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 August, 2006
Commission File Number: 0-23696
RADICA GAMES LIMITED
(Translation of registrant's name into English)
Suite V, 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 June 30, 2006
2. Press Release dated August 14, 2006
3. Press Release dated July 10, 2006
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, 333-61260 and 333-122248) and on Form F-3 (No. 333-7526
and No. 333-79005).
QUARTERLY REPORT *
For the quarterly period ended June 30, 2006
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 V, 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 June 30, 2006
--------------------------------------- ----------------------------
Common Stock, par value $0.01 per share 19,405,736
------------------------
* 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
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2006
ITEMS IN FORM 6-K
Page
PART I - FINANCIAL INFORMATION.................................................4
Item 1. Financial Statements................................................4
Condensed Consolidated Balance Sheets
June 30, 2006 (unaudited) and December 31, 2005.....................4
Condensed Consolidated Statements of Operations
for the Three Months and Six Months Ended June 30, 2006
(unaudited) and 2005 (unaudited)....................................5
Condensed Consolidated Statements of Shareholders' Equity
for the Six Months Ended June 30, 2006 (unaudited)..................6
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 2006 (unaudited) and 2005
(unaudited).........................................................7
Notes to the Condensed Consolidated Financial Statements............8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations..............................................12
Item 3. Quantitative and Qualitative Disclosures about Market Risk.........16
Item 4. Controls and Procedures............................................16
PART II - OTHER INFORMATION...................................................17
---------------------------
Item 1. Legal Proceedings..................................................17
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds........17
Item 3. Defaults Upon Senior Securities....................................17
Item 4. Submission of Matters to a Vote of Security Holders................17
Item 5. Other Information..................................................17
Item 6. Exhibits...........................................................17
3
PART I - FINANCIAL INFORMATION
Item 1. Financial Information
------------------------------
RADICA GAMES LIMITED
CONSOLIDATED BALANCE SHEETS
June 30, 2006 and December 31, 2005
(US dollars in thousands, except per share data) June 30, December 31,
-------------------- -------------------
2006 2005
-------------------- -------------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 41,344 $ 37,358
Investment securities 6,160 15,928
Accounts receivable, net of allowances for doubtful accounts of $150
($165 as at December 31, 2005) 10,810 18,703
Inventories 33,907 21,420
Prepaid expenses and other current assets 5,901 4,196
Income taxes receivable 432 479
Deferred income taxes 3,793 3,237
-------------------- -------------------
Total current assets 102,347 101,321
Property, plant and equipment, net 14,523 14,542
Other assets 822 833
Deferred income taxes, noncurrent 580 572
-------------------- -------------------
Total assets $ 118,272 $ 117,268
==================== ===================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 13,628 $ 6,580
Accrued warranty expenses 958 2,056
Accrued payroll and employee benefits 1,321 3,833
Accrued expenses 5,248 5,987
Income taxes payable 5 417
-------------------- -------------------
Total current liabilities 21,160 18,873
-------------------- -------------------
Total liabilities 21,160 18,873
-------------------- -------------------
Shareholders' equity:
Common stock
par value $0.01 each, 100,000,000 shares authorized, 19,405,736 shares
outstanding (19,080,004 as at December 31, 2005) 194 191
Additional paid-in capital 7,571 6,122
Retained earnings 89,543 93,025
Deferred compensation - (203)
Accumulated other comprehensive loss (196) (740)
-------------------- -------------------
Total shareholders' equity 97,112 98,395
-------------------- -------------------
Total liabilities and shareholders' equity $ 118,272 $ 117,268
==================== ===================
See accompanying notes to the consolidated financial statements.
4
RADICA GAMES LIMITED
CONSOLIDATED STATEMENTS OF INCOME
Three months and six months ended June 30, 2006 and 2005
(US dollars in thousands, Three months ended June 30, Six months ended June 30,
except per share data) --------------------------------- --------------------------------
2006 2005 2006 2005
--------------- -------------- -------------- --------------
(unaudited) (unaudited) (unaudited) (unaudited)
Revenues:
Net sales $ 21,035 $ 31,131 $ 39,502 $ 53,605
Cost of goods sold
(exclusive of items shown separately below) (14,199) (21,659) (25,725) (35,417)
--------------- -------------- -------------- --------------
Gross profit 6,836 9,472 13,777 18,188
--------------- -------------- -------------- --------------
Operating expenses:
Selling, general and administrative expenses (7,192) (6,032) (13,842) (12,691)
Research and development (1,147) (892) (2,552) (2,089)
Depreciation and amortization (588) (458) (1,146) (862)
Impairment of goodwill - (6,015) - (6,015)
--------------- -------------- -------------- --------------
Total operating expenses (8,927) (13,397) (17,540) (21,657)
--------------- -------------- -------------- --------------
Operating loss (2,091) (3,925) (3,763) (3,469)
Net interest and other income 664 226 1,177 445
Foreign currency gain (loss), net 61 14 153 (11)
--------------- -------------- -------------- --------------
Loss before income taxes (1,366) (3,685) (2,433) (3,035)
Income tax benefit 814 248 869 93
--------------- -------------- -------------- --------------
Net loss $ (552) $ (3,437) $ (1,564) $ (2,942)
=============== ============== ============== ==============
Net loss per share:
Basic and diluted $ (0.03) $ (0.18) $ (0.08) $ (0.16)
=============== ============== ============== ==============
Weighted average number of
common and common equivalent shares:
Basic and diluted 19,360,894 19,005,208 19,232,840 18,932,945
=============== ============== ============== ==============
Cash dividends declared per share
(2006: 5.0 cents for each of Q1 2006 and Q2 2006 (see note), $ - $ 0.045 $ 0.10 $ 0.09
2005: 4.5 cents for Q1 2005 and Q2 2005)
=============== ============== ============== ==============
Note: The Q2 2006 dividend was declared on March 30, 2006.
See accompanying notes to the consolidated financial statements.
5
RADICA GAMES LIMITED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME (LOSS)
Six months ended June 30, 2006
Accumulated
(US dollars in thousands) Common stock Additional other Total
Number paid-in Deferred Retained comprehensive shareholders'
of shares Amount capital compensation earnings loss equity
---------- ---------- ----------- ------------ --------- ------------- -------------
Balance at December 31, 2005 19,080,004 $ 191 $ 6,122 $ (203) $ 93,025 $ (740) $ 98,395
Elimination of remaining deferred
compensation balance upon adoption
of SFAS No. 123R - - (203) 203 -
Net loss - - - - (1,564) - (1,564)
Unrealized gain on investment
securities available-for-sale,
net of nil tax - - - - - 91 91
Foreign currency translation,
net of nil tax - - - - - 453 453
-------------
Comprehensive income (1,020)
Issuance of stock 813 - 8 - - - 8
Issuance of restricted stock 36,445 - - - - - -
Amortisation of restricted stock - - 176 - - - 176
Stock options exercised 288,474 3 1,468 - - - 1,471
Dividends paid - - - - (1,918) - (1,918)
---------- ---------- ----------- ------------ ---------- ------------- -------------
Balance at June 30, 2006 19,405,736 $ 194 $ 7,571 $ - $ 89,543 $ (196) $ 97,112
========== ========== =========== ============ ========== ============= =============
See accompanying notes to the consolidated financial statements.
6
RADICA GAMES LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30, 2006 and 2005
(US dollars in thousands) Six months ended June 30,
-----------------------------------------
2006 2005
-------------------- -------------------
(unaudited) (unaudited)
Cash flow from operating activities:
Net loss $ (1,564) $ (2,942)
Adjustments to reconcile net loss to net cash
used in operating activities:
Deferred income taxes (564) (237)
Depreciation and amortization 1,147 862
Impairment of goodwill - 6,015
Gain on disposal and write off of property, plant and equipment (104) (54)
Stock-based compensation expense 184 37
Realized gain on trading securities - (24)
Unrealized gain on trading securities (141) -
Proceeds from sale of trading securities - 2,616
Changes in current assets and liabilities:
Decrease in accounts receivable 8,024 1,348
Increase in inventories (12,245) (12,301)
Increase in prepaid expenses and other current assets (1,653) (1,714)
Increase in accounts payable 7,034 4,731
Decrease in accrued payroll and employee benefits (2,513) (59)
Decrease in accrued warranty expenses (1,109) (370)
(Decrease) increase in other accrued liabilities (763) 511
Increase in net income taxes receivable (365) (6)
-------------------- -------------------
Net cash used in operating activities (4,632) (1,587)
-------------------- -------------------
Cash flow from investing activities:
Proceeds received upon maturity of available-for-sale securities 10,000 -
Proceeds from sale of property, plant and equipment 409 55
Purchase of property, plant and equipment (1,417) (3,722)
-------------------- -------------------
Net cash provided by (used in) investing activities 8,992 (3,667)
-------------------- -------------------
Cash flow from financing activities:
Proceeds from stock options exercised 1,471 861
Dividends paid (1,918) (1,702)
-------------------- -------------------
Net cash used in financing activities (447) (841)
-------------------- -------------------
Effect of currency exchange rate change on cash and cash equivalents 73 (374)
-------------------- -------------------
Net increase (decrease) in cash and cash equivalents 3,986 (6,469)
Cash and cash equivalents:
Beginning of period 37,358 27,614
-------------------- -------------------
End of period $ 41,344 $ 21,145
==================== ===================
See accompanying notes to the consolidated financial statements.
7
RADICA GAMES LIMITED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2006)
(US dollars in thousands, except per share data)
1. BASIS OF PRESENTATION
FINANCIAL STATEMENT PRESENTATION
The condensed consolidated financial statements of Radica Games Limited
(the "Company" or "Radica") have been prepared in accordance with generally
accepted accounting principles in the United States for interim financial
information and the rules and regulations of the Securities and Exchange
Commission (the "SEC"). Certain information and footnote disclosures
normally included in the financial statements prepared in accordance with
generally accepted accounting principles in the United States have been
condensed or omitted pursuant to such rules and regulations. The
accompanying unaudited condensed consolidated financial statements contain
all normal and recurring adjustments which, in the opinion of management,
are necessary to present fairly the financial position of the Company as of
June 30, 2006, and its results of operations and cash flows for the periods
presented herein. These unaudited condensed consolidated financial
statements should be read in conjunction with the Company's Annual Report
on Form 20-F for the year ended December 31, 2005.
Because the Company's business is seasonal, revenues, expenses, assets and
liabilities can vary during each quarter of the year. Accordingly, the
operating results and trends in these unaudited condensed consolidated
interim financial statements are not necessarily indicative of future
results that may be expected for any other interim period or the full year.
The preparation of financial statements in conformity with generally
accepted accounting principles in the United States requires management to
make estimates and assumptions that affect reported amounts of certain
assets, liabilities, revenues and expenses and the disclosure of contingent
assets and liabilities as of and during the reporting periods. Significant
items subject to such estimates and assumptions include the carrying amount
of property, plant and equipment, valuation allowances for receivables and
deferred income tax assets and provisions for product returns and
warranties, as well as the provision for legal contingencies. Actual
results could differ from the estimated results. Changes from those
estimates are recorded in the period they become known.
ACCOUNTING FOR STOCK BASED COMPENSATION
Prior to January 1, 2006, the Company applied the intrinsic-value-based
method of accounting prescribed by the Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations including Financial Accounting Standards Board (FASB)
interpretation No. 44, Accounting for Certain Transactions involving Stock
Compensation, an interpretation of APB Opinion No. 25 to account for its
fixed-plan stock options. Under this method, compensation expense was
recorded on the date of grant only if the then market price of the
underlying stock exceeded the exercise price. Statement of Financial
Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation, 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 continued to apply the
intrinsic-value based method of accounting as described above, and adopted
only the disclosure requirements of SFAS No. 123.
Effective January 1, 2006, the Company adopted the fair value recognition
provisions of Statement of Financial Accounting Standards (SFAS) No. 123R,
Share-Based Payments. The Company has elected the modified prospective
transition method as permitted by SFAS No. 123R, and accordingly, prior
periods have not been restated to reflect the impact of SFAS No. 123R.
Under this transition method, compensation cost recognized for the
six-month period ended June 30, 2006 includes: (i) compensation cost for
all stock-based payments granted prior to, but not vested as of, January 1,
2006 (based on the grant-date fair value estimated in accordance with the
original SFAS No. 123 and previously presented in the pro forma footnote
disclosures), and (ii) compensation cost for all stock-based payments
granted subsequent to January 1, 2006 (based on the grant-date fair value
estimated in accordance with the new provisions of SFAS No. 123R).
The estimated value of the Company's stock-based awards (including stock
options and restricted stocks), less expected forfeitures, is amortized
over the awards' respective vesting period on a straight-line basis.
8
RADICA GAMES LIMITED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2006)
(US dollars in thousands, except per share data)
1. BASIS OF PRESENTATION (CONTINUED)
EFFECT OF ADOPTING SFAS NO. 123R
Under SFAS No. 123R, the Company recognized $97 and $176, net of taxes, of
compensation expense related to stock options and restricted stock for the
three-month and six-month period ended June 30, 2006, respectively. Such
stock-based compensation expense is included in selling, general and
administrative expenses. The implementation of SFAS No. 123R did not have
any impact on the Company's basic and diluted earnings per share or cash
flows from financing activities for the second quarter of 2006.
PRIOR PERIOD PRO FORMA PRESENTATIONS
The Company has applied the modified prospective transition approach for
adoption of SFAS No. 123R. Under the modified prospective approach, results
for prior periods have not been restated to reflect the effects of
implementing SFAS No. 123R. The following pro forma information, is
presented for comparative purposes and illustrates the pro forma effect on
net earnings and earnings per share for each period presented as if the
Company had accounted for its stock options under the fair value method:
Three months Six months
ended ended
June 30, 2005 June 30, 2005
------------- -------------
Net loss as reported $ (3,437) $ (2,942)
Add stock-based employee compensation expense
determined under intrinsic-value-based method 28 37
Deduct total stock-based employee compensation
expense determined under fair-value-based method
for all rewards, net of tax (199) (339)
------------- -------------
Pro forma net loss $ (3,608) $ (3,244)
============= =============
Reported loss per share
Basic $ (0.18) $ (0.16)
Diluted $ (0.18) $ (0.16)
Pro forma loss per share
Basic $ (0.19) $ (0.17)
Diluted $ (0.19) $ (0.17)
RECLASSIFICATIONS
Certain reclassifications have been made to prior period cash flows used in
operating activities to conform to the current period presentation. The
effect of currency exchange rate change on non-cash and cash equivalents
items for the six-month period ended June 30, 2005 was reclassified to
relevant line items in the cash flow statements. The reclassification
resulted in an increase of $273 in the amount of net cash used in operating
activities for the six-month period ended June 30, 2005 to $1,587. A
similar reclassification was also made to cash flow from investing
activities which resulted in an increase of $10 in the amount of net cash
used in investing activities for the six-month period ended June 30, 2005.
9
RADICA GAMES LIMITED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2006)
(US dollars in thousands, except per share data)
2. LOSS PER SHARE
Basic loss per share is computed by dividing reported net loss by the
weighted average number of common shares outstanding during each period.
Diluted loss per share is computed by dividing reported net loss by the
weighted average number of common shares and the effect of all dilutive
potential common stock outstanding during each period. Diluted loss per
share for the three and six months ended June 30, 2006 and 2005 is the same
as basic loss per share due to dilutive potential common stock has no
effect on net loss position for the period.
The following table sets forth the computations of loss per share:
Three months ended June 30, Six months ended June 30,
-------------------------- ---------------------------
2006 2005 2006 2005
------------ ------------ ------------ ------------
Numerator for basic and diluted loss per share:
Net loss $ (552) $ (3,437) $ (1,564) $ (2,942)
============ ============ ============ ============
Denominator:
Basic and diluted weighted average shares 19,360,894 19,005,208 19,232,840 18,932,945
------------ ------------ ------------ ------------
Basic and diluted loss per share: $ (0.03) $ (0.18) $ (0.08) $ (0.16)
============ ============ ============ ============
3. INVENTORIES
Inventories by major categories are summarized as follows:
June 30, December 31,
2006 2005
------------- -------------
Raw materials $ 5,369 $ 2,085
Work in progress 13,915 6,982
Finished goods 14,623 12,353
------------- -------------
$ 33,907 $ 21,420
============= =============
10
RADICA GAMES LIMITED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2006)
(US dollars in thousands, except per share data)
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
June 30, December 31,
2006 2005
------------ ------------
Land and buildings $ 9,855 $ 10,251
Plant and machinery 11,464 10,767
Furniture and equipment 8,558 8,064
Leasehold improvements 3,335 3,307
------------ ------------
Total $ 33,212 $ 32,389
Less accumulated depreciation and amortization (18,689) (17,847)
------------ ------------
$ 14,523 $ 14,542
============ ============
In November 2002, the AICPA International Practices Task Force (the "Task
Force") discussed an issue relating to accounting for land use rights in
China. The Task Force view is that China land use rights are considered
operating leases, as they are long-term leases of lands, which do not
transfer title. As of June 30, 2006 and December 31, 2005, other assets of
$822 and $833 respectively, comprise prepaid land use rights. The prepaid
land use rights have a term of 50 years.
5. OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following:
June 30, December 31,
2006 2005
------------ ------------
Accrued advertising expenses $ 1,129 $ 1,761
Accrued license and royalty fees 1,263 1,796
Commissions payable 88 68
Other accrued liabilities 2,768 2,362
------------ ------------
$ 5,248 $ 5,987
============ ============
6. PLEDGE OF ASSETS
At June 30, 2006, the Company has general banking facilities including
overdraft and trade facilities totaling $5,049 available for immediate
borrowing. The facilities are collateralized by leasehold land and
buildings with an aggregate net book value of $1,496.
11
RADICA GAMES LIMITED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2006)
(US dollars in thousands, except per share data)
7. LITIGATION
On April 4, 2000 a lawsuit was filed by the Lemelson Foundation
("Lemelson") against the Company in Arizona Court for patent infringement.
Lemelson claims to be owner of nearly 800 issued and pending patents,
including the patent on Machine Vision and Automatic Identification
(AutoID) operations. The Auto ID operation is used in machines that are
part of the Company's bonding and heat-sealing manufacturing processes.
Lemelson was contesting that the use of machines that incorporate this
patented technology infringes on their intellectual property ("IP") rights
and therefore the Company is obligated to pay a royalty based on the use of
this technology. The suit by Lemelson was stayed pending the outcome of
Lemelson vs. Cognex, a similar suit filed by Lemelson, which had bearing on
the Radica case with Lemelson. On January 23, 2004 a declaratory judgment
was given in the Cognex case that Lemelson's patent claims are invalid. On
September 9, 2005, Lemelson's appeal to the Court of Appeals for the
Federal Circuit was denied and the judgment of the District Court was
affirmed. Subsequently, Lemelson filed a Petition for Panel Rehearing and
Rehearing En Banc to review the Court of Appeals' September 9, 2005 Order
that affirmed the judgment of the District Court. On November 16, 2005 the
Court of Appeals for the Federal Circuit affirmed its September 9, 2005
ruling and denied the Petition for Rehearing En Banc. The prior pending
claim or litigation, specifically, Lemelson Medical Education Foundation v.
ESCO Electronics, et al.; CIV-00-0660 PHX HRH in the U.S. District Court
for the District of Arizona was dismissed with prejudice and final judgment
was entered in favor of Radica on February 3, 2006.
In 2005, the Company and its subsidiary Radica (Macao Commercial Offshore)
Limited (the "Radica parties") were involved in litigation initiated by
AtGames Holdings Limited which challenged the exclusivity of Radica's
rights to the Play TV Sega Genesis games. In late December 2005, the
arbitrator issued an interim decision in favor of Sega Corporation in its
arbitration against AtGames. Subsequently, in January 2006, AtGames
voluntarily dismissed (without prejudice) its complaint against Radica and
Radica Macao. At present, there is no pending litigation or arbitration
against the Radica parties arising out of this matter.
12
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
unaudited interim 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, 2005, as filed with
the United States Securities and Exchange Commission.
DESCRIPTION OF BUSINESS
Founded in 1983 by Americans living in Hong Kong, Radica Games Limited (NASDAQ:
RADA) was incorporated in Bermuda in 1993. We are headquartered in Hong Kong and
manufacture most of our products in our factory in southern China. In 1994 we
went public when our shares began trading on the Nasdaq National Market.
We manufacture and market a diverse line of electronic entertainment products
covering multiple product lines - Electronic games carrying the Radica and Play
TV(R) brand names, Gamester(R) branded video game controllers and accessories,
youth electronics carrying the Girl Tech(R) brand name, Cupcakes(R) dolls, Cube
World(TM) portable handheld devices and 20Q(TM), the award winning electronic
line based on the classic guessing game. Our factory also manufactures for other
companies in the electronic game industry. We market our products through
subsidiaries in the United States, the United Kingdom, Canada, Macau and Hong
Kong. Our largest market is in the United States where in 2005 we had the second
largest market share in the electronic handheld and tabletop electronic games
according to industry data source, The NPD Group, Inc.
RESULTS OF OPERATIONS
The following table sets forth items from our Condensed Consolidated Statements
of Operations as a percentage of net sales:
Three months ended June 30,
---------------------------------
2006 2005
--------------- ---------------
Net sales 100.0% 100.0%
Cost of goods sold (67.5%) (69.6%)
Gross margin 32.5% 30.4%
Selling, general and administrative expenses (34.2%) (19.4%)
Research and development (5.5%) (2.9%)
Depreciation and amortization (2.8%) (1.4%)
Impairment of goodwill (0.0%) (19.3%)
Operating loss (10.0%) (12.6%)
Net interest and other income 3.2% 0.7%
Foreign currency gain, net 0.3% 0.1%
Loss before income taxes (6.5%) (11.8%)
Credit for income taxes 3.9% 0.8%
Net loss (2.6%) (11.0%)
We reported a net loss for the second quarter of $0.6 million or $0.03 per
diluted share compared to $3.4 million or $0.18 per diluted share in the second
quarter of 2005.
During the quarter, we incurred legal and other costs amounting to $0.4 million
relating to the prospective merger with Mattel, Inc. announced on July 26, 2006.
In addition, as a result of a change in the methodology used to calculate VAT in
China by local officials, we booked a one time, additional VAT charge relating
to 2004 and 2005 of $0.8 million during Q2 2006. Last year, in Q2 of 2005, we
booked an impairment of goodwill charge of $6 million.
13
Sales for Q2 2006 decreased by 32% to $21.0 million from $31.1 million for the
same period in 2005. Of this decrease $7.2 million came in non-core, low margin
areas of business that were expected to decline including Play TV Legends, Video
Game Accessories (VGA) and ODM sales. In addition, the decrease was due to the
decision by a major customer to significantly increase the percentage of their
orders from domestic supply and to decrease the percentage from import supply in
2006, which shifted the timing of a substantial amount of shipments from the
second quarter to the third and fourth quarters of 2006. While this impacted our
second quarter in comparison to the second quarter of 2005, this year's sales
pattern is more typical of how this account was shipped in years prior to 2005.
The following table shows revenue comparison by product lines for the quarter:
Three months ended June 30, Six months ended June 30,
--------------------------------- ---------------------------------
Product Lines 2006 2005 2006 2005
--------------- --------------- --------------- ---------------
(US Dollars in thousands)
Electronic Games $ 15,786 $ 22,990 $ 30,042 $ 40,088
Youth Electronics 3,355 3,104 5,513 5,550
Other Electronic Toys 287 648 735 498
Video Game Accessories 326 1,847 1,211 3,441
Manufacturing Services 1,281 2,542 2,001 4,028
--------------- --------------- --------------- ---------------
TOTAL $ 21,035 $ 31,131 $ 39,502 $ 53,605
=============== =============== =============== ===============
Gross profit margin for Q2 2006 was 32.5% compared to 30.4% in Q2 2005. This
improvement was due to a shift in product mix from lower margin product lines to
higher margin core categories offset by the $0.8 million VAT charge to cost of
goods.
Operating expenses for the quarter decreased to $8.9 million from $13.4 million
in Q2 2005. The decrease was due to the impact of the $6 million goodwill
impairment charge in Q2 2005, a reduction in sales related variable expenses
offset by an increase of $0.9 million of advertising and co-op expenses and $0.4
million of charges related to our strategic process and prospective merger.
The following table shows the major operating expenses:
Three months ended June 30,
-----------------------------------
(US$ in thousands) 2006 2005
-------------- --------------
Advertising and co-op expenses $ 1,861 $ 924
Other selling and promotion expenses 332 503
Distribution fees 274 307
Other general and administrative expenses 2,134 1,899
Indirect salaries and bonus 2,591 2,399
Research and development expenses 1,147 892
Depreciation and amortization 588 458
Impairment of goodwill - 6,015
Credit for income taxes (814) (248)
CAPITAL RESOURCES AND LIQUIDITY
Our cash and investment securities totaled $47.5 million at June 30, 2006 as
compared to $53.3 million at December 31, 2005. The $5.8 million decrease was
mainly due to net cash used in operating activities of $4.6 million, purchase of
property, plant and equipment of $1.4 million and dividend payment of $1.9
million. The decrease, however, has been partly offset by proceeds received from
sale of property, plant and equipment of $0.4 million and proceeds received from
stock options exercised of $1.5 million.
14
Our accounts receivable were $10.8 million at June 30, 2006 as compared to $18.7
million at December 31, 2005 and $16.7 million at June 30, 2005. Inventories
increased to $33.9 million from $21.4 million at December 31, 2005 and showed a
decrease as compared to $39.1 million at June 30, 2005. Our business is
inherently seasonal. Normally our sales and accounts receivable have been lowest
during the first and second quarters and highest during the third and fourth
quarters. The decrease in accounts receivable related primarily to the decrease
in sales in the first and second quarter of 2006 compared to the third and
fourth quarter of 2005. The inventory increase from December 31, 2005 was
primarily due to normal seasonality. Such seasonal changes in assets and
liabilities are typical for the toy industry.
Current liabilities were $21.2 million at June 30, 2006, up $2.3 million from
$18.9 million reported at December 31, 2005. This was largely due to an increase
in purchases of raw materials for production during the period. There was no
debt outstanding at June 30, 2006, December 31, 2005 and June 30, 2005.
At June 30, 2006, we had net assets of $97.1 million compared with $98.4 million
at December 31, 2005. We had no derivative instruments or off-balance sheet
financing activities during the quarter ended June 30, 2006. We believe that our
existing cash, investment securities and credit lines are sufficient to meet
future short-term cash demands, including seasonal build up of inventory. We
fund our operations and liquidity needs primarily through cash flow from
operations, as well as utilizing borrowings under secured and unsecured credit
facilities when needed. During 2006, we expect to continue to fund our working
capital needs through operations and the revolving credit facility and we
believe that the funds will be sufficient to meet our needs. 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, thereby causing us to exhaust our cash resources. If this were to
occur, we may be required to seek alternative financing of working capital.
On January 6, March 30 and July 10, 2006, we declared first, second and third
quarter dividends each of 5 cents per share that were paid on January 31, April
28 and July 31, 2006, respectively.
CRITICAL ACCOUNTING POLICIES
For a discussion of our critical accounting policies, see "Item 5. Operating and
Financial Review and Prospects" in our 2005 Form 20-F.
RECENTLY ISSUED ACCOUNTING STANDARDS
A discussion of certain recently issued accounting standards and the estimated
impact on us is set out in our 2005 Form 20-F.
RISK FACTORS
For a discussion of our risk factors, see "Item 3. Key Information - Risk
Factors" and "Item 5. Operating and Financial Review and Prospects" in our 2005
Form 20-F.
FORWARD-LOOKING STATEMENTS AND CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
(CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995)
Certain written and oral statements made or incorporated by reference from time
to time by us or our representatives in this Form 6-K, other filings or reports
filed with the Securities and Exchange Commission, press releases, conferences,
or otherwise, contain certain "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. You can identify these forward-looking statements by the
fact they use words such as "should", "expect", "anticipate", "estimate", "may",
"will", "project", "guidance", "intend", "plan", "believe" and other words and
terms of similar meaning and expression in connection with any discussion of
future operating or financial performance. One can also identify forward-looking
statements by the fact that they do not relate strictly to historical or current
facts. Such forward-looking statements are based on current expectations and
involve inherent risks and uncertainties, including factors that could delay,
divert or change any of them, or depend on the outcome of contingencies such as
legal proceedings. Management cautions you that forward-looking statements
involve risks and uncertainties that may cause actual results to differ
materially from the forward-looking statements. For a more complete
15
discussion of our risk factors, you are referred to the sections in our Form
20-F and Form 6-K identified above under the caption "Risk Factors". The
forward-looking statements made in this Form 6-K speak only as of the date on
which the statements are made.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk disclosures have not materially changed from those
appearing in our 2005 Form 20-F (see Item 11).
ITEM 4. CONTROLS AND PROCEDURES
Not Applicable.
16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See Note 7 to the accompanying interim condensed financial statements.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
There were no unregistered sales of equity securities in the quarterly
period covered by this report, except that, as disclosed in the Company's
filings under the Securities Exchange Act of 1934, the Company permits any
outside director to elect to receive some or all of the applicable director fees
payable in shares of the Company's Common Stock valued at the then current
market price. Such issuances are exempt from registration pursuant to Section
4(2) under the Securities Act of 1933, as being issuances not involving any
public offering. In the quarter ended June 30, 2006, the Company issued an
aggregate of 524 shares to an outside director in lieu of an aggregate of $5,245
of fees that would otherwise have been paid to such director in cash. No
underwriters were involved in such transactions.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits
None.
Supplemental Information:
As previously disclosed in our Form 6-K filing on August 16, 2005, Jon Bengtson,
the Chairman of the Board of Radica Games, entered into a Rule 10b5-1 preset
diversification program on July 6, 2005.
Rule 10b5-1 of the Securities Exchange Act of 1934 allows officers and directors
to adopt written plans for trading the Company's securities in a
non-discretionary, pre-scheduled manner in order to avoid concerns about
initiating stock transactions when the insider may be aware of non-public
information.
During the term of the trading plan, acting on behalf of a family trust, Mr.
Bengtson intended to sell up to 100,000 shares, and the trading plan terminated
when such shares were sold, or on June 30, 2006.
As announced on July 26, 2006, and reflected in our Form 6-K report filed July
27, 2006 Radica has entered into an agreement to be acquired by Mattel, Inc. in
a transaction in which, upon consummation, Radica shareholders will receive
$11.55 per share of Radica common stock.
17
SIGNATURE
---------
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: August 14, 2006 /s/ Craig D. Storey
----------------------- ------------------------------
Craig D. Storey
Chief Accounting Officer
18
RADICA GAMES LIMITED
REPORTS SECOND QUARTER RESULTS
FOR IMMEDIATE RELEASE CONTACT: PATRICK S. FEELY
AUGUST 14, 2006 CHIEF EXECUTIVE OFFICER
(LOS ANGELES, CALIFORNIA)
(626) 744 1150
DAVID C.W. HOWELL
CHIEF FINANCIAL OFFICER
(HONG KONG)
(852) 2688 4201
(HONG KONG) Radica Games Limited (NASDAQ: RADA) announced today its results for
the second quarter ended June 30, 2006. The Company reported a net loss for the
quarter of ($0.6) million or ($0.03) per diluted share compared to ($3.4)
million or ($0.18) per diluted share in Q2 2005. Net loss for the six-month
period ended June 30, 2006 was ($1.6) million or ($0.08) per diluted share
compared to ($2.9) million or ($0.16) per diluted share for the same period in
2005.
During the quarter, the Company incurred legal and other costs amounting to $0.4
million relating to the prospective merger with Mattel, Inc. announced on July
26, 2006. In addition, as a result of a change in the methodology used to
calculate VAT in China by local officials, the Company recorded a one time,
additional VAT charge relating to 2004 and 2005 of $0.8 million during Q2 2006.
In Q2 of 2005, the Company recorded a goodwill impairment charge of $6 million.
On a non-GAAP basis, excluding these one time charges in both periods the
Company made a profit for the quarter of $0.6 million compared to a profit of
$2.6 million in Q2 of 2005.
Sales for Q2 2006 decreased by 32% to $21.0 million from $31.1 million for the
same period in 2005. Of this decrease $7.2 million came in non-core, low margin
areas of business that were expected to decline including Play TV Legends, Video
Game Accessories (VGA) and ODM sales. The remainder of the unfavorable variance
to Q2 of 2005 was due to the decision by a major customer to significantly
increase the percentage of their orders from domestic supply and to decrease the
percentage from import supply in 2006 as previously reported in the first
quarter results. This shifts the timing of a substantial amount of shipments
from the second quarter to the third and fourth quarters. While this impacted
our second quarter in comparison to the second quarter of 2005, this year's
sales pattern is more typical of how this account was shipped in years prior to
2005. Sales for the year-to-date decreased 26% to $39.5 million as compared to
$53.6 million for the same period in 2005 for the same reasons.
Pat Feely, Radica's Chief Executive Officer said, "While our second quarter
results were below 2005 given changes in customer order patterns, we are on
track for the full year with our expectations. We continue to believe this will
be a solid year as indicated by our strong year to date point of sale retail
movement and solid fall listings as well as retail promotional support for
fall."
"We look forward to our merger with Mattel and the many benefits that the
synergy of our respective strengths can bring to our business. The process
leading to a closing is continuing on schedule and we hope will be concluded in
the fourth quarter. In the meantime it is business as usual at Radica," said
Feely.
The following table shows the detailed revenue comparisons for the quarter:
Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
Product Lines 2006 2005 2006 2005
------------ ------------ ----------- -----------
(US Dollars in thousands)
Electronic Games $ 15,786 $ 22,990 $ 30,042 $ 40,088
Youth Electronics 3,355 3,104 5,513 5,550
Other Electronic Toys 287 648 735 498
Video Game Accessories 326 1,847 1,211 3,441
Manufacturing Services 1,281 2,542 2,001 4,028
------------ ------------ ----------- -----------
TOTAL $ 21,035 $ 31,131 $ 39,502 $ 53,605
============ ============ =========== ===========
Gross profit margin for Q2 2006 was 32.5% compared to 30.4% in Q2 2005 and was
36.1% after adjusting for the impact of the VAT charge in cost of goods. This
improvement was due to a shift in product mix from lower margin product lines to
higher margin core categories. Gross profit for the six-month period ended June
30, 2006 was 34.9% (or 36.8% as adjusted for the VAT charge) compared to 33.9%
for the same period in 2005.
Operating expenses for the quarter decreased to $8.9 million from $13.4 million
in Q2 2005. The decrease was due to the impact of the $6 million goodwill
impairment charge in Q2 2005, a reduction in sales related variable expenses
offset by an increase of $0.9 million of advertising and co-op expenses and $0.4
million of charges related to the Company's strategic process and prospective
merger with Mattel. For the six months ended June 30, 2006, operating expenses
decreased by $4.1 million from the comparative period in 2005 due to similar
reasons.
Income tax benefit for the quarter stood at $0.8 million compared to $0.2
million in Q2 2005 and at $0.9 million year to date compared to $0.1 million in
2005 due to higher losses incurred during the quarter in the U.S. subsidiary.
At June 30, 2006 the Company had $47.5 million in cash and investment
securities, and net assets of $97.1 million as compared to $31.0 million and
$86.7 million respectively as of June 30, 2005 and $53.3 million and $98.4
million, respectively, at December 31, 2005. There was no debt at June 30, 2006,
December 31, 2005 and June 30, 2005. Inventories increased to $33.9 million from
$21.4 million at December 31, 2005 and decreased from $39.1 million at June 30,
2005 reflecting normal seasonality, improved inventory control and the change in
ordering patterns from a large customer to later in the year as previously
mentioned. Receivables decreased to $10.8 million from $18.7 million at December
31, 2005 and from $16.7 million at June 30, 2005 reflecting normal seasonality
and reduced sales in the first half in comparison with 2005.
On July 10, 2006, the Company declared a third quarter dividend for fiscal 2006
of $0.05 per share, which was paid on July 31, 2006.
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,
2005, 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 entertainment products including electronic games,
youth electronics, video game accessories and high-tech toys. Radica has
subsidiaries in the U.S.A., Canada, the U.K. and Macau, 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 June 30, Six months ended June 30,
--------------------------- ----------------------------
except per share data) 2006 2005 2006 2005
------------ ------------ ------------ ------------
(unaudited) (unaudited) (unaudited) (unaudited)
Revenues:
Net sales $ 21,035 $ 31,131 $ 39,502 $ 53,605
Cost of goods sold
(exclusive of items shown separately below) (14,199) (21,659) (25,725) (35,417)
------------ ------------ ------------ ------------
Gross profit 6,836 9,472 13,777 18,188
------------ ------------ ------------ ------------
Operating expenses:
Selling, general and administrative expenses (7,192) (6,032) (13,842) (12,691)
Research and development (1,147) (892) (2,552) (2,089)
Depreciation and amortization (588) (458) (1,146) (862)
Impairment of goodwill - (6,015) - (6,015)
------------ ------------ ------------ ------------
Total operating expenses (8,927) (13,397) (17,540) (21,657)
------------ ------------ ------------ ------------
Operating loss (2,091) (3,925) (3,763) (3,469)
Net interest and other income 664 226 1,177 445
Foreign currency gain (loss), net 61 14 153 (11)
------------ ------------ ------------ ------------
Loss before income taxes (1,366) (3,685) (2,433) (3,035)
Income tax benefit 814 248 869 93
------------ ------------ ------------ ------------
Net loss $ (552) $ (3,437) $ (1,564) $ (2,942)
============ ============ ============ ============
Net loss per share:
Basic and diluted $ (0.03) $ (0.18) $ (0.08) $ (0.16)
============ ============ ============ ============
Weighted average number of common and
common equivalent shares:
Basic and diluted 19,360,894 19,005,208 19,232,840 18,932,945
============ ============ ============ ============
Cash dividends declared per share
(2006: 5.0 cents for each of Q1 2006 and Q2 2006 (see note), $ - $ 0.045 $ 0.10 $ 0.09
2005: 4.5 cents for Q1 2005 and Q2 2005)
============ ============ ============ ============
Note: The Q2 2006 dividend was declared on March 30, 2006.
RADICA GAMES LIMITED
CONSOLIDATED BALANCE SHEETS
(US dollars in thousands, except per share data) June 30, December 31, June 30,
----------- ------------ ----------
2006 2005 2005
----------- ------------ ----------
(unaudited) (unaudited)
Assets
Current assets:
Cash and cash equivalents $ 41,344 $ 37,358 $ 21,145
Investment securities 6,160 15,928 9,857
Accounts receivable, net of allowances for doubtful accounts of $150
($165 as at December 31, 2005 and $131 as at June 30, 2005) 10,810 18,703 16,709
Inventories 33,907 21,420 39,097
Prepaid expenses and other current assets 5,901 4,196 5,055
Income taxes receivable 432 479 23
Deferred income taxes 3,793 3,237 2,027
---------- ------------ ----------
Total current assets 102,347 101,321 93,913
Property, plant and equipment, net 14,523 14,542 14,340
Other assets 822 833 843
Deferred income taxes, noncurrent 580 572 1,013
---------- ------------ ----------
Total assets $ 118,272 $ 117,268 $ 110,109
========== ============ ==========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 14,586 $ 8,636 $ 16,179
Accrued payroll and employee benefits 1,321 3,833 1,415
Accrued expenses 5,248 5,987 5,712
Income taxes payable 5 417 136
---------- ------------ ----------
Total current liabilities 21,160 18,873 23,442
---------- ------------ ----------
Total liabilities 21,160 18,873 23,442
---------- ------------ ----------
Shareholders' equity:
Common stock
par value $0.01 each, 100,000,000 shares authorized, 19,405,736 shares
outstanding (19,080,004 as at December 31, 2005 and 19,023,645 as at June
30, 2005) 194 191 190
Additional paid-in capital 7,571 6,122 5,861
Retained earnings 89,543 93,025 81,265
Deferred compensation - (203) (356)
Accumulated other comprehensive loss (196) (740) (293)
---------- ------------ ----------
Total shareholders' equity 97,112 98,395 86,667
---------- ------------ ----------
Total liabilities and shareholders' equity $ 118,272 $ 117,268 $ 110,109
========== ============ ==========
RADICA GAMES LIMITED
ANNOUNCES QUARTERLY CASH DIVIDEND
FOR IMMEDIATE RELEASE CONTACT: PATRICK S. FEELY
JULY 10, 2006 CHIEF EXECUTIVE OFFICER
(LOS ANGELES, CALIFORNIA)
(626) 744 1150
DAVID C.W. HOWELL
CHIEF FINANCIAL OFFICER
(HONG KONG)
(852) 2688 4201
(HONG KONG) Radica Games Limited (NASDAQ: RADA) announced today that its Board
of Directors has declared a quarterly dividend of $0.05 per share. The dividend
will be payable on July 31, 2006, to shareholders of record as of July 14, 2006.
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 entertainment products including electronic games,
youth electronics, video game accessories and high-tech toys. 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 --