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, 1997
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 for the Quarter Ended July 31, 1997
2. Press Release dated September 3, 1997
3. Press Release dated June 10, 1997
This Report on Form 6-K shall be deemed to be incorporated by reference
into the Registrant's Registration Statements on Form S-8 (No. 33-86960 and No.
333-7000) and on Form F-3 (No. 333-7526).
<PAGE>
QUARTERLY REPORT *
For the quarterly period ending July 31, 1997
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 July 31, 1997
Common Stock, par value $0.01 per share 20,830,200
- ------------------------
* 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 generally accepted accounting principles 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, 1996 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
NINE MONTHS ENDED THREE MONTHS ENDED
JULY 31, JULY 31,
=============================== ===============================
(US Dollars in thousands, except per share data) 1997 1996* 1997 1996*
============== ============== ============== =============
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Net sales $ 47,375 $ 24,959 $ 22,532 $ 11,989
Cost of sales (24,806) (18,427) (10,861) (8,729)
-------------- -------------- -------------- -------------
Gross profit 22,569 6,532 11,671 3,260
-------------- -------------- -------------- -------------
OPERATING EXPENSES:
Selling, general and administrative expenses (8,335) (6,603) (3,404) (2,532)
Research and development (1,292) (1,227) (361) (458)
Depreciation and amortization (1,843) (1,142) (1,052) (385)
-------------- -------------- -------------- -------------
Total operating expenses (11,470) (8,972) (4,817) (3,375)
-------------- -------------- -------------- -------------
OPERATING INCOME/(LOSS) FROM
CONTINUING OPERATIONS 11,099 (2,440) 6,854 (115)
OTHER INCOME 502 726 199 437
SHARE OF PROFIT/(LOSS) OF
AFFILIATED COMPANY (61) - (61) -
NET INTEREST INCOME/(EXPENSE) 531 (124) 248 23
-------------- -------------- -------------- -------------
INCOME/(LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES
AND UNUSUAL ITEM 12,071 (1,838) 7,240 345
UNUSUAL ITEM - 709 - -
-------------- -------------- -------------- -------------
INCOME/(LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 12,071 (1,129) 7,240 345
INCOME TAXES (Note 6) (85) 91 (93) 104
-------------- -------------- -------------- -------------
INCOME/(LOSS) FROM CONTINUING
OPERATIONS AFTER INCOME TAXES 11,986 (1,038) 7,147 449
DISCONTINUED OPERATION: (Note 7)
LOSS FROM OPERATION OF PUB POKER
BUSINESS (LESS APPLICABLE INCOME
TAX BENEFIT) - (1,712) - (1,494)
-------------- -------------- -------------- -------------
NET INCOME/(LOSS) $ 11,986 $ (2,750) $ 7,147 $ (1,045)
============== ============== ============== =============
EARNINGS/(LOSS) PER SHARE FROM
CONTINUING OPERATIONS $ 0.58 $ (0.05) $ 0.34 $ 0.02
EFFECT OF DISCONTINUED OPERATION - (0.08) - (0.07)
NET EARNINGS/(LOSS) PER SHARE $ 0.58 $ (0.13) $ 0.34 $ (0.05)
============== ============== ============== =============
AVERAGE NUMBER OF
SHARES OUTSTANDING 20,732,615 21,691,679 20,786,091 20,680,000
============== ============== ============== =============
See accompanying notes to the consolidated financial statements
<FN>
* Restated to conform with 1997 presentation.
</FN>
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
RADICA GAMES LIMITED
CONSOLIDATED BALANCE SHEETS
ASSETS
<S> <C> <C>
JUL. 31, OCT. 31,
(US Dollars in thousands except share data) 1997 1996
============== =============
(unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 22,201 $ 8,527
Short-term investments 2,088 77
Accounts receivable, net of allowances for doubtful
accounts of $687 and $234 in 1997 and 1996 and estimated
customer returns of $718 and $817 in 1997 and 1996 8,901 9,624
Inventories, net of provision of $5,426 in 1997 and
$8,419 in 1996 (Note 3) 11,147 10,984
Prepaid expenses and other current assets 582 547
-------------- -------------
TOTAL CURRENT ASSETS 44,919 29,759
-------------- -------------
INVESTMENT IN AFFILIATED COMPANY (Note 4) 274 -
-------------- -------------
PROPERTY, PLANT AND EQUIPMENT, NET (Note 5) 12,609 12,937
-------------- -------------
DEFERRED INCOME TAXES (Note 6) - 29
-------------- -------------
TOTAL ASSETS $ 57,802 $ 42,725
============== =============
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt (Note 8) $ 2 $ 99
Accounts payable 8,671 5,535
Accrued payroll and employee benefits 148 686
Accrued expenses 4,822 4,547
Income taxes payable 50 45
Deferred income taxes (Note 6) 148 -
-------------- -------------
TOTAL CURRENT LIABILITIES 13,841 10,912
-------------- -------------
SHAREHOLDERS' EQUITY
Common stock
par value $0.01 each, 100,000,000 shares authorised,
20,830,200 shares outstanding (20,680,000 at Oct. 31,
1996) 208 207
Additional paid-in capital 28,548 28,371
Retained earnings 15,200 3,214
Cumulative translation adjustment 5 21
-------------- -------------
TOTAL SHAREHOLDERS' EQUITY 43,961 31,813
============== =============
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 57,802 $ 42,725
============== =============
See accompanying notes to the consolidated financial statements
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
RADICA GAMES LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
JULY 31,
==================================
(US Dollars in thousands) 1997 1996
============== ==============
(unaudited) (unaudited)
<S> <C> <C>
Cash flow from operating activities:
Net income/(loss) $ 11,986 $ (2,750)
Adjustments to reconcile net income/(loss)
to net cash provided by operating activities:
Deferred income taxes 177 -
Depreciation and amortization 1,843 1,193
Share of result of affiliated company 61 -
(Gain)/Loss on disposal and write off of
property, plant and equipment (11) (146)
Provision for compensation expense relating to stock options - 22
Cumulative translation adjustment (16) -
Changes in assets and liabilities:
Accounts receivable 723 2,605
Inventories (163) 2,809
Prepaid expenses and other current assets (35) (18)
Accounts payable 3,136 972
Accrued payroll and employee benefits (538) (76)
Accrued expenses 275 (3,093)
Income taxes payable 5 1,323
-------------- --------------
Net cash provided by operating activities 17,443 2,841
-------------- --------------
Cash flow from investing activities:
Increase in short-term investment (2,011) -
Proceeds from sale of property, plant
and equipment 20 929
Purchase of property, plant and equipment (859) (764)
Proceeds from sale of short-term investments - 3,152
Purchase of unlisted shares (1,000) -
-------------- --------------
Net cash (used in)/provided by investing activities (3,850) 3,317
-------------- --------------
Cash flow from financing activities:
(Decrease)/increase in short-term borrowings - (8,681)
Repayment of long-term debt (97) (230)
Issue of common stock 178 -
-------------- --------------
Net cash provided by/(used in) financing activities 81 (8,911)
-------------- --------------
Net increase/(decrease) in cash and cash equivalents $ 13,674 $ (2,753)
Cash and cash equivalents:
Beginning of period 8,527 7,757
-------------- --------------
End of period $ 22,201 $ 5,004
============== ==============
Supplementary disclosures of cash flow information:
Cash received/(paid) during the period for:
Interest $ 456 $ (325)
Income taxes (80) 1,414
See accompanying notes to the consolidated financial statements.
</TABLE>
6
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US dollars in thousands)
1. ORGANIZATION AND BASIS OF FINANCIAL STATEMENTS
The consolidated financial statements include the accounts of the Company
and all subsidiaries. Investments in affiliates, owned more than 20 percent
but not in excess of 50 percent, are recorded using the equity method. All
significant intra-group transactions and balances have been eliminated on
consolidation.
The Company designs, develops, manufactures and distributes a variety of
electronic handheld and mechanical games.
The accompanying financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America
and are presented in US dollars as the Company's sales are predominantly
denominated in US 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. Provision for potentially obsolete
or slow-moving inventory is made based on management's analysis of
inventory levels and future expected sales.
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 30 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.
Upon sale or retirement, the costs and related accumulated depreciation or
amortization are eliminated from the respective accounts and any resulting
gain or loss is included in income.
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.
7
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Investments - Debt and equity securities which the Company has both the
positive intent and ability to hold to maturity are classified as
held-to-maturity and carried at amortized cost. Debt and equity securities
which might be sold prior to maturity are classified as available-for-sale
and carried at approximate fair value. Any material unrealized gains and
losses related to available-for-sale investments, net of applicable taxes,
are reflected in shareholder's equity. The Company determines the
appropriate classification of securities at the time of purchase and
evaluates such classification as of each balance sheet date.
Income taxes - Income taxes are provided based on an asset and liability
approach for financial accounting and reporting of income taxes. Deferred
income tax liabilities or benefits are recorded to reflect the tax
consequences in future years of differences between the tax basis of assets
and liabilities and the financial reporting amounts at each year end. A
valuation allowance is recognized if it is more likely than not that some
portion of, or all of, a deferred tax asset will be realized.
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 $68 and $100 in the quarters ended July 31, 1997 and July
31, 1996 respectively, 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.
Stock options - Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation" has been issued and will be
adopted by the Company in the year ended October 31, 1997. The statement
includes an optional new method for recognizing compensation expense for
employee stock options. The Company is continuing to evaluate whether or
not it will change to the new recognition method and, as a result, the
Company has not yet determined the effect of adopting SFAS No. 123.
Use of estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires the use of
estimates. Actual results could differ from those estimates.
8
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Reclassifications - Certain reclassifications have been made to prior
periods amounts to conform with the 1997 presentation.
3. INVENTORIES
Inventories by major categories are summarized as follows:
July 31, October 31,
1997 1996
--------------- ---------------
(unaudited)
Raw Materials $ 2,858 $ 1,002
Work in progress 3,709 2,012
Finished goods 4,580 7,970
--------------- ---------------
$ 11,147 $ 10,984
=============== ===============
4. INVESTMENT IN AFFILIATED COMPANY
In May 1997, the Company purchased 35.1% of the capital stock of U-Tel,
Inc. for $1 million in cash.
The Company adopted the provisions of Statement of Financial Accounting
Standard No. 121. This statement requires long-lived assets and certain
identifiable intangibles, and any goodwill related to those assets to be
reviewed for impairment whenever circumstances and situations change such
that there is an indication the carrying amount is not recoverable.
The Company's investment included an excess of purchase price over the fair
value of net assets acquired. This excess was approximately $665, and will
be amortized on a straight-line basis over an estimated economic useful
life of up to 20 years in accordance with the Company's policy. However due
to the uncertainty of future cash flows from U-Tel Inc., an allowance of
$665 has been established and a corresponding amount has been charged to
operations in the third quarter of 1997.
Particulars of the affiliated company are as follows:
<TABLE>
<S> <C> <C> <C>
Name of Percentage of ordinary
company Place of incorporation share capital held Principal activity
------- ---------------------- ------------------ ------------------
U-Tel, Inc. Nevada, United States of America 35.1% Telecommunications
equipment
</TABLE>
9
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
4. INVESTMENT IN AFFILIATED COMPANY (Continued)
Summarised financial information of U-Tel, Inc. is as follows:
July 31,
1997
--------
Current assets $ 825
Current liabilities (8)
Non-current liabilities (36)
--------
$ 781
Net assets ========
Result of operations (from the date of acquisition)
Revenues $ -
Costs and expenses (174)
--------
Net (loss)/income $ (174)
========
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
July 31, October 31,
1997 1996
------------ -------------
(unaudited)
Land and buildings $ 9,882 $ 9,882
Plant and machinery 3,337 3,031
Furniture and equipment 3,293 2,812
Leasehold improvements 1,233 1,180
------------ -------------
Total $ 17,745 $ 16,905
Less: Accumulated depreciation and
amortization (5,136) (3,968)
------------ -------------
Total $ 12,609 $ 12,937
============ =============
10
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
5. PROPERTY, PLANT AND EQUIPMENT (Continued)
Additions, disposals and depreciation and amortization of property, plant
and equipment for each of the periods shown are as follows:
Nine months ended Year ended
July 31, October 31,
1997 1996
----------------- -----------
(unaudited)
Additions $ 859 $ 874
Disposals -- net book value 9 220
Write off of fixed assets - 612
Depreciation and amortization 1,178 1,573
Included in property, plant and equipment are assets acquired under capital
leases with the following net book values:
July 31, October 31,
1997 1996
------------- -----------
(unaudited)
At cost:
Plant and machinery $ 38 $ 685
Less: accumulated depreciation (14) (217)
------------- -----------
$ 24 $ 468
============= ===========
Amortization of capital lease assets, which is included in depreciation and
amortization expenses in the accompanying statements of operations, was $6
for the period ended July 31, 1997 and $137 for the year ended October 31,
1996.
6. INCOME TAXES
The components of income/(loss) from continuing operations before income
taxes are as follows:
Nine months ended Nine months ended
July 31, July 31,
1997 1996
----------------- -----------------
(unaudited) (unaudited)
United States $ (253) $ (1,418)
Foreign subsidiaries operating in:
People's Republic of China 12,218 374
Hong Kong 106 (85)
----------------- -----------------
$ 12,071 $ (1,129)
================= =================
11
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
6. 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. 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 (provision)/credit for income taxes consists of the following:
Nine months ended Nine months ended
July 31, July 31,
1997 1996
----------------- -----------------
(unaudited) (unaudited)
Hong Kong
Current income tax $ (88) $ 104
----------------- -----------------
United States
State income tax $ 9 $ -
Federal income tax (6) (13)
----------------- -----------------
$ 3 $ (13)
----------------- -----------------
$ (85) $ 91
================= =================
A reconciliation between the (provision)/credit for income taxes computed
by applying the statutory tax rates in the United States for 1997 and 1996
to income/(loss) before income taxes and the actual credit/(provision) for
income taxes is as follows:
Nine months ended Nine months ended
July 31, July 31,
1997 1996
----------------- -----------------
(unaudited) (unaudited)
US statutory rate 34% 34%
----------------- -----------------
(Provision)/credit for income
taxes at statutory rate on
income/loss for the period $ (4,104) $ 384
State income taxes 9 -
International rate differences 4,118 15
Accounting gains/(losses) for
which deferred income tax
cannot be recognised (31) (326)
Prior year tax adjustments (59) -
Other (18) 18
----------------- -----------------
Income tax (provision)/credit $ (85) $ 91
================= =================
12
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
6. INCOME TAXES (Continued)
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, 1997 and October 31, 1996 deferred income taxes comprised:
July 31, October 31,
1997 1996
------------- -----------
(unaudited)
Deferred tax (liabilities)/assets:
Excess of tax over financial
reporting depreciation $ (79) $ (79)
Tax losses 2,150 2,150
Bad debt allowance 233 25
Advertising allowances 79 88
Inventory obsolescence reserve 1,060 1,857
Other 1,669 1,248
------------- -----------
5,112 5,289
Valuation allowance (5,260) (5,260)
------------- -----------
$ (148) $ 29
============= ===========
7. DISCONTINUED OPERATION
On July 31, 1996 the Company adopted a plan to discontinue its Pub Poker
operations. All products and raw materials relating to Pub Poker were
disposed of by October 31, 1996 either by means of sale at discounted
prices or by scrapping, and in addition, an after tax operating loss of
$256 was realized. The loss from Pub Poker operations has been accounted
for as a discontinued operation.
8. LONG-TERM DEBT
The long-term debt consists of capital lease obligations and the debt
arising from sale and lease back arrangements which at July 31, 1997 bore
interest at 13.78% per annum. The debt will mature in this financial year.
13
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
9. STOCK OPTIONS
In December 1993, an officer was granted an option under his employment
agreement to purchase 188,000 shares of common stock of Radica Games at an
exercise price of $0.567 per share. In December 1995, 112,800 of these
options were canceled. The remaining 75,200 options are fully vested and
expire on October 31, 2003.
The Company's 1994 Stock Option Plan (the "Stock Option Plan") provided 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. Following approval at the annual shareholders
meeting in April 1997, the Stock Option Plan's aggregate number of common
stock increased by 400,000 to 2,000,000 shares available for options.
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 January 1997, 60,000 stock options held by outside directors at an
exercise price of $11.00 per share were repriced to $1.72 per share, the
market price on January 3, 1997. Upon each re-election to the Board of
Directors in 1995 and 1996, each outside director received non-qualified
stock options to purchase 5,000 shares of Common Stock of the Company at
$3.66 per share and $1.50 per share, respectively. Upon re-election to the
Board of Directors in 1997 and thereafter, each outside director received
or will receive non-qualified stock options to purchase 15,000 shares of
Common Stock of the Company at an exercise price equal to the current
market price on such date.
14
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
9. STOCK OPTIONS (Continued)
Option activity for the quarter ended July 31, 1997:-
Option price range
Number of shares per share
---------------- ------------------
Outstanding at April 30 1,462,000 $ 0.567 to 11
Options granted 40,000 $ 2.69 to 5.00
Options cancelled (8,000) $ 1.375
Options exercised (67,000) $ 0.57 to 1.375
-------------
Outstanding at July 31 1,427,000 $ 0.567 to 11
=============
Exercisable at July 31 117,120 $ 0.567 to 11
10. 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 three customers which
accounted for more than twenty-three, twenty and twelve percent of net
sales in the nine months ended July 31, 1997 and had two customers which
accounted for more than twenty and sixteen percent of net sales in fiscal
year 1996. The Company performs ongoing credit evaluations of its
customers' financial condition and, generally, requires no collateral from
its customers.
11. 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 SFAS 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 and accounts payable are reasonable estimates of their fair
value.
At July 31, 1997, the Company had letters of credit outstanding totalling
$916 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.
15
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
12. COMMITMENTS AND CONTINGENCIES
The Company leases premises under various operating leases, many of which
contain renewal options.
At July 31, 1997, the Company was obligated under capital leases and
operating leases requiring minimum rentals as follows:
<TABLE>
<S> <C> <C>
Capital leases Operating leases
-------------- ----------------
1997 $ 3 $ 74
1998 - 303
1999 - 214
2000 - 194
2001 - 198
-------------- ----------------
Total minimum lease payments 3 $ 983
================
Less: Amount representing interest (1)
--------------
Present value of minimum lease payments $ 2
==============
</TABLE>
At July 31, 1997, certain leasehold land and buildings with a net book
value of $5,020 and bank balances of $3,871 were pledged to secure general
banking facilities including overdraft and trade facilities granted to the
Company.
13. 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 5% or
more 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 $142 and $101 for the nine months
ended July 31, 1997 and July 31, 1996 respectively.
16
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
14. 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 plaintiffs'
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 subsequently moved
for reconsideration of the grant of summary judgment against them, and the
court denied their motion. Plaintiffs have filed a timely appeal to the
United States Court of Appeals for the Ninth Circuit. The appeal has been
briefed by the parties and is awaiting oral argument.
17
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
15. SEGMENT INFORMATION
The Company operates in one principal industry segment: the design,
development, manufacture and distribution of a variety of electronic and
mechanical handheld and tabletop games. Geographic financial information is
as follows:
Nine months ended Nine months ended
July 31, July 31,
1997 1996
----------------- -----------------
(unaudited) (unaudited)
Net sales:
United States $ 32,252 $ 18,192
PRC and Hong Kong 15,123 6,767
----------------- -----------------
$ 47,375 $ 24,959
================= =================
Operating income/(loss):
United States $ (301) $ (1,467)
PRC and Hong Kong 11,400 (973)
----------------- -----------------
$ 11,099 $ (2,440)
================= =================
Identifiable assets:
United States $ 11,789 $ 14,209
PRC and Hong Kong 46,013 26,026
----------------- -----------------
$ 57,802 $ 40,235
================= =================
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 on Form 20-F for the fiscal year ended October 31, 1996 as filed with the
United States Securities and Exchange Commission.
RESULTS OF OPERATIONS -- QUARTER ENDED JULY 31, 1997
COMPARED TO THE QUARTER ENDED JULY 31, 1996
Net revenues for the quarter ended July 31, 1997 of $22.53 million
increased 88% from $11.99 million for the same quarter in 1996. The Company sold
approximately three million units in the third quarter of fiscal 1997, an
increase of approximately 20% from the third quarter of fiscal 1996 primarily
from the sales of new Sports theme product, particularly the Bass Fishin` game,
the new Vision games, Tank Assault and Sub Assault, and new Heritage theme
products (Tic Tac Toe, Dominoes and Liars Dice), together with increased
Original Equipment Manufacturing "O.E.M." production as a result of the increase
in lines being produced for the Hasbro Games Group. The increase was also due to
the industry trend requiring Christmas shipments to leave the manufacturer
earlier in the year, bringing some of the traditional fourth quarter sales into
the third quarter. In the third quarter of fiscal year 1997, 13% of sales
related to Casino theme games, 50.9% to Sports theme games (in particular Bass
Fishin`, which accounted for 42.7% of sales), 13.1% to Heritage theme games,
19.4% to O.E.M. production and 3.6% to Vision games.
Gross profit for the quarter ended July 31, 1997 increased by $8.41 million
to $11.67 million as compared to $3.26 million for the same quarter in 1996. The
gross margin for the quarter was 51.8%, up from 27.2% for the same quarter in
1996. The increase in gross margin for the third quarter was due to higher sales
volume of current and new product at historic margin levels relative to sales of
low margin promotional product and O.E.M. production.
Operating expenses increased by $1.44 million to $4.82 million in the third
quarter of fiscal 1997 from $3.38 million in the same quarter of fiscal 1996,
mainly as a result of a provision of $0.66 million relating to U-Tel Inc.,
together with increased sales related costs and releases of certain provisions
in Q3 1996. Commissions for the third quarter of fiscal 1997 increased 129.2% to
$0.55 million due to increased sales; indirect salaries and wages increased 12%
to $1.12 million due primarily to the reinstatement of certain officer salaries
to 1995 levels and advertising and promotion expenses decreased 37.9% to $0.18
million primarily as a result of reduced subsidies to retailers.
Operating profit for the third quarter of 1997 increased by $6.97 million
to $6.85 million compared to an operating loss of $0.12 million for the same
quarter last year.
The operating margin rose to 30.4% during the third quarter compared to a
loss during the same quarter last year.
19
<PAGE>
Net profit for the quarter ended July 31, 1997 was $7.14 million, up from
net loss of $1.05 million in the same quarter in 1996. The net earnings per
common share for the period ended July 1997 were $0.34 as compared to a net loss
per share of $0.05 for the same quarter in 1996.
Recently the Company has experienced delays of approximately three weeks
from two suppliers in the delivery of certain chips used in producing the
Company's games. Although the Company does not consider the current delays to be
material, these may indicate that chips supplies generally are tightening, and
the Company may experience further delays in receipt of chips or other necessary
components from these or other suppliers. Delays in receipt of essential
components for the Company's products may be significant to the Company's
financial results in that sales of products by the Company may be delayed, or in
certain cases may be canceled, if the Company is unable to meet delivery
schedules to its customers in a timely fashion in order for its customers to
meet targeted selling seasons. The Company is unable to predict the extent or
impact of delays from its suppliers beyond the actual delays, as mentioned
above, that have recently been experienced.
CAPITAL RESOURCES AND LIQUIDITY
Cash and cash equivalents totalled $22.2 million at July 31, 1997, up $13.7
million from year-end 1996. Working capital at July 31, 1997 was $31 million, a
$12.2 million increase from working capital of $18.8 million at October 31,
1996. The ratio of current assets to current liabilities increased to 3.2 at
July 31, 1997 from 2.7 at October 31, 1996. This increase in the current ratio
is due to increased liquid resources as a result of profits.
There were no short-term borrowings at July 31, 1997 or at October 31,
1996.
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.
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, 1996, 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.
20
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
See Note 14 to the accompanying financial statements.
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 9, 1997 By: /s/ David C.W. Howell
---------------------
David C.W. Howell
Chief Financial Officer
22
<PAGE>
RADICA GAMES LIMITED
REPORTS 88% INCREASE IN REVENUES FOR
THE THIRD QUARTER ENDED JULY 31, 1997
FOR IMMEDIATE RELEASE CONTACT: JON N. BENGTSON
September 3, 1997 (RENO, NEVADA)
(702) 348 2290
DAVID C.W. HOWELL
(HONG KONG)
(852) 2688 4201
(HONG KONG) Radica Games The increase in gross margin for
Limited (NASDAQ RADAF) reported an the third quarter was due to higher
after tax profit of $7.15 million sales volume of current and new
or $0.34 earnings per share for the product at historic margin levels
third quarter ended July 31, 1997 relative to sales of low margin
versus a net loss of $1.05 million promotional product and O.E.M.
or $0.05 loss per share for the production.
third quarter of 1996. After tax
profit for the nine months ended Operating income for the third
July 31, 1997 was $11.99 million or quarter of 1997 increased by $6.97
$0.58 earnings per share versus a million to $6.85 million compared
net loss of $2.75 million or $0.13 to an operating loss of $0.12
loss per share for the nine months million for the same quarter last
ended July 31, 1996. year. Operating expenses increased
by $1.44 million to $4.82 million
Total revenues for the third in the third quarter of fiscal 1997
quarter of fiscal 1997 were $22.53 from $3.38 million in the same
million, increasing 87.9% from quarter of fiscal 1996, mainly as a
$11.99 million for the same quarter result of a provision of $0.66
last year. Total revenues for the million relating to U-Tel Inc.,
nine months ended July 31, 1997 together with increased sales
were $47.38 million, increasing related costs and releases of
89.8% from $24.96 million for the certain provisions in Q3 1996.
same period last year.
The operating margin rose to 30.4%
The third quarter increase in net during the third quarter compared
sales resulted primarily from sales to a loss during the same quarter
of new Sports theme product, last year.
particularly the Bass Fishin' game,
the new Vision games, Tank Assault "Bass Fishin' has continued to be a
and Sub Assault, and new Heritage strong seller in Q3 in the U.S. and
theme products (Tic Tac Toe, Japan while penetrating other
Dominoes and Liars Dice), together international markets; it has
with increased Original Equipment opened doors for sales of other
Manufacturing "O.E.M." production product lines. Tank Assault and Sub
as a result of the increase in Assault were introduced in Q3 and
lines being produced for the Hasbro are showing promise.
Games Group. The increase was also
due to the industry trend requiring We are particularly happy with our
Christmas shipments to leave the relationship with the Hasbro Games
manufacturer earlier in the year, Group which increases our factory
bringing some of the traditional efficiency and absorbs overheads,"
fourth quarter sales into the third said Bob Davids, Chief Executive
quarter. Officer.
The gross profit for the third "We are delighted to announce the
quarter increased by $8.41 million addition of Pat Feely to our
to $11.67 million from $3.26 management team as President, Chief
million in the third quarter of Operating Officer from July 1,
1996 and the gross margin for the 1997. Pat brings a wealth of toy
third quarter was 51.8% compared to industry experience that will prove
27.2% for the same quarter last invaluable to our Company" added
year. Davids.
<PAGE>
The foregoing discussion contains forward-looking statements that involve risks
and uncertainties that could cause actual results to differ materially from
projected results. Forward-looking statements include statements about efforts
to attract or prospects for additional or increased business, new product
introductions and other statements of a non-historical nature. Actual results
may differ from projected results due to various Risk Factors, including Risks
of Manufacturing in China, Dependence on Product Appeal and New Product
Introductions, and Dependence on Major Customers, as set forth in the Company's
Annual Report on Form 20-F for the fiscal year ended October 31, 1996, as filed
with the Securities and Exchange Commission. See "Item 1. Description of
Business -- Risk Factors" in such report on Form 20-F.
-- END --
<PAGE>
<TABLE>
<CAPTION>
RADICA GAMES LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED THREE MONTHS ENDED
JULY 31, JULY 31,
=============================== ===============================
(US Dollars in thousands, except per share data) 1997 1996* 1997 1996*
============== ============== ============== =============
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Net sales $ 47,375 $ 24,959 $ 22,532 $ 11,989
Cost of sales (24,806) (18,427) (10,861) (8,729)
-------------- -------------- -------------- -------------
Gross profit 22,569 6,532 11,671 3,260
-------------- -------------- -------------- -------------
OPERATING EXPENSES:
Selling, general and administrative expenses (8,335) (6,603) (3,404) (2,532)
Research and development (1,292) (1,227) (361) (458)
Depreciation and amortization (1,843) (1,142) (1,052) (385)
-------------- -------------- -------------- -------------
Total operating expenses (11,470) (8,972) (4,817) (3,375)
-------------- -------------- -------------- -------------
OPERATING INCOME/(LOSS) FROM
CONTINUING OPERATIONS 11,099 (2,440) 6,854 (115)
OTHER INCOME 502 726 199 437
SHARE OF PROFIT/(LOSS) OF
AFFILIATED COMPANY (61) - (61) -
NET INTEREST INCOME/(EXPENSE) 531 (124) 248 23
-------------- -------------- -------------- -------------
INCOME/(LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES
AND UNUSUAL ITEM 12,071 (1,838) 7,240 345
UNUSUAL ITEM - 709 - -
-------------- -------------- -------------- -------------
INCOME/(LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 12,071 (1,129) 7,240 345
INCOME TAXES (85) 91 (93) 104
-------------- -------------- -------------- -------------
INCOME/(LOSS) FROM CONTINUING
OPERATIONS AFTER INCOME TAXES 11,986 (1,038) 7,147 449
DISCONTINUED OPERATION:
LOSS FROM OPERATION OF PUB POKER
BUSINESS (LESS APPLICABLE INCOME
TAX BENEFIT) - (1,712) - (1,494)
-------------- -------------- -------------- -------------
NET INCOME/(LOSS) $ 11,986 $ (2,750) $ 7,147 $ (1,045)
============== ============== ============== =============
EARNINGS/(LOSS) PER SHARE FROM
CONTINUING OPERATIONS $ 0.58 $ (0.05) $ 0.34 $ 0.02
EFFECT OF DISCONTINUED OPERATION - (0.08) - (0.07)
NET EARNINGS/(LOSS) PER SHARE $ 0.58 $ (0.13) $ 0.34 $ (0.05)
============== ============== ============== =============
AVERAGE NUMBER OF
SHARES OUTSTANDING 20,732,615 21,691,679 20,786,091 20,680,000
============== ============== ============== =============
<FN>
* Restated to conform with 1997 presentation.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RADICA GAMES LIMITED
CONSOLIDATED BALANCE SHEETS
ASSETS
<S> <C> <C>
JUL. 31, OCT. 31,
(US Dollars in thousands except share data) 1997 1996
============== =============
(unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 22,201 $ 8,527
Short-term investments 2,088 77
Accounts receivable, net of allowances for doubtful
accounts of $687 and $234 in 1997 and 1996 and estimated
customer returns of $718 and $817 in 1997 and 1996 8,901 9,624
Inventories, net of provision of $5,426 in 1997 and
$8,419 in 1996 11,147 10,984
Prepaid expenses and other current assets 582 547
-------------- -------------
TOTAL CURRENT ASSETS 44,919 29,759
-------------- -------------
INVESTMENT IN ASSOCIATED COMPANY 274 -
-------------- -------------
PROPERTY, PLANT AND EQUIPMENT, NET 12,609 12,937
-------------- -------------
DEFERRED INCOME TAXES - 29
-------------- -------------
TOTAL ASSETS $ 57,802 $ 42,725
============== =============
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 2 $ 99
Accounts payable 8,671 5,535
Accrued payroll and employee benefits 148 686
Accrued expenses 4,822 4,547
Income taxes payable 50 45
Deferred income taxes 148 -
-------------- -------------
TOTAL CURRENT LIABILITIES 13,841 10,912
-------------- -------------
SHAREHOLDERS' EQUITY
Common stock
par value $0.01 each, 100,000,000 shares authorised,
20,830,200 shares outstanding (20,680,000 at Oct. 31,
1996) 208 207
Additional paid-in capital 28,548 28,371
Retained earnings 15,200 3,214
Cumulative translation adjustment 5 21
-------------- -------------
TOTAL SHAREHOLDERS' EQUITY 43,961 31,813
============== =============
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 57,802 $ 42,725
============== =============
</TABLE>
<PAGE>
RADICA GAMES LIMITED
RADICA GAMES LIMITED
ANNOUNCES THE APPOINTMENT OF PAT FEELY
AS PRESIDENT AND CHIEF OPERATING OFFICER
FOR IMMEDIATE RELEASE CONTACT: JON N. BENGTSON
June 10, 97 (RENO, NEVADA)
(702) 348 2290
DAVID C.W. HOWELL
(HONG KONG)
(852) 2688 4201
(HONG KONG) Radica Games Limited (NASDAQ RADAF) announced today the
appointment of Pat Feely as President and Chief Operating Officer of Radica
Games Limited and President of Radica USA effective from July 1, 1997.
Mr. Feely will report directly to Bob Davids, Chief Executive Officer of
the Company. Mr. Davids, formerly President of the Company, has been
appointed Vice Chairman and Chief Executive Officer. Mr. Feely has been a
director of the Company since July 1996 and is the former President of Fun
Source, a Strottman International, Inc. Company. Mr. Feely's background
includes the positions of President and CEO of Spectrum HoloByte, Inc.,
President of Bandai America, Inc., and President of the Tonka Products
Division of Tonka, Inc. Mr. Feely is a former Director of the Toy
Manufacturers Association.
"We are very pleased to welcome Pat to Radica. Pat brings a seasoned toy
marketing background to the Company. Pat will concentrate on expanding our
product lines, managing the Radica brand identification and leading the Company
through the difficult process of developing advertising and licensing
strategies," said Davids.
"Pat's appointment allows me to focus on the Company's innovation in developing
exciting games with superior play value. Innovation is the life blood of our
business and deserves focused management attention," said Davids.
-- END --
