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, 2005
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. Updates respecting Risk Factors and 10b5-1 Plan
2. Press Release dated August 15, 2005
3. Press Release dated July 7, 2005
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).
1
The following is intended to update our risk factors as disclosed in our 2004
Annual Report on Form 20-F and as previously updated in our Form 6-K reports
furnished to the Securities and Exchange Commission. The second, third and
fourth paragraphs provide an update to the previous disclosure. After the risk
factors update, we are disclosing a 10b5-1 plan of a director.
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 2004
Form 20-F.
As reported in our 2004 annual report on Form 20-F, in March 2005 we received a
letter from a third party (AtGames Holdings Ltd., or AtGames) challenging the
exclusivity of our manufacturing, vendor and distributor agreement with Sega
Toys, which was represented to give us exclusive rights to the Play TV Sega
Genesis games in the United States and certain other countries. Subsequently, we
have worked closely with Sega Toys and Sega Corporation in an attempt to clarify
our rights. We continue to believe that we have a strong position on the merits
of the dispute as well as certain rights to indemnification from Sega Toys. Sega
Corporation has advised us in writing that its position is that Sega has not
granted AtGames any right to license Sega's Genesis/Mega Drive game titles for
incorporation in TV game pads intended for worldwide markets. AtGames contends
otherwise. Sega and AtGames have submitted their dispute to arbitration, and the
arbitration hearing is currently scheduled to begin in November 2005. Sega
further stated its understanding that under the agreement between Radica and
Sega Toys, Sega Toys has granted Radica the exclusive right to sell Play TV
products incorporating selected Sega Genesis game titles in the United States
and certain other territories under a license granted by Sega to Sega Toys.
On June 13, 2005, AtGames filed a complaint against Radica Games Limited and our
subsidiary Radica (Macao Commercial Offshore) Limited, or Radica Macao, in the
California Superior Court, County of Los Angeles, alleging intentional
interference with contract and unfair competition. The complaint seeks
substantial compensatory damages, punitive damages, declaratory relief and
injunctive relief. The Radica parties consider this suit to be without merit and
intend to defend against it vigorously. As part of this defense, the Radica
parties have removed the case to the Federal District Court, Central District of
California, and have filed a motion to stay pending the outcome of the
arbitration discussed above between Sega and AtGames, and a special motion to
strike.
Previously, Radica Macao had filed suit in the California Superior Court, Los
Angeles County, West District, against the attorneys representing AtGames. The
Radica Macao complaint alleged misappropriation of trade secrets, conversion and
unfair business practices. This suit has recently been settled on terms
satisfactory to Radica Macao which are designed to protect its proprietary
information.
In addition, and supplemental to two prior indemnification demands, the Radica
parties have made formal demand on Sega Toys for indemnification respecting the
action filed by AtGames.
We are presently unable to predict the outcome of the foregoing dispute. We
intend to vigorously defend our rights, and continue to believe in the strength
of our position with respect to exclusive rights in the United States and
certain other territories concerning Play TV Sega Genesis games. Nevertheless,
as we stated in our 2004 Form 20-F, this situation illustrates that in certain
cases we may face additional unanticipated competition from another party who
also has rights, or who asserts that it has rights, in the intellectual property
that we are using or intending to use, and this may have a material adverse
effect on the sales and profitability of the products concerned. We may also
incur substantial costs and management time in defending, or attempting to
defend, our rights.
10B5-1 PLAN
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 intends to sell up to 100,000 shares, and the trading plan will
terminate when such shares are sold, or in any event by June 30, 2006.
2
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 16, 2005 /s/ Craig D. Storey
---------------------------- -------------------------------
Craig D. Storey
Chief Accounting Officer
3
RADICA GAMES LIMITED
REPORTS SECOND QUARTER RESULTS
FOR IMMEDIATE RELEASE CONTACT: PATRICK S. FEELY
AUGUST 15, 2005 CHIEF EXECUTIVE OFFICER
(LOS ANGELES, CALIFORNIA)
(626) 744 1150
DAVID C.W. HOWELL
PRESIDENT ASIA OPERATIONS
& CFO
(HONG KONG)
(852) 2688 4201
HIGHLIGHTS:
o Q2 sales grew by 66% due mainly to continued demand for our 20Q
branded products as well as increases in all other product lines
except Gamester, our video game accessory line.
o The Company took a non cash, impairment charge of $6 million against
the remaining Gamester goodwill.
o Q2 diluted EPS was $0.13 per share before the impairment charge and
($0.18) per share after the impairment charge compared to $0.01 per
share for Q2 2004.
(HONG KONG) Radica Games Limited (NASDAQ: RADA) announced today its results for
the second quarter ended June 30, 2005. The Company reported a net loss for the
quarter of ($3.4) million or ($0.18) per diluted share compared to a net profit
of $0.2 million or $0.01 per diluted share in the second quarter of 2004. Net
loss for the six-month period ended June 30, 2005 was ($2.9) million or ($0.16)
per diluted share compared to ($0.9) million or ($0.05) per diluted share for
the same period in 2004.
During the second quarter the Company recorded a non cash charge of $6.0 million
for the impairment of the remaining goodwill associated with its video game
accessories ("VGA") product line, Gamester. This is due to the decline of the
VGA business that accelerated during the recent quarter because of the platform
transitions currently taking place in the industry. As a result, the future
return to operating profit levels sufficient to justify continuing the carrying
value of the Gamester goodwill is uncertain. Accordingly, the charge was taken
at this time. Excluding this non-cash charge, net profits would have been $2.6
million or 13 cents per diluted share.
Sales for the quarter increased by 66% to $31.1 million from $18.8 million for
the same period in 2004 due mainly to the continued success of our 20Q product
line but also due to increases in all product lines except video game
accessories. Compared to the sales for the same period in 2004, branded sales
grew by 73% with U.S. branded sales increasing by 47%, European sales increasing
by 174% and Other International sales increasing by 106%. Sales for the year to
date increased 73% to $53.6 million as compared to $30.9 million for the same
period in 2004. Branded sales were up by 84% for the six-month period. Gross
profit for the quarter increased by 54% from $6.2 million to $9.5 million.
Pat Feely, Radica's CEO said, "Operationally this was the strongest second
quarter at Radica in 7 years. Our strategy of focusing on electronic
entertainment products has hit the sweet spot of the industry. With products
like 20Q, World Poker Tour and Cube World, Radica is leading the thriving market
for electronic games and gadgets targeted at casual adult gamers. It is not only
an exciting market segment for today's market but also one that we believe has
strong growth potential for the future."
"Unfortunately, the softness this quarter in the video game accessory business
due to the on-going platform transitions caused us to take further non-cash
goodwill impairment charges. We still believe in the viability of our VGA
business and are hopeful this product line will again achieve acceptable
profitability levels in future years. However, due to the decline of VGA orders
we experienced during the quarter and anticipate for both the remainder of the
year and the near term, it was necessary to perform an impairment test during
the quarter which resulted in recording a charge to fully impair the carrying
value of goodwill.
"The outlook for the remainder of the year continues to be solid despite the
softness in VGA sales. Third quarter bookings are looking strong; however,
fourth quarter sales are always uncertain since they depend on the strength of
retail movement during the fall months which in past years has been quite
variable. As a result we continue to be comfortable with current analyst
estimates for the full year excluding the impact of the VGA goodwill
impairment," 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 2005 2004 2005 2004
(US Dollars in thousands) ----------- ------------- ----------- ------------
Electronic Games $ 22,990 $ 11,059 $ 40,088 $ 17,571
Youth Electronics 3,104 2,848 5,550 4,826
Other Electronic Toys 648 565 498 565
Video Game Accessories 1,847 2,016 3,441 4,008
Manufacturing Services 2,542 2,311 4,028 3,954
----------- ------------- ----------- ------------
TOTAL $ 31,131 $ 18,799 $ 53,605 $ 30,924
=========== ============= =========== ============
Gross profit margin for Q2 2005 was 30.4% compared to 32.7% in Q2 2004 and was
33.9% for the year to date compared to 36.5% for the comparable period in 2004.
This decrease in our gross margin percentage was due to provisions taken against
inventories during the quarter amounting to $1.5 million without which, the
gross margin for the quarter would have been 35.1%. Of these provisions, $1.0
million were related to the Video Game Accessories line. With the sales
increases, however, gross profit for the quarter after the inventory charges was
$3.3 million higher than last year.
Operating expenses increased to $13.4 million for the quarter from $6.5 million
in Q2 2004. The increase was due to the impact of the impairment charge for
goodwill together with increases in other areas due mainly to the effect of
sales related costs which increased due to the increase in sales for the quarter
plus an increase of $0.2 million in advertising expenses. For the six months
ended June 30, 2005, operating expenses increased $8.8 million from the
comparative period in 2004 for similar reasons.
The Chinese Government recently revalued its currency, the Renminbi, by
approximately 2.1%. The Company had anticipated this a few months ago and placed
Renminbi on deposit such that there should be little or no effect on
profitability for 2005.
At June 30, 2005 the Company had $31.0 million of cash and investment
securities, and net assets of $86.7 million as compared to $40.1 million and
$91.1 million, respectively, at December 31, 2004 and $36.4 million and $86.6
million respectively as of June 30, 2004. There was no debt at June 30, 2005,
December 31, 2004 and June 30, 2004. Inventories increased to $39.1 million from
$26.8 million at December 31, 2004 and from $26.6 million at June 30, 2004,
reflecting the growing demand for our product lines, as well as normal
seasonality, when compared to December 31, and the effect of building certain
staple items earlier in the year to ease factory peak loading. Receivables
decreased to $16.7 million from $18.4 million at December 31, 2004 and increased
from $9.1 million at June 30, 2004 reflecting the increased sales and normal
seasonality.
On July 7, 2005, the Company declared a third quarter dividend of $0.045 per
share, which was paid on July 29, 2005.
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, 2004, 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
Three months ended June 30, Six months ended June 30,
(US dollars in thousands, ---------------------------- ----------------------------
except per share data) 2005 2004 2005 2004
------------ ------------ ------------ ------------
(unaudited) (unaudited) (unaudited) (unaudited)
Revenues:
Net sales $ 31,131 $ 18,799 $ 53,605 $ 30,924
Cost of goods sold
(exclusive of items shown separately below) (21,659) (12,647) (35,417) (19,632)
------------ ------------ ------------ ------------
Gross profit 9,472 6,152 18,188 11,292
------------ ------------ ------------ ------------
Operating expenses:
Selling, general and administrative expenses (6,032) (5,206) (12,691) (10,195)
Research and development (892) (869) (2,089) (1,798)
Depreciation and amortization (458) (429) (862) (850)
Impairment of goodwill (6,015) -- (6,015) --
------------ ------------ ------------ ------------
Total operating expenses (13,397) (6,504) (21,657) (12,843)
------------ ------------ ------------ ------------
Operating loss (3,925) (352) (3,469) (1,551)
Net interest and other income 226 187 445 418
Foreign currency gain (loss), net 14 72 (11) 44
------------ ------------ ------------ ------------
Loss before income taxes (3,685) (93) (3,035) (1,089)
Income tax benefit 248 264 93 148
------------ ------------ ------------ ------------
Net (loss) profit $ (3,437) $ 171 $ (2,942) $ (941)
============ ============ ============ ============
Net (loss) profit per share:
Basic $ (0.18) $ 0.01 $ (0.16) $ (0.05)
============ ============ ============ ============
Diluted $ (0.18) $ 0.01 $ (0.16) $ (0.05)
============ ============ ============ ============
Weighted average number of common and
common equivalent shares:
Basic 19,005,208 18,620,108 18,932,945 18,595,387
============ ============ ============ ============
Diluted 19,005,208 19,499,899 18,932,945 18,595,387
============ ============ ============ ============
Cash dividends declared per share
(4.5 cents declared and paid for each quarter
ended March 31 and June 30,2005; 4 cents per
quarter in 2004) $ 0.045 $ 0.040 $ 0.090 $ 0.080
============ ============ ============ ============
RADICA GAMES LIMITED
CONSOLIDATED BALANCE SHEETS
(US dollars in thousands, except share data) June 30, December 31, June 30,
2005 2004 2004
--------- ------------ ---------
(unaudited) (unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 21,145 $ 27,614 $ 9,966
Investment securities 9,857 12,456 26,444
Accounts receivable, net of allowances for doubtful accounts
of $131 ($148 as at December 31, 2004 and $210 as at June 30, 2004) 16,709 18,359 9,059
Inventories 39,097 26,818 26,648
Prepaid expenses and other current assets 5,055 3,374 5,225
Income taxes receivable 23 168 931
Deferred income taxes 2,027 1,850 1,706
--------- --------- ---------
Total current assets 93,913 90,639 79,979
Property, plant and equipment, net 14,340 11,480 12,430
Goodwill -- 6,015 9,551
Other assets 843 854 864
Deferred income taxes, noncurrent 1,013 953 899
--------- --------- ---------
Total assets $ 110,109 $ 109,941 $ 103,723
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 16,179 $ 11,840 $ 11,865
Accrued payroll and employee benefits 1,415 1,486 1277
Accrued expenses 5,712 5,251 3,942
Income taxes payable 136 287 4
--------- --------- ---------
Total current liabilities 23,442 18,864 17,088
--------- --------- ---------
Total liabilities 23,442 18,864 17,088
--------- --------- ---------
Shareholders' equity:
Common stock
par value $0.01 each, 100,000,000 shares authorized, 19,023,645
shares outstanding (18,738,112 as at December 31, 2004 and
18,626,228 as at June 30, 2004) 190 187 186
Additional paid-in capital 5,861 4,610 4,309
Retained earnings 81,265 85,909 82,261
Deferred compensation (356) -- --
Accumulated other comprehensive (loss) income (293) 371 (121)
--------- --------- ---------
Total shareholders' equity 86,667 91,077 86,635
--------- --------- ---------
Total liabilities and shareholders' equity $ 110,109 $ 109,941 $ 103,723
========= ========= =========
RADICA GAMES LIMITED
ANNOUNCES QUARTERLY CASH DIVIDEND
FOR IMMEDIATE RELEASE CONTACT: PATRICK S. FEELY
JULY 7, 2005 CHIEF EXECUTIVE OFFICER
(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 its Board
of Directors has declared a quarterly dividend of $0.045 per share. The dividend
will be payable on July 29, 2005, to shareholders of record as of July 20, 2005.
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 --