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 June, 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 April 30, 1998
2. Press Release dated June 9, 1998
3. Press Release dated June 8, 1998
4. Press Release dated May 20, 1998
5. Press Release dated April 30, 1998
6. Press Release dated April 23, 1998
7. Press Release dated April 14, 1998
8. Press Release dated March 30, 1998
This Report on Form 6-K shall be deemed to be incorporated by reference
into the Registrant's Registration Statements on Form S-8 (No. 33-86960 and No.
333-7000) and on Form F-3 (No. 333-7526).
<PAGE>
QUARTERLY REPORT *
For the quarterly period ending April 30, 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 April 30, 1998
- --------------------------------------- -----------------------------
Common Stock, par value $0.01 per share 20,536,294
- ------------------------
* 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>
<TABLE>
<CAPTION>
RADICA GAMES LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(US Dollars in thousands, SIX MONTHS ENDED THREE MONTHS ENDED
except per share data) APRIL 30, APRIL 30,
--------------------------- ---------------- ---------
1998 1997* 1998 1997*
------------ ------------ ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Net sales $ 58,223 $ 24,843 $ 31,750 $ 12,175
Cost of sales (25,565) (13,945) (13,766)
(6,753)
------------ ----------- ------------ -----------
Gross profit 32,658 10,898 17,984 5,422
------------ ----------- ------------ -----------
OPERATING EXPENSES:
Selling, general and administrative expenses (11,389) (4,931) (6,197) (2,484)
Research and development (1,369) (931) (837) (461)
Acquired research & development (1,500) - (1,500) -
Depreciation and amortization (1,414) (791) (977) (401)
Total operating expenses (15,672) (6,653) (9,511) (3,346)
------------ ----------- ------------ -----------
OPERATING INCOME 16,986 4,245 8,473 2,076
OTHER INCOME 307 303 114 66
SHARE OF LOSS OF AFFILIATED COMPANY (92) - (34) -
NET INTEREST INCOME 950 283 541 149
------------ ----------- ------------ -----------
INCOME BEFORE INCOME TAXES 18,151 4,831 9,094 2,291
PROVISION FOR INCOME TAXES (Note 7) (96) 8 (48) 26
------------ ----------- ------------ -----------
NET INCOME $ 18,055 $ 4,839 $ 9,046 $ 2,317
============ =========== ============ ===========
EARNINGS PER SHARE - BASIC: (Note 9)
Net earnings per share $ 0.88 $ 0.23 $ 0.45 $ 0.11
============ ============ ============ ===========
Average number of shares outstanding 20,546,579 20,705,434 20,323,597 20,731,726
============ ============ ============ ===========
EARNINGS PER SHARE - ASSUMING DILUTION: (Note 9)
Net earnings per share and dilutive potential common stock $ 0.83 $ 0.23 $ 0.42 $ 0.11
============ ============ ============ ===========
Average number of shares
and dilutive potential common stock outstanding 21,841,550 21,312,040 21,573,981 21,509,707
============ ============ ============ ===========
<FN>
* Restated to conform with 1998 presentation.
</FN>
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
RADICA GAMES LIMITED
CONSOLIDATED BALANCE SHEETS
ASSETS
APR. 30, OCT. 31,
---------------- ---------------
(US Dollars in thousands, except share data) 1998 1997
---------------- ---------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 39,945 $ 33,504
Short-term investments - 2,050
Accounts receivable, net of allowances for doubtful
accounts of $908 in 1998 and $908 in 1997 and estimated
customer returns of $1,790 in 1998 and $2,327 in 1997 14,761 18,740
Inventories, net of provision of $1,808 in 1998 and
$3,479 in 1997 (Note 3) 17,998 11,741
Prepaid expenses and other current assets 1,206 681
---------------- ---------------
TOTAL CURRENT ASSETS 73,910 66,716
---------------- ---------------
INVESTMENT IN AFFILIATED COMPANY (Note 4) 102 194
---------------- ---------------
PROPERTY, PLANT AND EQUIPMENT, NET (Note 5) 14,366 12,539
---------------- ---------------
INTANGIBLE ASSETS, NET (Note 6) 4,000 -
---------------- ---------------
TOTAL ASSETS $ 92,378 $ 79,449
================ ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 8,730 8,209
Accrued payroll and employee benefits 1,771 1,249
Commissions payable 750 915
Accrued sales expenses 2,359 1,254
Accrued warranty expenses 2,160 2,161
Accrued other expenses 5,035 3,776
Income taxes payable 86 213
Deferred income taxes (Note 7) 79 79
---------------- ---------------
TOTAL CURRENT LIABILITIES 20,970 17,856
---------------- ---------------
SHAREHOLDERS' EQUITY:
Common stock
par value $0.01 each, 100,000,000 shares authorized,
20,536,294 shares outstanding (20,860,200 at Oct. 31, 1997) (Note 8) 205 209
Additional paid-in capital 23,508 28,589
Retained earnings 47,708 32,800
Cumulative translation adjustment (13) (5)
--------------- ----------------
TOTAL SHAREHOLDERS' EQUITY 71,408 61,593
--------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 92,378 $ 79,449
=============== ================
</TABLE>
See accompanying notes to the consolidated financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
RADICA GAMES LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
(US Dollars in thousands) Six months ended April 30,
----------------------------------
1998 1997*
--------------- ---------------
(unaudited) (unaudited)
<S> <C> <C>
Cash flow from operating activities:
Net income $ 18,055 $ 4,839
Adjustments to reconcile net income to net cash
provided by operating activities:
Deferred income taxes - 177
Depreciation 914 791
Amortization 500 -
Share of loss of affiliated company 92 -
Loss on disposal and write off of property, plant and equipment - 2
Cumulative translation adjustment (8) (22)
Changes in assets and liabilities:
Accounts receivable 3,979 3,933
Inventories (6,257) 1,101
Prepaid expenses and other current assets (525) (42)
Accounts payable 521 901
Accrued payroll and employee benefits 522 (569)
Commissions payable (165) (291)
Accrued sales expenses 1,105 145
Accrued warranty expenses (1) -
Accrued other expenses 1,259 (11)
Income taxes payable (127) (8)
--------------- ---------------
Net cash provided by operating activities $ 19,864 $ 10,946
--------------- ---------------
Cash flow from investing activities:
Decrease (increase) in short-term investments 2,050 (2,002)
Proceeds from sale of property, plant and equipment 36 -
Purchase of property, plant and equipment (2,777) (529)
Purchase of intangible assets (900) -
--------------- ---------------
Net cash used in investing activities $ (1,591) $ (2,531)
--------------- ---------------
Cash flow from financing activities:
Funds from stock options exercised 780 112
Repurchase of common stock (12,612) -
Repayment of long-term debt - (93)
--------------- ---------------
Net cash used in by financing activities $ (11,832) $ 19
--------------- ---------------
Net increase in cash and cash equivalents $ 6,441 $ 8,434
Cash and cash equivalents:
Beginning of period $ 33,504 $ 8,527
--------------- ---------------
End of period $ 39,945 $ 16,961
=============== ===============
Supplementary disclosures of cash flow information: Cash paid
during the period for:
Interest $ 61 $ 231
Income taxes 223 -
<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.
No depreciation is provided in respect of construction in progress.
Intangible assets - Intangible assets primarily represent the excess of the
purchase price of acquisition of a business over the fair value of the net
assets acquired. Intangible assets also represent cost allocated to brand
names. Such assets are amortized on a straight-line basis over three years.
The carrying value of intangible assets is periodically reviewed by the
Company and impairments are recognized when there is a permanent diminution
in value. The Company policy is to charge a full year of amortization in
the year of acquisition.
Mold costs - The Company expenses all mold costs in the year of purchase or
for internally produced molds, in the year of construction.
7
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
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 $46 and $15 in the quarter ended April 30, 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 10.
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 dilutive potential
common stock outstanding. Dilutive potential common stock results from
dilutive stock options. The effect of such dilutive potential common stock
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 income in the period ended
April 30, 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. INVENTORIES
Inventories by major categories are summarized as follows:
April 30, October 31,
1997 1997
----------- -----------
(unaudited)
Raw materials $ 5,044 $ 2,786
Work in progress 5,208 2,889
Finished goods 7,746 6,066
----------- -----------
$ 17,998 $ 11,741
=========== ===========
4. 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, was charged to operations for the year ended October 31,
1997.
9
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
April 30, October 31,
1997 1997
----------- -----------
(unaudited)
Land and buildings $ 9,864 $ 9,882
Plant and machinery 4,642 3,633
Furniture and equipment 3,492 3,184
Leasehold improvements 1,385 1,318
Construction-in-progress 1,334 -
----------- -----------
Total $ 20,717 $ 18,017
Less: Accumulated depreciation
and amortization (6,351) (5,478)
----------- -----------
Total $ 14,366 $ 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 April 30, 1998. For the period ended April 30, 1997, such
amortization of capital lease assets amounted to $4.
6. INTANGIBLE ASSETS
During the quarter ended April 30, 1998, the Company purchased
substantially all the assets and business of KidActive, LLC, dba Girl
Tech(TM), for $6,000, payable by $3,600 in the Company's common stock and
$2,400 in cash. The intangible asset of $4,000 on the balance sheet at
April 30, 1998 represents a portion of the acquisition price allocated to
brand name and goodwill acquired. Acquired research and development of
$1,500 was charged to operations during the quarter. It is management's
opinion that the amounts capitalized of $4,500 represent the fair value
assigned to the intangible assets acquired. This cost is being amortized
over a three year fiscal period on a straight line basis. Accumulated
amortization was $500 at April 30, 1998.
10
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
6. INTANGIBLE ASSETS (Continued)
Intangible assets are as follows:
April 30,
1997
-----------
(unaudited)
At cost:
Brand name $ 1,000
Goodwill 3,500
-----------
Total 4,500
Less: Accumulated amortization (500)
-----------
$ 4,000
===========
7. INCOME TAXES
The components of income from continuing operations before income taxes are
as follows:
Six months ended April 30,
-------------------------------
1998 1997
----------- -----------
(unaudited) (unaudited)
United States $ 5,567 $ (39)
Foreign subsidiaries operating in:
People's Republic of China 12,544 4,845
Hong Kong 40 25
----------- -----------
Total $ 18,151 $ 4,831
=========== ===========
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.
11
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
7. INCOME TAXES (Continued)
The (provision) credit for income taxes consists of the following:
Six months ended April 30,
-------------------------------
1998 1997
----------- -----------
(unaudited) (unaudited)
Hong Kong
Current income tax $ (10) $ (8)
Deferred - -
----------- -----------
$ (10) $ (8)
United States
State tax benefit, net of
federal tax benefit $ (86) $ 16
Deferred - -
----------- -----------
$ (86) $ 16
----------- -----------
$ (96) $ 8
=========== ===========
A reconciliation between the (provision) credit 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) credit for income
taxes is as follows:
Six months ended April 30,
-------------------------------
1998 1997
----------- -----------
(unaudited) (unaudited)
US statutory rate 34% 34%
Provision for income taxes at
statutory rate on income for
the period $ (6,171) $ (1,643)
State income taxes (53) 14
International rate differences 4,518 1,451
Accounting (losses) gains for which
deferred income tax cannot be
recognized (249) 201
Decrease in valuation allowance 1,799 -
Other 60 (15)
----------- -----------
Income tax (provision) credit $ (96) $ 8
=========== ===========
12
<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
April 30, 1998 and October 31, 1997 deferred income taxes comprised:
April 30, October 31,
1997 1997
----------- -----------
(unaudited)
Deferred tax (liabilities) assets:
Excess of tax over financial
reporting depreciation $ (79) $ (79)
Tax losses 72 1,173
Bad debt allowance 309 309
Advertising allowances 319 244
Inventory obsolescence reserve 291 643
Accrued sales adjustments and returns 900 1,321
Other 716 716
----------- -----------
2,528 4,327
Valuation allowance (2,607) (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. During the period
from 22 December 1997 to 13 February 1998, the Company repurchased 860,400
shares at an average price of $14.66 per share under this program. All of
these repurchased shares were cancelled.
13
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands, except per share data)
9. EARNINGS PER SHARE
The following information shows the numbers used in computing earnings per
share and the effect on income and the weighted average number of shares of
dilutive potential common stock:
Six months ended April 30, 1998
----------------------------------------
Earnings
Numerator Denominator per share
---------- ----------- -----------
(unaudited) (unaudited) (unaudited)
Basic earnings per share:
Net income $ 18,055 20,546,579 $ 0.88
Effective of dilutive options - 1,294,971 ===========
---------- -----------
Diluted earnings per share:
Net income, assuming all
dilutive options exercised $ 18,055 21,841,550 $ 0.83
========== =========== ===========
Options on 100,000 shares of common stock were not included in computing
diluted earnings per share since their effects were antidilutive.
Three months ended April 30, 1998
----------------------------------------
Earnings
Numerator Denominator per share
---------- ----------- -----------
(unaudited) (unaudited) (unaudited)
Basic earnings per share:
Net income $ 9,046 20,323,597 $ 0.45
Effective of dilutive options - 1,250,384 ===========
---------- -----------
Diluted earnings per share:
Net income, assuming all
dilutive options exercised $ 9,046 573,981 $ 0.42
========== =========== ===========
Options on 55,000 shares of common stock were not included in computing
diluted earnings per share since their effects were antidilutive.
14
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands, except per share data)
10. 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
meetings in April 1997 and 1998, the Stock Option Plan's aggregated number
of common stock increased by 400,000 and 800,000 respectively. As a whole,
the Stock Option Plan's aggregate number of common stock increased to
2,800,000 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 closing
market price on such date.
Option activity for the period ended April 30, 1998:-
Weighted average
Number exercise price
of shares per share
------------ ----------------
(in thousands)
Outstanding at October 31, 1997 1,756 2.31
Options granted 225 16.43
Options cancelled (3) 1.38
Options exercised (346) 2.35
-----------
Outstanding at April 30, 1998 1,632 4.27
===========
Exercisable at April 30, 1998 514 3.00
15
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands, except per share data)
10. STOCK OPTIONS (Continued)
The following is additional information relating to options outstanding as
of April 30, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options exercisable
---------------------------------------- ----------------------------
Weighted Weighted Weighted
average average average
exercise remaining exercise
Exercise Number price contractual Number 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 2.000 877 $ 1.33 7.90 129 $ 1.45
$ 2.001 to 4.000 451 3.46 8.99 385 3.52
$ 4.001 to 6.000 10 5.00 9.10 - -
$ 6.001 to 8.000 59 6.76 9.25 - -
$ 8.001 to 10.000 5 8.60 9.40 - -
$ 10.001 to 12.000 - - - - -
$ 12.001 to 14.000 45 12.87 9.69 - -
$ 14.001 to 16.000 65 15.60 9.58 - -
$ 16.001 to 18.000 65 17.25 9.78 - -
$ 18.001 to 20.000 55 18.98 9.93 - -
--------- ---------
1,632 $ 4.27 8.52 514 $ 3.00
========= =========
</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 $8.50 and $0.97 per option for the period ended April 30,
1998 and 1997, respectively, were estimated using the Black-Scholes option
pricing model with the following weighted average assumptions:
Six months ended April 30,
-------------------------------
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%
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.
16
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands, except per share data)
10. 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:
Six months ended April 30,
-------------------------------
1998 1997
----------- -----------
(unaudited) (unaudited)
Pro forma net income $ 17,718 $ 4,667
Pro forma earnings per share 0.86 0.23
11. 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 thirty-one percent, thirteen percent and ten
percent of net sales in the period ended April 30, 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.
12. 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)
13. COMMITMENTS AND CONTINGENCIES
The Company leases certain warehouses and equipment under operating leases.
Total expense for the operating leases was $84 and $99 for the quarter
ended April 30, 1998 and 1997, respectively.
At April 30, 1998, the Company was obligated under operating leases
requiring future minimum lease payments as follows:
Operating
leases
---------
1998 $ 143
1999 201
2000 188
2001 56
2002 30
--------
Total minimum lease payments $ 618
========
At April 30, 1998, certain leasehold land and buildings with a net book
value of $4,940 and bank balances of $3,871 were pledged to secure general
banking facilities including overdraft and trade facilities granted to the
Company.
14. RETIREMENT PLAN
The Company has defined contribution retirement plans covering
substantially all employees in Hong Kong. Under these plans, eligible
employees may contribute amounts through payroll deductions which are 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 $52 and $48 for the six months ended
April 30, 1998 and 1997, respectively.
18
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
15. LITIGATION
Ten purported class actions filed in various United States District Courts
against the Company, various of its officers and directors, and the
managing underwriters of the Company's initial public offering 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)
17. 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:
Six months ended April 30,
-------------------------------
1998 1997
----------- -----------
(unaudited) (unaudited)
Net sales:
United States $ 45,161 $ 16,742
PRC and Hong Kong 11,796 7,166
Other 1,266 935
----------- -----------
$ 58,223 $ 24,843
=========== ===========
Operating income (loss):
United States $ 5,260 $ (38)
PRC and Hong Kong 11,534 4,320
Other 192 (37)
----------- -----------
$ 16,986 $ 4,245
=========== ===========
Identifiable assets:
United States $ 22,675 $ 10,342
PRC and Hong Kong 68,757 36,644
Other 946 890
----------- -----------
$ 92,378 $ 47,876
=========== ===========
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)
17. VALUATION AND QUALIFYING ACCOUNTS
Six months ended April 30,
-------------------------------
1998 1997
----------- -----------
(unaudited) (unaudited)
Beginning of period:
Allowances for doubtful accounts $ 908 $ 234
Estimated customer returns 2,327 817
Provision for inventories 3,479 8,419
----------- -----------
$ 6,714 $ 9,470
=========== ===========
Charged to cost and expenses:
Allowances for doubtful accounts $ 120 $ 98
Estimated customer returns 456 65
Provision for inventories - -
----------- -----------
$ 576 $ 163
=========== ===========
Release of provision:
Allowances for doubtful accounts $ (120) $ (144)
Estimated customer returns (993) (391)
Provision for inventories (1,671) (2,257)
----------- -----------
$ (2,784) $ (2,792)
=========== ===========
End of period:
Allowances for doubtful accounts $ 908 $ 188
Estimated customer returns 1,790 491
Provision for inventories 1,808 6,162
----------- -----------
$ 4,506 $ 6,841
=========== ===========
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 APRIL 30, 1998
COMPARED TO THE QUARTER ENDED APRIL 30, 1997
Net revenues for the second quarter of fiscal 1998 were $31.75 million,
increasing 161% from $12.17 million for the same quarter last year. The Company
sold approximately 3.5 million units in the second quarter of fiscal 1998, an
increase of approximately 75% from the second 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 first quarter, as well as NASCAR Racer(TM),
Trail Burner(TM), Inline Alley(TM), Tracer Ace(TM) and World Cup 98(TM) Soccer
shipped towards the end of the second quarter. In addition, sales to the Hasbro
Games Group have grown by 42% from $3.1 million in the second quarter of fiscal
1997 to $4.4 million in the second quarter of fiscal 1998. New product shipped
for the Hasbro Group during the second quarter included Trivial Pursuit(TM) and
Mastermind(TM). In the second quarter of fiscal year 1998, 56.6% of sales
related to Fishing games, 2.1% to Combat games, 9% to Sports games, 7.9% to
Casino games, 6.1% to Heritage games, 4.3% to Extreme games and 14% to Original
Design Manufacturing ("ODM") production.
The gross profit for the second quarter of fiscal 1998 increased by
$12.56 million to $17.98 million from $5.42 million in the second quarter of
1997 and the gross margin for the second quarter increased to 56.6% from 44.5%
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 ODM sales, which dropped as a
percentage of sales from 25.5% to 13.9%. In addition, approximately 1% of the
second quarter margin or $0.3 million of gross profit was as a result of sales
of product which had previously been written off.
The Company purchased the assets of KidActive, LLC, dba Girl Tech(TM)
during the quarter for $2.4 million in cash plus 190,094 shares, a total of $6
million. Of this $4.5 million has been capitalized as intangible assets and will
be written off over a three year period commencing in the current quarter. The
remaining $1.5 million was written off immediately as acquired research and
development.
Operating expenses increased 184% to $9.51 million in the second
quarter of fiscal 1998 from $3.35 million in the same quarter of fiscal 1997,
mainly as a result of a one-time charge for acquired research and development
with regards Girl Tech(TM), increased sales related costs, increased research
and development, an increase of $0.5 million with regard to amortization of
intangible assets with regards Girl Tech(TM) and salaries due to certain
management additions. As a percentage of sales, pre-Girl Tech(TM) operating
expenses dropped from 27.5% in the second quarter of fiscal 1997 to 23.7% in the
second
22
<PAGE>
quarter of fiscal 1998. Commissions for the second quarter of fiscal 1998
increased 233% to $1.1 million due to increased sales; indirect salaries and
wages increased 58% to $1.6 million due to additions throughout the Company;
advertising and promotion expenses increased to $1.9 million from $0.08 million
primarily as a result of accrued expenditure for television advertising in the
USA; and research and development expenses increased 74% to $0.8 million due to
increases in staff, recruitment fees and external design costs.
Operating income for the second quarter of fiscal 1998 increased by
$6.39 million to $8.47 million compared to $2.08 million for the same quarter
last year.
The pre-Girl Tech(TM) operating margin rose to 33.0% during the second
quarter compared to 17.1% during the same quarter last year.
Net profit for the second quarter ended April 30, 1998 was $11.05
million or $0.54 per share pre-Girl Tech(TM) costs versus $2.32 million or $0.11
per share for the second quarter of 1997. After considering costs associated
with Girl Tech(TM) the Company made an after tax profit of $9.05 million or
$0.45 per share.
CAPITAL RESOURCES AND LIQUIDITY
- -------------------------------
Cash and cash equivalents totaled $39.95 million at April 30, 1998, up
$6.45 million from fiscal year ended October 31, 1997. Working capital at April
30, 1998 was $52.94 million, a $4.08 million increase from working capital of
$48.86 million at October 31, 1997. The ratio of current assets to current
liabilities decreased to 3.5 at April 30, 1998 from 3.7 at October 31, 1997.
This decrease in the current ratio is as a result of accrued expenses payable
after the end of the quarter.
There were no short-term borrowings at April 30, 1998 or at October 31,
1997.
During the quarter the Company repurchased 175,600 shares at an average
price of $14.98.
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 15 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
- -----------------------------------------------------------
At the Company's annual meeting of shareholders held on April 6, 1998,
the shareholders of the Company elected the management nominees, who were named
in the Company's Proxy Statement dated March 9, 1998, to serve as directors for
the period until the next annual meeting of shareholders or until his or her
respective successor is elected or appointed in accordance with applicable law
and the Company's bye-laws. Immediately following the annual meeting of
shareholders, the board of directors consisted of seven members: Robert E.
Davids, Jon N. Bengtson, Patrick Feely, David C.W. Howell, Lam Siu Wing, James
O'Toole and Millens W. Taft . At such meeting, the shareholders also amended 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, re-appointed Deloitte Touche
Tohmatsu as independent auditor and authorized the directors to fix the
independent auditor's remuneration.
The shareholder votes were as follows:
Against/ Broker
For Withhold Abstain Nonvotes
--- -------- ------- --------
Election of Directors
- ---------------------
Robert E. Davids 13,911,865 18,802
Jon Bengtson 13,911,965 18,702
Patrick Feely 13,910,265 20,402
David C.W. Howell 13,911,965 18,702
Lam Siu Wing 13,911,965 18,702
James O'Toole 13,911,765 18,902
Millens W. Taft 13,911,449 19,218
24
<PAGE>
Amendment of Stock Option Plan
- ------------------------------
Against/ Broker
For Withhold Abstain Nonvotes
--- -------- ------- --------
From 2.0 to 2.8 million
shares 13,315,893 438,184 29,206 147,384
Reappointment of Auditor
- ------------------------
Deloitte Touche Tohmatsu 13,919,311 6,940 4,416
Item 5. Other Information
- -------------------------
None.
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
25
<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: June 9, 1998 /s/ David C.W. Howell
----------------- ---------------------
David C.W. Howell
Executive Vice President
Chief Financial Officer
RADICA GAMES LIMITED
ANNOUNCES SEIZURE OF
BASS FISHIN' KNOCKOFFS
FOR IMMEDIATE RELEASE CONTACT: PATRICK S. FEELY
JUNE 9TH, 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'(TM) knockoffs imported by
Exactly for Smart People, Inc. of Culver City, CA from Techno Power Technology
Ltd, of Hong Kong. Seizures took place on Wednesday, April 22 at the Port of Los
Angeles.
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
REPORTS RECORD SECOND QUARTER & SIX MONTH RESULTS
FOR IMMEDIATE RELEASE CONTACT: PATRICK S. FEELY
JUNE 8, 1998 PRESIDENT & COO
(LOS ANGELES, CALIFORNIA)
(626) 744 1150
DAVID C.W. HOWELL
EXECUTIVE VP & CFO
(HONG KONG)
(852) 2688 4201
(HONG KONG) Radica Games Limited (NASDAQ RADAF) reported today an after tax
profit of $11.05 million or $0.54 per share before costs associated with the
acquisition of the assets of KidActive, LLC (dba Girl Tech(TM)) for the second
quarter ended April 30, 1998 versus $2.32 million or $0.11 per share for the
second quarter of 1997. After considering costs associated with the acquisition
the Company made an after tax profit of $9.05 million or $0.45 per share. After
tax profit for the six months ended April 30, 1998 was $20.06 million or $0.97
earnings per share pre Girl Tech(TM)costs versus $4.84 million or $0.23 for the
six months ended April 30, 1997 and $18.06 million or $0.88 earnings per share
post Girl Tech(TM)costs.
Total revenues for the second quarter of fiscal 1998 were $31.75 million,
increasing 161% from $12.17 million for the same quarter last year. Total
revenues for the six months ended April 30, 1998 were $58.22 million, increasing
134% from $24.84 million for the same period last year.
The second quarter increase in net sales 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 first quarter, as
well as NASCAR Racer(TM), Trail Burner(TM), Inline Alley(TM), Tracer Ace(TM) and
World Cup 98(TM) Soccer shipped towards the end of the second quarter. In
addition, sales to the Hasbro Games Group have grown by 42% from $3.1 million in
the second quarter of fiscal 1997 to $4.4 million in the second quarter of
fiscal 1998. New product shipped for the Hasbro Group during the second quarter
included Trivial Pursuit(TM) and Mastermind(TM).
The gross profit for the second quarter of fiscal 1998 increased by $12.56
million to $17.98 million from $5.42 million in the second quarter of 1997 and
the gross margin for the second quarter increased to 56.6% from 44.5% 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 Original Design Manufacturing ("ODM") sales, as ODM sales dropped as
a percentage of sales from 25.5% to 13.9%. In addition, approximately 1% of the
second quarter margin or $0.3 million of gross profit was as a result of sales
of product which had previously been written off.
<PAGE>
Operating income for the second quarter of fiscal 1998 increased by $6.39
million to $8.47 million compared to $2.08 million for the same quarter last
year. Operating expenses increased 184% to $9.51 million in the second quarter
of fiscal 1998 from $3.35 million in the same quarter of fiscal 1997, mainly as
a result of a one-time charge of $1.5 million for acquired research and
development with regards Girl Tech(TM), increased sales related costs, increased
research and development, an increase of $0.5 million as a result of
amortization of intangible assets with regards Girl Tech(TM) and increased
salaries due to certain management additions. As a percentage of sales, pre-Girl
Tech(TM) operating expenses dropped from 27.5% in the second quarter of fiscal
1997 to 23.7% in the second quarter of fiscal 1998. The pre-Girl Tech(TM)
operating margin rose to 33.0% during the second quarter compared to 17.1%
during the same quarter last year.
As previously announced, on 30th April 1998 the Company purchased the assets of
KidActive, LLC, dba Girl Tech(TM) during the quarter for $2.4 million in cash
plus 190,094 shares, a total of $6 million. Of this $4.5 million has been
capitalized as intangible assets and will be written off over a three year
period commencing in the current quarter. The remaining $1.5 million was written
off immediately as acquired research and development.
The Company announced that the first phase of the factory expansion has been
completed and three floors of the factory building, comprising 111,450 square
feet of new factory space, and three floors of the new dormitory extension,
comprising 40,950 square feet, are now being utilized. Currently 3,500 staff and
workers are employed in China compared to 1,662 at the end of May 1997.
The Company expects to move into an additional floor of the factory by the end
of June with full occupancy of all six floors of factory and seven floors of
dormitory by the end of August. At full occupancy there will be a total of
464,000 square feet of factory and 340,000 square feet of dormitory as well as a
further 3.7 acres of land for use in the future.
"We are very pleased to announce our 4th straight quarter of record earnings.
These results are indicative of the strong market support of Radica's product
innovation in the fast growing electronic handheld game category," 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, 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" and about
Girl Tech at "www.girltech.com".
-- END --
<PAGE>
<TABLE>
<CAPTION>
RADICA GAMES LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(US Dollars in thousands, SIX MONTHS ENDED THREE MONTHS ENDED
except per share data) APRIL 30, APRIL 30,
--------------------------- ---------------- ---------
1998 1997* 1998 1997*
------------ ------------ ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Net sales $ 58,223 $ 24,843 $ 31,750 $ 12,175
Cost of sales (25,565) (13,945) (13,766) (6,753)
------------ ----------- ------------ -----------
Gross profit 32,658 10,898 17,984 5,422
------------ ----------- ------------ -----------
OPERATING EXPENSES:
Selling, general and administrative expenses (11,389) (4,931) (6,197) (2,484)
Research and development (1,369) (931) (837) (461)
Acquired research & development (1,500) - (1,500) -
Depreciation and amortization (1,414) (791) (977) (401)
------------ ----------- ------------ -----------
Total operating expenses (15,672) (6,653) (9,511) (3,346)
------------ ----------- ------------ -----------
OPERATING INCOME 16,986 4,245 8,473 2,076
OTHER INCOME 307 303 114 66
SHARE OF LOSS OF AFFILIATED COMPANY (92) - (34) -
NET INTEREST INCOME 950 283 541 149
------------ ----------- ------------ -----------
INCOME BEFORE INCOME TAXES 18,151 4,831 9,094 2,291
PROVISION FOR INCOME TAXES (96) 8 (48) 26
------------ ----------- ------------ -----------
NET INCOME $ 18,055 $ 4,839 $ 9,046 $ 2,317
============ =========== ============ ===========
EARNINGS PER SHARE - BASIC:
Net earnings per share $ 0.88 $ 0.23 $ 0.45 $ 0.11
============ ============ ============ ===========
Average number of shares outstanding 20,546,579 20,705,434 20,323,597 20,731,726
============ ============ ============ ===========
EARNINGS PER SHARE - ASSUMING DILUTION:
Net earnings per share and dilutive potential common stock $ 0.83 $ 0.23 $ 0.42 $ 0.11
============ ============ ============ ===========
Average number of shares
and dilutive potential common stock outstanding 21,841,550 21,312,040 21,573,981 21,509,707
============ ============ ============ ===========
<FN>
* Restated to conform with 1998 presentation.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RADICA GAMES LIMITED
CONSOLIDATED BALANCE SHEETS
ASSETS
APR. 30, OCT. 31,
---------------- ---------------
(US Dollars in thousands, except share data) 1998 1997
---------------- ---------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 39,945 $ 33,504
Short-term investments - 2,050
Accounts receivable, net of allowances for doubtful
accounts of $908 in 1998 and $908 in 1997 and estimated
customer returns of $1,790 in 1998 and $2,327 in 1997 14,761 18,740
Inventories, net of provision of $1,808 in 1998 and
$3,479 in 1997 17,998 11,741
Prepaid expenses and other current assets 1,206 681
---------------- ---------------
TOTAL CURRENT ASSETS 73,910 66,716
---------------- ---------------
INVESTMENT IN AFFILIATED COMPANY 102 194
---------------- ---------------
PROPERTY, PLANT AND EQUIPMENT, NET 14,366 12,539
---------------- ---------------
INTANGIBLE ASSETS, NET 4,000 -
---------------- ---------------
TOTAL ASSETS $ 92,378 $ 79,449
================ ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 10,890 10,370
Accrued payroll and employee benefits 1,771 1,249
Accrued expenses 8,144 5,945
Income taxes payable 86 213
Deferred income taxes 79 79
---------------- ---------------
TOTAL CURRENT LIABILITIES 20,970 17,856
---------------- ---------------
SHAREHOLDERS' EQUITY:
Common stock
par value $0.01 each, 100,000,000 shares authorized,
20,536,294 shares outstanding (20,860,200 at Oct. 31, 1997) 205 209
Additional paid-in capital 23,508 28,589
Retained earnings 47,708 32,800
Cumulative translation adjustment (13) (5)
--------------- ----------------
TOTAL SHAREHOLDERS' EQUITY 71,408 61,593
--------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 92,378 $ 79,449
=============== ================
</TABLE>
RADICA GAMES LIMITED
ANNOUNCES FAVORABLE
FEDERAL COURT JUDGEMENT
FOR IMMEDIATE RELEASE CONTACT: PATRICK S. FEELY
MAY 20, 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 Federal
District Court Judge Rambo entered a judgement in favor of Radica on all counts
against all defendants following the February 13, 1998 seizure of Radica's Bass
Fishin'(TM) Games from Javitz Center in New York City and a York, Pennsylvania
warehouse. The decision confirms Radica's exclusive rights in Bass Fishin'(TM)
and enters a permanent injunction against Innovative Products, Inc. and E-Tech
for Kids, LLC USA from further infringement. The defendants also paid Radica
their profits from the infringing sales and agreed not to copy any other Radica
games.
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 CLOSING OF GIRL TECH ACQUISITION
FOR IMMEDIATE RELEASE CONTACT: PATRICK S. FEELY
APRIL 30, 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) confirmed today the closing of
the acquisition of the assets of KidActive, LLC (dba Girl Tech) which was
announced on April 23, 1998.
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. For more
information please visit the Radica (www.radicagames.com) and Girl Tech
(www.girltech.com) web sites.
-- END --
RADICA GAMES LIMITED
ANNOUNCES ACQUISITION OF GIRL TECH
FOR IMMEDIATE RELEASE CONTACT: PATRICK S. FEELY
APRIL 23, 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 it has
signed a definitive agreement to acquire the business and assets of KidActive,
LLC, dba Girl Tech, of San Rafael, California. Girl Tech has created a line of
personal electronic products for girls that were introduced at the New York Toy
Fair in February. The acquisition will allow Radica to expand into the girls
electronics market, a rapidly growing segment of the toy industry.
As a result of the acquisition, the Girl Tech line of personal electronic
products for girls, which was originally planned to be shipped to retailers in
1998, will be deferred for introduction until 1999 in order to resource the
products through Radica's factory in China.
Girl Tech was founded with the mission to create products and services that
bring girls closer to the world of technology. Since its inception in 1995, Girl
Tech has developed a new line of electronic toys, a book series to be published
by IDG Books Worldwide, an award-winning interactive Web site
(www.girltech.com), and other technology-based services that girls enjoy.
The purchase price for the acquisition will be $6 million, composed of $3.6
million in Radica stock and $2.4 million of cash. As part of the overall
agreement Radica will enter into an employment agreement with Girl Tech founder
and majority owner, Janese Swanson. Ms. Swanson has over 15 years experience in
children's products and education. At Broderbund, she co-produced the very
successful Where in the World is Carmen Sandiego, among other products. She was
a founder of Kid One For Fun, Inc., the design firm that created the successful
Yak Bak(TM) product line sold by Yes! Entertainment. She holds a doctorate in
Education from the University of San Francisco.
<PAGE>
"We are excited to tap into the creativity and knowledge of the girl market that
Kid Active has demonstrated. Girl Tech's multimedia approach to product
development along with their expertise in girls' play preferences complement
Radica's product lines. The girls' technology market has only recently been
recognized, leaving incredible potential for growth," said Bob Davids, Radica's
Chief Executive Officer. Mr. Davids also wanted to remind everyone that today is
"Take Your Daughter to Work" day.
Janese Swanson, founder and President of Kid Active said, "Radica is a true
learning organization with strong entrepreneurial spirit. Their top quality
innovative technologies and manufacturing give Girl Tech the necessary resources
to fulfill our goal of providing fun technology to girls around the world. The
shared vision and mutual support between Radica and Girl Tech will ensure our
future success."
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 of 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 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 SEIZURE OF
BASS FISHIN'(TM) KNOCKOFFS
FOR IMMEDIATE RELEASE CONTACT: PATRICK S. FEELY
APRIL 14, 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.
Customs agents have seized, at the U.S. border in Los Angeles, a shipment of
knock-off products that infringe Radica's hot-selling Bass Fishin'(TM) handheld
electronic game.
Over four million Bass Fishin' games have been sold by Radica around the world.
In the recent year-end list of top selling toys published by The NPD Group, Bass
Fishin' 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 FIRST SHIPMENT
OF NEW VIRTUAL REALITY GAMES
FOR IMMEDIATE RELEASE CONTACT: PATRICK S. FEELY
MARCH 30, 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 that it has begun
shipment of the first of its new Virtual Motion Sensor (VMS)(TM) electronic
handheld games. Developed and manufactured exclusively by Radica, VMS technology
allows movements of the game to affect game play, creating a virtual reality
experience for the game player.
The games incorporating this feature that have begun shipping include Trail
Burner(TM), a virtual mountain bike racing game shaped like bike handlebars, and
Inline Alley(TM), an inline skate racing game. With Trail Burner the player
steers the handlebars or jerks the game backwards, and turn, kick and jump moves
are executed on the game screen. Inline Alley brings skate racing to life with a
product shaped like an inline skate. The player spins the wheel of the skate to
generate speed and is able to jump and turn by tilting the game left, right or
back. Similar features are included on other VMS games such as Tracer Ace(TM),
an antiaircraft combat game, and Night Vision Stealth Assault(TM), an air combat
game, both of which are expected to begin shipping during the third quarter.
Radica also announced that its virtual stock car racing game called NASCAR(R)
Racer has also begun shipping. The game has a steering wheel that controls
direction and allows the player to feel bumps and crashes on the racetrack.
<PAGE>
An additional license agreement with Electronic Arts has been used for a unique
track-ball controlled soccer game called FIFA World Cup '98. Initial shipments
of this product have also recently begun.
"Virtual reality has been out of reach for most consumers, and we found a way to
put it in their hands," says Bob Davids, Radica's CEO. "The handheld games of
the past were boxy, button controlled, and had unrealistic sound effects. Our
Bass Fishin'(TM) game totally redefined what games can do. Now we are extending
that same technology to new game categories."
A thirteen-year veteran of the game industry, Radica recently completed a record
year in its fiscal year ended October 31, 1997, reporting an after-tax profit of
$29.6 million on sales of $87.8 million. First quarter 1998 results showed an
increase in sales to $26.5 million and after-tax profits of $9.0 million.
Radica's success in 1997 has been largely due to the development of a virtual
reality technology that was first utilized in Bass Fishin', a game that features
motion sensors which allow the player to use the game as a rod and reel. The
player casts, feels the fish bite, sets the hook with a jerk, and reels in the
fish with a "reel" handle. The game shakes in the player's hand as the fish
tries to escape.
Over four million units of Bass Fishin' have been sold, and the game was the
16th most popular toy in the US in 1997, according to the NPD Group. Strong
sales of spin-off games such as Junior Bass Fishin'(TM) for kids, Lunker Bass
Fishin'(TM) and Deep Sea Fishin'(TM) with the same motion-sensing technology
also helped boost first quarter earnings.
The handheld and tabletop game industry grew 35% from 1996 to 1997, to $490
million in US retail sales, according to the NPD Group. While Radica expects
that VMS technology will add a new dimension to the industry, innovation has not
been the only ingredient in Radica's recipe for success. Radica's games aren't
as daunting as some hi-tech computer games, have a universal appeal and have
captured the fascination of the adult market.
"Bass Fishin' was the top selling traditional handheld game of 1997, and
anecdotally, it's mainly being sold to adults who are doing the buying and
playing. We've created games that adults feel comfortable with - they are more
current than board games, but at the same time, you don't need to have hi-tech
skills to play. Plus the games are affordable and portable," said Davids.
<PAGE>
The foregoing discussion contains forward-looking statements that
involve risks and uncertainties that could cause actual results to differ
materially from projected results. Forward-looking statements include statements
about efforts to attract or prospects for additional or increased business, new
product introductions, and other statements of a non-historical nature. Actual
results may differ from projected results due to various Risk Factors including
Risks of Manufacturing in China, Dependence on Product Appeal and New Product
Introductions, and Dependence of 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 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 --
