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 May, 2000
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 March 31, 2000
2. Press Release dated May 15, 2000
3. Press Release dated April 6, 2000
4. Press Release dated March 15, 2000
5. Press Release dated March 1, 2000
6. Press Release dated February 24, 2000
7. Press Release dated February 17, 2000
8. Press Release dated February 10, 2000
9. Press Release dated January 27, 2000
10. Press Release dated January 18, 2000
11. Annual Report to Stockholders
12. Management Information Circular / Proxy Statement dated
April 25, 2000
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, No.
333-7000 and No. 333-59737) and on Form F-3 (No. 333-7526 and No. 333-79005).
<PAGE>
QUARTERLY REPORT *
For the quarterly period ending March 31, 2000
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, 2000
--------------------------------------- -----------------------------
Common Stock, par value $0.01 per share 17,624,194
------------------------
* 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 December 31, 1999 as filed with the Securities and Exchange
Commission. Management believes that the disclosures are adequate to make the
information presented herein not misleading.
3
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<TABLE>
<CAPTION>
RADICA GAMES LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(US Dollars in thousands, Three months ended March 31,
except per share data) ----------------------------------------
2000 1999
----------------- -----------------
(unaudited) (unaudited)
<S> <C> <C>
REVENUES:
Net sales $ 16,722 $ 17,906
Cost of sales (12,039) (9,126)
----------------- -----------------
Gross profit 4,683 8,780
----------------- -----------------
OPERATING EXPENSES:
Selling, general and administrative expenses (4,750) (4,051)
Research and development (1,373) (1,040)
Depreciation and amortization (1,380) (936)
----------------- -----------------
Total operating expenses (7,503) (6,027)
----------------- -----------------
OPERATING (LOSS) INCOME (2,820) 2,753
OTHER INCOME 319 112
SHARE OF LOSS OF AFFILIATED COMPANY - (240)
NET INTEREST INCOME 320 618
----------------- -----------------
(LOSS) INCOME BEFORE INCOME TAXES (2,181) 3,243
PROVISION FOR INCOME TAXES (11) (89)
----------------- -----------------
NET (LOSS) INCOME $ (2,192) $ 3,154
================= =================
(LOSS) EARNINGS PER SHARE - BASIC:
Net (loss) earnings per share $ (0.12) $ 0.17
================= =================
Average number of shares outstanding 17,607,396 18,954,712
================= =================
(LOSS) EARNINGS PER SHARE - ASSUMING DILUTION:
Net (loss) earnings per share and
dilutive potential common stock $ (0.12) $ 0.16
================= =================
Average number of shares and dilutive
potential common stock outstanding 17,607,396 20,004,552
================= =================
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
4
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<TABLE>
<CAPTION>
RADICA GAMES LIMITED
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, December 31,
--------------- ---------------
(US Dollars in thousands, except share data) 2000 1999
--------------- ---------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 30,521 $ 32,159
Accounts receivable, net of allowances for doubtful accounts
of $530 ($389 at Dec. 31, 1999) and estimated customer
returns of $92 ($624 at Dec. 31, 1999) 11,268 23,750
Inventories, net of provision of $3,183 ($2,339 at Dec. 31, 1999) 26,964 24,625
Prepaid expenses and other current assets 3,586 4,752
Income taxes receivable 337 1,257
Deferred income taxes 3,667 3,667
--------------- ---------------
TOTAL CURRENT ASSETS 76,343 90,210
--------------- ---------------
PROPERTY, PLANT AND EQUIPMENT, NET 18,349 17,523
--------------- ---------------
INTANGIBLE ASSETS, NET 14,864 14,351
--------------- ---------------
DEFERRED INCOME TAXES, NONCURRENT 11 11
--------------- ---------------
TOTAL ASSETS $ 109,567 $ 122,095
=============== ===============
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Short term borrowings 378 1,464
Accounts payable 7,142 10,929
Accrued warranty expenses 850 1,100
Notes payable due within one year 12,345 1,399
Accrued payroll and employee benefits 2,441 2,511
Accrued advertising expenses 855 1,203
Accrued sales expenses 783 856
Commissions payable 139 464
Accrued other expenses 1,024 5,091
Income taxes payable 51 70
--------------- ---------------
TOTAL CURRENT LIABILITIES 26,008 25,087
--------------- ---------------
NOTES PAYABLE DUE AFTER ONE YEAR -- 10,946
--------------- ---------------
TOTAL LIABILITIES 26,008 36,033
--------------- ---------------
SHAREHOLDERS' EQUITY:
Common stock
par value $0.01 each, 100,000,000 shares authorized,
17,616,194 shares outstanding (17,639,594 at Dec. 31, 1999) 176 176
Additional paid-in capital 1,788 1,757
Retained earnings 81,560 84,100
Cumulative translation adjustment 35 29
--------------- ---------------
TOTAL SHAREHOLDERS' EQUITY 83,559 86,062
--------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 109,567 $ 122,095
=============== ===============
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
5
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<TABLE>
<CAPTION>
RADICA GAMES LIMITED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(US dollars in thousands)
(unaudited)
Common stock
------------ Accumulated
Additional other Total
Number paid-in Retained comprehensive shareholders'
of shares Amount capital earnings income (loss) equity
---------------- ---------------- ------------ ------------ --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 17,639,594 $ 176 $ 1,757 $ 84,100 $ 29 $ 86,062
Cancellation of repurchased stock (50,000) - (8) (348) - (356)
Stock options exercised 26,600 - 39 - - 39
Net loss - - - (2,192) - (2,192)
Foreign currency translation - - - - 6 6
---------------- ---------------- ------------ ------------ --------------- ------------
Balance at March 31, 2000 17,616,194 $ 176 $ 1,788 $ 81,560 $ 35 $ 83,559
================ ================ ============ ============ =============== ============
<FN>
See accompanying notes to the consolidated financial statements.
</FN>
</TABLE>
6
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<TABLE>
<CAPTION>
RADICA GAMES LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(US dollars in thousands)
(unaudited)
Three months ended March 31,
---------------------------------
2000 1999
---------------- ---------------
(unaudited) (unaudited)
<S> <C> <C>
Cash flow from operating activities:
Net (loss) income $ (2,192) $ 3,154
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Deferred income taxes - (12)
Depreciation 633 561
Amortization 747 375
Share of loss of affiliated company - 240
Loss on disposal and write off of
property, plant and equipment 12 6
Changes in assets and liabilities:
Accounts receivable 12,488 1,909
Inventories (2,339) 812
Prepaid expenses and other current assets 1,166 (375)
Accounts payable (3,787) (1,120)
Accrued payroll and employee benefits (70) (1,951)
Commissions payable (325) (489)
Accrued advertising expenses (348) (137)
Accrued sales expenses (73) (7)
Accrued warranty expenses (250) (900)
Accrued other expenses (4,067) 1,254
Income taxes 901 (1,828)
Net cash provided by operating activities 2,496 1,492
---------------- ---------------
Cash flow from investing activities:
Proceeds from sale of property, plant and equipment 2 15
Purchase of property, plant and equipment (1,473) (470)
Purchase of intangible asset (1,260) -
---------------- ---------------
Net cash used in investing activities (2,731) (455)
---------------- ---------------
Cash flow from financing activities:
Repurchase of common stock $ (356) $ (4,513)
Funds from stock options exercised 39 226
Decrease in short-term borrowings (1,086) -
---------------- ---------------
Net cash used in financing activities (1,403) (4,287)
---------------- ---------------
Net decrease in cash and cash equivalents (1,638) (3,250)
Cash and cash equivalents:
Beginning of period 32,159 47,527
---------------- ---------------
End of period $ 30,521 $ 44,277
================ ===============
Supplementary disclosures of cash flow information:
Cash paid during the period:
Interest $ 152 $ -
Income taxes - 1,980
<FN>
See accompanying notes to the consolidated financial statements.
</FN>
</TABLE>
7
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(US dollars in thousands)
1. ORGANIZATION AND BASIS OF FINANCIAL STATEMENTS
The Company designs, develops, manufactures and market a diverse line of
electronic products including handheld and tabletop games, high-tech toys,
video game controllers and peripherals, and Internet enabled appliances.
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 accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United
States of America and are presented 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 value. 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 50 years or where
shorter, the remaining term of the lease, by equal annual instalments.
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.
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 ("goodwill"). Intangible assets also represent cost
allocated to brand names and sublicensing right. Such assets are amortized
on a straight-line basis over the period estimated to be benefited, but not
to exceed 20 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.
8
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (Continued)
(US dollars in thousands)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
Investments - Debt 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 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 assets are recorded to reflect the tax
consequences in future years of differences between the taxable basis of
assets and liabilities and the financial reporting amounts at each period
end using rates currently in effect. A valuation allowance is recognized
for any portion of the deferred tax asset for which realization is not
likely.
Advertising - The production costs of advertising are expensed by the
Company the sooner of the first time the advertising takes place or the
invoice date for the media purchase. Advertising costs associated with
customer benefit programs are accrued as the related revenues are
recognized. Advertising expense was $369 and $878 for the first quarter
ended March 31, 2000 and 1999 respectively.
Foreign currency translation - Assets and liabilities of foreign currency
are translated into US dollars using the exchange rates in effect at the
balance sheet date. Revenues and expenses in foreign currencies are
translated into US dollars using average monthly exchange rates during each
reporting period. The impact of exchange rate changes is dealt with as a
separate component of equity. Net (losses) gains from foreign exchange
transactions of $(61) and $54 for the first quarter ended March 31, 2000
and 1999, 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.
9
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (Continued)
(US dollars in thousands)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 and earnings 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 12.
Earnings per share - Earnings 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
per share is computed using the treasury stock method. The potential
dilutive securities were excluded from the calculation of diluted loss per
share for the quarter ended March 31, 2000 because they were anti-dilutive.
Use of estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect reported amounts of certain assets,
liabilities, revenues and expenses as of and for the reporting periods.
Actual results could differ from those estimates. Differences from those
estimates are reported in the period they become known.
New Accounting Pronouncement - In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities". SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. The
statement requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure
those instruments at fair value. Implementation of SFAS No. 133 is required
commencing with the first quarter of 2001. The Company does not expect the
adoption to have a material impact on the Company's consolidated financial
statements.
Reclassifications - Certain reclassifications have been made to prior
period amounts to conform with the 2000 presentation and to comply with new
SFAS's.
10
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (Continued)
(US dollars in thousands)
3. INVENTORIES
Inventories by major categories are summarized as follows:
March 31, December 31,
2000 1999
--------- ------------
Raw materials $ 4,956 $ 5,397
Work in progress 5,627 5,166
Finished goods 16,381 14,062
--------- ------------
$26,964 $24,625
========= ============
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
March 31, December 31,
2000 1999
------------ ------------
Land and buildings $ 12,288 $ 12,261
Plant and machinery 7,638 7,385
Furniture and equipment 6,382 6,124
Leasehold improvements 2,593 2,562
Construction in progress 889 --
------------ ------------
Total $ 29,790 $ 28,332
Less: Accumulated depreciation
and amortization (11,441) (10,809)
------------ ------------
Total $ 18,349 $ 17,523
============ ============
5. ACQUISITION
On June 24, 1999, the Company acquired Leda Media Products Limited ("LMP"),
the leading supplier of third party video game controllers in the U.K. The
Company purchased LMP for approximately $16 million. The acquisition price
consisted of cash payment of approximately $2.6 million, assumption of LMP
net indebtedness of approximately $1.1 million and issuance of notes
payable for $12.3 million. The transaction has been accounted for using the
purchase method. The purchase price has been allocated to the assets
acquired and liabilities assumed based on estimates of fair values as of
the acquisition date. The Company recorded goodwill of $13.5 million which
is being amortized on a straight-line basis over a fifteen year fiscal
period. The pro forma results of operation have not been presented because
the effect of the acquisition was not material to the Company's
consolidated financial statements.
11
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (Continued)
(US dollars in thousands)
6. INTANGIBLE ASSETS
Intangible assets consist of the excess of purchase price over the
estimated fair value of net assets acquired in acquisition of LMP and Girl
Tech(R), and acquired use in certain cases of the Electronic Arts(TM)
("EA") brand name and XaviX(TM) sublicensing rights.
During the quarter ended March 31, 2000, the Company announced it had
entered into a licensing agreement with Shinsedai Co., Ltd. ("SSD") for the
rights to use their patented XaviX(TM) technology. As part of its agreement
with SSD, the Company became an exclusive sublicensing agent for the
XaviX(TM) technology in the North American market for use in entertainment
applications. The fair value of the exclusive sublicensing right of $1,260
has been recorded as an intangible asset, which is being amortized on a
straight-line basis over a three year fiscal period.
During the year of 1999, the Company and EA announced a strategic alliance
for the extension of EA brands and game properties in the dedicated
electronic handheld game category. As part of this alliance, the Company
entered into a worldwide licensing agreement with EA. In an additional
agreement, the Company granted EA warrants to purchase 375,000 shares of
the Company common stock during the term of the agreement. The agreement
with EA runs through the end of 2002. The fair value of the warrants of
$667 has been recorded as an intangible asset for the acquired license. The
asset is being amortized on a straight-line basis over the term of
agreement.
The Company purchased the assets and business of KidActive, LLC, dba Girl
Tech(R) during the quarter ended April 30, 1998. KidActive, LLC, dba Girl
Tech(R) was a development stage enterprise and had not traded prior to the
Company's acquisition of its assets. The Company purchased the assets and
business of KidActive, LLC, dba Girl Tech(R) for $2.4 million in cash plus
190,094 shares, a total of $6 million. Of this $4.5 million was capitalized
as goodwill and brand name, and $1.5 million was written off immediately as
purchased research and development. Goodwill and brand name are being
amortized over a three year fiscal period on a straight-line basis.
Accumulated amortization was $5,064 and $4,317 at March 31, 2000 and
December 31, 1999, respectively.
7. SHORT-TERM BORROWINGS
Under line of credit arrangements for short-term debt with various banks,
the Company has available approximating $9 million on such terms as the
Company and the banks mutually agree upon. Substantially all of the
short-term borrowings outstanding as of March 31, 2000 and as of December
31, 1999 represent borrowings made under, or supported by, these lines of
credit. The weighted average interest rate of the outstanding borrowings
was approximately 7% for the quarter ended March 31, 2000.
12
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RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (Continued)
(US dollars in thousands)
8. INCOME TAXES
The components of (loss) income from continuing operations before income
taxes are as follows:
Three months ended March 31,
------------------------------------
2000 1999
------------ ------------
United States $ (1,797) $ 1,295)
International (384) 1,948
------------ ------------
$ (2,181) $ 3,243
============ ============
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 and the 2000 effective tax rate was 12%. In addition, under the
existing processing arrangement and in accordance with the current tax
regulations in the PRC, manufacturing income generated in the PRC is not
subject to PRC income taxes.
The provision (credit) for income taxes consists of the following:
Three months ended March 31,
---------------------------
2000 1999
------------ ------------
United States
State tax expense (benefit), net of
federal tax expense (benefit) $ 20 $ 19
International
Current income tax (9) 70
------------ ------------
Total provision for income tax $ 11 $ 89
============ ============
13
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RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (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 to income before
income taxes and the actual provision (credit) for income taxes is as
follows:
Three months ended March 31,
---------------------------
2000 1999
------------ ------------
US statutory rate 34% 34%
------------ ------------
(Credit) provision for income taxes at
statutory rate on income $ (741) $ 1,103
State income taxes 2 2
International rate differences (715) (497)
Accounting losses (gains) for which
deferred income tax cannot be recognized 640 (424)
Increase in valuation allowance 700 --
Other 125 (95)
------------ ------------
Income tax provision $ 11 $ 89
============ ============
14
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RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (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 recorded amounts for financial statement
purposes. Significant components of the Company's deferred taxes assets and
liabilities are as follows:
March 31, December 31,
2000 1999
---------- ----------
Deferred tax assets (liabilities):
Excess of tax over financial
reporting depreciation $ 67 $ 67
Tax losses 3,070 1,841
Bad debt allowance 180 132
Advertising allowances 291 409
Inventory obsolescence reserve 109 355
Accrued sales adjustments and returns 418 519
Other 469 581
---------- ----------
4,604 3,904
Valuation allowance (926) (226)
---------- ----------
$ 3,678 $ 3,678
========== ==========
9. NOTES PAYABLE
On June 24, 1999, the Company entered into a $12.3 million guaranteed loan
agreement with the sellers as part of the financing of the LMP acquisition.
Interest on the loan notes is based on US$ LIBOR offered rate minus 130
basis points and is payable quarterly. Maturities of the loan notes are
$1.4 million in 2000 and $10.9 million in 2004. As of March 31, 2000, the
loan notes are classified in the consolidated balance sheet as a short-term
liability because the Company now expects that the loan notes holders will
require the Company to redeem all or a part of the loan notes by giving not
less than 30 days' notice.
10. COMMON STOCK
During the three months ended March 31, 2000, the Company repurchased
50,000 shares at an average price of $7.125 per share under the Company's
authorized repurchase programs. All repurchased shares were cancelled. As
of March 31, 2000, approximately 0.8 million shares remain available for
repurchase under the repurchase programs.
15
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RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (Continued)
(US dollars in thousands, except share and per share data)
11. EARNINGS PER SHARE
The following information shows the numbers used in computing earnings
(loss) per share and the effect on (loss) income and the weighted average
number of shares of dilutive potential common stock:
Three months ended March 31,
-----------------------------
2000 1999
---------- -----------
Numerator for basic and diluted
(loss) earnings per share:
Net (loss) income $ (2,192) $ 3,154
========== ===========
Denominator:
Denominator for basic
(loss) earnings per share 17,607,396 18,954,712
Effect of dilutive options -- 1,049,840
---------- -----------
Denominator for diluted
(loss) earnings per share 17,607,396 20,004,552
========== ===========
Basic (loss) earnings per share: $ (0.12) $ 0.17
========== ===========
Diluted (loss) earnings per share: $ (0.12) $ 0.16
========== ===========
Options and warrants on 2,338,600 shares of common stock were not included
in computing diluted loss per share since their effects were antidilutive.
16
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RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (Continued)
(US dollars in thousands, except share and per share data)
12. STOCK OPTIONS
The Company's 1994 Stock Option Plan of employees and directors (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, and the meeting of
the Board of Directors in June 1999, the Stock Option Plan's aggregated
common stock increased by 400,000, 800,000 and 60,000, respectively. In
total, the Stock Option Plan's aggregate common stock increased to
2,860,000 shares available for options. Options under this plan are
generally exercisable ratably over five years from the date of grant unless
otherwise provided.
Option activity for the three months ended March 31, 2000:-
Weighted average
Number exercise price
of shares per share
--------- ---------
(in thousands)
Outstanding at December 31, 1999 2,000 $ 7.93
Options granted -- --
Options cancelled (10) 9.40
Options exercised (26) 1.48
----------
Outstanding at March 31, 2000 1,964 $ 8.01
==========
Exercisable at March 31, 2000 679 $ 7.07
17
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (Continued)
(US dollars in thousands, except per share data)
12. STOCK OPTIONS (Continued)
The following is additional information relating to options outstanding as
of March 31, 2000:
<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>
$ 1.090 to 2.000 572 $ 1.30 6.00 303 $ 1.33
$ 2.001 to 4.000 316 3.49 7.07 101 3.42
$ 4.001 to 6.000 7 5.00 7.14 1 5.00
$ 6.001 to 8.000 41 6.85 7.39 12 6.75
$ 8.001 to 10.000 62 9.45 9.08 2 8.50
$ 10.001 to 12.000 421 10.91 8.71 64 11.03
$ 12.001 to 14.000 179 12.70 8.70 28 12.75
$ 14.001 to 16.000 135 14.84 8.47 32 14.97
$ 16.001 to 18.000 136 16.98 8.16 88 17.01
$ 18.001 to 20.000 95 19.05 8.05 48 18.94
-------------- --------------
1,964 $ 8.01 7.55 679 $ 7.07
============== ==============
</TABLE>
Pro forma information regarding net (loss) income and (loss) earnings 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. No option was granted during the quarter ended
March 31, 2000. The weighted average fair value of stock options at date of
grant for the quarter ended March 31, 1999 was $5.46 per option. The value
was estimated on the date of grant using the Black-Scholes option pricing
model with the following weight average assumptions; expected life of 5
years, risk-free interest rate of 5.1%, expected volatility of 35%,
dividend yield of 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.
18
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (Continued)
(US dollars in thousands, except per share data)
12. 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 (loss) income
and (loss) earnings per share would have been adjusted to the pro forma
amounts as follows:
Three months ended March 31,
----------------------------
2000 1999
------------ -----------
Pro forma net (loss) income $ (2,541) $ 2,874
Pro forma (loss) earnings per share
Basic (0.14) 0.15
Diluted (0.14) 0.14
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's games business has two
customers which accounted for more than twenty-seven percent and twenty-one
percent of net sales for the quarter ended March 31, 2000 and three
customers which accounted for more than thirty-five percent, sixteen
percent and twelve percent of net sales in the quarter ended March 31,
1999. The Company performs ongoing credit evaluations of its customers'
financial condition and, generally, requires no collateral from its
customers.
14. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
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 cash equivalents, accounts receivable,
accounts payable, notes payable and warrants are reasonable estimates of
their fair value.
19
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (Continued)
(US dollars in thousands)
15. PLEDGE OF ASSETS
At March 31, 2000, the Company's guaranteed loan agreements and general
banking facilities including overdraft and trade facilities were
collateralized by certain leasehold land and buildings, bank balances, and
inventories with a net book value of $4,735, $12,044 and $11,328,
respectively.
16. RETIREMENT PLAN
The Company has defined contribution retirement plans covering
substantially all employees. 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 $61 and $43 for the quarter ended March 31,
2000 and 1999, respectively.
17. SEGMENT INFORMATION
The Company adopted the SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information". The adoption of SFAS No. 131 did not
affect results of operations or financial position, but did affect the
disclosure of segment information. As a result of this change, prior
periods' presentations are restated to conform to current year
presentations.
Prior to the acquisition of LMP, the Company historically operated in one
principal industry segment: the design, development, manufacture and
distribution of a variety of electronic and mechanical handheld and
tabletop games. On June 24, 1999, the Company acquired LMP. Due to the
distinct differences between the core products of LMP and the remainder of
the Company, the Company has decided to operate and report on these product
lines as two different business segments: Peripherals, which includes video
game controllers and steering wheels and other video games accessories; and
Games, which includes electronic and mechanical handheld and tabletop
games.
The Company evaluates performance and allocates resources based on income
or loss from operations before interest and income taxes, not including
profits and losses on the Company's investment portfolio. The accounting
policies of the reportable segments are the same as those described in the
summary of significant accounting policies.
20
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (Continued)
(US dollars in thousands)
17. SEGMENT INFORMATION (Continued)
A summary of the Company's two business segments is set forth below.
Three months ended March 31,
2000 1999
----------------------------
Net sales
Games $ 14,111 $ 17,906
Peripherals 2,611 --
---------- ----------
Total net sales $ 16,722 $ 17,906
========== ==========
Depreciation and amortization
Games $ 1,120 $ 936
Peripherals 260 --
---------- ----------
Total depreciation and amortization $ 1,380 $ 936
========== ==========
Segment (loss) income
Games $ (1,371) $ 2,865
Peripherals (1,130) --
---------- ----------
Total segment (loss) income $ (2,501) $ 2,865
Corporate and unallocated
Interest income 472 618
Interest expense (152) --
Equity in net loss of
affiliated company -- (240)
---------- ----------
Total consolidated (loss) income
before income taxes $ (2,181) $ 3,243
========== ==========
Capital expenditures
Games $ 1,294 $ 470
Peripherals 179 --
---------- ----------
Total capital expenditures $ 1,473 $ 470
========== ==========
21
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (Continued)
(US dollars in thousands)
17. SEGMENT INFORMATION (Continued)
March 31, December 31,
2000 1999
---------- ----------
Segment assets
Games $ 55,709 $ 67,347
Peripherals 20,960 22,589
Corporate and unallocated 32,898 32,159
---------- ----------
Total consolidated assets $ 109,567 $ 122,095
========== ==========
Assets included in corporate and unallocated principally are cash and cash
equivalents, investment in affiliated company and certain unallocated
property, plant and equipment.
Information about the Company's operations in different geographic areas is
set forth in the table below. Net sales are attributed to countries based
on the location of customers, while identifiable assets are reported based
on their location.
Three months ended Three months ended
March 31, 2000 March 31, 1999
------------------ ------------------
Net sales:
United States and Canada $ 13,671 $ 17,391
Europe 2,934 341
Asia Pacific and other countries 117 174
---------- ----------
$ 16,722 $ 17,906
========== ==========
March 31, December 31,
2000 1999
------------------ ------------------
Identifiable assets:
United States and Canada $ 30,844 $ 39,702
Europe 25,259 26,485
Asia Pacific and other countries 53,464 55,908
---------- ----------
$ 109,567 $ 122,095
========== ==========
22
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)
(US dollars in thousands)
18. VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charged to Balance at
beginning cost and Deductions / end of
of period expenses write-offs period
--------- -------- ---------- ------
<S> <C> <C> <C> <C>
Three months ended March 31, 2000
Allowances for doubtful accounts $ 389 $ 155 $ (14) $ 530
Estimated customer returns 624 22 (554) 92
Provision for inventories 2,339 844 -- 3,183
------- ------- ------- -------
$ 3,352 $ 1,021 $ (568) $ 3,805
======= ======= ======= =======
Three months ended March 31, 1999
Allowances for doubtful accounts $ 446 $ 2 $ -- $ 448
Estimated customer returns 1,077 302 (769) 610
Provision for inventories 2,437 -- (209) 2,228
------- ------- ------- -------
$ 3,960 $ 304 $ (978) $ 3,286
======= ======= ======= =======
</TABLE>
23
<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 year ended December 31, 1999 as filed with the
United States Securities and Exchange Commission.
RESULTS OF OPERATIONS -- QUARTER ENDED MARCH 31, 2000
COMPARED TO THE QUARTER ENDED MARCH 31, 1999
The following table sets forth items from the Company's Consolidated
Statements of Income as a percentage of net revenues:
Three months ended March 31,
----------------------------
1999 2000
------------ ------------
Net revenues 100.0% 100.0%
Cost of sales 51.0% 72.0%
Gross margin 49.0% 28.0%
Selling, general and administrative expenses 22.6% 28.4%
Research and development 5.8% 8.2%
Depreciation and amortization 5.2% 8.2%
Operating (loss) income 15.4% (16.8%)
Other income 0.6% 1.9%
Share of loss of affiliated company 1.3% --
Interest income, net 3.4% 1.9%
(Loss) income before income taxes 18.1% (13.0%)
(Provision) credit for income taxes 0.5% (0.1%)
Net (loss) income 17.6% (13.1%)
The Company's total revenues for the first quarter ended March 31, 2000
were $16.7 million, compared to $17.9 million for the same period in 1999. After
tax loss was $2.2 million for the first quarter ended March 31, 2000 or $0.12
per fully diluted share versus an after tax profit of $3.2 million or $0.16 per
fully diluted share for the same period last year.
24
<PAGE>
The following table sets out the percentages of sales achieved from
each category of products:
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
--------------------------------------------------------------------------------------------
1999 2000
-------------------------------------------- --------------------------------------------
% OF NET NET UNITS % OF NET NET UNITS
PRODUCT LINES SALES VALUE SALES VALUE SOLD SALES VALUE SALES VALUE SOLD
-------------------- ---------------- -------------- --------- --------------- -------------- ---------
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C> <C>
Fishing games 26.2% $ 4,692 463 9.3% $ 1,553 148
Hunting games 8.5% 1,523 85 8.7% 1,449 76
Action games 13.2% 2,367 193 3.1% 512 61
Sports games 7.8% 1,392 97 4.8% 806 82
Casino games 12.6% 2,254 504 10.5% 1,751 373
Heritage games 11.1% 1,983 222 11.4% 1,913 221
Girl Tech games 3.9% 694 53 12.4% 2,076 193
ODM products 16.7% 3,000 562 24.2% 4,051 920
Peripherals - - - 15.6% 2,611 487
---------------- -------------- --------- --------------- -------------- ---------
Total 100.0% $ 17,905 2,179 100.0% $ 16,722 2,561
================ ============== ========= =============== ============== =========
</TABLE>
The gross profit for the first quarter decreased to $4.7 million from
$8.8 million in the same quarter of fiscal 1999 and the gross margin decreased
to 28% from 49% for the same period last year. Gross margin were impacted by the
effect of approximately $1m of inventory provisions taken during the quarter to
account for the impact of handheld closeouts in inventory at the end of March
together with higher ODM shipments in the quarter of 24.2% of sales compared to
16.7% in 1999 and also the lower margin controller sales from the Radica UK
based controller business, formerly known as Leda Media Products Limited
("LMP").
Operating expenses increased to $7.5 million in the first quarter ended
March 31, 2000 from $6 million in the same quarter in 1999. This was mainly due
to the costs of amortization of the goodwill for the acquisition of LMP together
with LMP operating costs and an increase in R&D offset by a decrease in variable
sales costs.
The following table lays out the changes in operating expenses for the
major expense categories.
Three months ended March 31,
----------------------------
1999 2000
-------- --------
(US dollars in millions)
Commissions $ 0.5 $ 0.3
Indirect salaries and wages 1.7 2.0
Advertising and promotion expenses 0.9 0.7
Research and development expenses 1.0 1.4
25
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY
Cash and cash equivalents totaled $30.5 million at March 31, 2000, a
decrease of $1.7 million from December 31, 1999. Working capital at March 31,
2000 was $50.3 million, a $14.8 million decrease from working capital of $65.1
million at December 31, 1999. The decrease in working capital was primarily due
to a change in the notes payable from long-term liability to short-term
liability for the quarter.
Short-term borrowings totaled $0.4 million at March 31, 2000, a
decrease of $1.1 million from December 31, 1999.
During the quarter ended March 31, 2000, 50,000 shares were repurchased
at an average price of $7.125 per share.
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.
26
<PAGE>
Item 3. Qualitative and Quantitative Disclosures About Market Risk
MARKET RISK DISCLOSURES
The following discussion about the Company's market risk disclosures
contains forward-looking statements. Forward-looking statements are subject to
risks and uncertainties. Actual results could differ materially from those
discussed in the forward-looking statements. The Company is exposed to market
risk related to changes in interest rates and foreign currency exchange rates.
The Company does not have derivative financial instruments for hedging,
speculative, or trading purposes.
INTEREST RATE SENSITIVITY
The Company is exposed to market rate risk for changes in interest
rates related to the Company's indebtedness. The Company has not used derivative
financial instruments in its indebtedness. Most of the Company's $13.7 million
principal amount of indebtedness at March 31, 2000 bears an interest rate that
fluctuates based on changes in the US$ LIBOR offered rate. A 1% change in the
underlying US$ LIBOR offered rate would result in an approximate $127,000 change
in the annual amount of interest payable on such debt.
FOREIGN CURRENCY RISK
International revenues from the Company's non-US distribution
subsidiaries were less than 20% of total revenues. Such international sales are
made mostly from the Company's two subsidiaries in Great Britain and Canada and
are typically denominated in the local currency of each country. These
subsidiaries also incur most of their expenses in the local currency.
Accordingly, they use the local currency as their functional currency.
The Company's exposure to foreign exchange rate fluctuations arises in
part from intercompany transactions. The currency exchange impact on
intercompany transactions was immaterial for three months ended March 31, 2000.
The Company is also exposed to foreign exchange rate fluctuation as the
financial results of foreign subsidiaries are translated into US dollars in
consolidation. As exchange rates vary, these results, when translated, may vary
from expectations and adversely impact overall expected profitability. The
effect of foreign exchange rate fluctuations on the Company in the three months
ended March 31, 2000 was not material.
27
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
None.
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 May 23, 2000,
the shareholders of the Company elected the management nominees, who were named
in the Company's Proxy Statement dated April 25, 2000, 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 nine members: Patrick S.
Feely, Jon N. Bengtson, Robert E. Davids, David C.W. Howell, Siu Wing Lam, James
O'Toole, Millens W. Taft, Peter L. Thigpen and Henry Hai-Lin Hu . 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 2.86 million shares to 3.7
million shares, reappointed Deloitte Touche Tohmatsu as independent auditor and
authorized the directors to fix the independent auditor's remuneration.
The shareholder votes were as follows:
Against/
For Withhold ABSTAIN
--- --------
Election of Directors
---------------------
Patrick S. Feely 14,122,519 78,973
Jon N. Bengtson 14,122,519 78,973
Robert E. Davids 14,122,419 79,073
David C.W. Howell 14,122,519 78,973
Siu Wing Lam 14,122,519 78,973
James O'Toole 14,122,519 78,973
Millens W. Taft 14,122,519 78,973
Peter L. Thigpen 14,122,519 78,973
Henry Hai-Lin Hu 14,122,519 78,973
28
<PAGE>
Amendment of Stock Option Plan
------------------------------
From 2.86 to 3.7 million shares 13,675,227 515,515 10,750
Reappointment of Auditor
------------------------
Deloitte Touche Tohmatsu 14,167,469 28,473 5,550
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
<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
/s/ Craig D. Storey
Date: 5/31/00 -------------------------------
---------------------- Craig D. Storey
Chief Accounting Officer
