible
employees may contribute amounts through payroll deductions which are not
more than 5% of individual salary, supplemented by employer contributions
ranging from 5% to 10% of individual salary depending on the years of
service. The expenses related to these plans were $39 and $83 for the nine
months ended July 31, 1996 and fiscal 1995 respectively.
16
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
15. LITIGATION
Ten purported class actions filed in various United States District Courts
against the Company, various of its officers and directors, and the
managing underwriters of the Company's initial public offering have been
consolidated in the United States District Court for the District of Nevada
under the caption In re Radica Games Limited Securities Litigation, Master
File No. CV-S-94-00653-DAE (LRL). Plaintiffs filed a consolidated complaint
on November 4, 1994 that superseded all the complaints in the individual
actions.
The named plaintiffs originally sought to represent a class consisting of
purchasers of the Company's common stock in the initial public offering or
in the open market from May 13 through July 22, 1994 and sought
unquantified monetary damages and other relief against the defendants for
alleged violations of Sections 11, 12(2), and 15 of the Securities Act of
1933, Sections 10b (and Rule 10b-5 thereunder), 20(a), and 20A(a) of the
Securities Exchange Act of 1934, Sections 90.570, 90.660 and 90.660.4 of
the Nevada Revised Statutes, and the common law of Nevada relating to the
Company's registration statement and other public disclosures. As a
consequence of an Order of the Court granting in part defendants' motion to
dismiss the complaint and a stipulation of the parties, all of plaintiff's
claims other than those arising under the Securities Act of 1993, and
limited to certain specified statements in the Company's registration
statement, were dismissed without prejudice. Pursuant to a stipulation of
the parties, the Court provisionally agreed to treat the remaining claims
as class claims.
After the close of discovery, plaintiffs moved for leave to amend their
complaint to add allegations with respect to an additional claimed omission
in the registration statement. Shortly thereafter, the Company moved for
summary judgment seeking dismissal of the complaint. Following a hearing on
July 31, 1996, the Court entered an Order (i) denying plaintiffs' motion to
amend the complaint and (ii) granting the Company's (and the other
defendants') motion for summary judgment, and on August 9, 1996 the Court
entered final judgment dismissing the action. Plaintiffs have moved for
reconsideration of the grant of summary judgment against them. They also
have a right of appeal to the United States Court of Appeals for the Ninth
Circuit.
17
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
16. SEGMENT INFORMATION
The Company operates in one principal industry segment: the design,
development, manufacturing and distribution of a variety of non-gambling
casino-theme and non casino-theme games. Geographic financial information
is as follows:
Nine Nine
Months Months
Ended Ended
July 31, July 31,
1996 1995
------- -------
(unaudited) (unaudited)
Net sales:
United States $18,192 $36,124
PRC and Hong Kong 6,767 1,380
------- -------
$24,959 $37,504
======= =======
Operating Loss:
United States $(1,386) $(2,382)
PRC and Hong Kong (328) (238)
------- -------
$(1,714) $(2,620)
======= =======
Identifiable assets:
United States $14,209 $29,683
PRC and Hong Kong 26,026 45,437
------- -------
$40,235 $75,120
======= =======
A significant portion of PRC and Hong Kong net sales in the nine months
ended July 31, 1996 were export sales to the United States.
18
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
---------------------------------------------------------------
The following discussion should be read in conjunction with the attached
financial statements and notes thereto, and with the audited financial
statements, accounting policies and notes included in the Company's Annual
Report to Shareholders for the fiscal year ended October 31, 1995, and in the
Company's Annual Report on Form 20-F for such fiscal year as filed with the
United States Securities and Exchange Commission.
RESULTS OF OPERATIONS -- QUARTER ENDED JULY 31, 1996
COMPARED TO THE QUARTER ENDED JULY 31, 1995
- ----------------------------------------------------
Net sales for the quarter ended July 31, 1996 of $12.0 million decreased 5%
from $12.7 million for the same quarter in 1995. Unit sales increased 25% during
the third quarter 1996 over the third quarter 1995 from 2 million units in 1995
to 2.5 million units in 1996. New products included four new Radica games, King
Pin Bowling; Hearts; Gin Rummy and Bass Fishin', as well as one new Monte Carlo
game, Solitaire and three new electronic original equipment manufacture
("O.E.M.") games for Milton Bradley, Hangman(TM); Connect Four(TM) and
Battleship(TM). Sales of non casino-theme games accounted for 28% of net sales,
sales of O.E.M. product accounted for 34% of net sales and sales of casino-theme
games accounted for 38% of net sales. Of the casino-theme games, handheld games
accounted for 87% of net sales, down from 89% in the third quarter of 1995. The
third quarter decrease in net sales is due to the sale of promotional products
at lower prices to reduce inventory levels offset by sales of new product lines.
Gross profit for the third quarter of 1996 was $3.2 million as compared to
$3.3 million for the third quarter of 1995, a decrease of $0.1 million. The
gross margin for the third quarter of 1996 of 26.3% has increased from 25.8% for
the same quarter in 1995. This increase is due primarily to sale of new higher
margin product lines offset by sales of promotional products to reduce
inventories of casino-theme games and lower margin O.E.M. sales.
Operating income from continuing operations for the third quarter of 1996
was $0.5 million, up $3.0 million from the operating loss of $2.5 million in the
same quarter in 1995. Operating expenses decreased to $2.6 million from $5.7
million in the third quarter of fiscal 1995. This decrease was primarily due to
decreased commissions (as a result of lower sales and a new commission
structure) and the benefits of the Company's cost cutting program. Commissions
decreased 55% to $239,000 from $536,000 in the third quarter of 1995; indirect
salaries and wages decreased 41% to $1.0 million from $1.7 million; advertising
and promotion expenses decreased 32% to $287,000 from $419,000 and research and
development expenses decreased 20% to $477,000 from $595,000.
After-tax income from continuing operations for the third quarter of 1996
was $0.7 million, up from net loss of $1.9 million in the third quarter of 1995.
The earnings per common share before discontinued operations in the third
quarter of 1996 was $0.03 as compared to net loss per common share of $0.08 for
the third quarter of 1995.
Net loss for the third quarter of 1996 after discontinued operations was
$0.8 million, giving a net loss per share of $0.04 for the quarter.
19
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY
- -------------------------------
Cash and cash equivalents totaled $5.0 million at July 31, 1996, down $2.8
million from year-end 1995. Working capital at July 31, 1996 was $14.3 million,
a $1.6 million decrease from working capital of $15.9 million at October 31,
1995. The ratio of current assets to current liabilities increased to 2.13 at
July 31, 1996 from 1.67 at October 31, 1995. The increase in the current ratio
is due to repayment of short-term debt.
Inventories at July 31, 1996 totaled $13.7 million compared to $16.5
million at October 31, 1995. This decrease is due mainly to the inventory
reduction program, offset by purchases of raw materials for the peak production
season.
Short-term borrowings of $5.3 million at July 31, 1996 were down from $14.0
million at October 31, 1995. This decrease is due primarily to repayment of
credit lines used for the purchase of raw materials for the manufacturing
operation and repayment of overdraft facilities.
The Company believes that its existing cash and cash equivalents and cash
generated from operations are sufficient to satisfy its current anticipated
working capital needs.
20
<PAGE>
PART II -- OTHER INFORMATION
----------------------------
Item 1. Legal Proceedings
- -------------------------
See Note 15 of Notes to Financial Statements, included herein.
Item 2. Changes in Securities
- -----------------------------
None.
Item 3. Defaults Upon Senior Securities
- ---------------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
None.
Item 5. Other Information
- -------------------------
None.
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
21
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RADICA GAMES LIMITED
(Registrant)
Date: September 10, 1996 By: /s/ David C.W. Howell
-------------------------
David C.W. Howell
Chief Financial Officer
22
<PAGE>
RADICA GAMES LIMITED
RADICA GAMES LIMITED
REPORTS PROFIT FOR
THE THIRD QUARTER ENDED JULY 31, 1996
FOR IMMEDIATE RELEASE CONTACT: JON N. BENGTSON
September 9, 1996 (RENO, NEVADA)
(702) 829 8643
DAVID C.W. HOWELL
(HONG KONG)
(852) 2693 2238
(Hong Kong) Radica Games Limited (NASDAQ RADAF) reported today net sales of
$12.0 million, a 5% decline from $12.7 million for the third quarter of 1995.
After tax profit from continuing operations for the third quarter (before
accounting for the discontinued Pub Poker operations) was $0.7 million, up from
net loss of $1.9 million in the third quarter of 1995. Net loss for the third
quarter of 1996 after discontinued operations was $0.8 million. The earnings per
common share from continuing operations was $0.03 in the third quarter of 1996
compared to a net loss per common share of $0.08 for the third quarter of 1995.
The third quarter decrease in net sales resulted primarily from lower
promotional product pricing as part of the inventory reduction program offset by
sales of new product lines.
Gross profit for the third quarter of fiscal 1996 decreased 3.3% to $3.2 million
from $3.3 million for the third quarter of fiscal 1995. The gross margin for the
third quarter was 26.3% compared to 25.8% for the same quarter last year and
4.7% in the second quarter of fiscal 1996.
The increase in gross margin was due to the sale of new non casino-theme product
at higher margins offset by continued sales of promotional casino-theme product
at low margins and lower margin O.E.M. production for the Hasbro Games Group.
Operating income for the third quarter of 1996 before accounting for cessation
of Pub Poker business was $0.5 million compared to an operating loss of $2.5
million for the same quarter last year. Operating expenses decreased 54% to $2.6
million in the third quarter of fiscal 1996 from $5.7 million in the third
quarter of fiscal 1995. The decrease was primarily due to reduced commissions
(as a result of lower sales and the new commission structure) and the benefits
of the Company's cost-cutting program. Commissions for the third quarter of
fiscal 1996 decreased 55% to $239,000 from $536,000 in the third quarter of
fiscal 1995; indirect salaries and wages decreased 41% to $1.0 million from $1.7
million; advertising and promotion expenses decreased 32% to $287,000 from
$419,000 and research and development expenses decreased 20% to $477,000 from
$595,000.
<PAGE>
Comparison of Expenses
Q3 1995 to Q3 1996
($ millions)
(Set forth in bar chart)
Q3 1995 Q3 1996
------- -------
Sales Commissions 0.54 0.24
Salaries 1.70 1.00
Advertising Expenses 0.42 0.29
Research & Development 0.60 0.48
"As we approach Q4, traditionally our strongest quarter, we look forward to
further successes generated by strong sell through of our new product lines. Our
non casino-theme lines are expected to be expanded in 1997 from the current 11
models to more than 20," said Mr. Bob Davids, President and CEO
<PAGE>
"We are now starting to see the effects of sales of non casino-theme product
combined with the results of our cost-cutting program. We are very pleased with
the sales of Bass-Fishin', Golf and Solitaire and our O.E.M. relationship with
the Hasbro Games Group continues to flourish with over two million games being
produced for them during fiscal 1996. We expect to see an increase in O.E.M.
business in 1997," said Davids.
"We are delighted that the Class Action lawsuit against the Company, which had
been pending since July 1994, has been dismissed by the District Court. Although
the dismissal is still subject to appeal or reconsideration, we are hopeful that
we can put this matter behind us and focus fully on the future of Radica," said
Davids in response to the granting of a motion for summary judgment in favor of
the Company by United States District Court Judge David Alan Ezra.
Mr. Davids stated that during the third quarter, the Company had made the
decision to close its Pub Poker operations due to the poor response from the
market.
The foregoing discussion contains forward-looking statements
that involve risks and uncertainties that could cause actual
results to differ materially from projected results as a
result of various factors including those set forth in the
Company's Annual Report on Form 20-F for the fiscal year ended
October 31, 1995, as filed with the Securities and Exchange
Commission. In particular, see "Item 1. Description of
Business -- Risk Factors" in such report on Form 20-F.
-- END --
<PAGE>
RADICA GAMES LIMITED
CONSOLIDATED BALANCE SHEETS
ASSETS
(US Dollars in thousands except share data) JUL. 31, OCT. 31,
----------------------------
1996 1995
------- -------
(unaudited)
$ $
CURRENT ASSETS:
Cash and cash equivalents 5,004 7,757
Short-term investments 76 3,228
Accounts receivable, net of allowances
for accounts of $553 and $1,572 in 1996
and 1995 and estimated customer returns
of $285 and $1,790 in 1996 and 1995 7,637 10,242
Inventories, net of provision of $11,472
in 1996 and $11,873 in 1995 13,663 16,472
Prepaid expenses and other current assets 549 531
Income taxes receivable -- 1,306
------- -------
Total current assets 26,929 39,536
PROPERTY, PLANT AND EQUIPMENT, NET 13,277 14,468
DEFERRED INCOME TAXES 29 29
OTHER ASSETS -- 21
------- -------
Total assets 40,235 54,054
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings 5,289 13,970
Current portion of long-term debt 235 371
Accounts payable 3,978 3,006
Accrued payroll and employee benefits 165 241
Accrued expenses 2,977 6,070
Income taxes payable/receivable 17 --
------- -------
Total current liabilities 12,661 23,658
------- -------
LONG-TERM DEBT 5 99
------- -------
STOCKHOLDERS' EQUITY
Common stock
par value $0.01 each, 100,000,000 shares
authorised, 20,680,000 shares outstanding
(22,780,000 at 31st October 1995) 207 228
Additional paid-in capital 28,371 28,328
Retained (deficit)/earnings (1,030) 1,720
Cumulative translation adjustment 21 21
------- -------
------- -------
Total stockholders' equity 27,569 30,297
Total liabilities and stockholders' equity 40,235 54,054
======= =======
<PAGE>
RADICA GAMES LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(US Dollars in thousands, THREE MONTHS ENDED NINE MONTHS ENDED
except per share data) JUL. 31, JUL. 31,
----------------------------- -----------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
REVENUES: $ $ $ $
<S> <C> <C> <C> <C>
Net sales 11,989 12,662 24,959 37,504
Cost of sales (8,836) (9,401) (18,747) (23,338)
---------- ---------- ---------- ----------
Gross profit 3,153 3,261 6,212 14,166
---------- ---------- ---------- ----------
OPERATING EXPENSES:
Selling, general and administrative expenses (2,135) (5,123) (6,646) (15,070)
Research and development (477) (595) (1,280) (1,716)
---------- ---------- ---------- ----------
Total operating expenses (2,612) (5,718) (7,926) (16,786)
---------- ---------- ---------- ----------
OPERATING INCOME/(LOSS) FROM
CONTINUING OPERATIONS 541 (2,457) (1,714) (2,620)
NET INTEREST INCOME/(EXPENSE) 23 (129) (124) (404)
---------- ---------- ---------- ----------
INCOME/(LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES
AND UNUSUAL ITEM 564 (2,586) (1,838) (3,024)
UNUSUAL ITEM -- -- 709 --
---------- ---------- ---------- ----------
INCOME/(LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 564 (2,586) (1,129) (3,024)
INCOME TAXES 104 713 91 1,035
---------- ---------- ---------- ----------
INCOME/(LOSS) FROM CONTINUING
OPERATIONS AFTER INCOME TAXES 668 (1,873) (1,038) (1,989)
---------- ---------- ---------- ----------
DISCONTINUED OPERATIONS:
LOSS FROM OPERATION OF PUB POKER
BUSINESS (38) (34) (256) (142)
PROVISION FOR ESTIMATED
LOSSES DURING PHASE-OUT PERIOD (1,456) -- (1,456) --
---------- ---------- ---------- ----------
NET LOSS (826) (1,907) (2,750) (2,131)
========== ========== ========== ==========
EARNINGS/(LOSS) PER SHARE FROM
CONTINUING OPERATIONS 0.03 (0.08) (0.05) (0.09)
NET LOSS PER SHARE (0.04) (0.08) (0.13) (0.09)
AVERAGE NUMBER OF
SHARES OUTSTANDING 20,680,00 22,780,00 21,691,67 22,780,00
========== ========== ========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
Sullivan & Cromwell
444 South Flower Street
Los Angeles, California 90071-2901
Telephone: (213) 955-8000
Facsimile: (213) 683-0457
(213) 955-4513
September 12, 1996
VIA EDGAR
Securities and Exchange Commission,
450 Fifth Street, N.W.,
Washington, D.C. 20549.
Re: Radica Games Limited Report on Form 6-K
(Registration No. 0-23696)
Ladies and Gentlemen:
On behalf of Radica Games Limited, a company incorporated in Bermuda (the
"Company"), we attach for furnishing to the Securities and Exchange Commission
the Company's report on Form 6-K (the "Form 6-K"),
Should you have any questions or comments relating to the Form 6-K, please
do not hesitate to call the undersigned at (213) 955-8037 or, in my absence,
Julius Christensen at (213) 955-8082.
Very truly yours,
/s/ Frank H. Golay, Jr.
Frank H. Golay, Jr.
(Attachments)
cc: Jon Bengtson
(Radica Games Limited)
