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 July, 2002
Commission File Number: 0-23696
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 if the registrant is submitting the Form 6-K in
paper as permitted by Regulation S-T rule 101(b)(1):
-----
Indicate by check mark if the registrant is submitting the Form 6-K in
paper as permitted by Regulation S-T rule 101(b)(7):
-----
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, 2002
2. Press Release dated May 20, 2002
3. Press Release dated May 8, 2002
4. Press Release dated April 24, 2002
5. Annual Report to Stockholders
6. Management Information Circular / Proxy Statement dated May 6, 2002
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, No. 333-59737 and 333-61260) and on Form F-3 (No. 333-7526 and No.
333-79005).
QUARTERLY REPORT *
For the quarterly period ended March 31, 2002
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 March 31, 2002
--------------------------------------- -----------------------------
Common Stock, par value $0.01 per share 17,693,886
------------------------
* 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
RADICA GAMES LIMITED
INDEX TO QUARTERLY REPORT ON FORM 6-K
QUARTER ENDED MARCH 31, 2002
ITEMS IN FORM 6-K
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 5
Condensed Consolidated Balance Sheets
March 31, 2002 (unaudited) and December 31, 2001 5
Condensed Consolidated Statements of Operations
for the Three Months Ended March 31, 2002 (unaudited)
and 2001 (unaudited) 6
Condensed Consolidated Statements of Shareholders'
Equity (unaudited) 7
Condensed Consolidated Statement of Cash Flows
for the Three Months Ended March 31, 2002 (unaudited) &
2001 (unaudited) 8
Notes to the Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 16
Item 3. Qualitative and Quantitative Disclosures About Market Risk 21
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
3
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This report includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. For example, statements included in this report regarding
our financial position, business strategy and other plans and objectives for
future operations, and assumptions and predictions about future product demand,
supply, manufacturing, costs, marketing and pricing factors are all
forward-looking statements. We believe that the assumptions and expectations
reflected in such forward-looking statements are reasonable, based on
information available to us on the date hereof, but we cannot assure you that
these assumptions and expectations will prove to have been correct or that we
will take any action that we may presently be planning. Forward-looking
statements involve risks and uncertainties that could cause actual results to
differ materially from projected results. These risks include those set forth in
our Annual Report on Form 20-F for the fiscal year ended December 31, 2001, as
filed with the Securities and Exchange Commission. See "Item 3. Key Information
- Risk Factors" in such report on Form 20-F. We are not undertaking to publicly
update or revise any forward-looking statement if we obtain new information or
upon the occurrence of future events or otherwise.
4
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
----------------------------
RADICA GAMES LIMITED
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2002 AND DECEMBER 31, 2001
(US dollars in thousands, except share data) 2002 2001
------------------ -------------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents including pledged deposits of $8,955 ($8,955 in 2001) $ 23,364 $ 25,810
Accounts receivable, net of allowances for doubtful accounts
of $1,802 ($2,207 in 2001) 11,484 17,290
Inventories, net of provision of $3,468 ($3,997 in 2001) 19,089 17,179
Prepaid expenses and other current assets 2,532 2,283
Income taxes receivable 931 931
Deferred income taxes 168 168
------------------ -------------------
Total current assets 57,568 63,661
------------------ -------------------
Property, plant and equipment, net 15,730 16,310
------------------ -------------------
Intangible assets, net 9,866 9,971
------------------ -------------------
Deferred income taxes, noncurrent 1,880 1,887
------------------ -------------------
Total assets $ 85,044 $ 91,829
================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short term borrowings $ 846 $ 846
Accounts payable 6,659 9,201
Accrued warranty expenses 720 900
Current portion of long-term debt 3,648 3,648
Accrued payroll and employee benefits 654 943
Accrued expenses 9,641 10,907
Income taxes payable 322 507
------------------ -------------------
Total current liabilities 22,490 26,952
------------------ -------------------
Long-term debt 913 1,825
------------------ -------------------
Total liabilities 23,403 28,777
------------------ -------------------
Shareholders' equity:
Common stock
par value $0.01 each, 100,000,000 shares authorized,
17,693,886 shares outstanding (17,646,740 in 2001) 177 176
Additional paid-in capital 1,861 1,549
Warrants to acquire common stock 223 445
Retained earnings 59,437 61,012
Accumulated other comprehensive income/(loss) (57) (130)
------------------ -------------------
Total shareholders' equity 61,641 63,052
------------------ -------------------
Total liabilities and shareholders' equity $ 85,044 $ 91,829
================== ===================
See accompanying notes to the consolidated financial statements.
5
RADICA GAMES LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(US dollars in thousands, 2002 2001
-------------- --------------
except per share data) (unaudited) (unaudited)
Revenues:
Net sales $ 17,503 $ 11,773
Cost of goods sold (exclusive of items
shown separately below) (11,575) (8,631)
-------------- --------------
Gross profit 5,928 3,142
-------------- --------------
Operating expenses:
Selling, general and administrative expenses (5,688) (4,551)
Research and development (1,033) (1,315)
Depreciation and amortization (719) (1,003)
-------------- --------------
Total operating expenses (7,440) (6,869)
-------------- --------------
Operating loss (1,512) (3,727)
Other income 15 9
Interest income 1 26
-------------- --------------
Loss before income taxes (1,496) (3,692)
Provision for income taxes (79) (32)
-------------- --------------
Net loss $ (1,575) $ (3,724)
-------------- --------------
Basic and diluted loss per share $ (0.09) $ (0.21)
============== ==============
Basic and diluted weighted average
number of shares 17,667,315 17,565,878
============== ==============
See accompanying notes to the consolidated financial statements.
6
RADICA GAMES LIMITED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
THREE MONTHS ENDED MARCH 31, 2002
(US dollars in thousands) Common stock Accumulated
------------ Additional Warrants to other Total
Number paid-in acquire Retained comprehensive shareholders'
of shares Amount capital common stock earnings income (loss) equity
------------- ----------- ------------ ------------- ------------ ------------- -----------
Balance at December 31, 2001 17,646,740 $ 176 $ 1,549 $ 445 $ 61,012 $ (130) $ 63,052
Issuance of stock 1,350 - 5 - - - 5
Stock options exercised 45,796 1 85 - - - 86
Expiration of stock warrants - - 222 (222) - - -
Net loss - - - - (1,575) - (1,575)
Foreign currency translation - - - - - 73 73
------------- ----------- ------------ ------------- ------------ ------------- -----------
Balance at March 31, 2002 17,693,886 $ 177 $ 1,861 $ 223 $ 59,437 $ (57) $ 61,641
============= =========== ============ ============= ============ ============= ===========
See accompanying notes to the consolidated financial statements.
7
RADICA GAMES LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(US dollars in thousands) 2002 2001
------------- -------------
(unaudited) (unaudited)
Cash flow from operating activities:
Net loss $ (1,575) $ (3,724)
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Deferred income taxes 7 -
Depreciation 614 657
Amortization 105 346
Loss on disposal and write off of property, plant and equipment - 37
Changes in current assets and liabilities:
Decrease in accounts receivable 5,806 16,292
Increase in inventories (1,910) (314)
Increase in prepaid expenses and other current assets (249) (1,128)
Decrease in accounts payable (2,542) (2,663)
Decrease in accrued payroll and employee benefits (289) (200)
Decrease in accrued warranty expenses (180) (310)
Decrease in other accrued liabilities (1,266) (2,353)
(Increase) decrease income taxes (185) 374
------------- -------------
Net cash (used in) provided by operating activities (1,664) 7,014
------------- -------------
Cash flow from investing activities:
Proceeds from sale of property, plant and equipment 71 32
Purchase of property, plant and equipment (105) (124)
------------- -------------
Net cash used in investing activities (34) (92)
------------- -------------
Cash flow from financing activities:
Funds from issuance of stock $ 5 7
Funds from stock options exercised 86 -
(Decrease) increase in short-term borrowings - (105)
Repayment of long-term debt (912) (912)
------------- -------------
Net cash used in financing activities (821) (1,010)
------------- -------------
Effect of currency exchange rate change 73 31
------------- -------------
Net (decrease) increase in cash and cash equivalents (2,446) 5,943
Cash and cash equivalents:
Beginning of period 25,810 23,097
------------- -------------
End of period $ 23,364 $ 29,040
============= =============
See accompanying notes to the consolidated financial statements.
8
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(QUARTER ENDED MARCH 31, 2002)
(US dollars in thousands)
1. BASIS OF FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission (the "SEC"). Certain information and
footnote disclosures normally included in the financials statements
prepared in accordance with generally accepted accounting principles have
been condensed or omitted pursuant to such rules and regulations. These
financial statements should be read in conjunction with the consolidated
financial statements, accounting policies and related notes included in the
Form 20F for the year ended December 31, 2001 as filed with the SEC.
The information provided in this report reflects all adjustments
(consisting solely of normal recurring accruals) that are, in the opinion
of management and subject to year-end audit, necessary to present fairly
the financial position of the Company as of March 31, 2002, and the results
of operations and cash flows for the periods then ended. Because the
Company's business is seasonal, the results for interim periods are not
necessarily indicative of the results to be expected for the full year.
Effective on January 1, 2002, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible
Assets, which superceded Accounting Principles Board ("APB") Opinion No.
17, Intangible Assets. This statement addresses the accounting and
reporting of goodwill and other intangible assets subsequent to their
acquisition. In accordance with the adoption of SFAS No. 142, the Company
ceased amortization of goodwill and tested its goodwill and other
intangible assets for impairment based on the requirements included in
Statement 141 and reassessed the useful lives and residual values of those
intangible assets other than goodwill. As of March 31, 2002, there was no
impairment to the underlying value of the assets.
In August 2001, FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (SFAS No. 144). SFAS No. 144 addresses
financial accounting and reporting for the impairment or disposal of
long-lived assets. This Statement requires that long-lived assets be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of
the carrying amount of an asset to future net cash flows expected to be
generated by the asset. If the carrying amount of an asset exceeds its
estimated future cash flows, an impairment charge is recognized by the
amount by which the carrying amount of the asset exceeds the fair value of
the asset. SFAS No. 144 requires companies to separately report
discontinued operations and extends that reporting to a component of an
entity that either has been disposed of (by sale, abandonment, or in a
distribution to owners) or is classified as held for sale. Assets to be
disposed of are reported at the lower of the carrying amount or fair value
less costs to sell. The Company has adopted SFAS No. 144 on January 1,
2002. The Company does not expect the adoption of SFAS No. 144 to have a
material impact on the financial position and results of operations of the
Company.
9
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(QUARTER ENDED MARCH 31, 2002)
(US dollars in thousands)
2. SEGMENT INFORMATION
The Company is a worldwide designer, producer and marketer of electronic
entertainment devices. The Company has two reportable segments from which
it derives its revenues: the Games business that sells product under the
Company's Radica(R), Radica Gold(R) and Girl Tech(R) brand names, and the
Video Game Accessory ("VGA") business that sells product under the
Company's Gamester(TM) brand name. The Company also sources VGA and other
electronic products through third party manufacturers for retailers to sell
under their own brands; this is also included in the VGA segment. The
reportable segments are strategic businesses that offer different products.
The accounting policies of the reportable segments are the same as those
described in the Notes to the Company's consolidated financial statements
for the year ended December 31, 2001, except for the Company's adoption of
Statements of Financial Accounting Standards Nos. 142 and 144.
The Company measures segment performance based on net income before
interest and other income and income taxes. Inter-segment sales and
transfers have been eliminated and are not included in the following table.
Certain corporate expenses are managed outside of the operating segments.
Corporate expenses consist primarily of costs related to business
integration and other general and administrative expenses. All corporate
and indirect costs have been apportioned on the basis of corresponding
sales and direct costs.
A large proportion of the Company's assets are utilized by both segments
and are therefore not suitable for allocating to specific assets. In 2002,
the Company has further refined the segment assets. The segment assets are
comprised of accounts receivable and inventories. Other assets included in
corporate principally are cash and cash equivalents, deferred tax assets,
property, plant and equipment, and all other insignificant assets not
reportable under other segments. Certain information presented in the
tables below has been restated to conform to the current management
structure as of January 2002. Information by segment and a reconciliation
to reported amounts for the three months ended March 31, 2002 and 2001 are
as follows:
10
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(QUARTER ENDED MARCH 31, 2002)
(US dollars in thousands)
2. SEGMENT INFORMATION (Continued)
2002 2001
----------------- -----------------
Revenues
Games $ 12,426 $ 9,512
VGA 5,077 2,261
----------------- -----------------
Total revenues $ 17,503 $ 11,773
================= =================
Segment loss
Games $ (173) $ (2,515)
VGA (1,339) (1,212)
----------------- -----------------
Total segment loss $ (1,512) $ (3,727)
Net Interest and other income 16 35
Provision for income taxes (79) (32)
----------------- -----------------
Total consolidated net loss $ (1,575) $ (3,724)
================= =================
Segment assets
Games $ 18,818 $ 23,558
VGA 21,621 20,882
Corporate 44,605 47,389
----------------- -----------------
Total consolidated assets $ 85,044 $ 91,829
================= =================
Revenues from external customers by product category are summarized as
follows:
2002 2001
----------------- -----------------
Electronics Games $ 6,830 # $ 5,454
Girls Electronics 2,011 2,294
ODM/OEM 3,585 1,764
Sourcing 1,414 723
VGA 3,663 1,538
----------------- -----------------
Total net revenues $ 17,503 $ 11,773
================= =================
11
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(QUARTER ENDED MARCH 31, 2002)
(US dollars in thousands)
2. SEGMENT INFORMATION (Continued)
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 long-lived assets are reported based on
their location. Long-lived assets principally include property, plant and
equipment, intangible assets and long-term investment:
2002 2001
----------------- -----------------
Net sales:
United States and Canada $ 12,510 $ 8,298
Asia Pacific and other countries 1,228 1,207
Europe 3,765 2,268
----------------- -----------------
$ 17,503 $ 11,773
================= =================
Long-lived assets:
United States and Canada $ 1,367 $ 1,662
Asia Pacific and other countries 14,484 14,851
Europe 9,745 9,768
----------------- -----------------
$ 25,596 $ 26,281
================= =================
3. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted loss
income per share as of March 31:
2002 2001
------------- ------------
Numerator for basic and diluted loss per share:
Net loss $ (1,575) $ (3,724)
============= ============
Denominator for basic and diluted loss per share: 17,667,315 17,565,878
Basic and diluted loss per share: $ (0.09) $ (0.21)
============= ============
Basic earnings (loss) per share is based on the weighted average number of
shares of common stock, and with respect to diluted earnings (loss) per
share, also includes the effect of all dilutive potential common stock
outstanding. Dilutive potential common stock results from dilutive stock
options and warrants. The effect of such dilutive potential common stock on
net income per share is computed using the treasury stock method. All
potentially dilutive securities were excluded from the computation in loss
making periods as their inclusion would have been anti-dilutive.
12
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(QUARTER ENDED MARCH 31, 2002)
(US dollars in thousands)
4. RESTRUCTURING CHARGE
During December 2001, the Board of Directors approved a company wide
restructuring plan which includes the consolidation of operations in Hong
Kong and the China factory, the closure of the Company's San Francisco R&D
office, the consolidation of the Company's product development operations
as well as other head count reductions in the US, UK and Hong Kong offices.
The Company recorded an accrual of $1,551 of total pre-tax restructuring
charge in Q4 2001, of which approximately $199 related to the closure of
the Company's San Francisco R&D office.
The consolidation of operations in Hong Kong and China consisted of the
localization in the China factory of a number of departments, which
previously operated out of Hong Kong. The localization and consolidation of
product development and manufacturing operations resulted in a workforce
reduction of approximately 170 employees worldwide. This workforce
reduction resulted in an accrual of approximately $1,352 for severance and
contractual termination costs and benefits payments. The consolidation
occurred during the first quarter of 2002. From inception through March 31,
2002, a total of approximately $925 has been incurred related to severance
and contractual termination. The remaining components of the restructuring
are expected to be completed during the second quarter of 2002.
The components of restructuring charges are as follows:
Balance Balance
December 31, Amount March 31,
2001 Charges incurred 2002
------------ --------- ---------- ---------
Severance and other compensation $ 1,389 $ - $ (925) $ 464
Lease termination costs and - - -
related asset writedowns 199 - - 199
------------ --------- ---------- ---------
$ 1,588 $ - $ (925) $ 663
============ ========= ========== =========
13
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(QUARTER ENDED MARCH 31, 2002)
(US dollars in thousands)
5. INVENTORIES
Inventories by major categories are summarized as follows:
2002 2001
----------------- -----------------
Raw materials $ 3,303 $ 3,165
Work in progress 3,429 3,176
Finished goods 11,744 10,137
Consigned finished goods 613 701
----------------- -----------------
$ 19,089 $ 17,179
================= =================
6. OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following:
2002 2001
----------------- -----------------
Accrued advertising expenses $ 800 $ 1,105
Accrued license and royalties 1,495 2,346
Accrued sales expenses 3,465 3,422
Commissions payable 83 149
Other accrued liabilities 3,798 3,885
----------------- -----------------
Total $ 9,641 $ 10,907
================= =================
7. PLEDGE OF ASSETS
The Company entered into guaranteed loan agreements and general banking
facilities with one of its banks. The agreement contains covenants that,
among other things, require the Company to maintain a minimum tangible net
worth, gearing ratio and other financial ratios. At March 31, 2002, the
loan agreements and general banking facilities including trade and
overdraft facilities were collateralized as follows:
Leasehold land and buildings $ 11,369
Bank balances 8,955
Inventories 8,351
-----------------
$ 28,675
=================
14
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(QUARTER ENDED MARCH 31, 2002)
(US dollars in thousands)
8. LITIGATION
The Company is a party to certain claims and legal actions that have arisen
in the ordinary course of business. These matters are substantially covered
by insurance. The resolution of these matters is not expected to have a
material impact on the Company. The Company currently has no contingent
obligations for which management views the crystallization to be probable
or reasonably possible, and has therefore made no disclosures over current
or pending legal actions taken against the Company.
15
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, 2001 as filed with the
United States Securities and Exchange Commission.
OVERVIEW
Radica Games Limited (the "Company") manufactures and markets a
diverse line of electronic entertainment products including handheld and
tabletop games, high-tech toys, and video game accessories. The Company is
headquartered in Hong Kong at the address set forth on the cover of this report
and manufactures its products in its factory in southern China. The Company
markets its products through subsidiaries in the United States, the United
Kingdom, Canada and Hong Kong. Its largest market is in the United States where
in 2001 it had the second largest market share in handheld and tabletop
electronic games according to the NPD Group, Inc., the primary source for such
industry data. In the United Kingdom, the Company's subsidiary had the largest
market share of the video game controller market among third-party manufacturers
in 2001 according to industry data source, Chart Track.
The Company's products currently include 1) handheld electronic and
tabletop games sold under the Company's Radica and Radica Gold brand names, 2)
technology enhanced games and gadgets for girls under the Girl Tech brand name,
3) Radica Play TV(TM) games, featuring XaviX(R) technology and 4) video game
accessories sold under the Gamester brand name.
The Company employs a team of designers and engineers in its US, UK
and Asia offices. Most of Radica's product concepts are generated internally,
however on occasion the Company acquires product concepts from third party
inventors. Inventors are compensated through royalties that are generally paid
as a percentage of worldwide sales of the related product. Radica expects to
continue to develop most of its product in-house going forward, but also plan to
use outside inventors as a source for new product concepts.
Radica currently manufactures its products at its Tai Ping factory
(the "Factory") in Dongguan, Southern China approximately 40 miles northwest of
Hong Kong. The Factory was constructed with the cooperation of the local
government according to the Company's design specifications on a 3.7-acre site.
An extension of the Factory commenced in December 1999 to add 202,000 square
feet of factory space and 178,000 square feet of dormitory space allowing for up
to an additional 3,000 employees to be housed. The cost of construction of the
extension would have been approximately $3.0 million, exclusive of manufacturing
equipment. As a result of the drop in demand for Radica product in the US during
2000, work towards completion of this addition has been postponed and may
continue when market demand warrants use of the additional space. The expansion
has been sufficiently completed to the point that no impairment issues exist and
it is currently being used for storage during peak production season. The unit
capacity of the Factory depends on the product mix produced. In any event, there
can be no assurance that the Company will be able to operate at full capacity or
have sufficient sales to warrant doing so.
16
The Company's offices in Dallas, Texas and Hertfordshire, UK manage
our North American and UK distribution, respectively. Third-party distributors
manage distribution throughout the rest of the world. Substantial portions of
the Company's sales are sold to its distributors and retail customers on letter
of credit basis or open account, and title of goods is taken in Hong Kong.
Radica also sells product from domestic inventories held in various US, Canadian
and UK warehouses. The Company currently has agreements with distributors in
Germany and France that allow them to sell the Company's product on a
consignment basis. The inventory is recorded in the Company's balance sheet and
sales are recorded upon confirmation from the distributor.
A sales return allowance is recorded for estimated sales returns
from customers. The allowance is based on historical trends and management's
best assessment of sales returns as a percentage of overall sales. The Company
also records an allowance for marketing and advertising costs agreed to with
certain customers. These allowances are based on other specific dollar-value
programs or percentages of sales, depending on how the program is negotiated
with the individual customer.
The Company's cost of sales is comprised primarily of the cost of
goods of its product manufactured in its Dongguan factory and sourced from
third-party manufacturers. Other costs include inbound and outbound freight
costs for goods that are shipped domestically from its distribution operations
in North America and the UK, obsolescence provisions, warranty provisions for
defective product and license and royalty expenses. The largest factors
affecting the Company's gross margin percentages is the product sales mix; the
different product lines make different gross margins and can have a significant
impact on the overall margin for the Company.
The Company's selling, general and administrative ("SG&A") expenses
are comprised of selling expenses such as sales commissions and product
advertising, as well as non manufacturing-related labor expenses, general
corporate expenses and depreciation and amortization. As a result of SFAS 142,
beginning January 1, 2002, the Company ceased amortization of goodwill and
tested its goodwill and other intangible assets for impairment based on the
requirements included in SFAS 141. As of March 31, 2002, there was no impairment
to the underlying value of the assets.
RESULTS OF OPERATIONS
The following unaudited table sets forth items from the Company's
Consolidated Statements of Operations as a percentage of net sales:
17
Three month ended March 31,
---------------------------
2002 2001
----------- -----------
Net sales 100.0% 100.0%
Cost of sales 66.1% 73.3%
----------- -----------
Gross margin 33.9% 26.7%
Selling, general and administrative expenses 32.5% 38.6%
Research and development 5.9% 11.2%
Depreciation and amortization 4.1% 8.5%
----------- -----------
Operating loss (8.6%) (31.6%)
Other income 0.1% 0.1%
Interest income, net 0.0% 0.2%
----------- -----------
Loss before income taxes (8.5%) (31.3%)
Provision for income taxes (0.5%) (0.3%)
----------- -----------
Net loss (9.0%) (31.6%)
=========== ===========
Net loss for the first quarter of 2002 was $1.6 million versus $3.7
million in the first quarter of 2001. Basic and diluted loss per share for the
quarter was $.09 in 2002 compared with $.21 in 2001.
Net sales for the quarter increased by 48.3% to $17.5 million from
$11.8 million in the first quarter of 2001. The increase was partly due to the
strength of our Gamester line of video game accessories (VGA) as well as the
continuing growth of our ODM/OEM manufacturing business. Revenues for the
quarter were comprised of 39.0% Electronic Games (Handheld Games and Play
TV(TM)), 11.5% Girls' Electronics (Girl Tech(R) and Barbie(TM)), 20.9% VGA and
28.6% ODM/OEM/Sourcing compared to 46.3%, 19.5%, 13.1% and 21.1% for the same
period in 2001. This represents sales growth of 14.1% for Electronic Games and
Girls' Electronics, 138.2% for VGA and 101.0% for ODM/OEM/Sourcing.
18
Net sales by product category are summarized as follow ($ in
thousands):
Three months ended March 31,
-------------------------------
2002 2001
-------------- --------------
Electronic Games $ 6,830 $ 5,454
Girls Electronics 2,011 2,294
ODM/OEM 3,585 1,764
Sourcing 1,414 723
VGA 3,663 1,538
-------------- --------------
Total Net Sales $ 17,503 $ 11,773
============== ==============
The Company's gross profit increased to $5.9 million in 2002 from $3.1
million in 2001. The Company's gross margin for the first quarter of 2002 was
33.9% compared to 26.7% in the first quarter of 2001 as a result of gains from
the continued cost reduction program offset by a higher mix of lower margin
ODM/OEM and Sourcing product sales compared to the same period in last year.
Selling, general and administrative expenses for the first quarter of
2002 were $5.7 million compared to $4.6 million in the first quarter of 2001.
The increase in expenditure was as a result of an increase in advertising
expenditure over Q1 2001, plus the effect of foreign exchange movements in the
UK.
Research and development expenses for the first quarter of 2002
decreased to $1.0 million from $1.3 million in the first quarter of 2001,
reflecting the consolidation and localization of the Company's product
development operations in the US, UK and Hong Kong office.
Depreciation and Amortization expenses of $0.7 million in the first
quarter of 2002 decreased from $1.0 million in the first quarter of 2001.
Effective in 2002, the Company adopted the Statement of Financial Accounting
Standard No. 142, "Goodwill and Other Intangible Assets". As a result of the
adoption of this statement, goodwill and other indefinite life intangibles are
no longer being amortized. Amortization of these assets in the first quarter of
2001 amounted to $0.2 million.
CAPITAL RESOURCES AND LIQUIDITY
At March 31, 2002 the Company had $23.4 million of cash and total
assets of $85.0 million. The Company generates a significant majority of its
cash from its normal operations but seasonal cash requirements have been met
with the use of short-term borrowings, which included borrowings under secured
lines of credit. Long-term debt decreased from $1.8 million at December 31, 2001
to $0.9 million at March 31, 2002. The long-term debt was originally used to
purchase LMP in 1999. During the first quarter of 2002, the Company made no
acquisitions.
At March 31, 2002, cash and cash equivalents, net of short-term
borrowings, were $22.5 million of which $8.9 million of cash deposits have been
pledged as security for undrawn or substantially repaid facilities. Management
does not consider that there are any significant restrictions on its ability to
gain access to these deposits. This compares with cash and cash equivalents, net
of short-term borrowings of
19
$25.0 million at December 31, 2001. The Company used approximately $1.7 of net
cash from its operating activities in the first quarter of 2002 as the result of
operating losses for the quarter. Due to the inherent seasonality of the toy
industry, the Company expects the second half of the year to be more significant
to the Company's overall business for the full year. The Company believes that
during 2002 and beyond, its most significant cash source will be from its
operating profits. The Company's management believes that it will realize an
operating profit in 2002 and will successfully convert its receivables into the
cash used to fund the business. The Company gives no assurances that it will
successfully be able to achieve an operating profit in 2002.
Receivables decreased to $11.5 million from the December 31, 2001 level
of $17.3 million while they increased by $1.9 million compared with receivables
of $9.6 million as of March 31, 2001. Accounts receivable at the quarter-end is
primarily composed of first quarter revenues in 2002. Net sales for the quarter
increased by $5.7 million compared to the first quarter of 2001. Inventories
increased to $19.1 million from $17.2 million at December 31, 2001 to support
second quarter sales. Current liabilities were $22.5 million at March 31, 2002
compared to $27.0 million at December 31, 2001. The decrease was primarily the
result of seasonal decreases in the first quarter materials purchased.
Cash used in financing activities was $0.8 million in the first quarter
of 2002. This was primarily due to the repayment of an installment of a term
loan. Loan installments due within twelve months of reported quarter-end are
included in short-term liabilities; installment payments scheduled beyond twelve
months from the reported quarter-end are included in long-term debt. The term
loan and revolving loan are secured by certain properties and deposits of the
Company (see Note to the Consolidated Financial Statements). The agreement
contains covenants that, among other things, require the Company to maintain a
minimum of tangible net worth, gearing ratio and other financial ratios.
Management believes that the Company's existing credit lines are
sufficient to meet future short-term cash demands. The Company funds its
operations and liquidity needs primarily through cash flow from operations, as
well as utilizing borrowings under the Company's secured and unsecured credit
facilities when needed. During 2002, the Company expects to continue to fund its
working capital needs through operations and its revolving credit facility and
believes that the funds available to it are adequate to meet its needs. The
Company expects to be in compliance with its covenants in 2002. However,
unforeseen circumstances, such as severe softness in or a collapse of the retail
environment may result in a significant decline in revenues and operating
results of the Company, thereby causing the Company to exhaust its cash
resources. If this were to occur, the Company may be required to seek
alternative financing of its working capital. In addition, this may cause the
Company to be in non-compliance with its debt covenants and to be unable to
utilize its revolving credit facility.
The Company had no derivative instruments or off balance sheet
financing activities during the quarter ended March 31, 2002. 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.
20
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's long-term loan agreement is based upon the US$ Singapore
Interbank Offered Rate ("SIBOR") and, as such, is sensitive to changes in
interest rates. The Company has not used derivative financial instruments in its
indebtedness. At March 31, 2002, the result of a hypothetical one percentage
change in the underlying US$ SIBOR rates would have resulted in an approximate
$0.1 million change in the annual amount of interest payable on such debt.
FOREIGN CURRENCY RISK
The Company has net monetary asset and liability balances in foreign
currencies other than the U.S. dollar, including the Pound Sterling, the
Canadian dollar, the Hong Kong dollar and the Chinese Renminbi. International
distribution and sales revenues usually are made by the Company's subsidiaries
in the United States, United Kingdom and Canada, and are denominated typically
in their local currency. However, the expenses incurred by these subsidiaries
are also denominated in the local currency. As a result, the operating results
of the Company are exposed to changes in exchange rates between the United
States Dollar and the Pound Sterling or the Canadian dollar. The Company's
primary exposure relates to the intercompany debt that exists between Radica
China, its manufacturing company that records its intercompany receivables in US
Dollars, and Radica UK, its UK distribution company that records its
intercompany payable to Radica China in Pound Sterling. Were there to be a
significant fluctuation in exchange rates, this could have a material impact on
the financial results of the Company. The Company does not currently hedge its
foreign exchange risk. The Company will continue to monitor its exposure to
currency fluctuations, and, where appropriate, may use financial hedging
techniques in the future to minimize the effect of these fluctuations. There can
be no assurance that exchange rate fluctuations will not harm the business in
the future.
21
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 June 10, 2002,
the shareholders of the Company elected the management nominees, who were named
in the Company's Proxy Statement dated May 6, 2002, 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 ten 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, Henry Hai-Lin Hu and Albert J.
Crosson. At such meeting, the shareholders also reappointed KPMG as independent
auditor and authorized the directors to fix the independent auditor's
remuneration.
The shareholder votes were as follows:
For Withheld Abstain
Election of Directors
Patrick S. Feely 16,650,749 7,410 -
Jon N. Bengtson 16,650,749 7,410 -
Robert E. Davids 16,650,749 7,410 -
David C.W. Howell 16,650,549 7,610 -
Siu Wing Lam 16,647,049 11,110 -
James O'Toole 16,650,749 7,410 -
Millens W. Taft 16,650,233 7,926 -
Peter L. Thigpen 16,650,433 7,726 -
Henry Hai-Lin Hu 16,647,049 11,110 -
Albert J. Crosson 16,648,449 9,710 -
Reappointment of Auditor
KPMG 16,601,979 8,210 47,970
22
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
23
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: July 8, 2002 /s/ Craig D. Storey
------------------------------- -------------------------
Craig D. Storey
Chief Accounting Officer
24
RADICA GAMES LIMITED
REPORTS FIRST QUARTER
SALES GROWTH OF 48%
FOR IMMEDIATE RELEASE CONTACT: PATRICK S. FEELY
MAY 20, 2002 PRESIDENT & CEO
(LOS ANGELES, CALIFORNIA)
(626) 744 1150
DAVID C.W. HOWELL
PRESIDENT ASIA OPERATIONS
& CFO
(HONG KONG)
(852) 2688 4201
(HONG KONG) Radica Games Limited (NASDAQ RADA) announced today its results for
the first quarter of 2002. Sales for the quarter increased by 48.3% to $17.5
million from $11.8 million in the first quarter of 2001. The company reported a
significantly reduced net loss of $1.6 million or $.09 per share for the quarter
compared to a net loss of $3.7 million or $.21 per share in the first quarter of
2001.
"Results for the quarter exceeded our expectations and are consistent with the
steady progress we have shown during each of the last four quarters as well as
our goal to return to profitability for 2002. We are particularly pleased with
the strength of our Gamester line of video game accessories (VGA) and our
ODM/OEM manufacturing business. We expect these two sectors to deliver continued
impressive growth for the rest of the year on top of solid results in the rest
of our business," said Pat Feely, Radica's CEO.
Revenues for the quarter were comprised of 39.0% Electronic Games (Handheld
Games and Play TV(TM)), 11.5% Girls' Electronics (Girl Tech(R) and Barbie(TM)),
20.9% VGA and 28.6% ODM/OEM/Sourcing compared to 46.3%, 19.5%, 13.1% and 21.1%
for the same period in 2001. This represents sales growth of 14.1% for
Electronic Games and Girls' Electronics, 138.2% for VGA and 101.0% for
ODM/OEM/Sourcing.
"This week at the Electronic Entertainment Expo in Los Angeles we will be
showing some of our most exciting new products for our Gamester(TM) video game
accessory and Play TV product lines," Feely said. "Of particular importance will
be our recently introduced Floodlight(TM) for Game Boy Advance(TM). This
proprietary product is a breakthrough in the large category of Game Boy
illumination and in less than two months is one of the fastest selling lights in
the industry. We will also be showing our new Play TV Boxing(TM) and Play TV
Baseball 2(TM) products as well as our line of licensed Men In Black II and
Lotus racing products for the Gamester brand. We hope many of our shareholders
will be able to attend the show."
Gross margin for the quarter was 33.9% compared to 26.7% in Q1 of 2001 as a
result of gains from the continued cost reduction program offset by a higher mix
of lower margin ODM/OEM and Sourcing product sales compared to Q1 2001.
Operating expenses for the quarter were $7.4 million compared to $6.9 million in
Q1 of 2001. The increase in expenditure was as a result of an increase in
advertising expenditure over Q1 2001, plus the effect of foreign exchange
movements in the UK. R&D costs decreased by $0.3 million.
Effective in 2002, the Company adopted the Statement of Financial Accounting
Standard No. 142, "Goodwill and Other Intangible Assets". As a result of the
adoption of this statement, goodwill and other indefinite life intangibles are
no longer being amortized. Amortization of these assets in the first quarter of
2001 amounted to $0.2 million. Removing this amortization and its related tax
effect would have resulted in a net loss of $3.5 million in the first quarter of
2001.
At March 31, 2002 the Company had $23.4 million of cash compared to $25.8
million at December 31, 2001 and net assets of $61.6 million. Long-term debt
declined by $0.9 million from December 31, 2001. Inventories increased to $19.1
million from $17.2 million at December 31, 2001 to support second quarter sales.
Receivables were at $11.5 million at March 31, 2002 compared to $17.3 million at
December 31, 2001.
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 December 31, 2000, as
filed with the Securities and Exchange Commission. See "Item 3. Key
Information -- Risk Factors" in such report on Form 20-F.
Radica Games Limited (Radica) is a Bermuda company headquartered in Hong Kong
(NASDAQ-RADA). Radica is a leading developer, manufacturer and distributor of a
diverse line of electronic products including handheld and tabletop games,
high-tech toys and video game accessories. 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
CONSOLIDATED STATEMENTS OF OPERATIONS
(US Dollars in thousands, Three months ended March 31,
except per share data) ----------------------------
2002 2001
----------- ---------
(unaudited) (unaudited)
REVENUES:
Net sales $ 17,503 $ 11,773
Cost of sales (11,575) (8,631)
--------- ---------
Gross profit 5,928 3,142
--------- ---------
OPERATING EXPENSES:
Selling, general and administrative expenses (5,688) (4,551)
Research and development (1,033) (1,315)
Depreciation and amortization (719) (1,003)
--------- ---------
Total operating expenses (7,440) (6,869)
--------- ---------
OPERATING LOSS (1,512) (3,727)
OTHER INCOME 15 9
NET INTEREST INCOME 1 26
--------- ---------
LOSS BEFORE INCOME TAXES (1,496) (3,692)
PROVISION FOR INCOME TAXES (79) (32)
--------- ---------
NET LOSS $ (1,575) $ (3,724)
========= =========
BASIC AND DILUTED LOSS PER SHARE $ (0.09) $ (0.21)
========= =========
BASIC AND DILUTED WEIGHTED AVERAGE
NUMBER OF SHARES 17,667,315 17,565,878
========== ==========
RADICA GAMES LIMITED
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
------------ ------------
(US Dollars in thousands, except share data) 2002 2001
------------ ------------
(unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 23,364 $ 25,810
Accounts receivable, net of allowances for
doubtful accounts of $1,802 ($2,207 at
Dec. 31, 2001) 11,484 17,290
Inventories, net of provision of $3,468
($3,997 at Dec. 31, 2001) 9,089 17,179
Prepaid expenses and other current assets 2,532 2,283
Income taxes receivable 931 931
Deferred income taxes 168 168
----------- -----------
TOTAL CURRENT ASSETS 57,568 63,661
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, NET 15,730 16,310
----------- -----------
INTANGIBLE ASSETS, NET 9,866 9,971
----------- -----------
DEFERRED INCOME TAXES, NONCURRENT 1,880 1,887
----------- -----------
TOTAL ASSETS $ 85,044 $ 91,829
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short term borrowings $ 846 $ 846
Accounts payable 7,379 10,101
Current portion of long-term debt 3,648 3,648
Accrued payroll and employee benefits 654 943
Accrued expenses 9,641 10,907
Income taxes payable 322 507
----------- -----------
TOTAL CURRENT LIABILITIES 22,490 26,952
----------- -----------
LONG-TERM DEBT 913 1,825
----------- -----------
TOTAL LIABILITIES 23,403 28,777
----------- -----------
SHAREHOLDERS' EQUITY:
Common stock
par value $0.01 each, 100,000,000
shares authorized, 17,693,886 shares
outstanding (17,646,740 at Dec. 31, 2001) 177 176
Additional paid-in capital 1,639 1,549
Warrants to acquire common stock 445 445
Retained earnings 59,437 61,012
Accumulated other comprehensive income (57) (130)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 61,641 63,052
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 85,044 $ 91,829
=========== ===========
RADICA GAMES LIMITED
ANNOUNCES
MANUFACTURING AGREEMENT FOR
NEW INNOVATIVE DIGIMON PRODUCT
FOR IMMEDIATE RELEASE CONTACT: PATRICK S. FEELY
MAY 8, 2002 PRESIDENT & CEO
(LOS ANGELES, CALIFORNIA)
(626) 744 1150
DAVID C.W. HOWELL
PRESIDENT ASIA OPERATIONS & CFO
(HONG KONG)
(852) 2688 4201
(Hong Kong) RADICA GAMES LIMITED (NASDAQ: RADA) announced today that it has
entered into an ODM manufacturing agreement with WiZ Co., Ltd. Under this
agreement, Radica will manufacture a new Digimon electronic game called
D-Scanner, which incorporates the proprietary scanning technology already made
famous in its highly successful Skannerz(TM)line of games. Initial deliveries
are planned for May of this year. The agreement includes a license to WiZ Co.,
Ltd. for the Japanese market to utilize Radica's intellectual property regarding
scanning games. The products are expected to be distributed in the Japanese
market by Bandai Co., Ltd.
Pat Feely, president and CEO of Radica Games Limited said, "It is a perfect
combination of our technology and Bandai's highly successful Digimon brand. We
are delighted to work once again with the incredibly creative talent of WiZ and
the vision of Bandai in bringing this innovative product to the Japanese
market."
"We have known Radica for their creativity in producing innovative products. In
the fourth year Digimon show, we are glad to introduce D-Scanner, the outcome of
winning combination of Radica, WiZ and Bandai. We hope to add yet another
successful LCD game line to Digimon with this cutting edge product," said Mr.
Takeichi Hongo, Executive Officer and General Manager of Character Toys
Department, Bandai Co., Ltd.
"We are very excited to have this opportunity to work with Radica and Bandai on
this project. D-Scanner is the main product in our new Digimon show, "Digimon
Frontier" and we are confident that it will be the most successful LCD Digimon
game ever," said Akihiro Yokoi, CEO, WiZ Co., Ltd.
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 December
31, 2000, as filed with the Securities and Exchange Commission. See
"Item 3. Key Information -- Risk Factors" in such report on Form 20-F.
ABOUT RADICA GAMES LIMITED
Radica Games Limited (Radica) is a Bermuda company headquartered in Hong Kong
(NASDAQ: RADA). Radica is a leading developer, manufacturer and distributor of a
diverse line of electronic products, including handheld and tabletop games,
girls' lifestyle products, high-tech toys and video game accessories. 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 LICENSING AGREEMENT WITH
SONY PICTURES CONSUMER PRODUCTS FOR
MEN IN BLACK(TM) II
FOR IMMEDIATE RELEASE CONTACT: PATRICK S. FEELY
APRIL 24, 2002 PRESIDENT & CEO
(LOS ANGELES, CALIFORNIA)
(626) 744 1150
DAVID C.W. HOWELL
PRESIDENT ASIA OPERATIONS & CFO
(HONG KONG)
(852) 2688 4201
(HONG KONG) Radica Games Ltd. (NASDAQ: RADA) announced today that it has signed
a worldwide licensing agreement with Sony Pictures Consumer Products to produce
Men In Black(TM)II branded video game accessories.
Under terms of the agreement, Radica, under its Gamester(TM) brand name, is
licensing the rights for video game accessories for PlayStation(R) 2, Microsoft
Xbox(TM), Nintendo Game Cube and Nintendo Game Boy Advance based on the Men In
Black and Men In Black II theatrical releases. Initial products will include
speakers, chargers, lights, earpieces and software cases, targeted for Game Boy
Advance owners. Radica will debut its Men in Black II products at the E3 show,
May 22-24, 2002 at the Los Angeles Convention Center.
"Men In Black is an outstanding entertainment property and we're very excited to
be a part of this franchise," states Pat Feely, chief executive officer, Radica.
"We look forward to developing high-quality accessories that stay true to the
highly anticipated film."
"Radica is a leader in electronic handheld games," says Al Ovadia, executive
vice president, Sony Pictures Consumer Products. "Our strategic partnership
combined with this blockbuster franchise will undoubtedly have strong appeal
with our target consumers."
- more -
2 / Radica-SPCP-Men in Black II License Agreement
The Gamester Men in Black II Agent Pack will hit retail shelves to coincide with
the July 3 theatrical release and consists of all the necessities for Game Boy
Advance (GBA) units, including:
SKINZ: Three Men in Black II designs that easily attach to the front of your
GBA.
EAR PHONZ: Headphones disguised as tiny aliens crawling out of your ears.
MEN IN BLACK II FLOOD LIGHT: Every agent needs a light, and this light will
light the entire GBA screen smoothly and evenly.
MEN IN BLACK II BODY GUARD: Fits all your Men in Black II GBA equipment in one
protective case, with extra room for several games.
"Protecting the earth from the scum of the universe," Tommy Lee Jones and Will
Smith return as agents K and J in the Columbia Pictures presentation of an
Amblin Entertainment production, Men in Black II.
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 December 31, 2000, as
filed with the Securities and Exchange Commission. See "Item 3. Key
Information -- Risk Factors" in such report on Form 20-F.
ABOUT RADICA GAMES LIMITED
Radica Games Limited (Radica) is a Bermuda company headquartered in Hong Kong
(NASDAQ: RADA). Radica is a leading developer, manufacturer and distributor of a
diverse line of electronic products including handheld and tabletop games,
girls' lifestyle products, high-tech toys and video game accessories. 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.
ABOUT SONY PICTURES CONSUMER PRODUCTS
Sony Pictures Consumer Products (SPCP), based in Los Angeles, handles the
merchandising and branding efforts for some of the most recognized properties in
film and television. This includes theatrical properties such as Men in Black
II(TM) and Stuart Little 2(TM), and Spider-Man(TM) through a limited partnership
with Marvel Enterprises, Inc. as well as television properties, like "Jackie
Chan Adventures(TM)" "Harold and the Purple Crayon(TM)," "Max Steel(TM)," and
"Phantom Investigators(TM)." SPCP is a division of Sony Pictures Entertainment
(SPE), whose global operations encompass motion picture production and
distribution, television production and distribution, worldwide channel
investments, home entertainment acquisition and distribution, operation of
studio facilities, development of new entertainment products, services and
technologies, and distribution of filmed entertainment in 67 countries.
-- END --
RADICA GAMES LIMITED
2001 ANNUAL REPORT
CONTENTS
LETTER TO SHAREHOLDERS ....................................................2
MANAGEMENT'S DISCUSSION OF RESULTS ........................................6
FINANCIAL INFORMATION ....................................................12
DIRECTORS AND OFFICERS ...................................................36
CORPORATE INFORMATION ....................................................37
ABOUT RADICA:(R)
Radica Games Limited (NASDAQ - RADA) is a Bermuda company headquartered in Hong
Kong. The Company is a leading developer, manufacturer and distributor of a
diverse line of electronic products including handheld and tabletop games,
high-tech toys and video game accessories. Radica has subsidiaries in the USA,
Canada and the UK, and a factory in Dongguan, Southern China. More information
about Radica can be found on the Internet at "www.radicagames.com".
FINANCIAL HIGHLIGHTS
OPERATING RESULTS Year ended December 31,
-----------------------------------
(US dollars in thousands,
except per share data) 2001 2000 1999
---------------------- ---- ---- ----
Net sales ................................ $ 98,554 $ 106,696 $ 136,716
Net (loss) income ........................ $ (4,374) $ (18,099) $ 17,055
Diluted net (loss) earnings per share .... $ (0.25) $ (1.03) $ 0.90
Weighted average number of shares
and dilutive potential common
stock outstanding ...................... 17,612 17,608 18,979
FINANCIAL POSITION At December 31,
----------------
(US dollars in thousands) 2001 2000 1999
------------------------- ---- ---- ----
Working capital $ 36,709 $ 42,619 $ 65,123
Total assets $ 91,829 $ 99,315 $122,174
Total liabilities $ 28,777 $ 31,927 $ 36,112
Shareholders' equity $ 63,052 $ 67,388 $ 86,062
1
TO OUR SHAREHOLDERS
2001 represented an important step forward in the transformation of Radica that
we started in 1999. As you know, during the last three years we have been
pursuing a mission to turn what was essentially a volatile, single category
business into a dynamic, diversified, electronic entertainment company. Last
year, in addition to our continuing progress in expanding the diversity of our
business strategy, we also meaningfully addressed our cost structure. The moves
we made to restructure our organization should dramatically improve our
operational effectiveness and ultimately help us deliver superior returns to our
shareholders. Now, we'd like to review the progress we have made in each of
these areas as well as our potential for the future.
Strategic Vision
Our strategy is built around the idea of leveraging our unique strengths to
create a diverse portfolio of high growth and high return business segments.
Radica's unique competency that sets us apart from our competition is our
ability to create innovative forms of electronic entertainment. We believe we
are the masters of bringing new applications of low cost technologies to the
creation of new or enhanced forms of electronic entertainment.
Due to the volatility of our industry, it is impossible to create consistent
long-term growth by participating in only one business segment. We learned this
the hard way through experiencing the ups and downs of the electronic handheld
game business. As a result, during the last three years, we have diversified our
business into the three dynamic segments of the electronic entertainment
industry that best utilize our strengths:
o Electronic Games
o Video Game Accessories
o Girls' Electronics
Our strategy is to continue to expand our market share in each of these segments
through industry leading applications of technology, product quality and
marketing programs. We are doing this within the context of a continuing
commitment to cost reduction and margin enhancement. The ultimate goal is
impressive and consistent growth of our business, our profits and most
importantly, shareholder value.
2001 Financial Results
In 2001 we took another important step in the turnaround and restructuring of
Radica. We recorded a net loss of $4.4 million compared to the prior year's loss
of $18.1 million. This loss included a charge of $1.6 million for restructuring
costs that we expect will decrease our annual fixed costs by at least $4.0
million in future years. Our EBITDA returned back into positive territory at
$56,000 and excluding the restructuring charge taken in the fourth quarter would
have been $1.6 million. This, coupled with solid cash management, allowed our
cash to increase by $2.7 million to $25.8 million at the end of the year.
Long-term debt declined by $3.6 million to $1.8 million and total borrowings
declined by $6.6 million to $6.3 million.
While the loss was disappointing, it was gratifying to achieve a net increase in
cash in light of the very difficult market conditions that existed in the
industry in 2001 and the much larger losses incurred in 2000. As you may
remember, in 2000 Radica's primary market, electronic handheld games, underwent
a major decline that resulted in the dumping of significant excess inventories
throughout the industry. When the smoke cleared, electronic handheld games was a
significantly smaller industry. This required Radica to not only address its
cost structure but to accelerate its investment in diversification. These costs,
when coupled with the difficult market conditions of 2001, created a
particularly challenging year for the company.
2
Within this environment the effects of the events of September 11 on retail
buying plus the bankruptcies of Kmart and Ames made matters even more difficult.
However, late in the fourth quarter the consumer returned to the stores and the
reduced retail inventories sold out quickly, leaving the shelves bare going into
2002. Radica's sales in the fourth quarter increased by 12% as a result, setting
the stage for what we believe will be a positive business environment going
forward into 2002.
Cost Reduction Program
During the past year, Radica has continued to work aggressively to cut costs.
During 2001 we were successful in significantly increasing gross margins by
cutting product costs through design improvements and better material buying. We
also focused on improving our inventory management to decrease obsolescence
costs and quality management to decrease warranty costs and customer returns. On
top of that we decided to reorganize our product development and manufacturing
groups to increase efficiency and lower fixed costs. Many of the positions
previously performed in Hong Kong were localized to our Chinese factory where
the labor costs are considerably lower and duplication of effort is eliminated.
We also organized several cost reduction task forces that addressed, among other
things, SG&A expenses, packaging costs and product costs. As a result of these
efforts we expect to see our fixed costs structure decrease by at least $4
million in 2002 and beyond. In addition, we expect a continued positive trend in
our gross margins from this ongoing year-round activity. This coupled with
improved volume prospects coming into 2002 should lead to continued improvements
in our financial results.
Strategic Diversification Progress
In 2001 we made significant progress in our efforts to diversify Radica's
product line and market segments. As a result Radica's electronic handheld game
accounted for only 38.5% of our business in 2001 when as recently as three years
ago it was 100% of our business. In spite of the difficult market conditions in
2001 sales in the rest of our businesses increased by 6% for the year and by a
robust 38% in the fourth quarter.
This occurred in spite of a flat year in the video game controller business due
to the staggered launches of Microsoft's Xbox(TM) and Nintendo's GameCube(TM) in
the European market, both of which are now planned for the spring of 2002.
However, we were able to establish the Gamester(TM) brand in the US market as a
result of our launch during the second half of 2001. Our product line now covers
each major platform including Sony's PlayStation(R) 2, Nintendo's Game Boy
Advance(TM) and GameCube as well as our licensed Microsoft Xbox controllers and
accessories. With the new platforms now in full swing in the US and arriving in
Europe in 2002, we expect Gamester to surge in 2002 and could become over a
quarter of our business in the coming year.
We also expect to expand our girls' electronics business in 2002 as a result of
our recently announced license of the Barbie(TM) brand from Mattel for girls'
lifestyle electronic products and electronic games. This new license plus some
exciting new product concepts for the Girl Tech(R) line, including the Eye-Lock
Room Guard(TM) and our Jammin' Jewels(TM) that flash in time to music, will help
us continue to lead as the innovator of electronic products for the girls'
market.
While the electronic handheld game market decreased again in 2001, Radica's
handhelds built their market share in 2001 ending the year at a 19.5% share, up
from 17.7% in 2000. We still have a strong and profitable business in this
category and expect to see it begin to stabilize in 2002. While adult staples
like solitaire, hunting, fishing and casino games continue to dominate sales, we
were excited to see that boys returned to the category in 2002 looking for our
exciting new barcode scanning Skannerz(TM) product line that was a sell-out at
Christmas.
3
Play TV(TM) was our largest growth area for 2001, showing a 67% increase versus
2000. This unique product line features the XaviX(R) technology from our
licensing partner, Shinsedai Company Limited ("SSD") in Japan, and is the only
product line that marries the physical interaction of real play with the video
and audio output of a TV set. Our baseball, hunting and snowboarding games led
the way in 2001 and were among the top sellers in the entire electronic game
category. For 2002, we expect to continue to grow this business with such new
products as our boxing, construction, soccer and a revised baseball game. We are
also leveraging this technology into the girls' electronics category with the
new Barbie Dance Party(TM) game that allows girls to dance with Barbie on TV.
XaviX and SSD also contributed importantly to our ODM/OEM business in 2001 by
providing us with several manufacturing and engineering projects for both the
Japanese and US markets including Hasbro/Takara's eKara(TM) for the US market
plus ping pong and snowboarding for the Japanese market. We were also pleased to
continue our ODM/OEM relationship with Hasbro for several handheld games in
2001.
In 2002 we are also introducing a new type of electronic entertainment product
for Radica. Pino(TM) is a humanoid robot that develops a unique personality
based upon your interaction with it. He has hundreds of capabilities including
playing games, singing songs, and responding to your voice or to other Pinos. He
seems almost like a real person. Pino was brought to market in Japan last year
by Tsukuda and Radica has licensed distribution rights for North America, the UK
and several other countries.
So, you can see that our diversification strategy is really starting to take
hold and will provide the engine for our growth in the future. In 2002 we fully
expect that no one category of business will account for more than one third of
our total sales. Additionally, we have become geographically diverse as well
with our efforts in Europe and Asia. In 2001 only 68% of our sales came from our
North American subsidiaries. That would be one of the better ratios in the
industry for geographical diversity. Such diversity, both by product category
and by global region, will not only provide numerous opportunities to grow our
business, but will provide more stability and consistency in the future.
2002 Outlook
The combination of the improved market outlook, our diversification progress and
our cost reduction program add up to a significant improvement in our business
prospects for 2002 and beyond. However, we expect that 2002 is likely to provide
some real challenges as well. This is a highly volatile industry and consumer
demand is always in flux. As those changes in consumer demand occur, we will
need to continue to improve our ability to anticipate and react both in risk
avoidance and new product development.
The biggest challenge, however, will probably be continued turmoil in the retail
environment. With 4 bankruptcies among our top 10 accounts over the last 18
months, we are dealing with a highly fluid situation in our customer base. Even
if the economy or toy and game market is significantly better in 2002 at the
consumer level, we cannot be sure that the retail environment will provide the
customer base needed to achieve the growth that may be possible. In spite of
these challenges, we are looking forward to the many opportunities we see in
2002 and beyond to improve our operations and financial results.
The Future
Our strategic goal continues to be to become a major, diversified electronic
entertainment company that delivers superior returns to its shareholders. With
the progress we have made in 2001 in diversification and cost reduction, we
believe we are another significant step closer to that objective. At the end of
the day, our success will be driven by our creativity and our ability to
leverage our strength in this regard into building our market share in our three
strategic business segments. We think we have focused our creativity more
effectively for the future during the last two years and have created the
business model that will lead to the superior profitability and growth levels we
seek.
4
In closing, we would like to thank our shareholders and employees for their
steadfast belief in our mission and our strategy to transform Radica. We are
confident that your trust will be rewarded.
Sincerely,
/s/ Patrick S. Feely /s/ Jon N. Bengtson
Patrick S. Feely Jon N. Bengtson
President and Chief Executive Officer Chairman of the Board
March 25, 2002 March 25, 2002
5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
In December of 1998, Radica Games' Board of Directors approved a change
in the Company's fiscal year end from October 31 to December 31. This resulted
in a transition period from November 1, 1998 to December 31, 1998, which has
been audited. However, for clarity of presentation and comparability, the
discussion of results of operations compares the fiscal year ended December 31,
2001 to the fiscal year ended December 31, 2000, followed by a comparison of the
fiscal year ended December 31, 2000 to the fiscal year ended December 31, 1999
and a comparison of the fiscal year ended December 31, 1999 to the unaudited
twelve months ended December 31, 1998.
FISCAL 2001 COMPARED TO FISCAL 2000
The following table sets forth items from the Company's Consolidated
Statements of Operations as a percentage of net revenues:
2001 2000
---- ----
Net revenues 100.0% 100.0%
Cost of sales 65.6% 77.8%
Gross margin 34.4% 22.2%
Selling, general and administrative expenses 26.9% 30.2%
Research and development 5.8% 4.9%
Depreciation and amortization 4.1% 5.1%
Restructuring charge 1.6% 1.1%
Operating loss (4.0%) (19.1%)
Other income 0.0% 0.7%
Interest income, net 0.1% 0.6%
Loss before income taxes (3.9%) (17.8%)
(Provision) credit for income taxes (0.5%) 0.8%
Net loss (4.4%) (17.0%)
The Company experienced an after tax loss of $4.4 million for fiscal
year 2001 or $0.25 per diluted share versus a loss of $18.1 million or $1.03 per
diluted share for fiscal year 2000.
Net sales for 2001 were $98.6 million, compared to $106.7 million in
2000. The decline in net sales during 2001 resulted from worldwide economic
recession; the September 11 terrorist attacks in New York eroded US consumer
confidence and as a result, caution was exercised by retailers. Several top US
retailers cancelled holiday reorders in the wake of the September 11 terrorist
attacks.
Summary of sales achieved from each category of products:
6
2001 2000
---------------------------- ----------------------------
% OF NET NET % OF NET NET
Product Lines Sales Value Sales Value Sales Value Sales Value
--------------------------------- ------------- ------------- --------------
(US$ in thousands)
Handheld 38.5% $ 38,001 46.2% $ 49,307
Play TV 14.5% 14,315 8.0% 8,561
Girl Tech 11.9% 11,723 13.0% 13,897
ODM/OEM 19.2% 18,890 18.1% 19,271
VGA 10.5% 10,337 9.5% 10,116
Sourcing 5.4% 5,288 5.2% 5,544
----- -------- ----- --------
Total 100.0% $ 98,554 100.0% $106,696
===== ======== ===== ========
Gross margin for the year was 34.4% compared to 22.2% in fiscal year
2000 as a result of a combination of improvements to inventory control allowing
for less closeout product and continued cost reduction on products.
Operating expenses for 2001, excluding $1.6 million of restructuring
costs, were $36.3 million compared to operating expenses of $42.9 million,
excluding $1.2 million of restructuring costs in fiscal year 2000.
The following table shows the major operating expenses, other income
and income taxes:
(US dollars in millions) 2001 2000
---- ----
Commissions $ 0.7 $ 2.3
Indirect salaries and wages 8.2 7.5
Advertising and promotion expenses 8.1 11.1
Research and development expenses 5.8 5.2
Other income -- 0.8
Provision (credit) for income taxes 0.6 (0.9)
The decrease in commissions in 2001 was the result of both the decrease
in sales from 2000 and Radica USA's decision to increase efficiency by changing
its sales force from third party sales representatives to an in-house sales
team. Because the Play TV line of products was in its second year and required
less promotion, advertising and promotional costs decreased in 2001 from 2000.
CAPITAL RESOURCES AND LIQUIDITY
At December 31, 2001 the Company had $25.8 million of cash and net
assets of $63.1 million. Inventories increased to $17.2 million from $14.0
million at December 31, 2000 primarily as a result of in-transit inventory to
the United States of video game accessory product and Skannerz for Q1 2002.
Receivables decreased to $17.3 million from the December 31, 2000 level of $25.9
million as a result of lower fourth quarter sales and better management of
existing receivables. Current liabilities were $27.0 million at December 31,
2001 compared to $26.5 million at December 31, 2000. The increase was primarily
the result of increased 4th quarter materials costs related to the increased
inventories. Working capital at December 31, 2001 was $36.7 million, a $5.9
million decrease from December 31, 2000. The drop in working capital was
primarily related to the drop in receivables from December 31, 2000 to December
31, 2001. Net cash provided by operating activities was $10.3 million in 2001,
compared to net cash used in operating activities of $4.7 million during 2000.
This was the result of a decrease in operating losses for the year. Net cash
used in investing activities for the years ended December 31, 2001 and December
31, 2000 was $1.0 million and $4.3 million respectively. The difference is the
result of the factory expansion costs incurred in 2000. Cash used in financing
activities was $6.4 million in 2001 compared with
7
$0 in 2000. This change was primarily due to repayment of short-term and
long-term debt during 2001. As of December 31, 2001, the Company had more than
$6.6 million of various lines of credit available for use. The Company believes
that its existing cash and cash equivalents and cash generated from operations
are sufficient to satisfy the current anticipated working capital needs of its
core business.
FISCAL 2000 COMPARED TO FISCAL 1999
The Company experienced an after tax loss of $18.1 million for fiscal
year 2000 or $1.03 per diluted share versus an after tax profit of $17.1 million
or $0.90 per diluted share for fiscal year 1999.
Net sales for 2000 were $106.7 million, compared to $136.7 million for
1999. The sales decline during 2000 resulted primarily from severely adverse
market conditions in the electronic handheld game category which were only
partially offset by the growth of the Company's Girl Tech product line and the
introduction of Radica's new Play TV(TM) line of games.
Net sales for the year ended December 31, 2000 were $106.7 million,
decreasing 21.9% from $136.7 million for the prior year. Approximately 46.2% of
sales related to handheld games, 8.0% to Play TV, 13.0% to Girl Tech games, 9.5%
to VGA, 5.2% to Sourcing and 18.1% to ODM/OEM sales during the year ended
December 31, 2000 in comparison to 64.2%, 0%, 5.4%, 7.0%, 3.0% and 20.4% in the
same period in 1999.
During the year ended December 31, 2000, Radica recorded a charge of
$10.2 million related to the restructuring of its organization and provisions
against inventories, prepaid royalties, receivables and bad debts as a result of
the downturn in its handheld games business. Gross margin for the year was 22.2%
compared to 40.8% in fiscal year 1999 as a result of these charges and a mix
shift to lower margin Gamester business.
Operating expenses for the year including restructuring charges
incurred in Q2 were $44.1 million compared to $39.0 million in fiscal year 1999.
The following table shows the major operating expenses, other income
and income taxes:
(US dollars in millions) 2000 1999
---- ----
Commissions $ 2.3 $ 2.9
Indirect salaries and wages 7.5 8.2
Advertising and promotion expenses 11.1 8.9
Research and development expenses 5.2 6.0
Other income 0.8 0.7
(Credit) provision for income taxes (0.9) 0.1
The decrease in commissions in 2000 was the result of both the decrease
in sales from 1999 and Radica USA's decision to increase efficiency by changing
its sales force from third party sales representative to an in-house sales team.
The decrease in indirect salaries and wages in 2000 was the result of the
Company's reorganization in the second quarter. Advertising and promotional
costs increased in 2000 due to the introduction of the Play TV line in the US.
FISCAL 1999 COMPARED TO TWELVE MONTHS ENDED DECEMBER 31, 1998
On June 24, 1999 the Company acquired all of the business and operating
assets of Leda Media Products Limited, now called Radica UK Limited ("Radica
UK") for total transaction costs of $14.6 million including acquisition-related
costs. The transaction has been accounted for using the purchase method. The
Company's consolidated results of operations include the results of Radica UK
from the date of acquisition (see Note 5 of the Notes to the Consolidated
Financial Statements).
8
Net sales for the year ended December 31, 1999 were $136.7 million,
decreasing 14.2% from $159.4 million for calendar 1998. Approximately 64.2% of
sales related to Handheld games, 5.4% to Girl Tech games, 7.0% to VGA, 3.0% to
Sourcing and 20.4% to ODM/OEM sales during the year ended December 31, 1999 in
comparison to 77.1%, 0.1%, 0%, 0% and 22.8% in the same period in 1998.
The gross profit for fiscal year 1999 was $55.8 million compared to
$85.9 million for calendar 1998, a decrease of 35.0%. The gross margin for the
year was 40.8% compared to 53.9% for calendar 1998. The decrease in gross margin
was due to the effect of the sales of lower margin VGA through Radica UK, the
effect of increased licenses, reduced ODM/OEM margins, together with the effect
of certain amounts of air freight due to shortages of raw materials due to the
Taiwan earthquake in 1999.
Operating profit for fiscal year 1999 was $16.8 million, a decrease of
65.1% from $48.1 million in calendar 1998. Operating expenses increased to $39.0
million from $37.8 million in 1998. The increase was the result of increased
research and development costs, together with increased depreciation and
amortization due to the acquisition of Radica UK.
The following table shows the major operating expenses, other income
and income taxes:
(US dollars in millions) 1999 1998
---- ----
Commissions $ 2.9 $ 5.0
Indirect salaries and wages 8.2 6.9
Advertising and promotion expenses 8.9 9.0
Research and development expenses 6.0 5.6
Other income 0.7 1.1
Provision (credit) for income taxes 0.1 (0.2)
The decrease in commissions in 1999 was the result of the decrease in
sales from 1998 combined with Radica USA's decision to move the sales function
to several of its retail customers in-house. Indirect wages and salaries
increased in 1999 as a result of the acquisition of Radica UK and management's
decision to increase research and development and add several key management
positions in the United States.
The effective blended tax rate for the year ended December 31, 1999 was
a provision of 0.9% on continuing operations compared to a credit of 0.3% in
calendar 1998. The tax provision for the year was comprised of an expense of
$0.2 million representing 0.9% of pre-tax income. This compared to a credit of
$0.6 million in 1998, or 1.2% of pre-tax income. The increase in the tax
provision for the year was as a result of taxable income in the US and the
one-time deferred tax credit of $4.6 million in 1998.
During 1999, the Company wrote down a $1.0 million loan to its
affiliate Sharegate due to actual losses in 1999 and anticipated ongoing losses
in 2000. As the investment in Sharegate was at zero on the balance sheet at the
end of 1999, there was no further charges after 1999.
Net profit for fiscal year 1999 was $17.1 million or $0.90 per share
compared to $51.0 million or $2.41 per share in calendar 1998.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company prepares its consolidated financial statements in
accordance with accounting principles generally accepted in the United States of
America. Management is required to make certain estimates and assumptions that
affect the reported amounts of assets and liabilities and the reported amounts
of revenue and
9
expenses. Below is a listing of accounting policies that the Company considers
critical in preparing its consolidated financial statements. These policies
include estimates made by management using the information available to them at
the time the estimates are made, but these estimates could change considerably
if different information or assumptions were used.
BAD DEBT ALLOWANCE
The bad debt allowance is an adjustment to customer trade receivables
for amounts that are determined to be uncollectible or partially uncollectible.
The bad debt allowance offsets gross trade receivables and is management's best
assessment of the business environment, customers' financial condition,
historical trends and customer disputes. Changes in the retail environment or
the economy could adversely impact the trade receivables valuation.
ALLOWANCE FOR SALES RETURNS
A sales return allowance is recorded for estimated sales returns from
customers. The allowance is based on historical trends and management's best
assessment of sales returns as a percentage of overall sales.
WARRANTY
The Company records a warranty allowance for costs related to defective
product sold to customers. The warranty allowance is based on historical trends
and management's best assessment of what the defective return percentage will be
for a given product.
INVENTORIES
The Company states its inventory values at the lower of cost or market.
Inventory reserves are accrued for slow-moving and obsolete inventory. Radica's
management uses estimates to record these reserves. Slow-moving and obsolete
inventory may be partially or fully reserved depending on the length of time the
product has been in inventory and the forecast sales for the product over the
course of the following year. Changes in public and consumer preferences and
demand for product or changes in the buying patterns and inventory management of
customers could adversely impact the inventory valuation.
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets, identifiable intangibles and goodwill have been
reviewed for impairment based on Statement of Financial Accounting Standards
("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of. This statement requires that an impairment
loss be recognized whenever the sum of the expected future cash flows
(undiscounted and without interest charges) resulting from the use and ultimate
disposal of an asset is less than the carrying amount of the asset. Radica's
management reviews for indicators that might suggest an impairment loss exists.
Testing long-lived assets, identifiable intangibles and goodwill for
recoverability requires estimates of expected cash flows to be generated from
the use of the assets. Various uncertainties, including changes in consumer
preferences, deterioration in the political situation in a country or adverse
changes in the general economic conditions in the US and internationally, could
adversely impact the expected cash flows to be generated by an asset or group of
assets. See discussion under "New Accounting Pronouncements" regarding SFAS No.
144, which supercedes SFAS No. 121 effective the first quarter of 2002.
ESTIMATION OF USEFUL LIVES FOR DEPRECIATION PURPOSES
The Company generally estimates the useful life of fixed assets using
the depreciable property classes defined by the United States Tax Code which the
Company views as approximately an economic useful life. In the
10
event that the life of an asset can be more clearly defined as the result of
other factors, such as the land lease expiration date on which an asset is
permanently attached, then the useful life of the asset will be based on such
factors.
DEFERRED TAX ASSETS
The Company records valuation allowances against its deferred tax
assets. In determining the allowance, management considers all available
evidence for certain tax credit, net operating loss and capital loss
carryforwards that would likely expire prior to their utilization. The evidence
used in assessing the need for valuation allowances includes the use of business
planning, projections of future taxable income and corporate-wide tax planning.
Differences in actual results from projections used in determining the valuation
allowances could result in future adjustments to the allowance.
11
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
ASSETS
(US dollars in thousands, except share data) 2001 2000
------- -------
Current assets:
Cash and cash equivalents
(Pledged deposits of $8,955 in 2001 and $11,139 in 2000) $25,810 $23,097
Accounts receivable, net of allowances for doubtful
accounts of $2,207 ($2,073 in 2000) 17,290 25,931
Inventories, net of provision of $3,997 ($5,788 in 2000) 17,179 13,971
Prepaid expenses and other current assets 2,283 1,574
Income taxes receivable 931 4,277
Deferred income taxes 168 223
------- -------
Total current assets 63,661 69,073
------- -------
Property, plant and equipment, net 16,310 17,975
Goodwill, net of accumulated amortization of $2,518
($1,722 in 2000) 9,551 10,347
Purchased intangible assets, net of accumulated
amortization of $5,840 ($5,254 in 2000) 420 1,006
Deferred income taxes, noncurrent 1,887 914
------- -------
Total assets $91,829 $99,315
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 846 $ 3,780
Current portion of long-term debt 3,648 3,648
Accounts payable 9,201 7,077
Accrued warranty expenses 900 950
Accrued payroll and employee benefits 943 950
Other accrued liabilities 10,907 9,834
Income taxes payable 507 215
------- -------
Total current liabilities 26,952 26,454
------- -------
Long-term debt 1,825 5,473
------- -------
Total liabilities 28,777 31,927
------- -------
Shareholders' equity:
Common stock
par value $0.01 each, 100,000,000 shares authorized,
17,646,740 shares issued and outstanding
(17,564,297 in 2000) 176 176
Additional paid-in capital 1,549 1,188
Warrants to acquire common stock 445 667
Retained earnings 61,012 65,386
Accumulated other comprehensive loss (130 (29)
------- -------
Total shareholders' equity 63,052 67,388
------- -------
Total liabilities and shareholders' equity $91,829 $99,315
======= =======
/s/ Jon N. Bengtson /s/ David C.W. Howell
----------------------------- ---------------------------------
DIRECTOR DIRECTOR
See accompanying notes to the consolidated financial statements.
12
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(US dollars in thousands, 2001 2000 1999
except share and per share data) ------------ ------------ --------------
Revenues:
Net sales $ 98,554 $ 106,696 $ 136,716
Cost of goods sold (exclusive of items
shown separately below) (64,698) (83,041) (80,910)
------------ ------------ --------------
Gross profit 33,856 23,655 55,806
------------ ------------ --------------
Operating expenses:
Selling, general and administrative expenses (26,498) (32,273) (28,049)
Research and development (5,775) (5,210) (6,036)
Depreciation (2,631) (2,601) (2,389)
Amortization of goodwill and intangible assets (1,382) (2,826) (2,567)
Restructuring charge (1,551) (1,190) --
------------ ------------ --------------
Total operating expenses (37,837) (44,100) (39,041)
------------ ------------ --------------
Operating (loss) income (3,981) (20,445) 16,765
Other income 24 781 718
Share of loss of affiliated company -- -- (1,748)
Net interest income 136 664 1,469
------------ ------------ --------------
(Loss) income before income taxes (3,821) (19,000) 17,204
(Provision) credit for income taxes (553) 901 (149)
------------ ------------ --------------
Net (loss) income $ (4,374) $ (18,099) $ 17,055
============ ============ ==============
Net (loss) income per share:
Basic $ (0.25) $ (1.03) $ 0.94
============ ============ ==============
Diluted $ (0.25) $ (1.03) $ 0.90
============ ============ ==============
Weighted average number of common and
common equivalent shares
Basic 17,611,886 17,608,167 18,144,179
============ ============ ==============
Diluted 17,611,886 17,608,167 18,979,349
============ ============ ==============
See accompanying notes to the consolidated financial statements.
13
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(US dollars in thousands) Common Stock Warrants Accumulated
------------ Additional to acquire other Total
Number paid-in common Retained comprehensive shareholder's
of shares Amount capital stock earnings income (loss) equity
---------- ------ ---------- -------- -------- ------------- -------------
Balance at December 31, 1998 18,896,694 $ 189 $ 9,382 $-- $ 76,215 $ (51) $ 85,735
Cancellation of repurchased stock (1,538,500) (16) (8,821) -- (9,170) -- (18,007)
Stock options exercised 281,400 3 529 -- -- -- 532
Issue of stock warrants -- -- -- 667 -- -- 667
Net income -- -- -- -- 17,055 -- 17,055
Foreign currency translation -- -- -- -- -- 80 80
---------- ----- ------- - -------- ----- --------
Balance at December 31, 1999 17,639,594 $ 176 $ 1,090 $ 667 $ 84,100 $ 29 $ 86,062
Issuance of stock 9,158 -- 23 -- -- -- 23
Cancellation of repurchased stock (156,055) (1) (25) -- (615) -- (641)
Stock options exercised 71,600 1 100 -- -- -- 101
Net loss -- -- -- -- (18,099) -- (18,099)
Foreign currency translation -- -- -- -- -- (58) (58)
---------- ----- ------- - -------- ----- --------
Balance at December 31, 2000 17,564,297 $ 176 $ 1,188 $ 667 $ 65,386 $ (29) $ 67,388
Issuance of stock 6,847 -- 22 -- -- -- 22
Stock options exercised 75,596 -- 117 -- -- -- 117
Expiration of stock warrants -- -- 222 (222) -- -- --
Net loss -- -- -- -- (4,374) -- (4,374)
Foreign currency translation -- -- -- -- -- (101) (101)
---------- ----- ------- - -------- ----- --------
Balance at December 31, 2001 17,646,740 $ 176 $ 1,549 $ 445 $ 61,012 $(130) $ 63,052
========== ===== ======= ===== ======== ===== ========
The comprehensive (loss) income of the Company, which represents the aggregate
of the net (loss) income and the foreign currency translation adjustments, was
$(4,475), $(18,157) and $17,135 for the years ended December 31, 2001, 2000 and
1999, respectively.
See accompanying notes to the consolidated financial statements.
14
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(US dollars in thousands) 2001 2000 1999
-------- -------- --------
Cash flow from operating activities:
Net (loss) income $ (4,374) $(18,099) $ 17,055
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Deferred income taxes (918) 2,541 82
Depreciation 2,631 2,601 2,389
Amortization 1,382 2,826 2,567
Share of loss of affiliated company -- -- 1,748
Loss on disposal and write off of property,
plant and equipment 73 10 62
Changes in current assets and liabilities:
Decrease (increase) in accounts receivable 8,641 (2,181) (7,601)
(Increase) decrease in inventories (3,208) 10,654 (2,986)
(Increase) decrease in prepaid expenses and
other current assets (709) 3,178 (3,572)
Increase (decrease) in accounts payable 2,124 (3,852) 3,365
(Decrease) increase in accrued payroll and
employee benefits (7) (1,561) (177)
(Decrease) increase in accrued warranty expenses (50) (150) (1,400)
Increase (decrease) in other accrued liabilities 1,073 2,220 (753)
Decrease (increase) income taxes 3,638 (2,875) (2,286)
-------- -------- --------
Net cash provided by (used in) operating activities 10,296 (4,688) 8,493
-------- -------- --------
Cash flow from investing activities:
Proceeds from sale of property, plant and
equipment 64 75 47
Purchase of property, plant and equipment (1,103) (3,138) (3,306)
Purchase of Radica UK, net of cash acquired -- -- (2,511)
Purchase of intangible assets -- (1,260) --
Investment in affiliated company -- -- (1,045)
-------- -------- --------
Net cash used in investing activities (1,039) (4,323) (6,815)
-------- -------- --------
Cash flow from financing activities:
Funds from issuance of stock $ 22 23 --
Funds from stock options exercised 117 101 532
(Decrease) increase in short-term borrowings (2,934) 2,316 349
Proceeds from bank loan -- 10,945 --
Repayment of long-term debt (3,648) (12,737) --
Repurchase of common stock -- (641) (18,007)
-------- -------- --------
Net cash (used in) provided by financing activities (6,443) 7 (17,126)
-------- -------- --------
Effect of currency exchange rate change (101) (58) 80
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 2,713 (9,062) (15,368)
Cash and cash equivalents:
Beginning of year 23,097 32,159 47,527
-------- -------- --------
End of year $ 25,810 $ 23,097 $ 32,159
======== ======== ========
Supplementary disclosures of cash flow information:
Interest paid $ 594 $ 797 $ 331
Income taxes paid 433 109 1,983
Non-cash investing and financing activities:
Loan notes forfeited $ -- $ 1,399 $ --
Inventory exchanged for advertising and
development of Internet arcade game -- 177 --
Loan notes for purchase of Radica UK -- -- 12,345
Grant of warrants -- -- 667
See accompanying notes to the consolidated financial statements.
15
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US dollars in thousands, except share and per share data)
1. ORGANIZATION AND BASIS OF FINANCIAL STATEMENTS
The Company designs, develops, manufactures and markets a diverse line of
electronic entertainment devices including handheld and tabletop games,
high-tech toys and video game accessories. The Company is headquartered in
Hong Kong, has subsidiaries in the USA, Canada and the UK, and a factory in
Dongguan, Southern China.
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany transactions and
balances have been eliminated. 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
(a) Cash and cash equivalents - Cash and cash equivalents include cash on
hand, cash in bank accounts, interest-bearing savings accounts, and
time certificates of deposit with a maturity at purchase date of three
months or less.
(b) 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.
(c) Depreciation and amortization of property, plant and equipment -
Property, plant and equipment are stated at cost. 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
installments. Costs of leasehold improvements and leased assets are
amortized over the useful life of the related asset or the term of the
lease, whichever is shorter. The Company expenses all mold costs in
the year of purchase or, for internally produced molds, in the year of
construction.
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.
The Company accounts for long-lived assets in accordance with the
provisions of SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of.
Long-lived assets and certain identifiable intangibles are reviewed
for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered
to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair
value of the assets. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell.
(d) Goodwill - Goodwill represents the excess of the purchase price of
acquisition of a business over the fair value of the net assets
acquired. Goodwill is amortized on a straight-line basis over the
estimated benefit period, but not to exceed 20 years. The Company
assesses the recoverability of this intangible asset by determining
whether the amortization of the goodwill balance over its remaining
life can be recovered through undiscounted future operating cash flows
of the acquired operation. The amount of goodwill
16
impairment, if any, is measured based on projected discounted future
operating cash flows using a discount rate reflecting the Company's
average cost of funds. The assessment of the recoverability of
goodwill will be impacted if estimated future operating cash flows are
not achieved.
(e) Revenue recognition - Revenues are generally recognized as sales when
merchandise is shipped, which is in accordance with the terms of the
sale which are FOB shipping point. This represents the point at which
the customer takes ownership and assumes risk of loss. The Company
does have consignment agreements with certain European distributors
and records these shipments as sales upon confirmation of sell-through
by the distributor. The Company permits the return of damaged or
defective products. 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
and issues, such as warranty allowances that are accrued based on
historical data about product reliability.
(f) Investments - The Company has no trading securities. 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 adjusted for accretion of premiums or discounts. All other debt
securities are classified as available-for-sale and recorded at fair
value. The Company determines the appropriate classification of
securities at the time of purchase and evaluates such classification
as of each balance sheet date. Any material unrealized gains and
losses related to available-for-sale investments, net of applicable
taxes, are excluded from earnings and are included in other
comprehensive income. Dividend and interest income are recognized when
earned.
(g) Income taxes - Income taxes are accounted for under the asset and
liability method for financial accounting and reporting of income
taxes. Deferred income tax liabilities and assets are recorded to
reflect the tax consequences in future years of differences between
the taxable basis of assets and liabilities and the financial
statement carrying amounts at each period end using enacted tax rates
expected to apply in the year temporary differences are expected to
reverse. A valuation allowance is recognized for any portion of the
deferred tax asset for which realization is not deemed to be more
likely than not. The effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period that
includes the enactment date.
(h) Advertising - The production costs of advertising are expensed as
incurred. The cost of communicating advertising is expensed by the
Company the first time that the advertising takes place. In addition,
the Company offers discounts to customers who advertise Radica
products. These Co-op advertising costs associated with customer
benefit programs are accrued as the related revenues are recognized.
Advertising expense was approximately $6,600, $11,100, $8,900 for the
years ended December 31, 2001, 2000 and 1999, respectively.
(i) Research and development - Research and development costs are expensed
as incurred. Research and development costs amounted to $5,775, $5,210
and $6,036 in 2001, 2000 and 1999 respectively.
(j) Foreign currency translation - Foreign currency assets and liabilities
are translated into US dollars using the exchange rate on the balance
sheet date. Revenues and expenses are translated at average rates
prevailing during each reporting period. Current earnings (loss)
include gains or losses resulting from foreign currency transactions.
Other gains and losses resulting from translation of financial
statements are accumulated as a separate component of accumulated
other comprehensive income (loss) in shareholders' equity.
(k) Post-retirement and post-employment benefits - The Company does not
provide any material post-retirement or post-employment benefits. The
Company does provide a pension that includes certain
17
defined contribution arrangements with groups of employees. The
Company's contributions and any related costs are immaterial and are
expensed as incurred.
(l) 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.
(m) Stock-based compensation - The Company applies the intrinsic
value-based method of accounting prescribed by Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees; and
related interpretations in accounting for its employee stock options.
Under this method, compensation expense is recorded on the date of
grant only if the current market price of the underlying stock
exceeded the exercise price. SFAS No. 123, Accounting for Stock Based
Compensation (SFAS No. 123), established accounting and disclosure
requirements using a fair value-based method of accounting for stock
based employee compensation plans. As allowed by SFAS No. 123, the
Company has elected to continue to apply the intrinsic value-based
method of accounting described above, and has adopted the pro forma
information regarding net income (loss) and net income (loss) per
share and other disclosure requirements of SFAS No. 123.
(n) Earnings (loss) per share - Basic earnings (loss) per share is based
on the weighted average number of shares of common stock, and with
respect to diluted earnings (loss) per share, also includes the effect
of all dilutive potential common stock outstanding. Dilutive potential
common stock results from dilutive stock options and warrants. The
effect of such dilutive potential common stock on net income per share
is computed using the treasury stock method. All potentially dilutive
securities were excluded from the computation in loss making periods
as their inclusion would have been anti-dilutive.
(o) Comprehensive income (loss) - Other comprehensive income (loss) refers
to revenues, expenses, gains and losses that under accounting
principles generally accepted in the United States of America are
included in comprehensive income (loss) but are excluded from net
income (loss) as these amounts are recorded as a component of
shareholders' equity. The Company's other comprehensive income (loss)
represented foreign currency translation adjustments.
(p) Use of estimates - The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America 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 may differ from such estimates. Differences
from those estimates are recorded in the period they become known.
(q) Recently issued accounting standards - In June 2001, the FASB issued
SFAS No. 141, Business Combinations, (SFAS No. 141) and SFAS No. 142,
Goodwill and Other Intangible Assets (SFAS No. 142). SFAS No. 141
requires that the purchase method of accounting be used for all
business combinations. SFAS No. 141 specifies criteria that intangible
assets acquired in a business combination must meet to be recognized
and reported separately from goodwill. SFAS No. 142 will require that
goodwill and intangible assets with indefinite useful lives no longer
be amortized, but instead be tested for impairment at least annually
in accordance with the provisions of SFAS No. 142. SFAS No. 142 also
requires that intangible assets with estimable useful lives be
amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in accordance
with SFAS No. 121 and subsequently, SFAS No. 144 after its adoption.
The Company adopted the provisions of SFAS No. 141 as of July 1, 2001,
and SFAS No. 142 is effective January 1, 2002. Goodwill and intangible
assets determined to have an indefinite useful life acquired in a
purchase business combination completed after June 30, 2001, but
before SFAS No. 142 is adopted in full, are not amortized. Goodwill
and intangible assets acquired in business combinations completed
before
18
July 1, 2001 continued to be amortized and tested for impairment prior
to the full adoption of SFAS No. 142.
Upon adoption of SFAS No. 142, the Company is required to evaluate its
existing intangible assets and goodwill that were acquired in purchase
business combinations, and to make any necessary reclassifications in
order to conform with the new classification criteria in SFAS No. 141
for recognition separate from goodwill. The Company will be required
to reassess the useful lives and residual values of all intangible
assets acquired, and make any necessary amortization period
adjustments by the end of the first interim period after adoption. If
an intangible asset is identified as having an indefinite useful life,
the Company will be required to test the intangible asset for
impairment in accordance with the provisions of SFAS No. 142 within
the first interim period. Impairment is measured as the excess of
carrying value over the fair value of an intangible asset with an
indefinite life. Any impairment loss will be measured as of the date
of adoption and recognized as the cumulative effect of a change in
accounting principle in the first interim period.
In connection with SFAS No. 142's transitional goodwill impairment
evaluation, the Statement requires the Company to perform an
assessment of whether there is an indication that goodwill is impaired
as of the date of adoption. To accomplish this, the Company must
identify its reporting units and determine the carrying value of each
reporting unit by assigning the assets and liabilities, including the
existing goodwill and intangible assets, to those reporting units as
of January 1, 2002. The Company will then have up to six months from
January 1, 2002 to determine the fair value of each reporting unit and
compare it to the carrying amount of the reporting unit. To the extent
the carrying amount of a reporting unit exceeds the fair value of the
reporting unit, an indication exists that the reporting unit goodwill
may be impaired and the Company must perform the second step of the
transitional impairment test. The second step is required to be
completed as soon as possible, but no later than the end of the year
of adoption. In the second step, the Company must compare the implied
fair value of the reporting unit goodwill with the carrying amount of
the reporting unit goodwill, both of which would be measured as of the
date of adoption. The implied fair value of goodwill is determined by
allocating the fair value of the reporting unit to all of the assets
(recognized and unrecognized) and liabilities of the reporting unit in
a manner similar to a purchase price allocation, in accordance with
SFAS No. 141. The residual fair value after this allocation is the
implied fair value of the reporting unit goodwill. Any transitional
impairment loss will be recognized as the cumulative effect of a
change in accounting principle in the Company's statement of income.
As of the date of adoption of SFAS No. 142, the Company expects to
have unamortized goodwill in the amount of $9,551, which will be
subject to the transition provisions of SFAS No. 142. Amortization
expense related to goodwill was $796, $822 and $900 for the years
ended December 31, 2001, 2000 and 1999, respectively. Based on current
amortization amounts, the Company estimates that the impact of
adopting SFAS No. 142 will be an annual reduction of approximately
$796 of amortization.
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations (SFAS No. 143). SFAS No. 143 requires the
Company to record the fair value of an asset retirement obligation as
a liability in the period in which it incurs a legal obligation
associated with the retirement of tangible long-lived assets that
result from the acquisition, construction, development and/or normal
use of assets. The Company also records a corresponding asset which is
depreciated over the life of the asset. Subsequent to the initial
measurement of the asset retirement obligation, the obligation will be
adjusted at the end of each period to reflect the passage of time and
changes in the estimated future cash flows underlying the obligation.
The Company is required to adopt SFAS No. 143 on January 1, 2003. The
Company expects that the adoption of SFAS No. 143 will not have a
material impact.
In August, 2001, FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (SFAS No. 144). SFAS No.
144 addresses financial accounting and reporting for the impairment or
19
disposal of long-lived assets. This Statement requires that long-lived
assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If the carrying amount of
an asset exceeds its estimated future cash flows, an impairment charge
is recognized by the amount by which the carrying amount of the asset
exceeds the fair value of the asset. SFAS No. 144 requires companies
to separately report discontinued operations and extends that
reporting to a component of an entity that either has been disposed of
(by sale, abandonment, or in a distribution to owners) or is
classified as held for sale. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell. The
Company has adopted SFAS No. 144 on January 1, 2002. The Company does
not expect the adoption of SFAS No. 144 to have a material impact.
(r) Reclassifications - Certain reclassifications have been made to prior
year amounts to conform to the current year's presentation.
3. INVENTORIES
Inventories by major categories are summarized as follows:
2001 2000
--------- ---------
Raw materials $ 3,165 $ 2,643
Work in progress 3,176 3,138
Finished goods 10,137 8,190
Consigned finished goods 701 -
--------- ---------
$ 17,179 $ 13,971
========= =========
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
2001 2000
-------- --------
Land and buildings $ 13,374 $ 12,296
Plant and machinery 7,274 6,853
Furniture and equipment 7,560 7,328
Leasehold improvements 2,803 2,727
Construction in progress - 1,079
-------- --------
Total $ 31,011 $ 30,283
Less: Accumulated depreciation and
amortization (14,701) (12,308)
-------- --------
Total $ 16,310 $ 17,975
======== ========
5. GOODWILL AND INTANGIBLE ASSETS
Goodwill related to the excess of purchase price over the estimated fair
value of net assets acquired in respect of the 1999 acquisition of Leda
Media Products Limited, now called Radica U.K. Limited ("Radica UK"). On
June 24, 1999, the Company purchased Radica UK for approximately $15,970.
During the quarter ended June 30, 2000, upon claiming certain breaches of
warranty at Radica UK, the Company and the ex-shareholders of Radica UK
mutually agreed to cancel certain loan notes such that the purchase price
was reduced by $1,399.
20
The Company recorded goodwill of approximately $12,100 resulting in the
adjusted aggregate purchase price. The goodwill is being amortized on a
straight-line basis over a fifteen year fiscal period.
In 2000, the Company entered into a licensing agreement with Shinsedai Co.,
Ltd. ("SSD") for the rights to use their patented XaviX(R) technology. As
part of its agreement with SSD, the Company became an exclusive
sublicensing agent for the XaviX 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 period.
Amortization of goodwill and other intangible assets totaled $1,382, $2,826
and $2,567 for the years ended December 31, 2001, 2000 and 1999,
respectively.
6. SHORT-TERM BORROWINGS
As of December 31, 2001, the Company had line-of-credit agreements with
various banks that provided for borrowings of up to approximately $6,600,
including amounts available for uncommitted credit facilities, the issuance
of letters of credit and foreign currency exchange activity. Substantially
all of the short-term borrowings outstanding as of December 31, 2001 and as
of December 31, 2000 represent borrowings made under these lines of credit.
The weighted average interest rate of the outstanding borrowing was
approximately 5.9, 6.0 and 6.0 percent for the year ended December 31,
2001, 2000 and 1999, respectively.
7. OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following:
2001 2000
------- ------
Accrued advertising expenses $ 1,105 $1,384
Accrued license and royalties 2,346 2,397
Accrued sales expenses 3,422 2,833
Commissions payable 149 497
Other accrued liabilities 3,885 2,723
------- ------
Total $10,907 $9,834
======= ======
8. INCOME TAXES
The components of (loss) income before income taxes are as follows:
2001 2000 1999
-------- --------- --------
United States $ (5,523) $ (20,240) $ (1,349)
International 1,702 1,240 18,553
-------- --------- --------
$ (3,821) $ (19,000) $ 17,204
======== ========= ========
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 2001 effective tax rate was 12%.
21
The (credit) provisions for income taxes consist of the following:
2001 2000 1999
------- ------- -----
Current:
US federal and state $ 527 $(3,236) $ 145
International 566 (206) (78)
------- ------- -----
Total current income tax provision (credit) $ 1,093 $(3,442) $ 67
------- ------- -----
Deferred:
US federal $ 117 $ 3,375 $ 39
International (657) (834) 43
------- ------- -----
Total deferred income tax (credit) provision $ (540) $ 2,541 $ 82
------- ------- -----
Total income taxes provision (credit) $ 553 $ (901) $ 149
======= ======= =====
A reconciliation between income tax (benefit) expense and amounts
calculated using the US statutory rate of 34 percent is as follows:
2001 2000 1999
------- ------- -------
Computed "expected" tax (benefit) expense
at the US statutory rate $(1,299) $(6,460) $ 5,849
State tax 13 9 8
International tax effect, net (647) (1,646) (6,016)
Accounting losses for which deferred
income tax cannot be recognized -- -- 212
Change in valuation allowance 2,163 7,052 226
Other, net 323 144 (130)
------- ------- -------
Income tax expense (benefit) $ 553 $ (901) $ 149
======= ======= =======
As of December 31, 2001, the Company's US subsidiary had approximately
$19,200 net operating losses carryforwards for federal income tax purposes.
The net operating losses begin to expire after the taxable year ended
December 31, 2019. In addition, as of December 31, 2001, the Company's UK
subsidiary had approximately $6,000 net operating loss carryforwards which
will carryforward indefinitely.
The tax effects of the Company's temporary differences that give rise to
significant portions of the deferred taxes assets and liabilities are as
follows:
22
2001 2000
-------- -------
Deferred tax assets
(liabilities):
Excess of tax over financial reporting depreciation $ 97 $ (79)
Net operating loss 8,325 4,852
Bad debt allowance 337 561
Advertising allowances 348 435
Inventory obsolescence accrual 345 903
Accrued sales adjustments and returns 1,329 967
Other 715 776
-------- -------
Total gross deferred tax assets 11,496 8,415
Valuation allowance (9,441) (7,278)
-------- -------
Net deferred tax assets $ 2,055 $ 1,137
======== =======
The following table represents the classification of the Company's net
deferred tax assets:
2001 2000
------ ------
Current deferred tax assets $ 168 $ 223
Long-term deferred tax assets 1,887 914
------ ------
Total net deferred tax assets $2,055 $1,137
====== ======
The Company's operations involve a significant amount of transactions which
cross a number of international borders. In addition, the Company's
manufacturing operations are in China, where the negotiation and settlement
of tax obligations with the local tax authorities are a normal occurrence.
The Company establishes provisions for its known and estimated income tax
obligations. However, whether through a challenge by one of the many tax
authorities in international jurisdictions where the Company and its
subsidiaries operate of the Company's transfer pricing, the Company's claim
regarding lack of permanent establishment, or other matters that may exist
the Company is exposed to possible additional taxation that has not been
accrued.
The Company records valuation allowances against its deferred tax assets.
In determining the allowance, management considers all available evidence
for certain tax credit, net operating loss and capital loss carryforwards
that would likely expire prior to their utilization. The evidence used in
assessing the need for valuation allowances includes the use of business
planning, projections of future taxable income and corporate-wide tax
planning. Differences in actual results from projections used in
determining the valuation allowances could result in future adjustments to
the allowance.
Based on management's assessment of the need for a valuation allowance as
at the balance sheet dates, the Company views the recoverability of the net
deferred tax assets as more likely than not. Movement in the valuation
allowance during 2001 reflected the increase in deferred tax assets in
respect of tax losses carried forward.
9. LONG-TERM DEBT
On June 24, 1999, the Company entered into a $12,345 guaranteed loan
agreement with the vendors as part of financing of the Radica UK
acquisition. Interest on the loan notes was based on US$ LIBOR minus 130
basis points. In June 2000, the Company entered into a new agreement with
one of its banks. The new agreement provided for converting the guaranteed
loan into a three-year term US dollar loan, and used the proceeds to retire
and pay back the outstanding guaranteed loan notes in full. The Company has
$5,473 outstanding under
23
the new loan agreement as of December 31, 2001 (2000: $9,121), which bears
interest at the three month Singapore Interbank Offered Rate ("SIBOR") plus
2% (3.88% at December 31, 2001). The agreement requires quarterly principal
and interest payments and matures in June 2003. Additionally, the Company
has a revolving loan with the bank, which permits borrowings of up to
$2,000. This revolving loan bears interest at the three month SIBOR plus
2.5%. At December 31, 2001, no amount was outstanding on this revolving
loan.
The term loan and revolving loan are secured by certain properties and
deposits of the Company (see Note 16). The agreement contains covenants
that, among other things, require the Company to maintain a minimum
tangible net worth, gearing ratio, and other financial ratios.
Long-term debt is as follows:
2001 2000
------- -------
Term loan payable $ 5,473 $ 9,121
Less: Current portion (3,648) (3,648)
------- -------
$ 1,825 $ 5,473
======= =======
The annual principal maturities of the long-term debts are as follows:
2002 3,648
2003 1,825
------
$5,473
======
10. RESTRUCTURING CHARGE
During December 2001, the Board of Directors approved a company wide
restructuring plan which includes the consolidation of operations in Hong
Kong and the China factory, the closure of the Company's San Francisco R&D
office, the consolidation of the Company's product development operations
as well as other head count reductions in the US, UK and Hong Kong offices.
The Company recorded an accrual of $1,551 of pre-tax restructuring charge.
Of the $1,551 in restructuring charge, $811, $706 and $34 related to
restructuring activities within US, Asia Pacific and Europe, respectively.
The closure of the Company's San Francisco R&D office resulted in an
accrual of approximately $199 related to lease termination costs and
leasehold improvements and asset write-downs. The consolidation of
operations in Hong Kong and China consisted of the localization in the
China factory of a number of departments, which previously operated out of
Hong Kong. The localization and consolidation of product development and
manufacturing operations resulted in a workforce reduction of approximately
170 employees worldwide. This workforce reduction resulted in an accrual of
approximately $1,352 for severance and contractual termination costs and
benefits payments. The consolidation and closing of facilities occurred
during the first quarter of 2002, and the remaining components of the
restructuring are expected to be completed during the second quarter of
2002.
During 2000, the Company recorded a restructuring charge of $1,190 as a
result of the Company's plan to change its business strategy to address
changes in the market for handheld games and to allow the Company to adjust
the overall cost structure given current revenue levels. Specific actions
taken included reducing the Company's workforce, consolidating facilities,
and closing one office. The employee separations related to approximately
150 employees worldwide, predominantly occurring in Asia and North America.
Total restructuring costs were approximately composed of $1,100 in
connection with severance and benefits and $90 for the write-off of certain
assets associated with closing one office. Total remaining restructuring
expenses
24
accrued at December 31, 2000 was approximately $200, primarily related to
the remaining amount of termination benefit payments.
The components of restructuring charges are as follows:
Balance Balance
at beginning Amount at end
of year Charges incurred of year
-------- --------- -------- ---------
2001
Severance and other compensation $ 246 $ 1,352 $ (209) $ 1,389
Lease termination costs and
related asset writedowns - 199 - 199
-------- --------- -------- ---------
$ 246 $ 1,551 $ (209) $ 1,588
======== ========= ======== =========
2000
Severance and other compensation $ - $ 1,100 $ (854) $ 246
Lease termination costs and
related asset writedowns - 90 (90) -
-------- --------- -------- ---------
$ - $ 1,190 $ (944) $ 246
======== ========= ======== =========
11. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted net
(loss) income per share as of December 31:
2001 2000 1999
------------ ------------ -----------
Numerator for basic and
diluted (loss) earnings per share:
Net (loss) income $ (4,374) $ (18,099) $ 17,055
============ ============ ===========
Denominator:
Basic weighted average shares 17,611,886 17,608,167 18,144,179
Effect of dilutive options and warrants -- -- 835,170
------------ ------------ -----------
Diluted weighted average shares 17,611,886 17,608,167 18,979,349
============ ============ ===========
Basic net (loss) income per share: $ (0.25) $ (1.03) $ 0.94
============ ============ ===========
Diluted net (loss) income per share: $ (0.25) $ (1.03) $ 0.90
============ ============ ===========
Options and warrants on 2,440,867, 2,728,800 and 1,286,000 shares of common
stock for the years ended December 31, 2001, 2000 and 1999, respectively
were not included in computing diluted earnings per share since their
effects were antidilutive.
12. STOCK OPTIONS
The Company's 1994 Stock Option Plan for 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
25
of the Board of Directors. Following approval at the annual shareholders
meetings in April 1997 and 1998, the meeting of the Board of Directors in
June 1999 and the annual shareholders meeting in May 2000, the Stock Option
Plan's aggregated common stock increased by 400,000, 800,000, 60,000 and
840,000, respectively. At December 31, 2001, the Stock Option Plan's
aggregate common stock were 3,700,000 shares available for options. Options
to employees are generally exercisable over three to five years from the
date of grant and vest, or are exercisable, in equal installments, the
period beginning one year after the date of grant unless otherwise
provided. Options granted to employees under the stock option plan must be
exercised no later than ten years from the date of grant. The Company also
maintains plans under which it offers stock options to directors. Pursuant
to the terms of the plans under which directors are eligible to receive
options, each director is entitled to receive options to purchase common
stock upon initial election to the Board and at each subsequent quarterly
Board meeting. Options are exercisable during the period beginning one year
after the date of grant.
A summary of option activity is as follows:-
2001 2000 1999
------------------ -------------------- -------------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
(Shares in Thousands) Shares price Shares price Shares price
------ -------- ------ -------- ------ --------
Outstanding at
beginning of year 2,354 $ 5.81 2,000 $ 7.93 2,041 $ 6.58
Options granted 521 2.64 853 2.79 307 11.48
Options exercised (76) 1.56 (72) 1.41 (282) 1.89
Options cancelled (608) 10.60 (427) 10.43 (66) 8.27
----- --------- ----- --------- ----- ---------
Outstanding at end of year 2,191 $ 3.88 2,354 $ 5.81 2,000 $ 7.93
Options exercisable
at year end 1,151 $ 4.54 910 $ 7.52 492 $ 8.26
The following is additional information relating to options outstanding as
of December 31, 2001:
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
----------- --------- ---------------- ------------ --------- ----------------
(shares in thousands)
$ 1.090 to 2.000 642 $ 1.43 5.71 496 $ 1.34
$ 2.001 to 4.000 1,260 3.04 7.96 429 3.26
$ 4.001 to 6.000 22 4.36 9.00 2 5.00
$ 6.001 to 8.000 34 6.74 5.53 26 6.73
$ 8.001 to 10.000 17 8.94 7.00 9 8.67
$ 10.001 to 12.000 -- -- -- -- --
$ 12.001 to 14.000 61 12.62 7.28 60 12.72
$ 14.001 to 16.000 60 14.13 6.85 36 14.14
$ 16.001 to 18.000 60 16.82 6.70 60 16.82
$ 18.001 to 20.000 35 18.66 6.20 33 18.82
----- --------- ---- ----- ---------
2,191 $ 3.88 7.15 1,151 $ 4.54
===== ========= ==== ===== =========
26
Pro forma information regarding net income and 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. The weighted average fair value of stock options at date of
grant of $1.24, $1.57 and $4.54 per option for the years ended December 31,
2001, 2000 and 1999, respectively. The values were estimated using the
Black-Scholes option pricing model with the following weighted average
assumptions:
2001 2000 1999
------- ------- -------
Expected life of options 4 years 5 years 5 years
Risk-free interest rate 4.5% 6.0% 5.1%
Expected volatility of underlying stock 55% 58% 35%
Dividends 0% 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.
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) income per share would have been adjusted to the pro forma
amounts as follows:
2001 2000 1999
---------- ----------- ----------
Reported net (loss) income $ (4,374) $ (18,099) $ 17,055
Pro forma net (loss) income (5,167) (19,306) 15,719
Reported net (loss) income per share
Basic $ (0.25) $ (1.03) $ 0.94
Diluted (0.25) (1.03) 0.90
Pro forma net (loss) income per share
Basic $ (0.29) $ (1.10) 0.87
Diluted (0.29) (1.10) 0.83
13. WARRANTS
During 1999, in connection with Electronic Arts ("EA") worldwide licensing
agreement, the Company issued warrants to purchase 375,000 shares of the
Company's common stock at various exercise prices. Using the Black-Scholes
option pricing model, the fair value of the warrants of $667 was recorded
as intangible asset. As of December 31, 2001, the asset was fully
amortized.
The first 125,000 warrants expired on June 1, 2001, with the remaining
warrants expiring at January 1, 2002 and June 1, 2002. As of December 31,
2001, 250,000 of these warrants remained outstanding and were fully vested.
14. RETIREMENT PLAN
In Hong Kong, the Company has both a mandatory provident fund and defined
contribution retirement plans covering substantially all employees. Under
these plans, eligible employees contribute amounts through payroll
deductions which are 5% or more of individual salary, supplemented by
employer contributions ranging from
27
5% to 10% of individual salary depending on the years of service. The
expenses related to these plans were $240, $170 and $192 for the years
ended December 31, 2001, 2000 and 1999, respectively.
15. 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 and bank borrowings are reasonable estimates of their fair
value.
16. PLEDGE OF ASSETS
At December 31, 2001, the Company's loan agreements and general banking
facilities including overdraft and trade facilities were collateralized as
follows:
Leasehold land and buildings $11,402
Bank balances 8,955
Inventories 8,289
-------
$28,646
=======
17. COMMITMENTS AND CONTINGENCIES
Licensing Commitments
In the normal course of business, the Company enters into certain licensing
agreements and commitments with various third parties for the use of their
inventor concepts and intellectual property. Certain of these agreements
and commitments contain provisions for guaranteed or minimum royalty
amounts during the term of the contracts. Under terms of agreements contain
provisions for future minimum payments, the Company is obligated to pay
royalty amounts as follows:
Minimum
Payments
--------
2002 $1,060
2003 130
-------
$1,190
=======
Leases
The Company leases certain offices, warehouses and equipment under various
operating leases arrangements. The rental expense under the operating
leases was approximately $491, $1,113 and $534 for the years ended December
31, 2001, 2000 and 1999, respectively. In the normal course of business,
leases that expire will be renewed or replaced by leases on other
properties. As of December 31, 2001, the Company was obligated under
non-cancellable operating leases requiring future minimum rental payments
as follows:
28
Operating Leases
----------------
2002 $ 539
2003 480
2004 366
2005 310
2006 250
Thereafter 1,235
-------
Total minimum lease payments $ 3,180
=======
Litigation
The Company is a party to certain claims and legal actions that have arisen
in the ordinary course of business. These matters are substantially covered
by insurance. The resolution of these matters is not expected to have a
material impact on the Company. The Company currently has no legal
contingencies that management determines to be probable or reasonably
possible as of the issuance date of this annual report and has therefore
made no disclosures over current or pending legal actions taken against the
Company.
18. 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 primarily in North America. This
risk is somewhat limited due to the large number of customers composing the
Company's customer base and their geographic dispersion, though the
Company's business had two customers which accounted for more than
twenty-two percent and eleven percent of net sales for the year ended
December 31, 2001, two customers which accounted for more than seventeen
percent and sixteen percent of net sales for the year ended December 31,
2000 and two customers which accounted for more than twenty percent and
eighteen percent for the year ended December 31, 1999. The Company performs
ongoing credit evaluations of its customers' financial condition and,
generally, requires no collateral from its customers.
On January 22, 2002 the Kmart Corporation filed for protection from its
creditors under Chapter 11 of the United States Bankruptcy Code. The
Company's receivable exposure was entirely provided for during 2001 and no
additional write-downs or expenses related to the bankruptcy are expected
in 2002. The Company has decided to continue to sell to Kmart under a
debtor-in-possession agreement during 2002 and will closely monitor its
account with Kmart in order to minimize future exposure.
19. SEGMENT INFORMATION
The Company has adopted the SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. Prior to the acquisition of Radica UK,
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 Radica UK. Due to the distinct differences between the
core products of Radica UK and the remainder of the Company, the Company
has decided to operate and report on these product lines as two different
business segments: Video Games Accessories ("VGA"), which includes video
game controllers, steering wheels and other accessories and VGA sourcing
business; and Games, which includes electronic and mechanical handheld and
tabletop games.
The Company evaluates the performance of its operating segments and
allocates resources based on segment operating income before interest and
income taxes, not including gains and losses associated with the Company's
investments. The Company does not include inter-segment transfers for
management reporting purposes. Certain expenses which are managed outside
of the operating segments are excluded. These consist primarily of
corporate expenses, other income and expense items. Corporate expenses
consist primarily of
29
certain costs related to business integration and other general and
administrative expenses. Assets included in corporate and unallocated
principally are cash and cash equivalents and certain raw materials for
both segments. The accounting policies of the reportable segments are the
same as those described in the summary of significant accounting policies.
A summary of the Company's two business segments is set forth below.
2001 2000 1999
--------- --------- ---------
Revenues from external customers
Games $ 82,929 $ 91,036 $ 123,116
VGA 15,625 15,660 13,600
--------- --------- ---------
Total revenues from external customers $ 98,554 $ 106,696 $ 136,716
========= ========= =========
Depreciation and amortization
Games $ 3,120 $ 4,449 $ 3,981
VGA 893 978 975
--------- --------- ---------
Total depreciation and amortization $ 4,013 $ 5,427 $ 4,956
========= ========= =========
Segment (loss) income
Games $ 795 $ (14,199) $ 18,547
VGA (4,752) (5,465) (1,064)
--------- --------- ---------
Total segment (loss) income $ (3,957) $ (19,664) $ 17,483
Corporate
Interest income 733 1,472 1,800
Interest expense (597) (808) (331)
Equity in net loss of
affiliated company -- -- (1,748)
(Provision) credit for income taxes (553) 901 (149)
--------- --------- ---------
Total consolidated net (loss) income $ (4,374) $ (18,099) $ 17,055
========= ========= =========
Segment assets
Games $ 45,370 $ 54,652 $ 67,426
VGA 20,729 20,973 22,589
Corporate 25,809 23,769 32,159
--------- --------- ---------
Total consolidated assets $ 91,908 $ 99,394 $ 122,174
========= ========= =========
Capital expenditures
Games $ 999 $ 2,920 $ 3,177
VGA 102 218 129
--------- --------- ---------
Total capital expenditures $ 1,101 $ 3,138 $ 3,306
========= ========= =========
Revenues from external customers by product category are summarized as follows:
30
2001 2000 1999
--------- --------- ---------
Handheld $ 38,001 $ 49,307 $ 87,775
Play TV 14,315 8,561 -
Girl Tech 11,723 13,897 7,444
ODM / OEM 18,890 19,271 27,897
VGA 15,625 15,660 13,600
--------- --------- ---------
Total net revenues $ 98,554 $ 106,696 $ 136,716
========= ========= =========
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 long-lived assets are reported based on
their location. Long-lived assets principally include property, plant and
equipment, intangible assets and long-term investment:
2001 2000 1999
-------- -------- --------
Net sales:
United States and Canada $ 67,414 $ 84,504 $118,779
Asia Pacific and other countries 13,470 3,492 1,557
Europe 17,670 18,700 16,380
-------- -------- --------
$ 98,554 $106,696 $136,716
======== ======== ========
Long-lived assets:
United States and Canada $ 1,662 $ 2,689 $ 2,944
Asia Pacific and other countries 14,851 16,002 16,076
Europe 9,768 10,637 12,854
-------- -------- --------
$ 26,281 $ 29,328 $ 31,874
======== ======== ========
20. VALUATION AND QUALIFYING ACCOUNTS
31
Balance at Balance at
beginning Charged to Utilization/ end of
of year expense write-offs year
---------- ---------- ------------ ----------
2001
Allowances for doubtful accounts $ 2,073 $ 1,056 $ (922) $ 2,207
Estimated customer returns 1,494 1,528 (1,467) 1,555
Provision for inventories 5,788 1,764 (3,555) 3,997
------- ------- ------- -------
$ 9,355 $ 4,348 $(5,944) $ 7,759
======= ======= ======= =======
2000
Allowances for doubtful accounts $ 389 $ 2,648 $ (964) $ 2,073
Estimated customer returns 624 1,423 (553) 1,494
Provision for inventories 2,339 5,130 (1,681) 5,788
------- ------- ------- -------
$ 3,352 $ 9,201 $(3,198) $ 9,355
======= ======= ======= =======
1999
Allowances for doubtful accounts $ 446 $ 3 $ (60) $ 389
Estimated customer returns 1,077 705 (1,158) 624
Provision for inventories 2,437 407 (505) 2,339
------- ------- ------- -------
$ 3,960 $ 1,115 $(1,723) $ 3,352
======= ======= ======= =======
32
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Radica Games Limited
We have audited the accompanying consolidated balance sheet of Radica Games
Limited and subsidiaries as of December 31, 2001, and the related consolidated
statements of operations, shareholders' equity and comprehensive income, and
cash flows for the year then ended. The consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on the consolidated financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Radica Games Limited
and subsidiaries as of December 31, 2001, and the results of their operations
and their cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States of America.
/s/ KPMG
HONG KONG
February 8, 2002
33
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Directors of Radica Games Limited
We have audited the accompanying consolidated balance sheet of Radica Games
Limited and subsidiaries as of December 31, 2000 and the related consolidated
statements of operations, shareholders' equity and cash flows for the years
ended December 31, 2000 and 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Radica Games Limited and subsidiaries as of
December 31, 2000, and the results of their operations and their cash flows for
the years ended December 31, 2000 and 1999, in conformity with accounting
principles generally accepted in the United States of America.
/s/ Deloitte Touche Tohmatsu
HONG KONG
February 12, 2001
34
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
---------------------------------------------
(US dollars in thousands, except per share data)
Quarter ended
-------------------------------------------
Mar. 31 Jun. 30 Sep. 30 Dec. 31
-------- -------- -------- --------
Year ended December 31, 2001
----------------------------
Net sales $ 11,773 $ 10,295 $ 37,233 $ 39,253
Gross profit 3,142 3,588 13,975 13,151
Net (loss) income (3,724) (3,735) 4,110 (1,025)
Basic (loss) earnings per share (0.21) (0.21) 0.23 (0.06)
Diluted (loss) earnings per share (0.21) (0.21) 0.23 (0.06)
Year ended December 31, 2000
----------------------------
Net sales $ 17,343 $ 13,120 $ 41,200 $ 35,033
Gross profit (loss) 4,770 (6,257) 13,801 11,341
Net (loss) income (2,192) (17,356) 3,864 (2,415)
Basic (loss) earnings per share (0.12) (0.98) 0.22 (0.14)
Diluted (loss) earnings per share (0.12) (0.98) 0.22 (0.14)
35
COMMON STOCK DATA
As of January 31, 2002 there were approximately 120 record holders of the
Company's common stock. The Company believes that this represents more than
2,000 individual shareholders.
Price Range of Common Stock
---------------------------
Fiscal Year and Quarter High Low
----------------------- ---- ---
2001 Quarter
------------
Fourth .................................. $4 9/10 $ 2 17/32
Third ................................... 4 1/4 2 2/5
Second .................................. 3 1/2 2 1/2
First ................................... 3 3/8 1 5/8
2000 Quarter
------------
Fourth .................................. $ 2 3/4 $ 1 5/8
Third ................................... 3 1/2 2 5/8
Second .................................. 7 1/16 2 11/16
First ................................... 10 6 3/4
1999 Quarter
------------
Fourth .................................. $ 9 1/2 $ 7 1/4
Third ................................... 10 3/4 8 3/8
Second .................................. 13 5/16 9 1/4
First ................................... 16 12 3/8
The Company's common shares have been traded on the NASDAQ National Market
System since May 13, 1994. Prior to that time, the Company's securities were
privately held. The Company's symbol for its common shares is "RADA". On
December 31, 2001 the share price closed at $4 7/47.
The Company has not declared any dividends since it became public.
36
BOARD OF DIRECTORS
Jon N. Bengtson
Chairman of the Board and Director
Albert J. Crosson (1)(2)
Director
Robert E. Davids (2)(3)
Vice-Chairman of the Board and Director
Patrick S. Feely
President, Chief Executive Officer and Director
David C.W. Howell
President Asia Operations,
Chief Financial Officer and Director
Henry Hai-Lin Hu (1)(2)(3)
Director, Principal, Business Plus Consultants Limited
Siu Wing Lam
Director
James O'Toole (2)(3) Director, Chairman of the Board of Academic Advisors, Booz
Allen Hamilton Strategic Leadership Center
Millens W. Taft (1)(2)(3)
Director, Chairman, Mel Taft & Associates
Peter L. Thigpen (1)(2)(3)
Director
(1) Member of the Audit Committee
(2) Member of the Executive Committee
(3) Member of the Compensation, Organization and Nominating Committee
Note: Information on Board of Directors and Corporate Officers current as at
March 31, 2002.
CORPORATE OFFICERS
Patrick S. Feely
President, Chief Executive Officer and Director
David C.W. Howell
President Asia Operations,
Chief Financial Officer and Director
Jeanne M. Olson
Executive Vice President/General Manager,
Radica USA
John J. Doughty
Managing Director, Radica UK
James M. Romaine
Senior Vice President Sales
Craig D. Storey
Vice President and Chief Accounting Officer
Kam Cheong Wong
Vice President of China Operations
Milly M.L. Chan
Engineering Director
Larry C.N. Cheng
Engineering Director
Rick C.K. Chu
International Sales Director
Tiki K.K. Ho
Engineering Director
Louis S.W. Kwok
Plant Administration Director
Mark K. Liddle
Business Development Director
Lavinia K.W. Wong
Director of VGA & Sourcing
Hermen H.L. Yau
MIS Director
37
CORPORATE OFFICE
Radica Games Limited
Suite R, 6th Floor, 2-12 Au Pui Wan Street
Fo Tan, Hong Kong
Telephone: Hong Kong (852) 2693-2238
Fax: Hong Kong (852) 2695-9657
INVESTOR RELATIONS
180 South Lake Avenue, Suite 440
Pasadena, CA 91101
Telephone: USA (1) 626-744-1150
Fax: USA (1) 626-744-1155
WEB SITES
www.radicagames.com
www.gamesterusa.com
www.gamesteruk.com
www.girltech.com
CORPORATE COUNSEL
Sullivan & Cromwell
1888 Century Park East
Los Angeles
CA 90067-1725
INDEPENDENT AUDITORS
KPMG
8th Floor, Prince's Building
10 Chater Road
Hong Kong
REGISTRAR AND TRANSFER AGENT
U.S. Stock Transfer Corporation
1745 Gardena Avenue
Glendale, CA 91204
COMMON STOCK
NASDAQ National Market System
Common Stock Symbol: RADA
LEGAL INFORMATION
RADICA(R) and Radica logo are registered trademarks of Radica China Limited;
EYE-LOCK(TM) is a trademark of Radica Games Limited;
GAMESTER(TM) and Gamester logo are trademarks of Radica China Limited;
GIRL TECH(R) is a registered trademark of Radica Games Limited;
JAMMIN' JEWELS(TM) is a trademark of Radica Games Limited;
PLAY TV(TM) is a trademark of Radica China Limited, Product Shape(TM), Patents
Pending;
SKANNERZ(TM) is a trademark of Radica China Limited, Product Shape(TM), Patents
Pending; All rights reserved; International rights reserved.
BARBIE(TM)is a trademark of Mattel, Inc. All rights reserved.
BARBIE(TM)DANCE PARTY(TM)is a trademark of Radica China Limited, Product
Shape(TM), Patents Pending;
E-Kara(TM)is a registered trademark of Takara Co. Ltd.
GAME BOY ADVANCE is a trademark of Nintendo Co., Ltd.
GAMECUBE is a trademark of Nintendo Co., Ltd.
Microsoft(R), Xbox(TM), and the Xbox logos are either registered trademarks or
trademarks of Microsoft Corporation in the U.S. and/or other countries.
PINO is a trademark of ZMP Ltd. Corporation
PLAYSTATION(R) 2 is a registered trademark of Sony Computer Entertainment Inc.
XAVIX(R) is a registered trademark of Shinsedai Co. Limited;
All other trademarks are property of their respective owners.
38
RADICA GAMES LIMITED
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
JUNE 10, 2002
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Shareholders of
Radica Games Limited (the "Company") will be held at the Pasadena Hilton, 168
South Los Robles Avenue, Pasadena, California 91101 on Monday, June 10, 2002
commencing at 10:00 a.m., to consider and act upon the following proposals or
matters:
(1) To elect directors;
(2) To appoint KPMG as Independent Auditor and to authorize the
directors to fix the Independent Auditor's remuneration; and
(3) To transact such further or other business matters as may properly
come before the meeting or any adjournments thereof.
Only shareholders of record at the close of business on April 22, 2002
will be entitled to notice of the meeting.
The Annual Report containing the Financial Statements of the Company
and the Report of the Independent Auditor thereon, the Management Information
Circular/Proxy Statement and a form of proxy are enclosed with this Notice of
Meeting.
By order of the Board of Directors,
DAVID C.W. HOWELL
President Asia Operations and
Chief Financial Officer
May 6, 2002
Fo Tan, Hong Kong
Note: If you are unable to be present at the meeting in person, please
fill in, date and sign the enclosed proxy and return it to the
President of the Company in the enclosed envelope.
RADICA GAMES LIMITED
MANAGEMENT INFORMATION CIRCULAR/PROXY STATEMENT
This Management Information Circular/Proxy Statement ("this Circular")
is furnished to shareholders of Radica Games Limited (the "Company") in
connection with the solicitation by and on behalf of the management of the
Company of proxies to be used at the Annual Meeting of Shareholders (the
"Meeting") of the Company to be held at the Pasadena Hilton, 168 South Los
Robles Avenue, Pasadena, California 91101 on Monday, June 10, 2002 at 10:00
a.m., and at any adjournments, for the purposes set forth in the attached Notice
of Annual Meeting of Shareholders (the "Notice").
This Circular, the attached Notice and the accompanying form of proxy
are first being mailed to shareholders of the Company on or about May 6, 2002.
The Company will bear all costs associated with the preparation and mailing of
this Circular, the Notice and form of proxy as well as the cost of solicitation
of proxies. The solicitation will be primarily by mail; however, officers and
regular employees of the Company may also directly solicit proxies (but not for
additional compensation) by telephone or telegram. Banks, brokerage houses and
other custodians and nominees or fiduciaries will be requested to forward proxy
solicitation material to their principals and to obtain authorizations for the
execution of proxies and will be reimbursed for their reasonable expenses in
doing so.
No person is authorized to give any information or to make any
representations other than those contained in this Circular and, if given or
made, such information must not be relied upon as having been authorized.
APPOINTMENT AND REVOCATION OF PROXIES
The persons named as proxies in the enclosed form of proxy are
directors or officers of the Company. A shareholder has the right to appoint a
person (who need not be a shareholder of the Company) as proxy to attend and act
for and on such shareholder's behalf at the Meeting other than the management
proxies named in the accompanying form of proxy. This right may be exercised
either by striking out the names of the management proxies where they appear on
the front of the form of proxy and by inserting in the blank space provided the
name of the other person the shareholder wishes to appoint, or by completing and
submitting another proper form of proxy naming such other person as proxy.
A shareholder who has given a proxy, in addition to revocation in any
other manner permitted by applicable law, may revoke the proxy within the time
periods described in this Circular by an instrument in writing executed by the
shareholder or by his/her attorney authorized in writing or, if the shareholder
is a body corporate, by an officer or attorney thereof duly authorized.
Shareholders desiring to be represented at the Meeting by proxy or to
revoke a proxy previously given, must deposit their form of proxy or revocation
of proxy at the office of Radica Enterprises, Ltd. ("Radica USA") at 180 S. Lake
Avenue, Suite 440, Pasadena, CA 91101, addressed to the President of the
Company, at any time up to and including the last business day preceding the day
of the Meeting, or any adjournment thereof, at which the proxy is to be used, or
on the day of the Meeting with the chairman of the Meeting prior to the Meeting,
or any adjournment thereof. If a shareholder who has completed a proxy attends
the Meeting in person, any votes cast by the shareholder on a poll will be
counted and the proxy will be disregarded.
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VOTING OF PROXIES
THE SHARES REPRESENTED BY ANY VALID PROXY IN FAVOR OF THE MANAGEMENT
PROXIES NAMED IN THE ACCOMPANYING FORM OF PROXY WILL BE VOTED FOR, AGAINST OR
WITHHELD FROM VOTING (ABSTAIN) ON THE ELECTION OF DIRECTORS, AND ON THE
REAPPOINTMENT OF THE INDEPENDENT AUDITOR AND THE AUTHORIZATION OF THE DIRECTORS
TO FIX THE REMUNERATION OF THE INDEPENDENT AUDITOR, IN ACCORDANCE WITH ANY
SPECIFICATIONS OR INSTRUCTIONS MADE BY A SHAREHOLDER ON THE FORM OF PROXY. IN
THE ABSENCE OF ANY SUCH SPECIFICATIONS OR INSTRUCTIONS, SUCH SHARES WILL BE
VOTED FOR THE ELECTION AS DIRECTORS OF THE MANAGEMENT NOMINEES NAMED IN THIS
CIRCULAR, AND FOR THE APPOINTMENT OF THE INDEPENDENT AUDITOR AND THE
AUTHORIZATION OF THE DIRECTORS TO FIX THE INDEPENDENT AUDITOR'S REMUNERATION AS
STATED IN THIS CIRCULAR.
Each share of Common Stock is entitled to one vote on each matter
submitted to vote at the meeting. Under the Company's Bye-laws, action may be
taken by the shareholders at any duly convened Annual General Meeting of the
Company by a majority of the votes cast on each proposal (other than certain
proposals requiring a special resolution as defined in the Bye-laws). In the
case of elections of directors, the number of vacant positions (in the case of
this meeting, ten director positions) will be filled by the nominees who receive
the greatest number of votes at the meeting, with each shareholder being
entitled to vote for a number of directors equal to the number of vacancies, but
without cumulative voting. Although the Bye-laws permit voting by a show of
hands in certain circumstances, the Company follows the practice of voting by
poll or ballot (i.e. tabulating written votes submitted at the meeting in person
or by proxy).
The accompanying form of proxy confers discretionary authority upon the
persons named therein with respect to amendments or variations to matters
identified in the Notice and with respect to such other business or matters
which may properly come before the Meeting or any adjournments thereof.
RECORD DATE
The Board of Directors of the Company has fixed the close of business
on April 22, 2002, as the record date (the "Record Date") for the Meeting. Only
holders of record of the Common Stock as of the close of business on the Record
Date are entitled to receive notice of and to attend and vote at the Meeting.
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VOTING SECURITIES AND THEIR PRINCIPAL HOLDERS
As of January 31, 2002 there were issued and outstanding 17,656,471
shares of the Common Stock of the Company.
The following table sets forth information with respect to shareholders
which the Company believes own beneficially more than 5% of the issued and
outstanding shares of Common Stock of the Company, as of January 31, 2002:
PERCENTAGE OF
NAME AND ADDRESS OF COMMON STOCK
BENEFICIAL OWNER NUMBER OF SHARES OUTSTANDING
------------------- ---------------- -------------
Robert E. Davids (1) 1,499,500 8.5%
Suite R, 6th Floor
2-12 Au Pui Wan Street
Fo Tan, Hong Kong
Dito Devcar Corporation, et al. (2) 7,191,638 40.7%
c/o Richard H. Pickup
2321 Alcova Ridge Dr.
Las Vegas, Nevada 89134
RAD Partners 1999 LLC, et al. (3) 1,686,200 9.6%
c/o The Busch Firm,
2532 Dupont Drive
Irvine, California 92612
-------------------------
(1) Mr. Davids is a Director and the Vice Chairman of the Board of the
Company. Also includes shares held by Mr. Davids as trustee for a
family trust.
(2) Includes shares of Common Stock owned by the following related persons:
Dito Devcar Corporation, DRP Charitable Unitrust, TMP Charitable
Unitrust, Dito Devcar, LP, Dito Caree, LP, Pickup Family Trust, Pickup
Charitable Unitrust II, TD Investments, LLC, TD Fund, LLC, Dito Devcar
Foundation and Richard H. Pickup.
(3) Includes shares of Common Stock owned by the following related persons:
RAD Partners 1999 LLC, Lenawee Trust, Gar Ken Enterprises, Inc.,
Timothy R. Busch Charitable Remainder Unitrust, Stephan Lynn Busch
Charitable Remainder Unitrust and Timothy R. Busch.
ELECTION OF DIRECTORS
The following persons are nominees proposed by management for election
as directors of the Company to serve until the next annual meeting of the
shareholders of the Company or until their successors are duly elected or
appointed. A SHAREHOLDER MAY WITHHOLD HIS VOTE FROM ANY INDIVIDUAL NOMINEE BY
WRITING THE PARTICULAR NOMINEE'S NAME ON THE LINE PROVIDED IN THE FORM OF PROXY.
Management does not contemplate that any of the nominees will be unable to serve
as a director. If, as a result of circumstances not now contemplated any nominee
shall be unavailable to serve as a director, the proxy will be voted for the
election of such other person or persons as Management may select. The
management nominees for election as directors of the Company are Patrick Feely,
Jon N. Bengtson, Robert E. Davids, David C.W. Howell, Siu Wing Lam, James
O'Toole, Millens W. Taft, Peter L. Thigpen, Henry Hai-Lin Hu and Albert J.
Crosson.
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The following table and the textual discussion which follows sets forth
information as of January 31, 2002 with respect to each current director of the
Company, each of the management nominees for director and each executive
officer, including their names, ages, the number of shares beneficially owned by
each such person individually and as a group, all positions and offices with the
Company held by each such person (in addition to their directorships) and their
term of office as a director:
PERCENTAGE OF
NUMBER OF COMMON
TERM AS SHARES STOCK
AGE AT DIRECTOR OTHER POSITIONS AND OFFICES BENEFICIALLY OUTSTANDING
NAME 1/1/02 EXPIRES PRESENTLY HELD WITH THE COMPANY OWNED (1)
----------------------------- --------- ----------- ----------------------------------- -------------- --------------
Directors:
Jon N. Bengtson 58 2002 Chairman of the Board 435,260 2.5%
-
Albert J. Crosson (3)(4)(6) 71 2002 None
Robert E. Davids (2)(3)(5) 58 2002 Vice Chairman of the Board 1,499,500 8.5%
Patrick S. Feely 55 2002 President, Chief Executive Officer 298,000 1.7%
David C.W. Howell 39 2002 President Asia Operations, 145,300
Chief Financial Officer
Henry Hai-Lin Hu (3)(4)(5) 56 2002 None 56,483
Siu Wing Lam 43 2002 Executive Vice President 178,000 1.0%
Engineering
James O'Toole (3)(5) 56 2002 None 73,461
Millens W. Taft (3)(4)(5) 79 2002 None 41,205
Peter L. Thigpen (3)(4)(5) 62 2002 None 64,005
Executive Officers:
------------------
Jeanne M. Olson 53 Executive Vice President/ 20,000
General Manager, Radica USA
John J. Doughty 31 Managing Director, Radica UK 8,800
James M. Romaine 56 Senior Vice President Sales 13,533
Craig D. Storey 33 Vice President, 16,666
Chief Accounting Officer
Kam Cheong Wong 46 Vice President of China Operations 20,666
Milly M.L. Chan 33 Engineering Director 9,333
Larry C.N. Cheng 38 Engineering Director 3,333
Rick C.K. Chu 48 International Sales Director 17,333
Tiki K.K. Ho 38 Engineering Director 1,333
Louis S.W. Kwok 41 Plant Administration Director 4,000
Mark K. Liddle 36 Business Development Director 2,400
Lavinia K.W. Wong 37 Director of VGA & Sourcing 2,400
Hermen H.L. Yau 42 MIS Director 5,433
-------------------------
(1) Except as indicated, in each case these shares represent less than 1% of the total stock outstanding.
(2) Includes shares held by Mr. Davids as trustee for a family trust.
(3) Member of the Executive Committee.
(4) Member of the Audit Committee.
(5) Member of the Compensation, Organization and Nominating Committee.
(6) Mr. Crosson owns no Radica Games Limited stock shares ("shares")
directly. However, he owns 1% of the beneficial interest in Crossfire,
LLC ("Crossfire") which beneficially owns 200,000 shares through its
class A membership interest in RAD Partners 2001, LLC ("RAD 2001"). RAD
2001 is controlled by RAD Partners 1999 LLC which is one of the
Company's major stockholders. Mr. Crosson's 1%
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ownership of Crossfire constitutes voting control of Crossfire and
Crossfire has the right to withdraw such 200,000 shares from RAD 2001.
Additionally, under an economic arrangement involving its membership
interest in RAD 2001, Crossfire may acquire beneficial ownership in an
additional 400,000 shares over time from RAD 2001; however, Crossfire
cannot vote or dispose of such shares without the consent of all the
members of RAD 2001. Crossfire is owned beneficially by Mr. Crosson and
his four children.
All directors and executive officers of the Company as a group (23
persons) owned beneficially 2,481,184 shares of Common Stock (not including
607,670 option shares not yet vested held by such persons), or approximately
14.1% of the Common Stock outstanding, as of January 31, 2002. The executive
officers of the Company do not have any fixed term of office and serve at the
pleasure of the Board of Directors.
Jon N. Bengtson, formerly the Executive Vice President and Chief
Operating Officer of the Company, became the Chairman of the Board of the
Company in January 1996, and has been a director of the Company since January
1994. He was Chief Financial Officer of the Company from January 1994 to
September 1995, and was appointed President and Chief Executive Officer of
Radica USA in December 1993. Mr. Bengtson joined The Sands Regent in 1984 and
served in various positions, including Vice President of Finance and
Administration, Chief Financial Officer, Treasurer and Director, Senior Vice
President and Director and Executive Vice President and Chief Operating Officer
and Director until December 1993. From 1980 to 1984, Mr. Bengtson was a director
and served in various positions with International Game Technology ("IGT"),
including Treasurer and Vice President of Finance and Administration and Vice
President of Marketing. Mr. Bengtson is currently a director of The Sands
Regent.
Albert J. Crosson was appointed a director of the Company in May 2001.
He became a director of International Game Technology ("IGT") in 1988. He became
Vice Chairman of the Board of IGT in July 1996 and an employee of such company.
He resigned as an employee in December 2000 and as Vice Chairman of IGT in
August 2001. Mr. Crosson was employed for 34 years by ConAgra, Inc. and its
predecessor companies. He was President of ConAgra Grocery Products Companies
from 1993 until January 1996 when he retired. From 1986 until January 1993, he
was President of Hunt-Wesson Foods, Inc., a ConAgra company.
Robert E. Davids became Chairman of the Executive Committee of the
Board of Directors, Vice Chairman of the Board and Chief Executive
Officer-Emeritus in April 1999 and has been a director since December 1989. He
was Chief Executive Officer of the Company from January 1994 to April 1999, and
President of the Company from December 1993 to July 1997. Prior to 1993, Mr.
Davids had been the Co-Chief Executive Officer and director of Radica HK since
he joined the Company in 1988. Mr. Davids has over 30 years experience in the
development, design and engineering of non-gambling casino gifts, commercial
gaming machines, automobiles and other products. From 1984 until he joined the
Company, he was the General Manager of Prospector Gaming Enterprises Inc., a
casino in Reno, Nevada. From 1978 through 1984, Mr. Davids served in various
positions at IGT, including Director of Special Projects and Director of
Engineering.
Patrick S. Feely has been Chief Executive Officer since April 1999. He
has been Chief Operating Officer and President of the Company since July 1997
and a director of the Company since July 1996. Previously, he was President and
CEO of Spectrum HoloByte, Inc. from 1993 to 1995; President of Bandai America,
Inc. from 1991 to 1992; founder and President of Toy Soldiers, Inc. (which
merged with Bandai America) from 1988 to 1991; and President of the Tonka
Products Division of Tonka, Inc. from 1986 to 1988, after previously serving as
Senior Vice President Commercial Operations from 1982 to 1986. As president of
Tonka, Mr. Feely was responsible for the successful launch of the Sega video
game system into the US market. Mr. Feely was an executive at Mattel Toys from
1977 to 1982 and began his career at RCA Corporation in 1970. Mr. Feely is also
a Director and Chairman of the Toy Industry Association. He has a BA from Duke
University and an MBA from the University of Michigan.
5
David C.W. Howell was appointed President Asia Operations in December
1998. He has been Executive Vice President and Chief Financial Officer and a
director of the Company since September 1995. Prior to that, he was Vice
President and Chief Accounting Officer and a director of the Company from
January 1994 to September 1995. From 1992 to 1994, Mr. Howell was a Finance
Director and Company Secretary of Radica HK. From 1984 to 1991, Mr. Howell was
employed by Ernst & Young in London, Hong Kong and Vietnam. He has a B.Sc. from
Nottingham University, is a Fellow of the Institute of Chartered Accountants in
England and Wales and is a fellow of the Hong Kong Society of Accountants.
Henry Hai-Lin Hu was appointed a director of the Company in December
1998. He is currently the Principal of Business Plus Consultants Limited
providing services to Hong Kong toy companies on business development. From 1993
through 1996, he was Chairman and Chief Executive Officer of Zindart Industrial
Co. Ltd., a NASDAQ listed manufacturer of die cast car replicas and premium
giftware. He co-founded Wah Shing Toy Group in 1982, a Singapore listed toy
company, and retired from Wah Shing in 1991. Mr. Hu has served in director and
senior officer roles in several toy companies in Hong Kong since 1967. He has a
B.Sc. in Mechanical Engineering from Hong Kong University, is a Registered
Professional Engineer, and a member of the Institution of Electrical Engineers,
Hong Kong.
Siu Wing Lam has been a director of the Company since January 1994. He
was an Executive Vice President, Engineering of the Company from 1998 to
February 2002, Vice President, Engineering and the head of Radica HK engineering
department from 1988 to 1998 and joined the Company in 1985. Mr. Lam has over 21
years of experience in manufacturing, product design and engineering management.
He has an Associateship in Production and Industrial Engineering from Hong Kong
Polytechnic, a postgraduate diploma in Engineering Management from City
Polytechnic of Hong Kong, and is an associate member of the Institute of
Electrical Engineers of the UK.
James O'Toole has been a director of the Company since June 1994. He is
Research Professor in the Center for Effective Organization at the University of
Southern California's Marshall School of Business. He is Chairman of the Board
of Academic Advisors of the Booz Allen Hamilton Strategic Leadership Center.
Millens W. Taft has been a director of the Company since April 1997. He
brings with him five decades of toy and games experience and currently advises
companies in the toy industry on marketing, product development and licensing in
both the domestic and international markets. He retired from the Milton Bradley
Company in 1984, where he was Corporate Senior Vice President of Research and
Development and was also a Director of the firm. Mr. Taft had been with Milton
Bradley since graduating from Harvard Business School in June of 1949 with the
degree of Master of Business Administration. From 1942 to 1945 he was in the
military service with the 8th Air Force as First Lieutenant and Pilot. Upon his
early retirement from Milton Bradley, he started his own company, Mel Taft &
Associates in 1984, which helps companies in the USA and around the world with
marketing, product development and licensing projects primarily in the Toy,
Games, Craft, Specialty and International Markets.
Peter L. Thigpen has been a Director of the Company since June 1998. He
is a Lecturer in Ethics & Great Books in the Graduate Business School at the
University of California, Berkeley, a Senior Fellow & Moderator at the Aspen
Institute and on the Board of Trustees of the Kentfield, California School
District. Prior to 1992, Mr. Thigpen was Senior Vice President - US Operations
and a member of the Executive Management Committee at Levi Strauss & Company,
retiring after 23 years with the San Francisco-based apparel company. During his
tenure at Levi Strauss, Mr. Thigpen held positions of President of European
Operations, President - Levi Strauss USA, President - The Jeans Company and was
a member of the Board of Directors.
6
Jeanne M. Olson is the Executive Vice President/General Manager of
Radica USA. Prior to joining the company in 2000, she was Senior Vice President
of Sales & Marketing at Lyrick Studios, a privately-held children's
entertainment company. Ms. Olson has over 15 years of experience in the toy
industry, having held executive marketing and management positions at Mattel
Toys, Hasbro Inc., and Tonka Toys. She started her career in marketing research
with The Pillsbury Company and with Custom Research Inc.
John J. Doughty has been Managing Director with Radica UK since May
2001, having previously held the positions General Manager, Head of Sales and
Marketing, Head of Sales, and UK Sales Manager since joining in March 1998. He
personally manages Radica UK's major European Accounts, and also oversees the
day to day running of the UK operation. Mr. Doughty has had 14 years experience
in the 'gaming' industry having previously worked at Entertainment UK, part of
the Kingfisher Group, as Senior Buyer, and prior to that having worked at HMV
UK, as a Buyer.
James M. Romaine joined Radica USA in September 1999 as Senior Vice
President of Sales for Radica USA. He has been an executive in the Toy Industry
for over 28 years. He spent the 1980's and into the early 90's at Parker
Brothers where he was Senior Vice President of Sales. Mr. Romaine was the
President of Play Tech Inc., a Vtech company for seven years before joining
Radica USA. His most recent educational credentials include the completion of
the Executive Program for General Managers at the University of Michigan's
School of Business.
Craig D. Storey has been Vice President and Chief Accounting Officer of
the Company since July of 1999. Prior to that, he was the Financial Controller
of Radica USA from 1995 to 1999. From 1993 to 1995, Mr. Storey was employed by
Kafoury, Armstrong and Company in Reno, Nevada. He has a BS from Arizona State
University and is a member of the American Institute of Certified Public
Accountants and the Nevada Society of CPA's.
Kam Cheong Wong has been the Vice President of China Operations for the
Company since May 1998. Prior to that, he was the Director of Manufacturing for
the Company from June 1994 to May 1998. Mr. Wong has over 20 years of experience
in product design, R&D, production and sales in toys, consumer electronics and
the electrical appliance industry. Mr. Wong has a B.Sc. in Mechanical
Engineering from Taiwan University, a post graduate diploma in Manufacturing
Technology from City University, London and is a member of the Institute of
Management, UK.
Milly M.L. Chan has been an Engineering Director since April 1999,
having previously held the positions of Engineering Manager, Project Supervisor,
and Project engineer since joining in June 1993. She has a B.Eng in Electronic
Engineering from Hong Kong Polytechnic University, an MBA from Heriot-Watt
University and is a Chartered Engineer and a Member of the Institution of
Electrical Engineers.
Larry C.N. Cheng has been an Engineering Director since April 1999. Mr.
Cheng joined the Company in 1991 and was an Engineering Manager from April 1993
to March 1999. Mr. Cheng has more than 15 years experience in ODM and the toy
industry. He has a Higher Diploma in Marine Electronics from the Hong Kong
Polytechnic University.
Rick C.K. Chu has been the International Sales Director of the Company
since April 1996. Prior to that, Mr. Chu was International Sales Administration
Manager of the Company from April 1994 to April 1996. He has more than 17 years
experience in international trade and business management. From 1988 to 1994, he
was the Senior Manager managing the sales administration function and marketing
of industrial materials for a leading trading company in Hong Kong.
7
Tiki K.K. Ho has been an Engineering Director of the Company since
April 1, 1999. Prior to his present position, he was a manager in the
engineering department since joining the Company in 1994. Mr. Ho worked in STD
Company Limited and Management, Investment and Technology Company Limited. He
has had over 15 years experience in manufacturing, product design, and
engineering management and plastic mold shop management. He has a B.Sc. Honors
in Mechanical Engineering from University of Manchester, Institute of Science
and Technology.
Louis S.W. Kwok has been the Plant Administration Director of the
Company from January 2, 2001. Effective from March 11, 2002, Mr. Kwok will be
appointed the Materials and Logistics Director of the Company. He has had over
15 years experience in manufacturing plant operations throughout his career.
Major companies he has worked with are Pymetics (Hong Kong) Limited, Management,
Investment and Technology Company Limited, and Sunciti Manufacturers Limited. He
has a Higher Diploma in Mechanical Engineering, Diploma in Mechanical
Engineering (Manufacturing Technology), and National Diploma in Mechanical
Engineering.
Mark K. Liddle has been Business Development Director since January
2002, having previously held the position of Quality/Sourcing Manager since
joining in September 1997. He personally manages the Direct Sourcing business
within the UK and Europe and oversees all aspects of product quality and safety
within Europe and the UK. Mr. Liddle has had 13 years experience of quality and
manufacturing having previously been involved in aerospace and automotive
industries.
Lavinia K.W. Wong was appointed as a Director of VGA & Sourcing of the
Company in April 2001. Since joining the Company in June 1999, she has been
supervising the management of both the sourcing business and out-sourced video
game accessories. Prior to that, she was a Director of LMP HK, where she set up
the Hong Kong office of LMP UK and managed the day-to-day operations, which
included sourcing, finance and management. Miss Wong has over 10 years
experience in the electronics and games business and has held an executive
marketing position in a publicly listed electronics company in Hong Kong.
Hermen H.L. Yau has been the MIS Director of the Company since March 1,
1994. From 1982 to 1994, he worked in Outboard Marine Corporation Asia Ltd in
various positions in the Systems & Data Processing Department. He has more than
18 years experience in Information Technology and particular experience in IBM
mid-range computer systems and solutions. He has a Higher Diploma in Computer
Studies from the National Computing Center UK and a Diploma in Management
Studies from the Hong Kong Polytechnic and Hong Kong Management Association.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
During fiscal 2001, the Board of Directors of the Company met four
times. Each of the directors, during his tenure as a director, attended at least
75% of the meetings of the Board of Directors and of each committee of the board
on which he has served.
The responsibilities of the Executive Committee include exercising the
authority of the Board of Directors as to matters that may arise between
meetings of the Board of Directors. The Executive Committee is currently
comprised of six members of the Board, being Messrs. Davids, O'Toole, Taft,
Thigpen, Hu and Crosson. In fiscal 2001, it did not hold any meetings.
The responsibilities of the Audit Committee include recommending to the
Board of Directors the independent certified public accountants to be selected
to conduct the annual audit of the books and accounts of the Company, reviewing
the proposed scope of such audit and approving the audit fees to be paid, and
reviewing the adequacy and effectiveness of the internal auditing, accounting
and financial controls of the Company with the independent certified public
accountants and the Company's financial and accounting staff. The Audit
8
Committee consists entirely of independent directors. The Audit Committee is
currently comprised of four members of the Board, being Messrs. Taft, Thigpen,
Hu and Crosson. In fiscal 2001, it held two meetings.
The responsibilities of the Compensation, Organization and Nominating
Committee include reviewing and approving director nominations, executive
appointments and remuneration and supervising the administration of the
Company's employee benefit plans. This Committee is currently comprised of five
members of the Board, being Messrs. Davids, O'Toole, Taft, Thigpen and Hu. In
fiscal 2001, it held one meeting.
INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
Information responsive to this item is contained in the Company's
Annual Report on Form 20-F for the year ended December 31, 2001 and is
incorporated herein by reference. See Item 7 in such Report on Form 20-F.
COMPENSATION OF OFFICERS AND DIRECTORS
COMPENSATION
In fiscal 2001, the aggregate amount of compensation paid to all
executive officers and directors as a group for services in all capacities was
approximately $2.2 million.
Each outside (i.e., non-employee and non-affiliated) director of the
Company receives a $10,000 annual fee paid in quarterly installments. Directors
may elect to receive half of this fee payable in shares of the Company's Common
Stock valued at the then current market price. Each outside director of the
Company also receives a fee of $600 for attendance at each Committee meeting.
Directors who are employees or affiliates of the Company are not paid any fees
or additional remuneration for service as members of the Board of Directors or
its Committees.
Upon each annual re-election to the Board of Directors, each outside
director receives non-qualified stock options to purchase 2,500 shares per
quarter (i.e., 10,000 shares per annum) of Common Stock of the Company at an
exercise price equal to the then current market price of the Company's Common
Stock. The average exercise price was $3.28 per share in 2001. These options are
exercisable after one year from the date of grant.
The Company also follows the practice that upon the initial election or
appointment of a new outside director to the Board of Directors, such director
receives a non-qualified stock option to purchase 30,000 shares of the Company's
Common Stock at an exercise price equal to the then-current market price, and
these options are exercisable after one year from the date of grant.
EMPLOYMENT AGREEMENTS
Messrs. Feely, Howell, Lam, Bengtson, Doughty and Ms. Olson have each
entered into individual employment agreements with the Company. In addition, the
Company provides residences for Mr. Howell and Mr. Storey in Hong Kong.
Additional information regarding employment agreements is contained in the
Company's Annual Report on Form 20-F for the year ended December 31, 2001 and is
incorporated herein by reference. See Item 6 in such Report on Form 20-F.
CONSULTING AGREEMENT
In 2001, Mr. Henry Hu, one of the Company's outside directors, acted as
an independent contractor to review and advise the Company on social
accountability standards and its R&D/manufacturing operation. Mr.
9
Hu was paid consulting fees of $15,000 and $8,974 in April and August 2001,
respectively.
10
OPTIONS TO PURCHASE SECURITIES FROM THE COMPANY
The Company's 1994 Stock Option Plan provides for the granting of stock
options to directors, officers and employees of the Company. The Stock Option
Plan is administered by the Compensation, Organization and Nominating Committee
(for this purpose, the "Compensation Committee") of the Board of Directors.
Subject to the provisions of the Stock Option Plan, the Compensation Committee
shall have sole authority to determine which of the eligible directors and
employees of the Company shall receive stock options, the terms, including
applicable vesting periods, of such options, and the number of shares for which
such options shall be granted.
The total number of shares of the Company's Common Stock that may be
purchased pursuant to stock options under the Stock Option Plan shall not exceed
in the aggregate 3.7 million shares. The option price per share with respect to
each such option shall be determined by the Compensation Committee but shall be
not less than 100% of the fair market value of the Company's Common Stock on the
date such option is granted as determined by the Compensation Committee.
Ordinarily, stock options are exercisable over three to five years from the date
of grant and vest, or are exercisable, in equal installments, the period
beginning one year after the date of grant, and all of the options expire in ten
years. The Stock Option Plan terminates in 2004 unless terminated earlier.
In fiscal year 2001, an aggregate of 432,600 options (exclusive of the
outside directors' options and net of stock options that were both issued and
canceled in the year) were granted to directors, officers and other employees
under the Stock Option Plan to purchase the Company's shares at exercise prices
ranging from $1.63 to $4.15 per share.
At the end of fiscal year 2001, after giving effect to all prior
exercises and cancellations of options, an aggregate of 1,910,867 options
(exclusive of the outside directors' options) were outstanding at exercise
prices ranging from $1.09 to $19.63 per share, and of such amount a total of
1,156,000 options were held by directors and executive officers of the Company
as a group. Also, an aggregate of 280,000 outside director's options were
outstanding at exercise prices ranging from $1.50 to $18.75 per share. During
2001, a total of 75,596 shares were issued upon the exercise of options, at
exercise prices ranging from $1.38 to $3.0 per share. Prior to 2001, a total of
990,000 shares had been issued upon the exercise of options, at exercise prices
ranging from $0.57 to $11.0 per share.
Information respecting options granted and exercised in the fiscal
periods of the Company prior to and including 2001 is contained in the Company's
Annual Report on Form 20-F for the year ended December 31, 2001, and is
incorporated herein by reference. See Item 6 in such Report on Form 20-F and
Note 12 of the Notes to the Consolidated Financial Statements included therein.
APPOINTMENT OF INDEPENDENT AUDITOR
The person named in the enclosed form of proxy will, in the case of a
ballot and in the absence of specifications or instructions to vote against or
not to vote (abstain) in the form of proxy, vote for the re-appointment of KPMG
as the Independent Auditor of the Company, to hold office until the next annual
meeting of shareholders of the Company or until a successor is duly elected or
appointed, and the authorization of the directors to fix the Independent
Auditor's remuneration. KPMG has been the Independent Auditor of the Company
since 2001.
Representatives of KPMG are expected to attend the Meeting, will have
an opportunity to make a statement if they so desire and are expected to be
available to respond to appropriate questions.
11
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the 2003 annual
meeting of shareholders must be received by the Company at the principal
executive offices of Radica USA in the United States (see address below) on or
before December 31, 2002 in order to be considered for inclusion in the
Company's 2003 management information circular/proxy statement.
OTHER MATTERS
Management is not aware of any amendments or variations to matters
identified in the Notice or of any other matters that are to be presented for
action to the Meeting other than those described in the Notice.
Information stated in this Circular is dated as of January 31, 2002
except where otherwise indicated. The contents and the mailing of this Circular
have been approved by the Board of Directors of the Company.
PATRICK S. FEELY JON N. BENGTSON ROBERT E. DAVIDS DAVID C.W. HOWELL
President and Chairman of the Board Vice Chairman of the President Asia Operations and
Chief Executive Officer Board Chief Financial Officer
THE COMPANY FILES AN ANNUAL REPORT ON FORM 20-F WITH THE SECURITIES AND
EXCHANGE COMMISSION. A COPY OF THIS CIRCULAR AND THE ANNUAL REPORT CONTAINING
THE FINANCIAL STATEMENTS OF THE COMPANY AND MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, WILL BE SENT TO ANY PERSON
UPON REQUEST IN WRITING ADDRESSED TO INVESTOR RELATIONS AT RADICA USA'S OFFICE
AT 180 S. LAKE AVENUE, SUITE 440, PASADENA, CA 91101. COPIES ARE WITHOUT CHARGE
TO ANY SHAREHOLDER.
12
FORM OF PROXY
RADICA GAMES LIMITED
ANNUAL MEETING
JUNE 10, 2002
The undersigned shareholder of Radica Games Limited hereby appoints the
person selected below,
Patrick S. Feely, or failing him Jon N. Bengtson, or failing
him David C.W. Howell (strike out if another proxy is to be
appointed)
___________________________________________ (Other)
as such shareholder's proxy, with the power of substitution, and hereby
authorizes such person to represent and to vote as designated below all of the
Common Stock, $0.01 par value per share, of Radica Games Limited (the "Company")
that the undersigned is entitled to vote at the Company's Annual Meeting of
Shareholders to be held at the Pasadena Hilton, 168 South Los Robles Avenue,
Pasadena, California 91101 on Monday, June 10, 2002, or any postponement or
adjournment thereof.
Every shareholder of the Company is entitled to appoint one proxy (or
representative in the case of a corporation) to attend the meeting and vote on
such shareholder's behalf. The proxy need not be another shareholder of the
Company. To be effective, this Proxy must be completed and deposited at the
principal office of Radica Enterprises, Ltd. ("Radica USA") located at 180 S.
Lake Avenue, Suite 440, Pasadena, CA 91101, not later than the last business day
preceding the day of the meeting, or any postponement or adjournment thereof.
Please insert the number of shares registered in your name in the space
provided on the reverse. If no number is inserted, this Proxy will be deemed to
relate to the total number of shares registered in your name.
PLEASE INDICATE WITH AN "X" IN THE APPROPRIATE BOX HOW YOU WISH YOUR
PROXY TO VOTE. IF THIS PROXY IS RETURNED WITHOUT AN INDICATION AS TO HOW THE
PROXY SHALL VOTE, THE PROXY WILL VOTE FOR, AGAINST OR ABSTAIN IN RESPECT OF
PROPOSALS 1 AND 2 AS SET FORTH IN THE ACCOMPANYING CIRCULAR.
The Board of Directors recommends a vote for all Nominees listed in
Proposal 1 and adoption of Proposal 2.
1. ELECTION OF DIRECTORS FOR ALL NOMINEES LISTED BELOW FOR THE WITHHOLD AUTHORITY TO VOTE FOR
TERMS SET FORTH IN THE PROXY ALL NOMINEES LISTED BELOW. /_/
STATEMENT (EXCEPT AS MARKED TO THE
CONTRARY BELOW). /_/
Patrick S. Feely Robert E. Davids Siu Wing Lam Millens W. Taft Henry Hai-Lin Hu
Jon N. Bengtson David C.W. Howell James O'Toole Peter L. Thigpen Albert J. Crosson
(INSTRUCTION: To withhold authority to vote for any individual
nominee write that nominee's name on the line provided below.)
________________________________________________________________________________
2. To approve the appointment of KPMG as the Company's Independent Auditor and
to authorize the directors to fix the Independent Auditor's remuneration.
/_/ FOR /_/ AGAINST /_/ ABSTAIN
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Annual Meeting.
This Proxy must be signed by the appointing shareholder, or such
shareholder's attorney duly authorized in writing, exactly as such shareholder's
name appears herein. In the case of joint shareholders, all joint shareholders
must sign. In the case of a corporation, the Proxy must be executed under its
Common Seal or the hand of its attorney duly authorized in writing. In the case
of partnerships, the Proxy must be signed in the partnership name by an
authorized person. Each power of attorney, or a duly certified copy thereof,
must be deposited at the principal office of Radica USA not later than the last
business day preceding the day of the meeting, or any postponement or
adjournment thereof.
This proxy, when properly executed, will be voted in the manner
directed by the undersigned stockholder. If no direction is given, this proxy
will be voted for Proposals 1 and 2. The undersigned hereby acknowledges receipt
of the accompanying Notice of Annual Meeting and Circular and hereby revokes any
proxy or proxies heretofore given.
Please mark, sign, date and return this Proxy in the accompanying
prepaid envelope.
Date: _____________________________, 2002
---------------------------------------
(Printed Name of Shareholder)
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(Signature)
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(Printed Name of Shareholder)
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(Signature)
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(Number of Shares held)
(PLEASE SIGN EXACTLY AS YOUR NAME APPEARS ON THIS
PROXY. WHEN SIGNING AS ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE
FULL TITLE AS SUCH. IF SHARES ARE HELD JOINTLY,
BOTH OWNERS SHOULD SIGN.)