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 March, 1998
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 January 31, 1998
2. Press Release dated March 2, 1998
3. Press Release dated February 17, 1998
4. Press Release dated January 8, 1998
5. Press Release dated December 22, 1997
6. Press Release dated December 17, 1997
7. Press Release dated December 10, 1997
8. Press Release dated December 1, 1997
9. Press Release dated October 22, 1997
10. Annual Report to Stockholders
11. Management Information Circular/Proxy Statement dated
March 9, 1998
<PAGE>
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).
QUARTERLY REPORT *
For the quarterly period ending January 31, 1998
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 January 31, 1998
- --------------------------------------- -------------------------------
Common Stock, par value $0.01 per share 20,409,800
- ------------------------
* 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, 1997 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>
RADICA GAMES LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(US Dollars in thousands, THREE MONTHS
except per share data) ENDED JANUARY 31,
-----------------------------
1998 1997*
-------------- ------------
(unaudited) (unaudited)
<S> <C> <C>
REVENUES:
Net sales $ 26,473 $ 12,668
Cost of sales (11,799) (7,192)
-------------- ------------
Gross profit 14,674 5,476
-------------- ------------
OPERATING EXPENSES:
Selling, general and administrative expenses (5,192) (2,447)
Research and development (532) (470)
Depreciation and amortization (437) (390)
-------------- ------------
Total operating expenses (6,161) (3,307)
-------------- ------------
OPERATING INCOME 8,513 2,169
OTHER INCOME 193 237
SHARE OF LOSS OF AFFILIATED COMPANY (58) -
NET INTEREST INCOME 409 134
------------- -------------
INCOME BEFORE INCOME TAXES 9,057 2,540
PROVISION FOR INCOME TAXES (Note 7) (48) (18)
------------- ------------
NET INCOME $ 9,009 $ 2,522
============= ============
EARNINGS PER SHARE - BASIC:
Net earnings per share $ 0.43 $ 0.12
============= ============
Average number of shares outstanding 20,762,290 20,680,000
============= ============
EARNINGS PER SHARE - ASSUMING DILUTION:
Net earnings per share and common stock equivalents $ 0.41 $ 0.12
============= ============
Average number of shares
and common stock equivalents outstanding 22,037,645 20,940,178
============= ============
<FN>
* Restated to conform with 1998 presentation.
</FN>
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE>
RADICA GAMES LIMITED
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JAN. 31, OCT. 31,
------------- ------------
(US Dollars in thousands, except share data) 1998 1997*
------------- ------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 34,199 $ 33,504
Short-term investments 2,962 2,050
Accounts receivable, net of allowances for doubtful accounts
of $908 in 1998 and $908 in 1997 and estimated customer
returns of $2,300 in 1998 and $2,327 in 1997 13,089 18,740
Inventories, net of provision of $2,695 in 1998 and
$3,479 in 1997 (Note 4) 13,030 11,741
Prepaid expenses and other current assets 777 681
------------- ------------
TOTAL CURRENT ASSETS 64,057 66,716
------------- ------------
INVESTMENT IN AFFILIATED COMPANY (Note 5) 136 194
------------- ------------
PROPERTY, PLANT AND EQUIPMENT, NET (Note 6) 13,125 12,539
------------- ------------
TOTAL ASSETS $ 77,318 $ 79,449
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 5,922 $ 8,209
Accrued payroll and employee benefits 243 1,249
Commissions payable 574 915
Accrued sales expenses 1,871 1,254
Accrued warranty expenses 2,530 2,161
Accrued other expenses 5,026 3,776
Income taxes payable 187 213
Deferred income taxes (Note 7) 79 79
------------- ------------
TOTAL CURRENT LIABILITIES 16,432 17,856
------------- ------------
SHAREHOLDERS' EQUITY:
Common stock
par value $0.01 each, 100,000,000 shares authorized,
20,409,800 shares outstanding (20,860,200 at
Oct. 31, 1997) (Note 8) 204 209
Additional paid-in capital 21,331 28,589
Retained earnings 39,361 32,800
Cumulative translation adjustment (10) (5)
------------- ------------
TOTAL SHAREHOLDERS' EQUITY 60,886 61,593
------------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 77,318 $ 79,449
============= ============
<FN>
* Restated to conform with 1998 presentation.
</FN>
</TABLE>
See accompanying notes to the consolidated financial statements.
5
<PAGE>
RADICA GAMES LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(US Dollars in thousands) Three months ended
January 31,
-----------------------------
1998 1997*
------------ ------------
(unaudited) (unaudited)
<S> <C> <C>
Cash flow from operating activities:
Net income $ 9,009 $ 2,522
Adjustments to reconcile net income to net cash provided by
operating activities:
Deferred income taxes - 108
Depreciation and amortization 437 390
(Gain) loss on disposal and write off of property, plant
and equipment (3) 1
Cumulative translation adjustment (5) (3)
Changes in assets and liabilities:
Accounts receivable 5,651 3,667
Inventories (1,289) 2,018
Prepaid expenses and other current assets (96) (63)
Accounts payable (2,287) (1,794)
Accrued payroll and employee benefits (1,006) (611)
Commissions payable (341) (303)
Accrued sales expenses 617 167
Accrued warranty expenses 369 -
Accrued other expenses 1,250 (195)
Income taxes payable (26) (94)
Interest in affiliated company 58 -
------------ ------------
Net cash provided by operating activities $ 12,338 $ 5,810
------------ ------------
Cash flow from investing activities:
Proceeds from sale of property, plant and equipment 25 -
Purchase of property, plant and equipment (1,045) (256)
Increase of short-term investment (912) (1)
------------ ------------
Net cash used in investing activities $ (1,932) $ (257)
------------ ------------
Cash flow from financing activities:
Issue of common stock 270 -
Repurchase of common stock (9,981) -
Repayment of long-term debt - (74)
------------ ------------
Net cash used in by financing activities $ (9,711) $ (74)
------------ ------------
Net increase in cash and cash equivalents $ 695 $ 5,479
Cash and cash equivalents:
Beginning of period $ 33,504 $ 8,527
------------ ------------
End of period $ 34,199 $ 14,006
============ ============
Supplementary disclosures of cash flow information:
Cash paid/(received) during the period for:
Interest $ 65 $ 8
Income taxes 74 (112)
<FN>
* Restated to conform with 1998 presentation.
</FN>
</TABLE>
See accompanying notes to the consolidated financial statements.
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 reported in other comprehensive income. 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 not 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 $47 and $29 in the quarter ended January 31, 1998 and 1997
respectively, are included in selling, general and administrative expenses.
Post-retirement and post-employment benefits - The Company does not provide
post-retirement benefits other than pensions 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 - The Company continues to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees", in accounting
for its stock options. As a result, no compensation expense has been
recognized as the exercise price of the Company's employee stock options
equals the market price of the underlying stock at the date of grant. Pro
forma disclosures of the effect on net income (loss) and earnings (loss)
per share as if the Company had accounted for its employee stock options
under the fair value method prescribed by Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation", are
shown in note 9.
8
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Earnings (loss) per share - Earnings (loss) per share is based on the
weighted average number of shares of common stock and common stock
equivalents outstanding. Common stock equivalents result from dilutive
stock options. The effect of such common stock equivalents on net income
(loss) per share is computed using the treasury stock method.
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.
Comprehensive income and segment information - Regarding the reporting of
comprehensive income prescribed by SFAS No. 130, since the Company did not
have any material items of other comprehensive in the quarter ended January
31, 1998 and 1997, the net income reported in the consolidated statements
of operation is equivalent to the total comprehensive income. Further, as
the Company has only one operating segment, the adoption of SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information", did
not result in any restatement of comparative information.
Reclassifications - Certain reclassifications have been made to prior
periods amounts to conform with the 1998 presentation.
3. SHORT-TERM INVESTMENTS
The Company's short-term investments, all of which are classified as
available-for-sale as defined by SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities", consist primarily of United
States government and Federal agency securities and are stated at market
value. No unrealized gain or loss on these investments was recognized
during the quarter.
4. INVENTORIES
Inventories by major categories are summarized as follows:
9
<PAGE>
January 31, October 31,
1998 1997
------------- ----------------
(unaudited)
Raw materials $ 3,778 $ 2,786
Work in progress 3,157 2,889
Finished goods 6,095 6,066
------------- ----------------
$ 13,030 $ 11,741
============= ================
10
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
5. INVESTMENT IN AFFILIATED COMPANY
In May 1997, the Company acquired 123,000 shares of the capital stock of
U-Tel, Inc., a private company incorporated in Nevada, United States of
America, which is engaged in research and development of telecommunication
equipment, for $1,000 in cash. This investment represents a 34.6% interest.
U-Tel, Inc. is in the early stages of its product development cycle and
accordingly the excess purchase price over fair value of the net assets
acquired of $665, has been charged to operations for the year ended October
31, 1997.
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
January 31, October 31,
1998 1997
--------------- --------------
(unaudited)
Land and buildings $ 9,864 $ 9,882
Plant and machinery 3,944 3,633
Furniture and equipment 3,345 3,184
Leasehold improvements 1,363 1,318
Construction-in-progress 510 -
-------------- --------------
Total $ 19,026 $ 18,017
Less: Accumulated depreciation and
Amortization (5,901) (5,478)
--------------- --------------
Total $ 13,125 $ 12,539
=============== ==============
No amortization of capital lease assets was included in depreciation and
amortization expenses in the accompanying statements of operations, for the
quarter ended January 31, 1998. For the quarter ended January 31, 1997,
such amortization of capital lease assets amounted to $17.
11
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
7. INCOME TAXES
The components of income from continuing operations before income taxes are
as follows:
Three months ended January 31,
-----------------------------------
1998 1997
--------------- --------------
(unaudited) (unaudited)
United States $ 1,973 $ 63
Foreign subsidiaries operating in :
People's Republic of China 7,000 2,265
Hong Kong 84 212
--------------- --------------
$ 9,057 $ 2,540
=============== ==============
As the Company's subsidiary in the People's Republic of China ("PRC") is a
sino-foreign joint venture enterprise, it is eligible for an exemption from
income tax for two years starting from the first profitable year of
operations and thereafter a 50 percent relief from income tax for the
following three years under the Income Tax Law of the PRC. That subsidiary
had its first profitable year of operations in the year ended December 31,
1997. 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 for income taxes consists of the following:
Three months ended January 31,
-----------------------------------
1998 1997
--------------- --------------
(unaudited) (unaudited)
Hong Kong
Current income tax $ (5) $ (4)
Deferred - -
--------------- --------------
$ (5) $ (4)
United States
State tax benefit, net of
federal tax beneit $ (43) $ (14)
Deferred - -
--------------- --------------
$ (43) $ (14)
--------------- --------------
$ (48) $ (18)
=============== ==============
12
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
7. INCOME TAXES (Continued)
A reconciliation between the provision for income taxes computed by
applying the statutory tax rates in the United States for 1998 and 1997 to
income before income taxes and the actual provision for income taxes is as
follows:
Three months ended January 31,
-----------------------------------
1998 1997
--------------- --------------
(unaudited) (unaudited)
US statutory rate 34% 34%
--------------- --------------
Provision for income taxes at
statutory rate on income for the year $ (3,079) $ (863)
State income taxes (31) (4)
International rate differences 2,751 566
Accounting (losses) gains for which
deferred income tax cannot be
recognized (251) 286
Decrease in valuation allowance 520 -
Other 42 (3)
--------------- --------------
Income tax provision $ (48) $ (18)
=============== ==============
13
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands, except per share data)
7. 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
January 31, 1998 and October 31, 1997 deferred income taxes comprised:
January 31, October 31,
1998 1997
--------------- --------------
(unaudited)
Deferred tax (liabilities) assets:
Excess of tax over financial
reporting depreciation $ (79) $ (79)
Tax losses 312 1,173
Bad debt allowance 309 309
Advertising allowances 661 244
Inventory obsolescence reserve 528 643
Accrued sales adjustments and returns 1,360 1,321
Other 716 716
-------------- --------------
3,807 4,327
Valuation allowance (3,886) (4,406)
--------------- --------------
$ (79) $ (79)
=============== ==============
8. COMMON STOCK
On December 22, 1997, the Board adopted a plan authorizing the Company to
repurchase up to one million shares of its common stock. In the first
quarter of fiscal 1998, the Company purchased 684,800 shares at an average
price of $14.525 per share under this program. All of these repurchased
shares were cancelled during the quarter. Since January 31, 1998, the
Company has repurchased a further 175,600 shares at an average price of
$14.97 per share.
14
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands, except per share data)
9. STOCK OPTIONS
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 exercise 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.
Option activity for the quarter ended January 31, 1998:-
Weighted average
Number exercise price
of shares per share
(in thousands) $
Outstanding at October 31, 1997 1,756 2.31
Options granted 40 15.63
Options cancelled - -
Options exercised (234) 1.15
----------------
Outstanding at January 31, 1998 1,562 2.83
================
Exercisable at January 31, 1998 612 3.28
15
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands, except per share data)
9. STOCK OPTIONS (Continued)
The following is additional information relating to options outstanding as
of January 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options exercisable
------------------------------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C>
Weighted average
Weighted average remaining Weighted average
Exercise Number exercise price contractual Number exercise price
price range of shares per share life (years) of shares per share
- ------------ ------------- ---------------- ---------------- ------------- ----------------
(in thousands) $ (in thousands) $
$0.567 to 2.000 933 1.34 8.13 182 1.49
$2.001 to 4.000 480 3.45 9.19 400 3.52
$4.001 to 6.000 10 5.00 9.40 - -
$6.001 to 8.000 59 6.76 9.49 - -
$8.001 to 10.000 5 8.60 9.60 - -
$10.001 to 12.000 30 11.00 6.37 30 11.00
$12.001 to 14.000 5 12.20 9.60 - -
$14.001 to 15.625 40 15.63 9.83 - -
------------- ------------
1,562 2.83 8.53 612 3.28
============= ============
</TABLE>
Pro forma information regarding net income (loss) and earnings (loss) per
share is required by SFAS No. 123, and has been determined as if the
Company had accounted for its employee stock options under the fair value
method of SFAS No. 123. The weighted average fair value of stock options at
date of grant of $8.09 and $0.58 per option for the quarter ended January
31, 1998 and 1997, respectively, were estimated using the Black-Scholes
option pricing model with the following weighted average assumptions:
Three months ended January 31,
-----------------------------------
1998 1997
--------------- --------------
(unaudited) (unaudited)
Expected life of options 5 years 5 years
Risk-free interest rate 6.50% 6.50%
Expected volatility of underlying stock 50% 50%
Dividends 0% 0%
16
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands, except per share data)
9. STOCK OPTIONS (Continued)
The Black-Scholes option pricing models require the input of highly
subjective assumptions, including the expected volatility of stock
price. Because changes in subjective input assumptions can
materially affect the fair value estimate, in management's opinion,
the existing model does not necessarily provide a reliable single
measure of the fair value of the stock options.
If the Company had accounted for its stock option plans by recording
compensation expenses based on the fair value at grant date for such awards
consistent with the method of SFAS No. 123, the Company's net income (loss)
earnings (loss) per share would have been reduced to the pro forma amounts
as follows:
Three months ended January 31,
-----------------------------------
1998 1997
--------------- --------------
(unaudited) (unaudited)
Pro forma net income $ 8,858 $ 2,438
Pro forma earnings per share $ 0.43 $ 0.12
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-six percent, eleven percent and ten percent
of net sales in the quarter ended January 31, 1998 and three customers
which accounted for more than twenty percent, eighteen percent and ten
percent of net sales in fiscal 1997. 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.
17
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
12. COMMITMENTS AND CONTINGENCIES
The Company leases several warehouses and equipment under operating leases.
Total expense for the operating leases was $97 and $94 for the quarter
ended January 31, 1998 and 1997, respectively.
At January 31, 1998, the Company was obligated under operating leases
requiring future minimum lease payments as follows:
Operating
leases
---------------
1998 $ 214
1999 201
2000 188
2001 56
2002 30
---------------
Total minimum lease payments $ 689
===============
At January 31, 1998, certain leasehold land and buildings with a net book
value of $4,967 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 $28 and $24 for the quarters ended
January 31, 1998 and 1997, respectively.
18
<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 were
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 District 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
District Court entered a judgment dismissing the action. Plaintiffs
subsequently moved for reconsideration of the grant of summary judgment
against them, and the court denied their motion.
Plaintiffs filed a timely appeal to the United States Court of Appeals for
the Ninth Circuit, and oral argument of such appeal was held on November 5,
1997. On November 14, 1997, the Court of Appeals entered an Order affirming
the judgment of the District Court. Plaintiffs sought no further review and
such judgment is now final.
19
<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:
Three months ended January 31,
-----------------------------------
1998 1997
--------------- --------------
(unaudited) (unaudited)
Net sales:
United States $ 18,614 $ 9,390
PRC and Hong Kong 6,990 2,885
Other 869 393
--------------- --------------
$ 26,473 $ 12,668
=============== ==============
Operating income (loss):
United States $ 1,486 $ 25
PRC and Hong Kong 6,892 2,130
Other 135 14
--------------- --------------
$ 8,513 $ 2,169
=============== ==============
Identifiable assets:
United States $ 20,584 $ 11,339
PRC and Hong Kong 55,666 29,954
Other 1,068 1,175
--------------- --------------
$ 77,318 $ 42,468
=============== ==============
A significant portion of PRC and Hong Kong net sales were export sales to
the United States.
20
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
16. VALUATION AND QUALIFYING ACCOUNTS
Three months ended January 31,
-----------------------------------
1998 1997
--------------- --------------
(unaudited) (unaudited)
Beginning of quarter:
Allowances for doubtful accounts $ 908 $ 234
Estimated customer returns 2,327 817
Provision for inventories 3,479 8,419
--------------- --------------
$ 26,473 $ 12,668
=============== ==============
Charged to cost and expenses:
Allowances for doubtful accounts $ 120 $ 63
Estimated customer returns 456 65
Provision for inventories - -
--------------- --------------
$ 576 $ 128
=============== ==============
Release of provision:
Allowances for doubtful accounts $ (120) $ -
Estimated customer returns (483) (120)
Provision for inventories (784) (1,310)
--------------- --------------
$ (1,387) $ (1,430)
=============== ==============
End of quarter:
Allowances for doubtful accounts $ 908 $ 297
Estimated customer returns 2,300 762
Provision for inventories 2,695 7,109
--------------- --------------
$ 5,903 $ 8,168
=============== ==============
21
<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, 1997 as filed with the
United States Securities and Exchange Commission.
RESULTS OF OPERATIONS -- QUARTER ENDED JANUARY 31, 1998
COMPARED TO THE QUARTER ENDED JANUARY 31, 1997
Net revenues for the quarter ended January 31, 1998 were $26.47
million, increasing 108.9% from $12.67 million for the same quarter in 1997. The
Company sold approximately 3.2 million units in the first quarter of fiscal
1998, an increase of approximately 39.1% from the first quarter of fiscal 1997.
This was the result of continued strong sales of 1997 product such as Bass
Fishin'(TM), Deep Sea Fishin'(TM), Night Vision Tank Assault(TM), Night Vision
Sub Assault(TM) and Solitaire, together with the impact of new Casino products
(the "Players Choice" line and the low-priced "Pocket" line), Junior Bass
Fishin'(TM), Solitaire Lite and the mass market version of Lunker Bass
Fishin'(TM) released during the quarter. In addition, sales to the Hasbro Games
Group grew by 50% from $2.0 million in the first quarter of fiscal 1997 to $3.0
million in the first quarter of fiscal 1998. In the first quarter of fiscal year
1998, 54.7% of sales related to Fishing games, 6% to Combat games, 5.4% to
Sports games, 14.1% to Casino games, 7.9% to Heritage games, and 11.9% to O.E.M.
production.
The gross profit for the first quarter of fiscal 1998 increased by
$9.19 million to $14.67 million from $5.48 million in the first quarter of 1997
and the gross margin for the first quarter increased to 55.4% from 43.2% for the
same quarter last year. The increase in gross margin was due to higher sales
volume of current and new product at historic margin levels relative to sales of
low margin promotional product and OEM production as OEM production dropped as a
percentage of sales from 15.8% to 11.3%. In addition, approximately 1.6% of the
first quarter margin or $0.41 million of gross profit was as a result of sales
of product which had previously been written off.
Operating expenses increased 86.1% to $6.16 million in the first
quarter of fiscal 1998 from $3.31 million in the same quarter of fiscal 1997,
mainly as a result of sales related costs, research and development and salaries
due to certain management additions. As a percentage of sales, operating
expenses dropped from 26.1% in the first quarter of fiscal 1997 to 23.3% in the
first quarter of fiscal 1998. Commissions for the first quarter of fiscal 1998
increased 112.5% to $0.85 million due to increased sales; indirect salaries and
wages increased 46.5% to $1.26 million due primarily to management additions;
advertising and promotion expenses increased 1,191.7% to $1.55 million primarily
as a result of accrued expenditure for advertising; and research and development
expenses increased 12.8% to 0.53 million due to increases in staff.
Operating income for the first quarter of 1998 increased by $6.34
million to $8.51 million compared to $2.17 million for the same quarter last
year.
22
<PAGE>
The operating margin rose to 32.2% during the first quarter compared to
17.1% during the same quarter last year.
Net profit for the quarter ended January 31, 1998 was $9 million or
$0.43 per share versus $2.52 million or $0.12 per share for the first quarter of
1997.
CAPITAL RESOURCES AND LIQUIDITY
Cash and cash equivalents totaled $34.2 million at January 31, 1998, up
$0.7 million from year-end 1997. Working capital at January 31, 1998 was $47.6
million, a $1.2 million decrease from working capital of $48.8 million at
October 31, 1997. The ratio of current assets to current liabilities increased
to 3.9 at January 31, 1998 from 3.7 at October 31, 1997. This increase in the
current ratio is as a result of profits made during the period.
There were no short-term borrowings at January 31, 1998 or at October
31, 1997.
During the quarter the Company repurchased 684,800 shares at an average
price of $14.525. Since January 31 the Company has repurchased a further 175,600
shares at an average price of $14.97. The Company had previously announced that
the Board had authorized the repurchase of up to 1 million shares.
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, 1997, 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.
Item 3. Qualitative and Quantitative Disclosures About Market Risk
Not applicable.
23
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
See Note 14 to the accompanying financial statements.
Item 2. Changes in Securities and Use of Proceeds
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.
24
<PAGE>
Pursuant to the requirements of 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
Date: March 6, 1998 /s/ David C.W. Howell
--------------- -----------------------------------
David C.W. Howell
Executive Vice President
Chief Financial Officer
25
RADICA GAMES LIMITED
REPORTS RECORD FIRST QUARTER RESULTS
FOR IMMEDIATE RELEASE CONTACT: PATRICK S. FEELY
March 2, 1998 PRESIDENT & COO
(LOS ANGELES, CALIFORNIA)
(626) 744 1150
DAVID C.W. HOWELL
EXECUTIVE V.P. & CFO
(HONG KONG)
(852) 2688 4201
(Hong Kong) Radica Games Limited (NASDAQ RADAF) reported today an after tax
profit of $9 million or $0.43 per share for the first quarter ended January 31,
1998 versus $2.52 million or $0.12 per share for the first quarter of 1997.
Total revenues for the first quarter of fiscal 1998 were $26.47 million,
increasing 108.9% from $12.67 million for the same quarter last year.
The first quarter increase in net sales was the result of continued strong sales
of 1997 product such as Bass Fishin'(, Deep Sea Fishin'(, Night Vision Tank
Assault(, Night Vision Sub Assault( and Solitaire, together with the impact of
new Casino products (the "Players Choice" line and the low-priced "Pocket"
line), Junior Bass Fishin'(, Solitaire Lite and the mass market version of
Lunker Bass Fishin'( released during the quarter. In addition, sales to the
Hasbro Games Group have grown by 50% from $2.0 million in the first quarter of
fiscal 1997 to $3.0 million in the first quarter of fiscal 1998.
The gross profit for the first quarter of fiscal 1998 increased by $9.19 million
to $14.67 million from $5.48 million in the first quarter of 1997 and the gross
margin for the first quarter increased to 55.4% from 43.2% for the same quarter
last year.
The increase in gross margin was due to higher sales volume of current and new
product at historic margin levels relative to sales of low margin promotional
product and OEM production, as OEM production dropped as a percentage of sales
from 15.8% to 11.3%. In addition, approximately 1.6% of the first quarter margin
or $0.41 million of gross profit was as a result of sales of product which had
previously been written off.
Operating income for the first quarter of fiscal 1998 increased by $6.34 million
to $8.51 million compared to $2.17 million for the same quarter last year.
Operating expenses increased 86.1% to $6.16 million in the first quarter of
fiscal 1998 from $3.31 million in the same quarter of fiscal 1997, mainly as a
result of sales related costs, research and development and salaries due to
certain management additions. As a percentage of sales, operating expenses
dropped from 26.1% in the first quarter of fiscal 1997 to 23.3% in the first
quarter of fiscal 1998.
The operating margin rose to 32.2% during the first quarter compared to 17.1%
during the same quarter last year.
<PAGE>
The Company has repurchased 860,400 shares in the year to date. Of these,
684,800 shares were purchased during the quarter at an average price of $14.525
and 175,600 shares were purchased at an average price of $14.97 after January
31, 1998. The Company had previously announced that the Board had authorized the
repurchase of up to 1 million shares.
"Retail sales of all of our new products in January have been encouraging,
particularly Junior Bass Fishin'(, Lunker Bass Fishin'( and our two new Casino
lines," said Bob Davids, CEO. "In addition, our sell-in of 1998 product to
stores has been excellent with spring sets taking a significantly larger number
of SKU's than in prior years."
"This excellent start to the year was enhanced by the award of Vendor of the
Year from Toys 'R' Us at the New York Toy Show. This is a complement to all of
our employees for their team work and dedication," added Davids.
"On February 9, 1998 Hasbro, Inc. announced that it had entered into a
definitive agreement to purchase the assets of Tiger Electronics. We have had a
strong relationship with Hasbro over the years, and we will continue to try to
work together as we design and manufacture products for Hasbro's Milton Bradley
and Parker Brothers divisions. We are producing seven of Hasbro's new 1998 games
including Trivial Pursuit(, Mastermind( and Monopoly( and we currently have
substantial orders from Hasbro for fiscal 1998. We are also working on the
design of several products for Hasbro in fiscal 1999 including a line of Star
Wars handheld games," said Davids.
"Our factory expansion is still on schedule and we look forward to utilizing the
first phase in our third quarter. Currently we have 2,867 staff and workers in
China compared to 1,270 at the end of February 1997," added Davids.
Davids also stated that it was with great sadness that he had received news that
Bob Townsend (author of "Up the Organization"), one of the Company's outside
directors, had passed away on 13th January 1998. "Bob was an inspiration to us
all and will be sorely missed for his expertise, wisdom and wit," said Davids.
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, 1997, as filed with the
Securities and Exchange Commission. See "Item 1. Description of Business -
Risk Factors" in such report on Form 20-F. Radica Games Limited (Radica) is
a Bermuda company headquartered in Hong Kong (NASDAQ - RADAF). Radica is a
leading developer, manufacturer and distributor of electronic handheld and
table top games. Radica has subsidiaries in the U.S.A., Canada and the
U.K., and a factory in Dongguan, Southern China. More information about
Radica can be found on the Internet at "www.radicagames.com".
-- END --
<PAGE>
RADICA GAMES LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(US Dollars in thousands, THREE MONTHS ENDED
except per share data) JANUARY 31,
- ---------------------- -----------
<S> <C> <C>
1998 1997*
---- ----
(unaudited) (unaudited)
REVENUES:
Net sales $ 26,473 $ 12,668
Cost of sales (11,799) (7,192)
------- ------
Gross profit 14,674 5,476
------ -----
OPERATING EXPENSES:
Selling, general and administrative expenses (5,192) (2,447)
Research and development (532) (470)
Depreciation and amortization (437) (390)
---- ----
Total operating expenses (6,161) (3,307)
------ ------
OPERATING INCOME 8,513 2,169
OTHER INCOME 193 237
SHARE OF LOSS OF AFFILIATED COMPANY (58) -
NET INTEREST INCOME 409 134
--- ---
INCOME BEFORE INCOME TAXES 9,057 2,540
PROVISION FOR INCOME TAXES (48) (18)
--- ---
NET INCOME $ 9,009 $ 2,522
============ =============
EARNINGS PER SHARE - BASIC:
Net earnings per share $ 0.43 $ 0.12
============ =============
Average number of shares outstanding 20,762,290 20,680,000
========== ==========
EARNINGS PER SHARE - ASSUMING DILUTION:
Net earnings per share and common stock equivalents $ 0.41 $ 0.12
============ =============
Average number of shares
and common stock equivalents outstanding 22,037,645 20,940,178
========== ==========
* Restated to conform with 1998 presentation.
</TABLE>
<PAGE>
RADICA GAMES LIMITED
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
JAN. 31, OCT. 31,
(US Dollars in thousands, except share data) 1998 1997
---- ----
(unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 34,199 $ 33,504
Short-term investments 2,962 2,050
Accounts receivable, net of allowances for doubtful
accounts of $908 in 1998 and $908 in 1997 and estimated
customer returns of $2,300 in 1998 and $2,327 in 1997 13,089 18,740
Inventories, net of provision of $2,695 in 1998 and
$3,479 in 1997 13,030 11,741
Prepaid expenses and other current assets 777 681
--- ---
Total current assets 64,057 66,716
------ ------
INVESTMENT IN AFFILIATED COMPANY 136 194
--- ---
PROPERTY, PLANT AND EQUIPMENT, NET 13,125 12,539
====== ======
Total assets $ 77,318 $ 79,449
========= =========
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable 8,452 10,370
Accrued payroll and employee benefits 243 1,249
Accrued expenses 7,471 5,945
Income taxes payable 187 213
Deferred income taxes 79 79
-- --
Total current liabilities 16,432 17,856
------ ------
SHAREHOLDERS' EQUITY:
Common stock
par value $0.01 each, 100,000,000 shares authorized,
20,409,800 shares outstanding (20,860,200 at Oct. 31,
1997) 204 209
Additional paid-in capital 21,331 28,589
Retained earnings 39,361 32,800
Cumulative translation adjustment (10) (5)
--- --
Total shareholders' equity 60,886 61,593
------ ------
Total liabilities and shareholders' equity $77,318 $ 79,449
======= =========
</TABLE>
RADICA GAMES LIMITED
ANNOUNCES SEIZURE OF
BASS FISHIN' KNOCKOFFS
FOR IMMEDIATE RELEASE CONTACT: PATRICK S. FEELY
February 17th, 1998 PRESIDENT & COO
(LOS ANGELES, CALIFORNIA)
(626) 744 1150
DAVID C.W. HOWELL
EXECUTIVE V.P. & CFO
(HONG KONG)
(852) 2688 4201
(Hong Kong) Radica Games Limited (NASDAQ RADAF) announced today that U.S.
Marshals have seized quantities of Bass Fishin'( knockoffs from Innovative
Products, Inc. of York, Pennsylvania. Seizures took place on Friday, February 13
at the Javitz Center Toy Fair Exhibition in New York City and at a York,
Pennsylvania warehouse.
Bass Fishin'(TM) is the popular virtual fishing game sold by Radica around the
world. In the recent year-end list of top selling toys published by the NPD
Group, Bass Fishin'(TM) was ranked as the 16th best selling toy in the toy
industry in 1997.
"We are determined to protect our intellectual property and
will continue to pursue those who infringe upon our rights," said Robert Davids,
Radica's CEO.
Radica Games Limited (Radica) is a Bermuda company headquartered in Hong Kong
(NASDAQ-RADAF). Radica is a leading developer, manufacturer and distributor of
electronic handheld and tabletop games. Radica has subsidiaries in the U.S.A.,
Canada and the U. K., and a factory in Dongguan, Southern China. More
information about Radica can be found on the Internet at
www.radicagames.com.
- -- END --
RADICA GAMES LIMITED
ANNOUNCES NEW 1998 PRODUCTS
FOR IMMEDIATE RELEASE CONTACT: PATRICK S. FEELY
January 8, 1998 PRESIDENT & COO
(LOS ANGELES, CALIFORNIA)
(626) 744 1150
DAVID C.W. HOWELL
EXECUTIVE V.P. & CFO
(HONG KONG)
(852) 2688 4201
(Hong Kong) Radica Games Limited (NASDAQ RADAF) announced today seven new
products that are being introduced at the Hong Kong Toys and Games Fair this
week and will also be shown at other world wide toy shows during the next month.
The Company reported that of particular importance is the introduction of four
new products utilizing Virtual Motion Sensor(TM)(VMS)(TM) technology. These
products incorporate technology that allows the game to respond to the movement
of the product by the player thereby creating the experience of virtual reality.
The lead product using this technology is the Trail Burner(TM) mountain bike
racing game. This product is shaped in the form of handlebars, which when tilted
left or right, steer the racer on the game's LCD screen. Pulling back on the
handlebars allows the racer to jump over obstacles. The product also responds
with vibrations as a result of jumps, crashes, competing racers' kicks or trail
hazards. The Company intends to advertise Trail Burner(TM) on television in the
Fall.
The VMS(TM) feature also will be included in three other products. Inline
Alley(TM) is an inline skate racing game that allows a player to control the
racer by tilting and jerking the game, which is shaped like an inline skate.
Speed control is activated by spinning a wheel on the game which looks like a
skate wheel. Tracer Ace(TM) is an anti-aircraft shooting game shaped like an
anti-aircraft gun that must be aimed by tilting the product towards incoming
aircraft in order to shoot them down while avoiding their bombs. Night Vision
Stealth Assault(TM) is a line extension to the Company's successful Night Vision
series introduced in 1997. This product is an air combat game employing a vision
scope shaped like a stealth fighter. The product senses the pitch and roll
movement of the player in attempting to defeat enemy aircraft.
In addition to the VMS(TM) products, Radica announced that it is introducing a
soccer game that will be available in time for the World Cup this summer. The
game employs an innovative trackball control that allows high speed player
movement, passing and shooting. Also at the Toys and Games Fair will be new,
improved versions of the Company's successful golf and solitaire products.
Radica stated that it was very encouraged by the response of its customers to
these new products in private showings last Fall. The Company also stated that
it is pleased with initial orders for its Spring
<PAGE>
introductions previously announced, including its new fishing and casino
products as well as its NASCAR Racer(TM) product that was recently announced.
"Our 1998 product line represents the most exciting and diverse group of
products ever introduced by Radica. We think VMS(TM) technology will totally
redefine the category of handheld electronic games in 1998," said Bob Davids,
Chief Executive Officer.
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, 1990, as filed with the Securities and Exchange Commission. See
'Item 1. Description of Business - Risk Factors" in such report on
Form 20-F.
Radica Games Limited (Radica) is a Bermuda company headquartered in Hong Kong
(NASDAQ-RADAF). Radica is a leading developer, manufacturer and distributor of
electronic handheld and table top games. Radica has subsidiaries in the U.S.A.,
Canada and the U. K., and a factory in Dongguan, Southern China. More
information about Radica can be found on the Internet at "www.radicagames.com"
-- END --
RADICA GAMES LIMITED
ANNOUNCED SHARE REPURCHASE PLAN
FOR IMMEDIATE RELEASE CONTACT: PATRICK S. FEELY
December 22, 1997 PRESIDENT & COO
(LOS ANGELES, CALIFORNIA)
(626) 744 1150
DAVID C.W. HOWELL
EXECUTIVE V.P. & CFO
(HONG KONG)
(852) 2688 4201
(Hong Kong) Radica Games Limited (NASDAQ RADAF) announced that the Board of
Directors of the Company has approved a share repurchase plan to purchase up to
one million shares of the Company's common stock. The amount and timing of
purchases will be dependent upon market conditions.
-- END --
RADICA GAMES LIMITED
REPORTS RECORD FOURTH QUARTER AND
FISCAL YEAR RESULTS
FOR IMMEDIATE RELEASE CONTACT: PATRICK S. FEELY
December 17, 1997 PRESIDENT & COO
(LOS ANGELES, CALIFORNIA)
(626) 744 1150
DAVID C.W. HOWELL
EXECUTIVE V.P. & CFO
(HONG KONG)
(852) 2688 4201
(Hong Kong) Radica Games Limited (NASDAQ RADAF) announced today record
results for the fourth quarter and the fiscal year ended October 31, 1997.
The Company reported an after tax profit of $29.6 million or $1.36 per
share for the year ended October 31, 1997, versus $1.5 million or $0.07 per
share in the prior year. After tax profit for the fourth quarter ended October
31, 1997, was $17.6 million or $0.79 per share versus $4.2 million or $0.21 per
share in the fourth quarter of 1996.
Total revenues for the year ended October 31, 1997, were $87.8 million,
increasing 84.8% from $47.5 million for the same period last year. Quarterly
revenues for the fourth quarter of fiscal 1997 were $40.4 million, increasing
78.8% from $22.6 million for the same quarter last year.
The sales increases for both the fourth quarter and the fiscal year were the
result of a strong demand for several of the Company's products, particularly
continuing products such as Bass Fishin'(TM), Solitaire and King Pin Bowling.
Recent product introductions also had a major positive effect on fourth quarter
sales, including Deep Sea Fishin'(TM), Lunker Bass Fishin'(TM), Night Vision Sub
Assault(TM) and Night Vision Tank Assault(TM).
Sales growth occurred both in the U.S. market and other worldwide markets. U.S.
sales for the quarter grew by 70.1% to $26.2 million and full year sales grew by
74.2% to $57.5 million, while other worldwide markets grew by 442.9% to $7.6
million in the quarter and by 366.7% to $14 million for the year. Japan, other
Asian countries and Canada were the leading contributors to that growth.
The Company's OEM (original equipment manufacturing) business also grew
significantly in the quarter and full year. Quarterly OEM sales grew by 13.8% to
$6.6 million and fiscal year OEM sales grew by 41.7% to $16.3 million. The
Company manufactures products for the Hasbro Games Group, which are sold by
Hasbro, Milton Bradley and Parker Brothers throughout the world.
The gross profit for fiscal year 1997 was $46.9 million compared to
$16.8 million for fiscal 1996, an increase of 179.2%. The gross margin for the
year was 53.4% compared to 35.4% for fiscal year 1996. The gross profit for the
fourth quarter increased by $14 million to $24.3 million from $10.3 million in
the fourth quarter of 1996 and the gross margin for the fourth quarter was 60.1%
compared to 45.6% for the same quarter last year.
<PAGE>
The increase in gross margin was due to higher sales volume of current
and new product at historic margin levels relative to sales of low margin
promotional product and OEM production. In addition, approximately 3.6% of the
year end margin or $3.2 million and 3.7% of the fourth quarter margin or $1.5
million were as a result of sales of product which had previously been written
off.
"We are pleased with the continued strength of our Bass Fishin'(TM)
product and with the successful launch of our new Deep Sea Fishin'(TM), Lunker
Bass(TM) and Night Vision games, Sub Assault(TM) and Tank Assault(TM)," said Bob
Davids, CEO. "Consumer demand in the handheld game category seems particularly
strong this Fall, which is a positive indicator for next year."
"Our OEM business with the Hasbro Games Group continues to thrive and
in fiscal 1998 we expect to build seven new products for Hasbro to add to the
existing line of handheld electronic versions of their well-known games. The new
products will include Trivial Pursuit(TM) which will start to ship in the first
quarter of fiscal 1998. Although OEM business provides low margins, it fills
plant capacity and allows flexibility in balancing our workforce," said Davids.
"It is also extremely gratifying that the skill, dedication and
teamwork of our employees has paid off allowing us to give our shareholders a
significant improvement in profit this year," added Davids.
Davids also stated that the previously announced expansion of the
factory was on track with ground-breaking taking place at the end of November.
It was also noted that the Company had 2,485 staff and workers in China at the
end of November 1997 compared to 1,223 at the end of November 1996.
The Company also announced that it is pleased with the response of
retail customers to its new products for Spring of 1998. The Company plans to
introduce eight new products for initial shipment in December and January,
including two new fishing products - Junior Bass Fishin'(TM) for the younger
fishermen and a mass-market edition of Lunker Bass Fishin'(TM), which is an
advanced fishing game that was shipped only to the department store and
specialty trade this Fall. A series of three low-priced casino games, Pocket
Poker(TM), Pocket Blackjack(TM) and Pocket Slot(TM), and two multiple game
casino products, Player's Choice Poker(TM) and Player's Choice Blackjack(TM),
were also introduced for Spring. Additionally, a new backlit solitaire game
called Solitaire Lite(TM) was added to the Spring line-up. The Company said that
it plans to publicly unveil its product line for Fall of 1998 in early January
at the various toy shows around the world. Included in this product line will be
a product incorporating the NASCAR(r) license, which was announced earlier this
month, plus six other new products.
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.
Radica Games Limited (Radica) is a Bermuda company headquartered in
Hong Kong (NASDAQ - RADAF). Radica is a leading developer, manufacturer and
distributor of electronic handheld and table top games. Radica has subsidiaries
in the U.S.A., Canada and the U.K., and a factory in Dongguan, Southern China.
More information about Radica can be found on the Internet at
"www.radicagames.com".
-- END --
<PAGE>
RADICA GAMES LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(US Dollars in thousands, TWELVE MONTHS ENDED THREE MONTHS ENDED
except per share data) OCTOBER 31, OCTOBER 31,
------------------ --------------------
<S> <C> <C> <C> <C>
1997 1996* 1997 1996*
---- ---- ---- ----
REVENUES:
(unaudited) (unaudited) (unaudited)
Net sales $ 87,760 $ 47,535 $ 40,385 $ 22,576
Cost of sales (40,888) (30,696) (16,082) (12,269)
---------- ---------- ---------- ----------
Gross profit 46,872 16,839 24,303 10,307
---------- ---------- ---------- ----------
OPERATING EXPENSES:
Selling, general and administrative expenses (14,403) (11,752) (6,068) (5,149)
Research and development (2,099) (1,699) (807) (472)
Depreciation and amortization (2,278) (1,594) (435) (452)
---------- ---------- ---------- ----------
Total operating expenses (18,780) (15,045) (7,310) (6,073)
---------- ---------- ---------- ----------
OPERATING INCOME FROM CONTINUING OPERATIONS 28,092 1,794 16,993 4,234
OTHER INCOME 915 748 413 22
SHARE OF LOSS OF AFFILIATED COMPANY (141) - (80) -
NET INTEREST INCOME (EXPENSE) 913 (165) 382 (41)
---------- ---------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND UNUSUAL ITEM 29,779 2,377 17,708 4,215
UNUSUAL ITEM - 709 - -
---------- ---------- ---------- ----------
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 29,779 3,086 17,708 4,215
(PROVISION) CREDIT FOR INCOME TAXES (193) 120 (108) 29
---------- ---------- ---------- ----------
INCOME FROM CONTINUING
OPERATIONS AFTER INCOME TAXES 29,586 3,206 17,600 4,244
DISCONTINUED OPERATION:
LOSS FROM OPERATION OF PUB POKER BUSINESS
(LESS APPLICABLE INCOME TAX BENEFIT) - (1,712) - -
---------- ----------- ----------- ----------
NET INCOME $29,586 $ 1,494 $17,600 $ 4,244
========== =========== =========== ==========
EARNINGS PER SHARE - PRIMARY:
Income from continuing operations $ 1.36 $ 0.15 $ 0.79 $ 0.21
Effect of discontinued operation - (0.08) - -
Net earnings per share and common stock equivalents $ 1.36 $ 0.07 $ 0.79 $ .21
========== =========== =========== ==========
Average number of shares
and common stock equivalents outstanding 21,798,013 21,439,452 22,228,449 20,680,000
========== =========== =========== ==========
EARNINGS PER SHARE - ASSUMING FULL DILUTION:
Income from continuing operations $ 1.34 $ 0.15 $ 0.79 $ 0.21
Effect of discontinued operation - (0.08) - -
Net earnings per share and common stock equivalents $ 1.34 $ 0.07 $ 0.79 $ 0.21
========== =========== =========== ==========
Average number of shares
and common stock equivalents outstanding 22,112,317 21,439,452 22,310,313 20,680,000
========== =========== =========== ==========
<FN>
* Restated to conform with 1997 presentation.
</FN>
</TABLE>
<PAGE>
RADICA GAMES LIMITED
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
OCTOBER 31,
---------------------------
1997 1996
----------- --------
(unaudited)
<S> <C> <C>
(US Dollars in thousands except share data)
CURRENT ASSETS:
Cash and cash equivalents $ 33,504 $ 8,527
Short-term investments 2,050 77
Accounts receivable, net of allowances for doubtful
accounts of $908 in 1997and $234 in 1996 and estimated
customer returns of $2,327 in 1997 and $817 in 1996 18,740 9,624
Inventories, net of provision of $3,479 in 1997 and
$8,419 in 1996 11,741 10,984
Prepaid expenses and other current assets 681 547
------- ------
Total current assets 66,716 29,759
------- ------
INVESTMENT IN AFFILIATED COMPANY 194 -
------- ------
PROPERTY, PLANT AND EQUIPMENT, NET 12,539 12,937
------- ------
DEFERRED INCOME TAXES - 29
------- ------
Total assets $ 79,449 $ 42,725
======= ======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt - 99
Accounts payable 10,370 5,535
Accrued payroll and employee benefits 1,249 686
Accrued expenses 5,945 4,547
Income taxes payable 213 45
Deferred income taxes 79 -
------- ------
Total current liabilities 17,856 10,912
------- ------
SHAREHOLDERS' EQUITY:
Common stock
par value $0.01 each, 100,000,000 shares authorized,
20,860,200 shares outstanding (20,680,000 at Oct. 31, 1996) 209 207
Additional paid-in capital 28,589 28,371
Retained earnings 32,800 3,214
Cumulative translation adjustment (5) 21
------- ------
Total shareholders' equity 61,593 31,813
------- ------
Total liabilities and shareholders' equity $ 79,449 $ 42,725
------- ------
</TABLE>
RADICA GAMES LIMITED
FOR IMMEDIATE RELEASE CONTACT: PATRICK S. FEELY
PRESIDENT & COO
(LOS ANGELES, CALIFORNIA)
(626) 744-1150
DAVID C. W. HOWELL
EXECUTIVE V.P. & CFO
(HONG KONG)
(852) 2688 4201
MATTHEW O'CONNOR
NASCAR
(904) 947-6843
RADICA AND NASCAR ANNOUNCE LICENSE AGREEMENT
DALLAS, Texas (December 10, 1997) - NASCAR (the National Association for Stock
Car Auto Racing) has licensed Radica(R) USA Limited to market a handheld NASCAR
themed racing game called NASCAR Racer.
The game, which is scheduled to ship to stores in 1998, features precision
steering for left or right hand players, sensory feedback vibrations, trigger
finger acceleration, and high performance acceleration and braking.
"Just as NASCAR fans come from all ages and backgrounds, we pursue opportunities
that bring each of them closer to the sport," said George Pyne, NASCAR Vice
President of Licensing and Consumer Products. "NASCAR Racer will provide fans
with a fun, convenient way to experience the thrill of NASCAR competition
wherever they happen to be."
"We are excited about the opportunity to tie-in with the most popular racing
organization in the country," said Patrick Feely, Radica Games Limited
President. "Our NASCAR Racer electronic handheld game puts the thrill of NASCAR
competition in the palm of your hand."
Radica is a leading developer, manufacturer and distributor of handheld and
table top games with subsidiaries in the U.S.A., Canada and the United Kingdom.
Radica USA Limited, headquartered in Dallas, Texas, is a subsidiary of Radica
Games Limited (RADICA), a Bermuda company headquartered in Hong Kong (NASDAQ -
RADAF).
-- END --
RADICA GAMES LIMITED
ANNOUNCES AFFIRMATION OF JUDGMENT
BY THE COURT OF APPEALS
FOR IMMEDIATE RELEASE CONTACT: PATRICK S. FEELY
December 1, 1997 PRESIDENT & COO
(LOS ANGELES, CALIFORNIA)
(626) 744 1150
DAVID C.W. HOWELL
EXECUTIVE V.P. &CFO
(HONG KONG)
(852) 2688 4201
(Hong Kong) Radica Games Limited (NASDAQ RADAF) announced that the United States
Court of Appeals for the Ninth Circuit recently affirmed the judgment of the
District Court in favor of the Company in the class action lawsuit that had been
ongoing against the Company since 1994.
-- END --
RADICA GAMES LIMITED
RADICA GAMES LIMITED
ANNOUNCES EXPANSION OF FACTORY FACILITIES
FOR IMMEDIATE RELEASE CONTACT: JON N. BENGTSON
October 22, 1997 (RENO, NEVADA)
(702) 348 2290
DAVID C.W. HOWELL
(HONG KONG)
(852) 2688 4201
(Hong Kong) Radica Games Limited (NASDAQ RADAF) announced today that due to the
growth of their business, they are expanding their factory in Dongguan, Southern
China in two phases. The first phase, due to be completed and usable by the end
of May 1998, will add 107,000 square feet of factory space and dormitory
capacity to accommodate 1,100 additional workers. The second stage to be
completed by the end of August 1998 will add a further 108,000 square feet of
factory space and accommodation for a further 1,100 workers. It is expected that
the total cost will be approximately $3 million.
"We expect to increase our
production capacity by 50% by the end of May 1998 and by 100% by the end of
August 1998. This will allow us to remain in control of both our shipping
schedules and our ISO 9000 quality," said Bob Davids, C.E.O. of the Company.
"The expansion will increase factory floor area to 448,000 square feet and the
increased dormitory facilities will allow us to house and feed a total of
approximately 5,000 employees; currently we are close to full capacity with
2,535 employees," said Davids.
-- END --
RADICA GAMES LIMITED
ANNUAL REPORT TO SHAREHOLDERS
FOR THE FISCAL YEAR ENDED
OCTOBER 31, 1997
<PAGE>
ABOUT RADICA
Radica Games Limited (NASDAQ - RADAF) is a Bermuda company headquartered in Hong
Kong. The Company is a leading developer, manufacturer and distributor of
electronic handheld and table top games. Radica has subsidiaries in the USA,
Canada and the UK, and a factory in Dongguan, Southern China. More information
about Radica can be found on the Internet at "www.radicagames.com".
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
Operating Results 1997 1996 % Change
(US dollars in thousands, except per share data)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $87,760 $47,535 84.6%
Net income $29,586 $ 1,494 1,880.3%
Earnings per share - Primary $1.36 $0.07 1,842.9%
Weighted average shares outstanding 21,798 21,439 1.7%
including common share equivalents
</TABLE>
<TABLE>
<CAPTION>
Financial Position at October 31, 1997 1996 % Change
(US dollars in thousands)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Working capital $48,860 $18,847 159.2%
Total assets $79,449 $42,725 86.0%
Total liabilities $17,856 $10,912 63.6%
Shareholders' equity $61,593 $31,813 93.6%
</TABLE>
1
<PAGE>
TO OUR SHAREHOLDERS
We are very pleased to report to you the progress we have made during the last
year. Not only were our financial results outstanding in 1997, but we achieved
our objective of positioning Radica as a leading innovator in the game business.
With respect to our financial performance, our profits increased nearly 20 times
versus 1996 to a record of $29.6 million. Our operating margin of 32% is one of
the highest ever recorded in our industry. Sales increased by 85% over 1996 and
reached a record of $87.8 million. This was the result of strong growth in every
segment of our business.
The dramatic rise in sales and profits resulted from a combination of strong
market growth in the electronic handheld and table top game business and the
success of our new and continuing products in that market. Of particular note
was the success of our fishing products, including Bass Fishin'(TM), Deep Sea
Fishin'(TM) in the mass market and our introduction of Lunker Bass Fishin'(TM)
in the department store and specialty trade. New action products such as the
Night Vision Sub Assault(TM) and Night Vision Tank Assault(TM) also performed
well. Plus we were pleased with the continuing strength of our Solitaire
products and casino themed games.
The recent announcement of the purchase of Tiger Electronics by Hasbro, Inc. has
changed the competitive landscape. In essence, instead of two major competitors
we now have one. We anticipate that our strong relationship with Hasbro will
remain relatively unchanged for the intermediate future. Each company desires to
find a way to continue to work together to design and manufacture the brands of
Milton Bradley and Parker Brothers.
1997 also saw us make considerable progress in expanding our distribution around
the world. While US sales grew by an impressive 74%, sales to other worldwide
markets grew over 360% and reached $14 million, which is 16% of total sales.
This was primarily the result of robust growth in Japan, other Asian countries
and Canada.
2
<PAGE>
Our OEM business also made great strides, increasing by 42% to $16.3 million. We
increased the number of products manufactured for Hasbro's Milton Bradley and
Parker Brothers divisions from 4 to 9 - including two new Jurassic Park(TM)
products, Jumanji(TM), Sorry(TM), and Perfection(TM) and 1996 products such as
Yahtzee(TM) and Battleship(TM) are enjoying continued success.
In 1997 we also made improvements to our organization and operational
capabilities. Pat Feely, who had previously been a Director of the Company,
joined us as President and Chief Operating Officer in July. Pat brings over 20
years of toy industry experience in general management and marketing with him.
Mel Taft also joined us a Director and is contributing his extensive experience
from over 30 years of managing product development for Milton Bradley.
We announced in September that we have also taken steps to increase our
manufacturing capacity. We are in the process of increasing our production
capacity and expect to double our current capacity by the end of the summer. We
recognize that the market for our type of product is continuing to grow rapidly,
and we are dedicated to staying ahead of demand for our products.
Looking forward to 1998, we are excited about the prospects of this market
growth. Furthermore, we particularly believe our new product line for 1998 is
the broadest and most innovative we have ever created. Of particular importance
is the launch of our Virtual Motion Sensor (VMS) (TM) products. These products
incorporate what we believe to be the most revolutionary technology ever brought
to the handheld game category. The technology allows the game to respond to the
movement of the product by the player, thereby creating the experience of
virtual reality.
The lead product using this technology is the Trail Burner(TM) mountain bike
racing game. This product is shaped in the form of handlebars which when tilted
left or right, steer the virtual racer on the game screen. Pulling back on the
handlebars allows the player to jump over obstacles. This new feature can also
be found on Inline Alley(TM), an inline skating game, Tracer Ace(TM), an
anti-aircraft shooting game and Night Vision Stealth Assault(TM), an air combat
game with pitch and roll control.
We have also acquired two exciting licenses for 1998. Our NASCAR(R) Racer
features interactive steering and virtual road effects. NASCAR(R) is one of the
most successful licenses in the toy market
3
<PAGE>
today, and we are positioned to capitalize on the strength of its popularity in
conjunction with our new game. We have also licensed from Electronic Arts the
rights to FIFA World Cup 98 for use with our innovative track ball controlled
soccer game which will be shipped in time for the 1998 World Cup in France.
In our continuing categories, we are striving to build long-term brands with
great new products and marketing. For example, in the fishing category, we have
added a new member for younger anglers called Junior Bass Fishin'(TM).
Additionally, Lunker Bass Fishin'(TM), which was successful last fall in the
specialty trade, is now being introduced to the mass merchants.
To further support our family of products in the fishing line, we signed fishing
legend and TV personality Hank Parker as an endorsee. Hank will be appearing in
a 1998 TV commercial and related publicity.
OEM prospects for 1998 also look bright with our additional capacity and current
plans to manufacture an additional 7 games for Hasbro in 1998. These will
include such outstanding names as Trivial Pursuit(TM) and Monopoly(TM).
One very sad piece of news came to us recently. The sudden death in January 1998
of our friend, confidant and fellow director, Bob Townsend (author of "Up the
Organization"), was a tremendous shock to us all. Bob was a source of great
strength to the Company and will be missed immensely for his talent, his humor
and his exceptional common-sense approach to business.
With so many opportunities for 1998 and into the next century, we can't help but
be enthusiastic about our future. In spite of that, we expect there to be many
challenges in 1998 and beyond. We need to continue to broaden our distribution
around the world. We must continue to contain costs, carefully manage
inventories and manufacture the highest quality products possible. We must also
continue to define the cutting edge in game design and technology to maintain
our position ahead of the competition. The key to meeting these challenges is
met by great people. We believe we have the best team in the business.
4
<PAGE>
On behalf of the employees of Radica, thank you for your continued support as
shareholders. We are dedicated to taking Radica to even greater heights.
Sincerely,
/s/ Jon N. Bengtson /s/ Robert E. Davids
Jon N. Bengtson Robert E. Davids
Chairman Chief Executive Officer
February 10, 1998 February 10, 1998
5
<PAGE>
RESULTS OF OPERATIONS
FISCAL 1997 COMPARED TO FISCAL 1996
The following table sets forth items from the Company's Consolidated
Statements of Income as a percentage of net revenues:
<TABLE>
<CAPTION>
Year ended October 31,
-----------------------------------------------------------------
1997 1996 1995
------------------ ----------------- -----------------
<S> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0%
Cost of sales 46.6% 64.6% 65.8%
Gross margin 53.4% 35.4% 34.2%
Selling, general and administrative expenses 16.4% 24.7% 40.1%
Research and development 2.4% 3.6% 4.0%
Nonrecurring charges - - 29.1%
Depreciation and amortization 2.6% 3.3% 3.0%
Operating income (loss) 32.0% 3.8% (42.0%)
Other income 1.0% 1.6% 0.6%
Net interest income (expense) 1.0% (0.4%) (1.2%)
Unusual item - 1.5% -
Income before income taxes 34.0% 6.5% (42.5%)
(Provision) credit for income taxes (0.3%) 0.3% 1.7%
Discontinued operation - (3.7%) (0.5%)
Net income (loss) 33.7% 3.1% (41.3%)
</TABLE>
Net sales for the year ended October 31, 1997 were $87.8 million,
increasing 84.8% from $47.5 million for the prior year. Approximately 50.6% of
sales related to Sports themed games, 12.4% to Heritage themed games, 2.7% to
Action games, 15.7% to Casino themed games and 18.6% to Original Equipment
Manufacturing "OEM" sales in fiscal 1997 in comparison to 18.1 %, 17.3%, 0%,
40.5% and 24.1% in fiscal 1996. During 1997, the Company sold 156 different
models of games, totaling 12.4 million units, compared to 139 models totaling
9.0 million units in 1996, an increase of 37.8%. Of the 147 models of Radica and
Monte Carlo games sold during the period 122 models are discontinued lines,
which unless the market warrants reintroduction, the Company only intends to
continue selling so long as inventories exist. 10 new models were sold during
1997. The Company intends to introduce over 15 new models in 1998.
6
<PAGE>
The gross profit for fiscal year 1997 was $46.9 million compared to $16.8
million for fiscal 1996, an increase of 179.2%. The gross margin for the year
was 53.4% compared to 35.4% for fiscal year 1996. The increase in gross margin
was due to higher sales volume of current and new product at historic margin
levels relative to sales of low margin promotional product and OEM production.
In addition, approximately 3.6% of the year end margin or $3.2 million was as a
result of sales of product which had previously been written off.
Operating profit for fiscal year 1997 was $28.1 million, an increase from
$1.8 million from fiscal 1996. Operating expenses increased 25.3% to $18.8
million from $15 million in 1996. Commissions increased 113% to $2.45 million
from $1.15 million in fiscal 1996; indirect salaries and wages increased 36.8%
to $4.72 million from $3.45 million in fiscal 1996; advertising and promotion
expenses increased 11.1% to $0.8 million from $0.72 million in fiscal 1996; and
research and development expenses increased 23.5% to $2.10 million from $1.70
million in fiscal 1996.
The effective blended tax rate for the year ended October 1997 was 0.6% on
continuing operations compared to a credit of 3.9% for fiscal 1996. This is due
to the effective USA tax rate of 34% combined with the 16.5% effective tax rate
of the operations in Hong Kong and 0% effective tax rate of the manufacturing
operation in China conducted by a British Virgin Islands subsidiary. It should
be noted that the US subsidiary had significant releases of inventory provisions
which are not taxable during the year, so that although it was profitable there
was no tax charge.
Net profit for fiscal year 1997 of $29.6 million or $1.36 per share
compared to $1.5 million or $0.07 per share in fiscal 1996.
CAPITAL RESOURCES AND LIQUIDITY
Cash and cash equivalents totaled $33.5 million at October 31, 1997, up $25
million from the year ended October 31, 1996. Working capital at October 31,
1997 was $48.9 million, a $30.1 million increase from working capital of $18.8
million at October 31, 1996. The increase in working capital is due primarily to
an increase in net income. The ratio of current assets to current liabilities
increased to 3.7 at October 31, 1997 from 2.7 at October 31, 1996. This increase
in the current ratio is also due to the increases in net income over the same
period.
There were no short-term borrowings at October 31, 1997 and 1996.
The Company believes that its existing cash and cash equivalents and cash
generated from operations are sufficient to satisfy the current anticipated
working capital needs of its core business.
FISCAL 1996 COMPARED TO FISCAL 1995
Net sales for the year ended October 31, 1996 were $47.5 million,
decreasing 9.9% from $52.7 million for the prior year. Approximately 40.5% of
sales related to Casino themed games, 17.3% to Heritage themed games, 18.1% to
Sports themed games and 24.1% to OEM sales in fiscal 1996 in comparison to
94.5%, 2.9%, 0% and 2.6% in fiscal 1995. During 1996, the Company sold 139
different models of games, totaling 9.0 million units, compared to 104 models
totaling 8.6 million units in 1995, an increase of 4.7%. Of the 139 models of
Radica and Monte Carlo games sold during the period 87 models are discontinued
lines, which unless the market warrants reintroduction, the Company only
7
<PAGE>
intends to continue selling so long as inventories exist. 12 new models were
sold during 1996 including a Sports line of Casino games, Tournament Golf, Golf
Range, World Class Golf, Bass Fishin'(TM), King Pin Bowling, 9 Ball Pool,
Pinball Rider, Talking Bingo, Hearts and Gin Rummy.
The gross profit for fiscal year 1996 was $16.8 million compared to $18
million for fiscal 1995, a decrease of 6.7%. The gross margin for the year was
35.4% compared to 34.2% for fiscal year 1995. The increase in gross margin was
due to the sale of new Sports themed and Heritage themed product at higher
margins offset by continued sales of promotional Casino themed product at low
margins and lower margin OEM production for the Hasbro Games Group.
Operating profit for fiscal year 1996 before accounting for cessation of
Pub Poker business was $1.8 million, an increase from operating loss of $22.1
million for fiscal 1995. Operating expenses decreased 62.6% to $15.0 million
from $40.1 million in fiscal 1995. These decreases were primarily due to the
effects of the Company's cost cutting program together with lower commissions
due to lower sales and a new commission structure and the write down of assets
of $15.3 million in fiscal 1995. Commissions decreased 62.2% to $1.15 million
from $3.04 million in fiscal 1995; indirect salaries and wages decreased 45.4%
to $3.45 million from $6.32 million in fiscal 1995; advertising and promotion
expenses decreased 76.8% to $0.72 million from $3.10 million in fiscal 1995; and
research and development expenses decreased 19.0% to $1.70 million from $2.10
million in fiscal 1995.
The effective blended tax rate for the year ended October 1996 was a credit
of 3.9% on continuing operations compared to a credit of 4.0% for fiscal 1995.
This is due to the effective USA tax rate of 34% combined with the 16.5%
effective tax rate of the operations in Hong Kong and 0% effective tax rate of
the manufacturing operation in China conducted by a British Virgin Islands
subsidiary.
After tax profit from continuing operations of $3.2 million or $.15 per
share for fiscal year 1996 compared to a net loss of $21.5 million or $0.94 per
share in the prior year.
Net profit after discontinued operations for fiscal year 1996 of $1.5
million or $0.07 per share compared to a net loss for fiscal 1995 of $21.7
million or $0.95 per share.
FISCAL 1995 COMPARED TO FISCAL 1994
Net sales for the year ended October 1995 of $52.7 million decreased 26.9%
from the $72.1 million for the prior year. 14 new ranges of products consisting
of 48 new models were introduced during the year, including a new line of
products under the high-end brand name of Monte Carlo. The Monte Carlo line
included a smaller `Maverick' slot machine, the 700 series of electronic
tabletops, the 1700 series of electronic handheld games, the 1900 series of
fliplid electronic handheld games, a Blackjack trainer game, Yahtzee(TM) (which
was also produced for the Hasbro Games Group on an OEM basis during the year),
the 2200 series of one player fliplid handheld games, a tabletop unit with a
telephone attached and the 3200 series of handheld games. Other new product
ranges included the Bingo Box (an electronic `talking' Bingo game), Solitaire,
Poker Trainer, the 2100 series of fliplid electronic one player handheld games
and the 2800 and 900 series of handheld games. Approximately 85% of sales
related to handheld models and 15% to tabletop models in comparison to 80% and
20% respectively in fiscal 1994. During 1995, the Company sold 78 different
models of handheld games, totaling 7.8 million units, compared to 32 models
totaling 7.7 million units in 1994 and 26 different
8
<PAGE>
models of tabletop games totaling 0.7 million units, compared to 24 different
models and 1.6 million units in 1994. The total number of units sold decreased
7.5% from the 9.2 million sold in 1994 to 8.6 million in 1995.
Gross profit for the year ended October 1995 was $18 million as compared to
$34.2 million for fiscal 1994, a decrease of 47.4%. The gross margin for the
year of 34.2% was down from 47.5% for fiscal 1994. This decline is due primarily
to sales of promotional items at low margins coupled with provisions for
customer returns of $2.8 million and provisions for retail mark-downs of $0.46
million to enable customers to lower the price of slow-moving inventory,
together with sales of promotional product at low margins as part of the
Company's inventory reduction program.
Operating expenses increased 163.8% to $40.1 million from $15.2 million in
fiscal 1994. These increases were primarily due to provisions of $11.9 million
against obsolete and slow-moving inventory, bad debt provisions of $1.7 million
caused by a number of customers filing for Chapter 11, legal fees and provisions
for legal fees in relation to the on-going law suit against the Company of $0.75
million (the total deductible against the directors and officers insurance
policy), the cost of closure of the Mexican plant of $0.3 million, write off of
unamortized mold costs of $1.6 million, increases in salaries and wages,
increases in advertising and promotion costs and other miscellaneous provisions
offset by a decrease in commissions due to lower sales. Sales commissions were
$3.0 million compared to $3.7 million in fiscal 1994, advertising and promotion
costs were $3.1 million compared to $2.3 million in fiscal 1994, salaries and
wages were $6.3 million compared to $3.7 million in fiscal 1994 and research and
development expenses were $2.1 million compared to $1.6 million in fiscal 1994.
Operating loss for the year ended October 1995 was $22.1 million versus
operating income of $19.0 million for the same period in the prior year due
primarily to lower than expected sales, inventory provisions, sales of
promotional inventory, provisions for returns, provisions against bad debts and
higher operating costs.
The effective blended tax rate for the year ended October 1995 was a credit
of 4.0% compared to a rate of 10.2% for fiscal 1994. This is due to the
effective USA tax rate of 34% combined with the 16.5% effective tax rate of the
operations in Hong Kong and 0% effective tax rate of the manufacturing operation
in China conducted by a British Virgin Islands subsidiary.
Net loss for the year ended October 1995 was $21.7 million, down from net
income of $17.2 million in fiscal 1994. The loss per common share in the year
ended October 1995 was $0.95 as compared to net income per common share of $0.81
for fiscal 1994.
9
<PAGE>
<TABLE>
<CAPTION>
RADICA GAMES LIMITED
CONSOLIDATED BALANCE SHEETS
(US dollars in thousands, except share data)
At October 31,
--------------------------------------
1997 1996
--------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 33,504 $ 8,527
Short-term investments (Note 3) 2,050 77
Accounts receivable, net of allowances for doubtful
accounts of $908 in 1997 and $234 in 1996 and estimated
customer returns of $2,327 in 1997 and $817 in 1996 18,740 9,624
Inventories, net of provision of $3,479 in 1997 and
$8,419 in 1996 (Note 5) 11,741 10,984
Prepaid expenses and other current assets 681 547
--------------- --------------
Total current assets 66,716 29,759
--------------- --------------
INVESTMENT IN AFFILIATED COMPANY (Note 6) 194 -
--------------- --------------
PROPERTY, PLANT AND EQUIPMENT, NET (Note 7) 12,539 12,937
--------------- --------------
DEFERRED INCOME TAXES (Note 8) - 29
--------------- --------------
Total assets $ 79,449 $ 42,725
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ - $ 99
Accounts payable 10,370 5,535
Accrued payroll and employee benefits 1,249 686
Commissions payable 915 476
Accrued sales expenses 1,254 1,827
Accrued warranty expenses 2,161 1,554
Accrued other expenses 1,615 690
Income taxes payable 213 45
Deferred income taxes (Note 8) 79 -
--------------- ----------------
Total current liabilities $ 17,856 $ 10,912
--------------- ----------------
SHAREHOLDERS' EQUITY
Common stock
par value $0.01 each, 100,000,000 shares authorized,
20,860,200 shares outstanding (20,680,000 at Oct. 31, 1996)
(Note 10) $ 209 $ 207
Additional paid-in capital 28,589 28,371
Retained earnings 32,800 3,214
Cumulative translation adjustment (5) 21
--------------- ----------------
Total shareholders' equity 61,593 31,813
--------------- ----------------
Total liabilities and shareholders' equity $ 79,449 $ 42,725
=============== ================
</TABLE>
/s/ Jon N. Bengtson /s/ David C.W. Howell
- -------------------------------- ----------------------------------
Director Director
See accompanying notes to the consolidated financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
RADICA GAMES LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(US dollars in thousands, except share data)
YEAR ENDED OCTOBER 31,
-------------------------------------------------------
1997 1996* 1995*
---------------- ----------------- ----------------
<S> <C> <C> <C>
REVENUES:
Net sales $ 87,760 $ 47,535 $ 52,650
Cost of sales (40,888) (30,696) (34,640)
---------------- ----------------- ----------------
Gross profit 46,872 16,839 18,010
---------------- ----------------- ----------------
OPERATING EXPENSES:
Selling, general and administrative expenses (14,403) (11,752) (21,105)
Research and development (2,099) (1,699) (2,084)
Write down of assets (Note 12) - - (15,318)
Depreciation and amortization (2,278) (1,594) (1,591)
---------------- ----------------- ----------------
Total operating expenses (18,780) (15,045) (40,098)
---------------- ----------------- ----------------
OPERATING INCOME (LOSS) FROM CONTINUING OPERATIONS 28,092 1,794 (22,088)
OTHER INCOME 915 748 329
SHARE OF LOSS OF AFFILIATED COMPANY (141) - -
NET INTEREST INCOME (EXPENSE) 913 (165) (628)
---------------- ----------------- ----------------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND UNUSUAL ITEM 29,779 2,377 (22,387)
UNUSUAL ITEM (Note 4) - 709 -
---------------- ----------------- ----------------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 29,779 3,086 (22,387)
(PROVISION) CREDIT FOR INCOME TAXES (193) 120 897
---------------- ----------------- ----------------
INCOME (LOSS) FROM CONTINUING
OPERATIONS AFTER INCOME TAXES 29,586 3,206 (21,490)
DISCONTINUED OPERATION: (Note 9)
Loss from operation of Pub Poker business (less
applicable income tax benefit of $110 in 1995) - (1,712) (233)
---------------- ----------------- ----------------
NET INCOME (LOSS) $ 29,586 $ 1,494 $ (21,723)
================ ================= ================
EARNINGS PER SHARE - PRIMARY:
Income (loss) from continuing operations $ 1.36 $ 0.15 $ (0.94)
Effect of discontinued operation - (0.08) (0.01)
Net earnings (loss) per share and common stock $ 1.36 $ 0.07 $ (0.95)
equivalents
================ ================= ================
Average number of shares
and common stock equivalents outstanding 21,798,013 21,439,452 22,780,000
================ ================= ================
EARNINGS PER SHARE - ASSUMING FULL DILUTION:
Income (loss) from continuing operations $ 1.34 $ 0.15 $ (0.94)
Effect of discontinued operation - (0.08) (0.01)
Net earnings (loss) per share and common stock $ 1.34 $ 0.07 $ (0.95)
equivalents
================ ================= ================
Average number of shares
and common stock equivalents outstanding 22,112,317 21,439,452 22,780,000
================ ================= ================
<FN>
* Restated to conform with 1997 presentation.
</FN>
</TABLE>
See accompanying notes to the consolidated financial statements.
11
<PAGE>
<TABLE>
<CAPTION>
RADICA GAMES LIMITED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(US dollars in thousands)
Common stock
------------------------ Additional Cumulative Total
Number paid-in Retained translation shareholders'
of shares Amount capital earnings adjustment equity
----------- -------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at November 1, 1994 22,780,000 $ 228 $ 28,129 $ 23,443 $ 21 $ 51,821
Grant of stock options - - 199 - - 199
Net loss - - - (21,723) - (21,723)
----------- -------- ------------ ----------- ------------ ------------
Balance at October 31, 1995 22,780,000 $ 228 $ 28,328 $ 1,720 $ 21 $ 30,297
Cancellation of common stock (Note 10) (2,100,000) (21) 21 - - -
Grant of stock options - - 22 - - 22
Net income - - - 1,494 - 1,494
----------- -------- ------------ ----------- ------------ ------------
Balance at October 31, 1996 20,680,000 $ 207 $ 28,371 $ 3,214 $ 21 $ 31,813
Stock options exercised 180,200 2 218 - - 220
Net income - - - 29,586 - 29,586
Foreign currency translation - - - - (26) (26)
----------- -------- ------------ ----------- ------------ ------------
Balance at October 31, 1997 20,860,200 $ 209 $ 28,589 $ 32,800 $ (5) $ 61,593
=========== ======== ============ =========== ============ ============
</TABLE>
See accompany notes to consolidated financial statements
12
<PAGE>
RADICA GAMES LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(US dollars in thousands)
<TABLE>
<CAPTION>
Year ended October 31,
----------------------------------------------
1997 1996 1995
-------------- -------------- -------------
<S> <C> <C> <C>
Cash flow from operating activities:
Net income (loss) $ 29,586 $ 1,494 $ (21,723)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Deferred income taxes 108 - 159
Depreciation 1,613 1,594 1,591
Amortization 665 - -
Share of loss of affiliated company 141 - -
(Gain) Loss on disposal and write off of
property, plant and equipment (21) (97) 642
Write off of molds - - 1,478
Write off of other assets - - 172
Provision for compensation expense related to
stock options - 22 199
Effect on mark to market of money market funds - - 2
Changes in assets and liabilities:
Accounts receivable (9,142) 618 15,735
Inventories (757) 5,488 16,750
Prepaid expenses and other current assets (134) (16) 1,167
Accounts payable 4,835 2,529 (7,395)
Accrued payroll and employee benefits 563 445 (114)
Commissions payable 439 (527) (688)
Accrued sales expenses (573) (277) 2,104
Accrued warranty expenses 607 1,101 (6)
Accrued other expenses 925 (1,820) 734
Income taxes payable 168 1,351 (3,456)
-------------- -------------- -------------
Net cash provided by operating activities 29,023 11,905 7,351
-------------- -------------- -------------
Cash flow from investing activities:
Increase in short-term investments (1,973) - -
Proceeds from sale of property, plant and equipment 61 929 -
Purchase of property, plant and equipment (1,255) (874) (6,371)
Proceeds from the sales of money market funds -- 3,151 -
Investment in an affiliate company (1,000) - -
-------------- -------------- -------------
Net cash (used in) provided by investing activities (4,167) 3,206 (6,371)
-------------- -------------- -------------
</TABLE>
13
<PAGE>
RADICA GAMES LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(US dollars in thousands)
<TABLE>
<CAPTION>
Year ended October 31,
----------------------------------------------
1997 1996 1995
-------------- -------------- -------------
<S> <C> <C> <C>
Cash flow from financing activities:
Funds from sale and lease back arrangements - - 488
Repayment of note payable - - (3,000)
Funds from stock options exercised 220 - -
Decrease in short-term borrowings - (13,970) (1,503)
Repayment of long-term debt (99) (371) (246)
-------------- -------------- -------------
Net cash provided by (used in) financing activities 121 (14,341) (4,261)
-------------- -------------- -------------
Net increase (decrease) in cash and cash equivalents $ 24,977 $ 770 $ (3,281)
Cash and cash equivalents:
Beginning of year 8,527 7,757 11,038
-------------- -------------- -------------
End of year $ 33,504 $ 8,527 $ 7,757
============== ============== =============
Supplementary disclosures of cash flow information:
Cash paid during the year:
Interest $ 12 $ 413 $ 1,374
Income taxes - - 2,399
Non cash transactions:
Property, plant and equipment acquired under
capital leases - - 28
</TABLE>
See accompanying notes to the consolidated financial statements.
14
<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% but
not in excess of 50%, 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.
15
<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 reported in other comprehensive income. 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 not 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 $122, $102 and $202 in 1997, 1996 and 1995 respectively,
are included in selling, general and administrative expenses.
Post-retirement and post-employment benefits - The Company does not provide
post-retirement benefits other than pensions 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 - The Company continues to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees", in accounting
for its stock options. As a result, no compensation expense has been
recognized as the exercise price of the Company's employee stock options
equals the market price of the underlying stock at the date of grant. Pro
forma disclosures of the effect on net income (loss) and earnings (loss)
per share as if the Company had accounted for its employee stock options
under the fair value method prescribed by Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation", are
shown in note 11.
16
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Earnings (loss) per share - Earnings (loss) per share is based on the
weighted average number of shares of common stock and common stock
equivalents outstanding. Common stock equivalents result from dilutive
stock options. The effect of such common stock equivalents on net income
(loss) per share is computed using the treasury stock method. On March 3,
1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
128, "Earnings Per Share". This pronouncement provides for the calculation
of Basic and Diluted earnings per share which is different from the current
calculation of Primary and Fully Diluted earnings per share. The Company
will adopt this SFAS in the coming financial year.
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.
New accounting standards adopted early - The Company has chosen to adopt
early the SFAS No. 130, "Reporting Comprehensive Income", and No. 131,
"Disclosure about Segments of an Enterprise and Related Information", in
this year. Regarding the reporting of comprehensive income, since the
Company did not have any material items of other comprehensive income in
each of the three years in the period ended October 31, 1997, the net
income reported in the consolidated statements of operation is equivalent
to the total comprehensive income. Further, as the Company has only one
operating segment, the adoption of SFAS No. 131 did not result in any
restatement of comparative information.
Reclassifications - Certain reclassifications have been made to prior years
amounts to conform with the 1997 presentation.
3. SHORT-TERM INVESTMENTS
The Company's short-term investments, all of which are classified as
available-for-sale as defined by SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities", consist primarily of United
States government and Federal agency securities and are stated at market
value. No unrealized gain or loss on these investments was recognized
during the year.
4. UNUSUAL ITEM
During the second quarter of 1996, a gain of $709 was made from the sale of
a property in Hong Kong.
17
<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:
October 31,
----------------------------------------
1997 1996
----------------- -----------------
Raw materials $ 2,786 $ 1,002
Work in progress 2,889 2,012
Finished goods 6,066 7,970
----------------- -----------------
$ 11,741 $ 10,984
================= =================
6. INVESTMENT IN AFFILIATED COMPANY
In May 1997, the Company acquired 123,000 shares of the capital stock of
U-Tel, Inc., a private company incorporated in Nevada, United States of
America, and engaged in research and development of telecommunication
equipment, for $1,000 in cash. This investment represents a 34.6% interest.
U-Tel, Inc. is in the early stages of its product development cycle and
accordingly the excess purchase price over fair value of the net assets
acquired of $665, has been charged to operations for the year ended October
31, 1997.
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
October 31,
-------------------------------------
1997 1996
---------------- ---------------
Land and buildings $ 9,882 $ 9,882
Plant and machinery 3,633 3,031
Furniture and equipment 3,184 2,812
Leasehold improvements 1,318 1,180
---------------- ---------------
Total $ 18,017 $ 16,905
Less: Accumulated depreciation and
amortization (5,478) (3,968)
---------------- ---------------
Total $ 12,539 $ 12,937
================ ===============
18
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
7. PROPERTY, PLANT AND EQUIPMENT (Continued)
Included in property, plant and equipment are assets acquired under capital
leases with the following net book values:
October 31,
-------------------------------------
1997 1996
---------------- ----------------
Plant and machinery - cost $ - $ 685
Less: accumulated depreciation - (217)
---------------- ----------------
$ - $ 468
================ ================
No amortization of capital lease assets was included in depreciation and
amortization expenses in the accompanying statements of operations, for the
year ended October 31, 1997. For the years ended October 31, 1996 and 1995,
such amortization of capital lease assets amounted to $137 and $136,
respectively.
8. INCOME TAXES
The components of income (loss) from continuing operations before income
taxes are as follows:
<TABLE>
<CAPTION>
Year ended October 31,
-------------------------------------------------
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
United States $ 2,167 $ 910 $ (17,561)
Foreign subsidiaries operating in :
People's Republic of China 27,544 1,348 (5,210)
Hong Kong 68 828 384
-------------- -------------- --------------
$ 29,779 $ 3,086 $ (22,387)
============== ============== ===============
</TABLE>
As the Company's subsidiary in the People's Republic of China ("PRC") is a
sino-foreign joint venture enterprise, it is eligible for an exemption from
income tax for two years starting from the first profitable year of
operations and thereafter a 50% relief from income tax for the following
three years under the Income Tax Law of the PRC. That subsidiary has
incurred a tax loss since its commencement of operations. 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.
19
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
8. INCOME TAXES (Continued)
The (provision) credit for income taxes consists of the following:
<TABLE>
<CAPTION>
Year ended October 31,
------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Hong Kong
Current income tax $ (123) $ 45 $ (68)
Deferred - - (8)
------------ ------------ ------------
$ (123) $ 45 $ (76)
United States
State tax benefit, net of
federal tax benefit $ 38 $ 75 $ 1,125
Deferred (108) - (152)
------------ ------------ ------------
$ (70) $ 75 $ 973
------------ ------------ ------------
$ (193) $ 120 $ 897
============ ============ ============
</TABLE>
20
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
8. INCOME TAXES (Continued)
A reconciliation between the (provision) credit for income taxes computed
by applying the statutory tax rates in the United States for 1997, 1996 and
1995 to income (loss) from before income taxes and the actual (provision)
credit for income taxes is as follows:
<TABLE>
<CAPTION>
Year ended October 31,
------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
US statutory rate 34% 34% 34%
------------ ------------ ------------
(Provision) credit for income taxes at
statutory rate on income (loss) for the year $ (10,125) $ (1,049) $ 7,612
State income taxes (7) 95 154
International rate differences 9,807 365 (67)
Accounting (losses) gains for which deferred
income tax cannot be recognized (430) 302 (1,772)
Decrease (increase) in valuation allowance 854 293 (5,553)
Prior year tax adjustments - - 361
Other (292) 114 52
------------ ------------ -----------
Income tax (provision) credit $ (193) $ 120 $ 787
============ ============ ===========
</TABLE>
21
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
8. 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
October 31, 1997 and 1996 deferred income taxes comprised:
October 31,
------------------------------------
1997 1996
--------------- ---------------
Deferred tax (liabilities) assets:
Excess of tax over financial
reporting depreciation $ (79) $ (79)
Tax losses 1,173 2,150
Bad debt allowance 309 25
Advertising allowances 244 88
Inventory obsolescence reserve 643 1,857
Accrued sales adjustments and returns 1,321 691
Other 716 557
------------- ---------------
4,327 5,289
Valuation allowance (4,406) (5,260)
------------- ---------------
$ (79) $ 29
============= ===============
At October 31, 1997, the Company had a net operating loss carried forward
available for US income tax reporting purposes of approximately $3,450
which expires beginning in 2011.
9. 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.
10. COMMON STOCK
During fiscal 1996, 2,100,000 shares previously owned by International Game
Technology (IGT) were cancelled as consideration for the Company's
agreement to dissolve a contract with IGT. A corresponding amount was
transferred to additional paid-in capital.
22
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands, except share data)
11. STOCK OPTIONS
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 exercise 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.
23
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands, except share data)
11. STOCK OPTIONS (Continued)
Option activity for each of the three fiscal years ended October 31, 1995,
1996 and 1997:-
Weighted average
Number exercise price
of shares per share
------------- ----------------
(in thousands) $
Outstanding at October 31, 1994 1,324 7.54
Options granted 195 8.13
Options cancelled (250) 8.50
Options exercised - -
-------------
Outstanding at October 31, 1995 1,269 7.44
Options granted 1,091 1.37
Options cancelled (1,194) 7.12
Options exercised - -
-------------
Outstanding at October 31, 1996 1,166 2.09
Options granted 856 2.98
Options cancelled (86) 8.22
Options exercised (180) 1.22
-------------
Outstanding at October 31, 1997 1,756 2.31
=============
Exercisable at October 31, 1997 137 2.67
24
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands, except share data)
11. STOCK OPTIONS (Continued)
The following is additional information relating to options outstanding as
of October 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options exercisable
----------------------------------------------------- ---------------------------------
Weighted average
Weighted average remaining Weighted average
Exercise Number exercise price contractual Number exercise price
price range of shares per share life (years) of shares per share
- -------------- ------------- ---------------- ---------------- ------------- ----------------
(in thousands) $ (in thousands) $
<S> <C> <C> <C> <C> <C>
$ 0.567 to 2.000 1,167 1.30 8.32 104 1.09
$ 2.001 to 4.000 480 3.45 9.44 15 3.66
$ 4.001 to 6.000 10 5.00 9.62 - -
$ 6.001 to 8.000 59 6.77 9.74 - -
$ 8.001 to 10.000 5 8.63 9.80 - -
$ 10.001 to 12.250 35 11.18 7.11 18 11.00
------------- -------------
1,756 2.31 8.66 137 2.67
============= =============
</TABLE>
Pro forma information regarding net income (loss) and earnings (loss) per
share is required by SFAS No. 123, and has been determined as if the
Company had accounted for its employee stock options under the fair value
method of SFAS No. 123. The weighted average fair value of stock options at
date of grant of $1.59, $0.71 and $1.89 per option for 1997, 1996 and 1995,
respectively, were estimated using the Black-Scholes option pricing model
with the following weighted average assumptions:
<TABLE>
<CAPTION>
Year ended October 31,
------------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Expected life of options 5 years 5 years 5 years
Risk-free interest rate 6.50% 6.25% 6.5%
Expected volatility of underlying stock 50% 50% 50%
Dividends 0% 0% 0%
</TABLE>
The Black-Scholes option pricing model requires the input of highly
subjective assumptions, including the expected volatility of stock price.
Because changes in subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing model does not
necessarily provide a reliable single measure of the fair value of the
stock options.
25
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands, except share data)
11. STOCK OPTIONS (Continued)
If the Company had accounted for its stock option plans by recording
compensation expenses based on the fair value at grant date for such awards
consistent with the method of SFAS No. 123, the Company's net income (loss)
earnings (loss) per share would have been reduced to the pro forma amounts
as follows:
<TABLE>
<CAPTION>
Year ended October 31,
---------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Pro forma net income (loss) $ 29,154 $ 1,202 $ (21,919)
Pro forma earnings (loss) per share $ 1.34 $ 0.06 (0.96)
</TABLE>
12. WRITE DOWN OF ASSETS
During the year ended October 31, 1995, the Company wrote down the
following assets:
Inventory -- obsolescense and slow-moving reserve $ 11,116
Inventory -- market value reserve 757
Accounts receivable -- write off 1,670
Closure of Mexican factory 297
Write off of unamortized mold costs 1,478
------------
$ 15,318
============
13. 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 20% and 18% of net sales in fiscal 1997, two customers which
accounted for more than 20% and 16% of net sales in fiscal year 1996 and
had two customers which accounted for more than 13% each and one customer
which accounted for more than 10% of net sales in fiscal year 1995. The
Company performs ongoing credit evaluations of its customers' financial
condition and, generally, requires no collateral from its customers.
26
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
14. 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.
15. COMMITMENTS AND CONTINGENCIES
The Company leases several warehouses and certain equipment under operating
leases. Total expense for the operating leases was $358, $411 and $466 in
1997, 1996 and 1995, respectively.
At October 31, 1997, the Company was obligated under operating leases
requiring future minimum lease payments as follows:
Operating
leases
-------------
1998 $ 285
1999 201
2000 188
2001 56
2002 30
-------------
Total minimum lease payments $ 760
=============
At October 31, 1997, certain leasehold land and buildings with a net book
value of $4,994 and bank balances of $3,871 were pledged to secure general
banking facilities including overdraft and trade facilities granted to the
Company.
27
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
16. 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 $191, $141 and $144 for the years
ended October 31, 1997, 1996 and 1995, respectively.
17. 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 were
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 District 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
District 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 filed a timely
appeal to the United States Court of Appeals for the Ninth Circuit, and
oral argument of such appeal was held on November 5, 1997. On
28
<PAGE>
November 14, 197, the Court of Appeals entered an Order affirming the
judgment of the District Court.
29
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
18. 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:
Year ended October 31,
-----------------------------------------------
1997 1996 1995
------------- ------------- -------------
Net sales:
United States $ 57,478 $ 33,036 $ 48,329
PRC and Hong Kong 28,537 13,456 3,887
Other 1,745 1,043 434
------------- ------------- -------------
$ 87,760 $ 47,535 $ 52,650
============= ============= =============
Operating income (loss):
United States $ 2,269 $ 973 $ (16,741)
PRC and Hong Kong 25,990 906 (5,157)
Other (167) (85) (190)
------------- ------------- -------------
$ 28,092 $ 1,794 $ (22,088)
============= ============= =============
Identifiable assets:
United States $ 24,745 $ 16,011 $ 19,797
PRC and Hong Kong 53,639 25,313 33,528
Other 1,065 1,401 729
------------- ------------- -------------
$ 79,449 $ 42,725 $ 54,054
============= ============= =============
A significant portion of PRC and Hong Kong net sales were export sales to
the United States.
30
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
19. VALUATION AND QUALIFYING ACCOUNTS
Year ended October 31,
---------------------------------------
1997 1996 1995
----------- ----------- -----------
Beginning of year:
Allowances for doubtful accounts $ 234 $ 1,572 $ 96
Estimated customer returns 817 1,790 138
Provision for inventories 8,419 11,873 -
----------- ----------- -----------
$ 9,470 $ 15,235 $ 234
=========== =========== ===========
Charged to cost and expenses:
Allowances for doubtful accounts $ 818 $ 70 $ 1,476
Estimated customer returns 1,995 1,250 1,652
Provision for inventories - - 11,873
----------- ----------- -----------
$ 2,813 $ 1,320 $ 15,001
=========== =========== ===========
Release of provision:
Allowances for doubtful accounts $ (144) $ (1,408) $ -
Estimated customer returns (485) (2,223) -
Provision for inventories (4,940) (3,454) -
----------- ----------- -----------
$ (5,569) $ (7,085) $ -
=========== =========== ===========
End of year:
Allowances for doubtful accounts $ 908 $ 234 $ 1,572
Estimated customer returns 2,327 817 1,790
Provision for inventories 3,479 8,419 11,873
----------- ----------- -----------
$ 6,714 $ 9,470 $ 15,235
=========== =========== ===========
31
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands, except per share data)
20. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Quarter ended
---------------- ------------------------------------
Jan. 31 Apr. 30 Jul. 31 Oct. 31
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Fiscal 1997
Net sales $ 12,668 $ 12,175 $ 22,532 $ 40,385
Gross profit 5,476 5,422 11,671 24,303
Net income (loss) 2,522 2,317 7,147 17,600
Net income (loss) per share
and common stock equivalents 0.12 0.11 0.34 0.79
Fiscal 1996
Net sales $ 9,052 $ 3,918 $ 11,989 $ 22,576
Gross profit 2,982 290 3,260 10,307
Net income(loss) (727) (978) (1,045) 4,244
Net income (loss) per share
and common stock equivalents (0.03) (0.05) (0.05) 0.21
</TABLE>
32
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Directors of Radica Games Limited
We have audited the accompanying consolidated balance sheets of Radica
Games Limited and subsidiaries as of October 31, 1997 and 1996, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended October 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of Radica Games Limited and
subsidiaries as of October 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
October 31, 1997, in conformity with accounting principles generally accepted in
the United States of America.
/s/ Deloitte Touche Tohmatsu
HONG KONG
December 17, 1997
33
<PAGE>
COMMON STOCK DATA
As of January 31, 1998 there were approximately 130 record holders of the
Company's common stock. The Company believes that this represents more than
2,000 individual shareholders.
PRICE RANGE OF COMMON STOCK
Fiscal Year and Quarter
High Low
$ $
1998
First Quarter....................................... 19 12 7/8
1997
Fourth Quarter...................................... 15 3/8 7 1/2
Third Quarter....................................... 7 7/8 2 7/8
Second Quarter...................................... 4 1/8 2 3/8
First Quarter....................................... 3 1/4 1 1/16
1996
Fourth Quarter...................................... 1 3/4 3/4
Third Quarter....................................... 1 15/16 15/16
Second Quarter...................................... 2 1 1/4
First Quarter....................................... 2 1/2 1 1/8
1995
Fourth Quarter...................................... 3 1 3/8
Third Quarter....................................... 3 3/4 2 1/2
Second Quarter...................................... 5 3
First Quarter....................................... 7 4 3/4
The Company's common shares have been traded on the NASDAQ National Market
System since May 13, 1994. Prior to that time, the Company's securities were
privately held. The Company's symbol for its common shares is "RADAF". On
October 31, 1997 the share price closed at $14.
The Company has not declared any dividends since it became public.
34
<PAGE>
DIRECTORS AND OFFICERS
Robert E. Davids (1)
Vice-Chairman, Chief Executive Officer and Director
Jon N. Bengtson
Chairman of the Board and Director
Patrick S. Feely (2)
President, Chief Operating Officer and Director
David C.W. Howell
Executive Vice President, Chief Financial Officer,
Chief Accounting Officer and Director
Lam Siu Wing
Vice President, Engineering and Director
James O'Toole (3)(4)
Director, Managing Director, Booz, Allen, Hamilton Leadership Center
Millens W. Taft (3)(4)(5)
Director, Chairman, Mel Taft & Associates
Robert C. Townsend (6)
Deceased
Mary Hansen (7)
Resigned
Raymond S.Y. Wong
Vice President, China Operations
Rick C.K. Chu
International Sales Director
Christopher Dingley
General Manager, Radica UK Ltd
Michael L. Pikett
President, Radica Canada Ltd
Wang You Liang
Quality Director
35
<PAGE>
Wong Kam Cheong
Manufacturing Director
Hermen H.L. Yau
MIS Director
SENIOR MANAGEMENT
Graham Cotton
Vice President Sales, Radica USA
Charles Schreiber
Chief Engineer, Disc Inc.
Harold Stone
Director of Marketing Services, Radica USA
Craig D. Storey
Controller, Radica USA
(1) Mr. Davids was appointed Vice-Chairman of the Board of Directors on
July 1, 1997 and resigned as President on that date.
(2) Mr. Feely was appointed President and Chief Operating Officer on July 1,
1997.
(3) Member of the Audit Committee
(4) Member of the Compensation Committee
(5) Mr. Taft was appointed as an outside director on April 9, 1997.
(6) Mr. Townsend served as a director of the Company from June 1994 until his
death in January 1998.
(7) Mrs. Hansen resigned as a director of the Board on April 9, 1997.
CORPORATE OFFICE
Radica Games Limited
Suite R, 6th Floor, 2-12 Au Pui Wan Street
Fo Tan, Hong Kong
Telephone: Hong Kong (852) 2693-2238
Fax: Hong Kong (852) 2695-9657
36
<PAGE>
INVESTOR RELATIONS
180 South Lake Avenue, Suite 440
Pasadena, CA 91101
Telephone: USA (1) 626-744-1150
Fax: USA (1) 626-744-1155
WEB SITE
www.radicagames.com
CORPORATE COUNSEL
Sullivan & Cromwell
444 South Flower Street
Suite 1200
Los Angeles, CA 90071
INDEPENDENT AUDITORS
Deloitte Touche Tohmatsu
20th Floor, Wing On Centre
111 Connaught Road Central
Hong Kong
REGISTRAR AND TRANSFER AGENT
U.S. Stock Transfer Corporation
1745 Gardena Avenue
Glendale, CA 91204
COMMON STOCK
NASDAQ National Market System
Common Stock Symbol: RADAF
COPYRIGHT INFORMATION The Radica logo is a registered trademark of Radica China
Ltd. All category logos contained here within are a trademark of Radica China
Ltd. The VMS logo and VIRTUAL MOTION SENSOR are trademarks of Radica China Ltd.
NASCAR is a registered trademark of NASCAR used under license. FIFA WORLD CUP 98
is an officially licensed product of the FIFA World Cup France 98, (C) The
France 98 emblem is a copyright and trademark of ISL, manufactured under license
by Electronic Arts. All rights reserved. Licenses used by permission. (C)1998
Radica China Ltd.
37
RADICA GAMES LIMITED
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
April 6, 1998
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Shareholders of
Radica Games Limited (the "Company") will be held at the Sands Regent Hotel, 345
N. Arlington Avenue, Reno, Nevada 89501 on Monday, April 6, 1998, commencing at
10:00 a.m., to consider and act upon the following proposals or matters:
(1) To elect directors;
(2) To amend the Company's 1994 Stock Option Plan to increase the total
number of shares of the Company's Common Stock that may be purchased pursuant to
options under such plan from 2.0 million shares to 2.8 million shares;
(3) To re-appoint Deloitte Touche Tohmatsu as Independent Auditor and
to authorize the directors to fix the Independent Auditor's remuneration; and
(4) To transact such further or other business matters as may properly
come before the meeting or any adjournments thereof.
Only shareholders of record at the close of business on March 6, 1998
will be entitled to notice of the meeting.
The Annual Report containing the Financial Statements of the Company
and the Report of the Independent Auditor thereon, the Management Information
Circular/Proxy Statement and a form of proxy are enclosed with this Notice of
Meeting.
By order of the Board of Directors,
DAVID C.W. HOWELL
Executive Vice President,
Chief Financial Officer and
Chief Accounting Officer
March 9, 1998
Fo Tan, Hong Kong
Note: If you are unable to be present at the meeting in person, please fill
in, date and sign the enclosed proxy and return it to the President of
the Company in the enclosed envelope.
<PAGE>
MANAGEMENT INFORMATION CIRCULAR/PROXY STATEMENT
This Management Information Circular/Proxy Statement ("this Circular")
is furnished to shareholders of Radica Games Limited (the "Company") in
connection with the solicitation by and on behalf of the management of the
Company of proxies to be used at the Annual Meeting of Shareholders (the
"Meeting") of the Company to be held at the Sands Regent Hotel, 345 N. Arlington
Avenue, Reno, Nevada 89501 on Monday, April 6, 1998 at 10:00 a.m., and at any
adjournments, for the purposes set forth in the attached Notice of Annual
Meeting of Shareholders (the "Notice").
This Circular, the attached Notice and the accompanying form of proxy
are first being mailed to shareholders of the Company on or about March 9, 1998.
The Company will bear all costs associated with the preparation and mailing of
this Circular, the Notice and form of proxy as well as the cost of solicitation
of proxies. The solicitation will be primarily by mail; however, officers and
regular employees of the Company may also directly solicit proxies (but not for
additional compensation) by telephone or telegram. Banks, brokerage houses and
other custodians and nominees or fiduciaries will be requested to forward proxy
solicitation material to their principals and to obtain authorizations for the
execution of proxies and will be reimbursed for their reasonable expenses in
doing so.
No person is authorized to give any information or to make any
representations other than those contained in this Circular and, if given or
made, such information must not be relied upon as having been authorized.
APPOINTMENT AND REVOCATION OF PROXIES
The persons named in the enclosed form of proxy are directors or
officers of the Company. A shareholder has the right to appoint a person (who
need not be a shareholder of the Company) as nominee to attend and act for and
on such shareholder's behalf at the Meeting other than the management nominees
named in the accompanying form of proxy. This right may be exercised either by
striking out the names of the management nominees where they appear on the front
of the form of proxy and by inserting in the blank space provided the name of
the other person the shareholder wishes to appoint, or by completing and
submitting another proper form of proxy naming such other person as proxy.
A shareholder who has given a proxy, in addition to revocation in any
other manner permitted by applicable law, may revoke the proxy within the time
periods described in this Circular by an instrument in writing executed by the
shareholder or by his/her attorney authorized in writing or, if the shareholder
is a body corporate, by an officer or attorney thereof duly authorized.
Shareholders desiring to be represented at the Meeting by proxy or to
revoke a proxy previously given, must deposit their form of proxy or revocation
of proxy at the office of Radica Enterprises, Ltd. ("Radica USA") at 180 S. Lake
Avenue, Suite 440, Pasadena, CA 91101, addressed to the President of the
Company, at any time up to and including the last business day preceding the day
of the Meeting, or any adjournment thereof, at which the proxy is to be used, or
on the day of the Meeting with the chairman of the Meeting prior to the Meeting,
or any adjournment thereof. If a shareholder who has completed a proxy attends
the Meeting in person, any votes cast by the shareholder on a poll will be
counted and the proxy will be disregarded.
1
<PAGE>
VOTING OF PROXIES
The shares represented by any valid proxy in favor of the management
nominees named in the accompanying form of proxy will be voted for, against or
withheld from voting (abstain) on the election of directors, on the amendment to
the 1994 Stock Option Plan, and on the reappointment of the Independent Auditor
and the authorization of the directors to fix the remuneration of the
Independent Auditor, in accordance with any specifications or instructions made
by a shareholder on the form of proxy. In the absence of any such specifications
or instructions, such shares will be voted FOR the election as directors of the
management nominees named in this Circular, FOR the amendment to the 1994 Stock
Option Plan, and FOR the re-appointment of Deloitte Touche Tohmatsu as
Independent Auditor and the authorization of the directors to fix the
Independent Auditor's remuneration.
Each share of Common Stock is entitled to one vote on each matter
submitted to vote at the meeting. Under the Company's Bye-laws, action may be
taken by the shareholders at any duly convened Annual General Meeting of the
Company by a majority of the votes cast on each proposal (other than certain
proposals requiring a special resolution as defined in the Bye-laws). In the
case of elections of directors, the number of vacant positions (in the case of
this meeting, seven director positions) will be filled by the nominees who
receive the greatest number of votes at the meeting, with each shareholder being
entitled to vote for a number of directors equal to the number of vacancies.
Although the Bye-laws permit voting by a show of hands in certain circumstances,
the Company follows the practice of voting by poll or ballot (i.e. tabulating
written votes submitted at the meeting in person or by proxy).
The accompanying form of proxy confers discretionary authority upon the
persons named therein with respect to amendments or variations to matters
identified in the Notice and with respect to such other business or matters
which may properly come before the Meeting or any adjournments thereof.
RECORD DATE
The Board of Directors of the Company has fixed the close of business
on March 6, 1998, as the record date (the "Record Date") for the Meeting. Only
holders of record of the Common Stock as of the close of business on the Record
Date are entitled to receive notice of and to attend and vote at the Meeting.
2
<PAGE>
VOTING SECURITIES AND THEIR PRINCIPAL HOLDERS
As of January 31, 1998 there were issued and outstanding 20,409,800
shares of the Common Stock of the Company.
The following table sets forth information with respect to shareholders
which the Company believes own beneficially more than 5% of the issued and
outstanding shares of Common Stock of the Company, as of January 31, 1998:
Name and Address of Beneficial Owner
Percentage of
Name and Address of Common Stock
Beneficial Owner Number of Shares Outstanding
- ------------------- ---------------- --------------
Robert E. Davids(1) 3,463,800 17.0%
Suite R, 6th Floor
2-12 Au Pui Wan Street
Fo Tan, Hong Kong
The John and Mary Hansen 1989 Trust(2) 1,288,700 6.3%
369 Adrian Road
Millbrae, CA94030
Dito Devcar Corporation, et al. (3) 4,425,000 21.7%
3753 Howard Hughes Parkway
Suite 200
Las Vegas, NV 89109
- -------------------------
(1) Mr. Davids is a Director and the Chief Executive Officer of the Company.
Also includes shares held by Mr. Davids as trustee for a family trust.
(2) Such trust is herein called the "Hansen Trust". Mr. John N. Hansen was a
co-founder of the Company, and served as a director of the Company until
his death in early 1995. Thereafter, Mrs. Mary J. Hansen, the widow of
Mr. Hansen, was a director of the Company until April 1997. Also includes
shares held individually by Mrs. Hansen or by trustee(s) for other family
trusts.
(3) Includes shares of Common Stock owned by the following related persons:
Dito Devcar Corporation, DRP Charitable Unitrust, TMP Charitable Unitrust,
Dito Devcar, LP, Dito Caree, LP, Pickup Family Trust, Pickup Charitable
Remainder Unitrust II, TD Investments, LLC and Richard H. Pickup.
ELECTION OF DIRECTORS
The following persons are nominees proposed by management for election
as directors of the Company to serve until the next annual meeting of the
shareholders of the Company or until their successors are duly elected or
appointed. A shareholder may withhold his vote from any individual nominee by
writing the particular nominee's name on the line provided in the form of proxy.
Management does not contemplate that any of the nominees will be unable to serve
as a director. If, as a result of circumstances not now contemplated any nominee
shall be unavailable to serve as a director, the proxy will be voted for the
election of such other person or persons as Management may select. The
management nominees for election as directors of the Company are Robert E.
Davids, Jon N. Bengtson, Patrick Feely, David C.W. Howell, Lam Siu Wing, James
O'Toole and Millens W. Taft.
3
<PAGE>
The following table and the textual discussion which follows sets forth
information as of January 31, 1998 with respect to each current director of the
Company, each of the management nominees for director and each executive
officer, including their names, ages, the number of shares beneficially owned by
each such person individually and as a group, all positions and offices with the
Company held by each such person (in addition to their directorships) and their
term of office as a director:
<TABLE>
<CAPTION>
Percentage
Number of of
Other Positions and Offices Shares Common
Age at Director Presently Held with the Beneficially Stock
Name 1/1/98 Expires Company Owned Outstanding
- ------------------- ------ -------- --------------------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Directors:
Robert E. Davids(1) 54 1998 Vice Chairman, Chief 3,463,800 17.0%
Executive Officer
Jon N. Bengtson 54 1998 Chairman of the Board 133,150 (2)
Patrick Feely 51 1998 President, Chief Operating 30,000 (2)
Officer
David C.W. Howell 35 1998 Executive Vice President, 151,000 (2)
Chief Financial Officer,
Chief Accounting Officer
Lam Siu Wing 39 1998 Vice President, Engineering 206,000 1.0%
James O'Toole (3)(4) 52 1998 None 47,900 (2)
Millens W. Taft (3)(4) 75 1998 None -- --
Executive Officers:
Raymond S.Y. Wong 46 Vice President of China -- --
Operations
Wong Kam Cheong 43 Manufacturing Director 4,000 (2)
Hermen H.L. Yau 38 MIS Director 4,100 (2)
Wang You Liang 58 Quality Director -- --
Rick C.K. Chu 44 International Sales Director 2,000 (2)
Christopher Dingley 38 General Manager, Radica U.K. Ltd. -- --
Michael L. Pikett 58 President, Radica Canada Ltd 4,000 (2)
<FN>
- -------------------------
(1) Includes shares held by Mr. Davids as trustee for a family trust.
(2) These shares represent less than 1% of the total stock outstanding.
(3) Member of the Audit Committee.
(4) Member of the Compensation Committee.
</FN>
</TABLE>
All directors and executive officers of the Company as a group (14
persons) owned beneficially 4,045,950 shares of Common Stock (not including
943,600 option shares not yet vested held by such persons), or approximately
19.8% of the Common Stock outstanding, as of January 31, 1998. The executive
officers of the Company do not have any fixed term of office and serve at the
pleasure of the
4
<PAGE>
Board of Directors. Since the mailing date of last year's Proxy Statement, as
previously announced by the Company, Mrs. Mary J. Hansen resigned as a director
and Mr. Millens W. Taft was appointed to the Board as an independent director.
Also, Mr. Patrick Feely was appointed President and Chief Operating Officer of
the Company. He remains a director but is no longer an outside director. In
January 1998, Mr. Robert Townsend, who had been a director of the Company since
June 1994, died unexpectedly. The Company expects to appoint another director to
replace Mr. Townsend in fiscal year 1998.
Robert E. Davids has been the Chief Executive Officer of the Company
since January 1994, and a director since December 1993. He was President of the
Company from December 1993 to July 1997. Prior to 1993, Mr. Davids had been the
Co-Chief Executive Officer with Mr. James J. Sutter and a director of Radica HK
since he joined the Company in 1988. Mr. Davids has over 30 years experience in
the development, design and engineering of non-gambling casino gifts, commercial
gaming machines, automobiles and other products. From 1984 until he joined the
Company, he was the General Manager of Prospector Gaming Enterprises Inc., a
casino in Reno, Nevada. From 1978 through 1984, Mr. Davids served in various
positions at International Game Technology ("IGT"), including Director of
Special Projects and Director of Engineering.
Jon N. Bengtson, formerly the Executive Vice President and Chief
Financial Officer of the Company, became the Chairman of the Board of the
Company in January 1996, and has been a director of the Company since January
1994. In January 1998, Mr. Bengtson became President and Chief Operating Officer
of U-TEL, Inc., a telecommunications R&D company that is approximately 35%-owned
by the Company. Until January 1998, he was the Executive Vice President and
Chief Operating Officer of the Sands Regent Hotel, where he remains a director.
Mr. Bengtson was an Executive Vice President and Chief Operating Officer of the
Company from September 1995 to January 1996. He was Chief Financial Officer of
the Company from January 1994 to September 1995 and was appointed President and
Chief Executive Officer of Radica USA in December 1993. Mr. Bengtson joined The
Sands Regent in 1984 and served in various positions, including Vice President
of Finance and Administration, Chief Financial Officer, Treasurer and Director,
Senior Vice President and Director and Executive Vice President and Director
until December 1993. From 1980 to 1984, Mr. Bengtson was a director and served
in various positions with IGT, including Treasurer and Vice President of Finance
and Administration and Vice President of Marketing. Mr. Bengtson is currently a
director of The Sands Regent and its subsidiary, Patrician, Inc.
Patrick Feely has been Chief Operating Officer and President of the
Company since July 1997 and a director of the Company since July 1996.
Previously, he was President of Fun Source, a Strottman International, Inc.
company; President and CEO of Spectrum HoloByte, Inc. from 1993 to 1995;
President of Bandai America, Inc. from 1991 to 1992; founder and President of
Toy Soldiers, Inc. (which merged with Bandai America) from 1988 to 1991; and
President of the Tonka Products Division of Tonka, Inc. from 1986 to 1988. Mr.
Feely was also Director of the Toy Manufacturers Association from 1992 to 1995.
He has a BA from Duke University and an MBA from the University of Michigan.
David C.W. Howell has been Executive Vice President and Chief Financial
Officer and a director of the Company since September 1995. Prior to that, he
was Vice President and Chief Accounting Officer and a director of the Company
from January 1994 to September 1995. From 1992 to 1994, Mr. Howell was a Finance
Director and Company Secretary of Radica HK. From 1984 to 1991, Mr. Howell was
employed by Ernst & Young in London, Hong Kong and Vietnam. He has a B.Sc from
Nottingham University, is a member of the Institute of Chartered Accountants in
England and Wales and is a fellow of the Hong Kong Society of Accountants.
5
<PAGE>
Lam Siu Wing has been Vice President, Engineering and a director of the
Company since January 1994. Prior to that, he had been the head of the Radica HK
engineering department for eight years since he joined the Company in 1985. Mr.
Lam has over 13 years of experience in plastic design and production
engineering. Prior to joining the Company, he served as a project designer in
the electrical appliance industry. Mr. Lam has a post graduate diploma in
Engineering Management from City Polytechnic of Hong Kong.
James O'Toole has been a director of the Company since June 1994. He is
currently Managing Director of Booz Allen Hamilton Leadership Center. Mr.
O'Toole retired in 1994 from the faculty of the Graduate School of Business at
the University of Southern California after a career of more than twenty years,
where he held the University Associates' Chair of Management.
Millens W. Taft has been a director of the Company since April 1997. He
brings with him five decades of toy and games experience and currently advises
companies in the toy industry on marketing, product development and licensing in
both the domestic and international markets. He retired from the Milton Bradley
Company in 1984, where he was Corporate Senior Vice President of Research and
Development and was also a Director of the firm. Mr. Taft had been with Milton
Bradley since graduating from Harvard Business School in June of 1949 with the
degree of Master of Business Administration. From 1942 to 1945 he was in the
military service with the 8th Air Force as First Lieutenant and Pilot. Upon his
early retirement from Milton Bradley, he started his own company, Mel Taft &
Associates in 1984, which helps companies in the USA and around the world with
marketing, product development and licensing projects primarily in the Toy,
Games, Craft, Specialty and International Markets.
Raymond S.Y. Wong has been Vice President of China Operations of the
Company since December 1997. Mr. Wong has over 20 years of experience in product
development, quality assurance, engineering and production in the semiconductor
and consumer electronics industry. He worked for Saitek Ltd. for 12 years and
was director of its China plant. Mr. Wong has a BSc in Electronic Engineering
from the Chinese University of Hong Kong and a Diploma in Management Studies
from the Hong Kong Polytechnic.
Wong Kam Cheong has been the Director of Manufacturing for the Company
since June 1994. Mr. Wong has over 18 years of experience in product design,
R&D, production and sales in toys, consumer electronics and the electrical
appliance industry. Mr. Wong has a BSc in Mechanical Engineering from Taiwan
University, a post graduate diploma in Manufacturing Technology from City
University, London and is a member of the Institute of Management, UK.
Hermen H.L. Yau has been the MIS Director of the Company since March 1,
1994. From 1982 to 1994, he worked in Outboard Marine Corporation Asia Ltd in
various positions in the Systems & Data Processing Department. He has more than
16 years experience in Information Technology and particular experience in IBM
mid-range computer systems and solutions. He has a Higher Diploma in Computer
Studies from the National Computing Center UK and a Diploma in Management
Studies from the Hong Kong Polytechnic and Hong Kong Management Association.
Wang You Liang has been the Quality Director of the Company since
December 1993. Prior to that, he was Head of the Quality Assurance Section of
Foxboro Co. Ltd in Shanghai from 1986 to 1993 and a Quality Control Engineer
from 1982 to 1986.
Rick C.K. Chu has been the International Sales Director of the Company
since April 1996. Prior to that, Mr. Chu was International Sales Administrative
Manager of the Company from April 1994 to
6
<PAGE>
April 1996. He has more than 16 years experience in international trade and
business management. From 1988 to 1994, he was the Senior Manager managing the
sales administration function and marketing of industrial materials for a
leading trading company in Hong Kong.
Christopher Dingley has been the General Manager and Company Secretary
of Radica UK since January 1995. He is also the European Marketing Manager of
the Company. From January 1991 to December 1994 he acted for Radica as Manager
of European Operations. From 1987 to 1991 he was the Sales Manager for Export
Military Sales in UK. Prior to that he worked for Chrysler Military Sales in
Germany, Italy and the UK from 1982 to 1986.
Michael L. Pikett has been President of Radica Canada Ltd since October
1994. From 1993 to 1994 Mr. Pikett was employed as a Commercial Attache for the
Government of Quebec in Toronto. From 1986 to 1993 Mr. Pikett was employed as
Vice President-General Manager of Melitta Canada Inc. He was the Director of
Sales for J.M. Schneider Inc. from 1980 to 1985. Mr. Pikett has over 28 years
senior management experience in the Canadian market. He was born and educated in
the UK, moving to Canada in 1968.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
During fiscal 1997, the Board of Directors of the Company met four
times. Each of the directors, during his tenure as a director, attended at least
75% of the meetings of the Board of Directors and of each committee of the board
on which he has served.
The responsibilities of the Audit Committee include recommending to the
Board of Directors the independent certified public accountants to be selected
to conduct the annual audit of the books and accounts of the Company, reviewing
the proposed scope of such audit and approving the audit fees to be paid, and
reviewing the adequacy and effectiveness of the internal auditing, accounting
and financial controls of the Company with the independent certified public
accountants and the Company's financial and accounting staff. The Audit
Committee consists entirely of non-management directors. The Audit Committee is
currently comprised of two members of the Board, being Messrs. O'Toole and Taft.
In fiscal 1997, it held one meeting.
The responsibilities of the Compensation Committee include reviewing
and approving executive appointments and remuneration and supervising the
administration of the Company's employee benefit plans. The Compensation
Committee is currently comprised of two members of the Board, being Messrs.
O'Toole and Taft. In fiscal 1997, it held one meeting.
The Company does not have a Nominating Committee.
INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
In February 1994, prior to the Company's initial public offering,
Messrs. Davids, Sutter and the Hansen Trust sold an aggregate of 2,100,000
shares of the Company's Common Stock to International Game Technology ("IGT").
In fiscal year 1996, the 2,100,000 shares of the Company owned by IGT were
transferred back to the Company as part of a settlement of disputes between the
Company and IGT relating to original equipment manufacturing by the Company for
IGT which never come to fruition, and such shares are no longer outstanding.
Messrs. Davids and Sutter, the Hansen Trust, IGT and the Company were
parties to a shareholders agreement (the "Shareholders Agreement") which
provided for certain matters relating to the management of the Company and
ownership of its Common Stock. In January 1998, the
7
<PAGE>
Shareholders Agreement was amended to eliminate provisions respecting the
election and removal of directors, restrictions on transfer and a right of first
refusal. The registration rights provisions of the Shareholders Agreement remain
operative.
Pursuant to the Shareholders Agreement, the Company has agreed, at any
time after February 16, 1996 and subject to certain specified conditions, to use
its reasonable efforts to prepare and file one registration statement on behalf
of each shareholder that is a party to such agreement (collectively, the
"Shareholders") under the Securities Act of 1933, and to use its reasonable
efforts to qualify the shares for offer and sale under any applicable U.S. state
securities laws. The Shareholders Agreement also grants each Shareholder certain
"piggyback" registration rights entitling each Shareholder, at any time after
February 16, 1996, to sell Common Stock in certain registered offerings of
equity securities by the Company. These "piggyback" registration rights are
exercisable by each Shareholder only twice. The foregoing registration rights
are subject to other limitations set forth in the Shareholders Agreement. In
1997, the Company effected a demand registration at the request of Mr. Davids
and also included certain shares at the request of the Hansen Trust. Such
registration covered an aggregate of 1,855,000 million shares, most of which
were sold in the Fall of 1997.
COMPENSATION OF OFFICERS AND DIRECTORS
Compensation
In fiscal 1997, the aggregate amount of compensation paid by the
Company to all executive officers and directors as a group for services in all
capacities was approximately $1.28 million.
Commencing in April 1997, each outside (i.e., non-employee and
non-affiliated) director of the Company receives a fee of $600 for attendance at
each meeting of the Board of Directors and a fee of $600 for attendance at each
Committee meeting. Directors who are employees or affiliates of the Company will
not be paid any fees or additional remuneration for service as members of the
Board of Directors or its Committees.
Prior to April 1997, each outside director of the Company also
received, in addition to the above, a $10,000 annual fee paid in quarterly
installments.
Prior to fiscal year 1996, each outside director received non-qualified
stock options to purchase 30,000 shares of Common Stock of the Company upon
initial election to the Board of Directors at an exercise price equal to the
initial public offering price ($11.00 per share) of the Company's Common Stock
and exercisable after one year from the date of grant. In January 1997, the
board of directors resolved to reprice 30,000 stock options (at $11.00 per
share) for each of two outside directors to the market price as of the date of
such meeting ($1.75 per share) and the change was ratified in the board meeting
on April 9, 1997. In the same board meeting, one outside director was appointed
and received non-qualified stock options to purchase 30,000 shares of Common
Stock of the Company at an exercise price equal to the average of bid and asked
closing price ($3.125) on such date. Upon each re-election to the Board of
Directors in 1995, 1996 and 1997, each outside director received non-qualified
stock options to purchase 5,000 shares (15,000 shares in 1997, to reflect
elimination of the $10,000 annual fee) of Common Stock of the Company at $3.66
per share, $1.50 per share and $3.125 per share, respectively. Upon re-election
to the Board of Directors in 1998 and thereafter, each outside director will
receive non-qualified stock options to purchase 15,000 shares of Common Stock of
the Company at an exercise price equal to the then current market price of the
Company's Common Stock. These subsequent options are also exercisable after one
year from the date of grant.
8
<PAGE>
Employment Agreements
Messrs. Davids, Feely and Bengtson have each entered into individual
employment agreements with the Company. The employment agreements are for
periods of two years each, from December 1997 for Mr. Bengtson and Mr. Davids.
In the case of Mr. Feely, his employment agreement is also for a period of two
years but it will be renewed in December 1998 due to a change of renewal date of
his agreement in December 1997. Each employment agreement is terminable by the
Company for cause. Messrs. Davids, Feely and Bengtson shall each receive minimum
annual base salaries of $182,000, $185,000 and $43,200, respectively. The
agreement with Mr. Bengtson, as amended in December 1995, is for part-time
services. The employment agreements for Mr. Davids and Mr. Feely contain certain
restrictions on their involvement in businesses other than the Company during
the course of their employment and certain provisions applicable after
termination of employment which prohibit the solicitation of customers and other
employees of the Company, employment or engagement with competing entities, or
the disclosure of proprietary information of the Company. The agreement for Mr.
Davids also requires that the Company provide him with a residence in Hong Kong.
In the agreement for Mr. Feely, he was granted 300,000 stock options of the
Company common stock at $3.625 per share subject to the terms and conditions of
the agreement and the 1994 Stock Option Plan. Additionally, after the end of
each of the Company's 1998, 1999 and 2000 fiscal years, Mr. Feely will be
granted 60,000 stock options (up to 180,000 shares in the aggregate) provided he
achieves certain conditions as stated in the agreement.
Consulting Agreement
The Company, acting through its subsidiary Radica China Limited,
entered into a one-year Consulting Agreement, dated November 1, 1997, with Mr.
Millens W. Taft, one of the Company's outside directors. Under such agreement,
Mr. Taft is to act as an independent contractor and is to assist in identifying,
contacting and developing relationships with inventors and other product concept
sources in the toy and game industry in order to develop new products for the
Radica line of games. Mr. Taft will be paid a consulting fee of $10,000 per
month for the first three months under the agreement, and $3,334 for each of the
remaining nine months. Mr. Taft will bear his own costs and expenses in
providing the consulting services other than certain travel, lodging,
entertainment and similar expenses which will be reimbursed by the Company.
OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
The Company's 1994 Stock Option Plan provides for the granting of stock
options to directors, officers and employees of the Company. The Stock Option
Plan is administered by the Compensation Committee of the Board of Directors.
Subject to the provisions of the Stock Option Plan, the Compensation Committee
shall have sole authority to determine which of the eligible directors and
employees of the Company shall receive stock options, the terms, including
applicable vesting periods, of such options, and the number of shares for which
such options shall be granted.
The total number of shares of the Company's Common Stock that may be
purchased pursuant to stock options under the Stock Option Plan shall not exceed
in the aggregate 2.0 million shares (such number is proposed to be increased, as
described below). The option price per share with respect to each such option
shall be determined by the Compensation Committee but shall be not less than
100% of the fair market value of the Company's Common Stock on the date such
option is granted as determined by the Compensation Committee. Ordinarily,
twenty percent of the stock options vest and become exercisable on each of the
first five anniversaries of the date of grant, and all of the options expire in
ten years. The Stock Option Plan terminates in 2004 unless terminated earlier.
9
<PAGE>
In fiscal years 1994 and 1995, an aggregate of 1,181,000 options
(exclusive of the outside directors' options referred to above, and net of stock
options that were both issued and cancelled in such years) were granted to
directors, officers and other employees under the Stock Option Plan to purchase
the Company's shares at exercise prices ranging from $8.50 to $8.53 per share.
In addition, Mr. Bengtson was granted options under his employment agreement, as
amended, to purchase 75,200 shares of the Company's Common Stock at an exercise
price of $0.57 per share.
On January 4, 1996, the Company's Board of Directors authorized the
officers of the Company to make offers to holders of options under the Company's
Stock Option Plan (excluding the option plan for the Company's outside
directors), in which each holder was offered the right to surrender existing
options for cancellation, and receive new stock options for the same number of
shares at a new exercise price (equal to $1.38 per share, the market price on
January 4, 1996), and subject to the commencement of a new vesting period. The
term of the new options will not extend beyond the ten-year period of the
original options surrendered. The effect of this authorization was that holders
of options who elected to surrender their previous options received new options
at a lower exercise price subject to starting a new vesting period. The holders
of 916,000 options previously granted accepted such offers. As referred to
above, in January 1997 the Board of Directors approved a similar repricing of
certain outside directors' options.
In fiscal year 1996, an aggregate of 30,000 options (exclusive of the
outside directors' options and the options issued in exchange for prior options,
as referred to above, and net of stock options that were both issued and
cancelled in the year) were granted to directors, officers and other employees
under the Stock Option Plan to purchase the Company's shares at an exercise
price of $1.38 per share.
In fiscal year 1997, an aggregate of 779,000 options (exclusive of the
outside directors' options and the options issued in exchange for prior options,
as referred to above, and net of stock options that were both issued and
canceled in the year) were granted to directors, officers and other employees
under the Stock Option Plan to purchase the Company's shares at exercise prices
ranging from $1.09 to $12.25 per share.
As a result of the foregoing, at the end of fiscal year 1997, after
giving effect to all prior exercises and cancellations of options, an aggregate
of 1,571,000 options (exclusive of the outside directors' options) were
outstanding at exercise prices ranging from $0.57 to $12.25 per share, and of
such amount a total of 1,130,000 options were held by directors and executive
officers of the Company as a group. Also, an aggregate of 185,000 outside
director's options were outstanding at exercise prices ranging from $1.50 to $11
per share. Through the end of fiscal year 1997, a total of 180,200 shares had
been issued upon the exercise of options, at exercise prices ranging from $0.57
to $1.38 per share.
After the end of fiscal year 1997 and through January 31, 1998, 60,000
additional options were granted under the Stock Option Plan exercisable at
$15.62 per share.
Additional information with respect to stock options is contained in
the Company's Annual Report on Form 20-F for the fiscal year ended October 31,
1997. See Note 11 of the Notes to the Consolidated Financial Statements included
therein.
AMENDMENT TO 1994 STOCK OPTION PLAN
The Company's Board of Directors has approved, and is recommending to
the Company's shareholders, an amendment to the Company's 1994 Stock Option Plan
that would increase the number
10
<PAGE>
of shares of Common Stock that may be purchased pursuant to stock options under
such plan from 2.0 million shares to 2.8 million shares. The Company believes
that this will provide additional flexibility in offering competitive
compensation packages, particularly to new officers or other key employees.
Additional information regarding the 1994 Stock Option Plan and
outstanding options to purchase the Company's Common Stock is set forth above.
As a result of the activity noted in that section, as of a recent date, the
number of options outstanding plus the number of shares issued upon the exercise
of options, represented a number approximately equal to the overall limit of the
1994 Stock Option Plan. Therefore, as a practical matter, the Company did not
have options available for grant. The Company considers it advisable to increase
the overall limit of the 1994 Stock Option Plan, so as to have options available
for grant in the future. No other changes to the 1994 Stock Option Plan will be
made as a result of this amendment.
The person named in the enclosed form of proxy will, in the case of a
ballot and in the absence of specifications or instructions to vote against or
not to vote (abstain) in the form of proxy, vote for the foregoing amendment to
the 1994 Stock Option Plan.
APPOINTMENT OF INDEPENDENT AUDITOR
The person named in the enclosed form of proxy will, in the case of a
ballot and in the absence of specifications or instructions to vote against or
not to vote (abstain) in the form of proxy, vote for the re-appointment of
Deloitte Touche Tohmatsu as the Independent Auditor of the Company, to hold
office until the next annual meeting of shareholders of the Company or until a
successor is duly elected or appointed, and the authorization of the directors
to fix the Independent Auditor's remuneration. Deloitte Touche Tohmatsu has been
the Independent Auditor of the Company or its predecessors since 1989.
Representatives of Deloitte Touche Tohmatsu are expected to attend the
Meeting, will have an opportunity to make a statement if they so desire and are
expected to be available to respond to appropriate questions.
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the 1999 annual
meeting of shareholders must be received by the Company at the principal
executive offices of Radica USA in the United States (see address below) on or
before November 9, 1998 in order to be considered for inclusion in the Company's
1999 management information circular/proxy statement.
OTHER MATTERS
Management is not aware of any amendments or variations to matters
identified in the Notice or of any other matters that are to be presented for
action to the Meeting other than those described in the Notice.
Information stated in this Circular is dated as of January 31, 1998
except where otherwise indicated. The contents and the mailing of this Circular
have been approved by the Board of Directors of the Company.
Robert E. Davids
Vice Chairman and Chief Executive Officer
Jon N. Bengtson
Chairman of the Board
Patrick Feely
President and Chief Operating Officer
David C.W. Howell
Executive Vice President,
Chief Financial Officer and Chief Accounting Officer
11
<PAGE>
The Company files an Annual Report on Form 20-F with the Securities and
Exchange Commission. A copy of this Circular and the Annual Report containing
the financial statements of the Company and Management's Discussion and Analysis
of Financial Condition and Results of Operations, will be sent to any person
upon request in writing addressed to Investor Relations at Radica USA's office
at 180 S. Lake Avenue, Suite 440, Pasadena, CA 91101. Copies are without charge
to any shareholder.
12
<PAGE>
FORM OF PROXY
RADICA GAMES LIMITED
Annual Meeting
April 6, 1998
The undersigned shareholder of Radica Games Limited hereby appoints the
person selected below,
Robert E. Davids, or failing him Patrick Feely, or failing him David
C.W. Howell (strike out if another proxy is to be appointed)
___________________________________________ (Other)
as such shareholder's proxy, with the power of substitution, and hereby
authorizes such person to represent and to vote as designated below all of the
Common Stock, $0.01 par value per share, of Radica Games Limited (the "Company")
that the undersigned is entitled to vote at the Company's Annual Meeting of
Shareholders to be held at the Sands Regent Hotel, 345 N. Arlington Avenue,
Reno, Nevada 89501 on Monday, April 6, 1998, or any postponement or adjournment
thereof.
Every shareholder of the Company is entitled to appoint one proxy (or
representative in the case of a corporation) to attend the meeting and vote on
such shareholder's behalf. The proxy need not be another shareholder of the
Company. To be effective, this Proxy must be completed and deposited at the
principal office of Radica Enterprises, Ltd. ("Radica USA") located at 180 S.
Lake Avenue, Suite 440, Pasadena, CA 91101, not later than the last business day
preceding the day of the meeting, or any postponement or adjournment thereof.
Please insert the number of shares registered in your name in the space
provided on the reverse. If no number is inserted, this Proxy will be deemed to
relate to the total number of shares registered in your name.
PLEASE INDICATE WITH AN "X" IN THE APPROPRIATE BOX HOW YOU WISH YOUR
PROXY TO VOTE. IF THIS PROXY IS RETURNED WITHOUT AN INDICATION AS TO HOW THE
PROXY SHALL VOTE, THE PROXY WILL VOTE FOR, AGAINST OR ABSTAIN IN RESPECT OF
PROPOSALS 1, 2 AND 3 AS SET FORTH IN THE ACCOMPANYING CIRCULAR.
The Board of Directors recommends a vote for all Nominees listed in
Proposal 1 and adoption of Proposals 2 and 3.
1. ELECTION OF DIRECTORS
FOR all nominees listed below for the terms set forth in the
Proxy Statement (except as marked to the contrary below). [ ]
WITHHOLD AUTHORITY to vote for all nominees listed below. [ ]
Robert E. Davids
Patrick Feely
Lam Siu Wing
Millens W. Taft
Jon N. Bengtson
David C.W. Howell
James O'Toole
(INSTRUCTION: To withhold authority to vote for any individual nominee
write that nominee's name on the line provided below.)
<PAGE>
2. To approve an amendment to the Company's 1994 Stock Option Plan to
increase the total number of shares of the Company's Common Stock that may be
purchased pursuant to options under such plan from 2.0 million shares to 2.8
million shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To approve the reappointment of Deloitte Touche Tohmatsu as the
Company's Independent Auditor and to authorize the directors to fix the
Independent Auditor's remuneration.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the Annual Meeting.
This Proxy must be signed by the appointing shareholder, or such
shareholder's attorney duly authorized in writing, exactly as such shareholder's
name appears herein. In the case of joint shareholders, all joint shareholders
must sign. In the case of a corporation, the Proxy must be executed under its
Common Seal or the hand of its attorney duly authorized in writing. In the case
of partnerships, the Proxy must be signed in the partnership name by an
authorized person. Each power of attorney, or a duly certified copy thereof,
must be deposited at the principal office of Radica USA not later than the last
business day preceding the day of the meeting, or any postponement or
adjournment thereof.
This proxy, when properly executed, will be voted in the manner
directed by the undersigned stockholder. If no direction is given, this proxy
will be voted for Proposals 1, 2 and 3. The undersigned hereby acknowledges
receipt of the accompanying Notice of Annual Meeting and Circular and hereby
revokes any proxy or proxies heretofore given.
Please mark, sign, date and return this Proxy in the accompanying
prepaid envelope.
Date: _____________________________, 1998
---------------------------------------
(Printed Name of Shareholder)
---------------------------------------
(Signature)
---------------------------------------
(Printed Name of Shareholder)
---------------------------------------
(Signature)
---------------------------------------
(Number of Shares held)
(Please sign exactly as your name appears
on this Proxy. When signing as attorney,
executor, administrator, trustee or guardian,
please give full title as such. If shares
are held jointly, both owners should sign.)
