Game ltd radica

The Company intends to provide a broad line of handheld and table top electronic and mechanical games covering a variety of game categories. In order to provide innovative, high quality games at low prices, Radica employs a strategy of product design in the United States, where a substantial majority of the Company's products are sold, combined with engineering and low cost materials procurement in Asia and low cost manufacturing in China, where the Company operates its Factory.

The Company's current products and planned products are intended to reach retail price points covering the range of large volume gift products. The Company historically focused primarily on products that combine knowledge of the casino gaming industry with experience in new product introduction, electronic game design and low cost manufacturing. More recently, the Company has placed more emphasis on non-casino themed games.

To provide differentiation between high-end and low-end markets, products are packaged under the name 'RADICA: R ' for the low-end mass markets and under the name 'Monte Carlo' for the more exclusive high-end markets. Radica believes its ability to develop and introduce innovative products is enhanced by its established innovative product design and engineering in the United States, its multiple channel distribution capabilities, which allow for close customer contact, and the experience of several of its employees in the casino gaming industry.

Large manufacturing volumes and low cost production activities in China have allowed the Company to keep its prices competitive. In addition, electronic parts and subassemblies can be purchased efficiently and at low cost in Asia.

The Company has expanded and continues to expand distribution of its existing products, both inside and outside the United States. As part of this goal, Radica Canada and Radica UK were established in to distribute products in these markets. The Company intends to pursue related business opportunities that leverage off the Company's product development expertise to access new markets. Related business opportunities include OEM for other companies, of which the manufacturing for the Hasbro Games Group is an example.

However, the foregoing models include 28 models representing discontinued lines, which, unless the market warrants reintroduction, the Company only intends to continue selling so long as inventories exist. The Company intends to introduce over 15 new models in The Company is focusing its efforts to a greater extent on non-casino themed games.

The following table sets forth a breakdown of the Company's sales by major product category for the last four fiscal years. Company designers have incorporated the interesting aspects of sports activities into these electronic handheld games. More Sports themed games are planned for introduction in The Company's Heritage themed games such as Gin Rummy, Hearts, Bingo and Solitaire are electronic handheld versions of classic card, dice and other games. The Company believes that its versions of classic games are designed to provide the highest play value to customers as a result of their accuracy.

More Heritage themed games are planned for introduction in The Company's Action games such as Night Vision Tank Assault TM and Night Vision Sub Assault TM are electronic games which are held up to the eyes in a similar way to binoculars and create a 'virtual' experience for the user similar to looking through a gun site in a tank or a periscope in a submarine.

The Company's current Casino themed games are designed to simulate the commercial gaming machines such as Video Poker, Video Blackjack and Slot found in casinos but without any monetary risk or reward.

The electronic games allow players to bet points with automatic scorekeeping. The Company's games also offer a variety of different features intended to further simulate casino playing, such as variable betting, music melody on winners, a jackpot bell slot games , a flashing win light and reel spin sound slot games. The sound of games can be turned off to permit silent play. A new line of Casino themed games is being introduced in see New Product Introduction.

The Company's tabletop models are designed to be attractive souvenirs and gifts. The tabletop models have a coin slot and jackpot bell like commercial casino machines and can be used as savings banks. The electronic tabletop models have features similar to those of the Company's handheld games. Certain of the tabletop mechanical models have a simulated pewter finish to give them an antique appearance. The Company's electronic games incorporate a semiconductor microcontroller chip into which the Company's proprietary game software has been masked.

The electronic games use LCDs for their display and are battery powered. In fiscal , Radica intends to expand its line of games by introducing more than 15 new games and re-categorizing its games into Radica Fishing 4 games ; Radica Sports 4 games ; Radica Heritage 6 games ; Radica Extreme 2 games ; Radica Combat 4 games and Radica Casino 7 games.

The Company believes that its strategy of offering various game models with differing features enables it to market its games to a wide age range of consumers with different tastes and financial means.

The Company will also continue to provide its Monte Carlo brand products to higher end retailers. The Company anticipates that new product introductions in fiscal will be concentrated in the second and third quarters of that year. By the end of fiscal , the Company expects its product line to include approximately 42 models. However, it is possible that the Company will determine not to proceed with any given product or that one or more aspects necessary for introduction of the products in fiscal will be delayed, which could delay or prevent certain anticipated product introductions.

Radica's manufacturing is generally limited to IC chip bonding, plastic injection, clamshell production, mold manufacture and assembly operations. The Company orders customized components and parts from suppliers and uses subcontractors for more complicated operations such as masking of the Company's proprietary software onto the semiconductor chips used in its games, LCD tooling and tooling of a small percentage of the molds for its plastic parts.

In the Company assembled all of its own products in order to control its costs, quality, production and delivery schedules. The Company 's products are not required to obtain any quality approvals prior to sales in the United States. The Company, however, is required to have and has obtained CE approval, Europe's toy safety standard, for its products sold in Europe. The Company has been granted a Chinese toy quality license from the Chinese Import and Export Commodity Inspection Bureau, which is required of toy and game manufacturers in China to export toys or games.

The scope of the registration covers the design, sales and distribution of electronic and electro-mechanical games and related gift products. 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. It was scheduled to be constructed in two phases. The first phase was completed and opened in May and commenced operations in June The first phase of the Factory has approximately , sq. The second phase of the Factory is planned to have approximately , sq. The unit capacity of the Factory depends on the product mix produced but is limited by its bonding capabilities.

The Company believes that at peak it can produce in excess of 25, units of handheld games per day the maximum number of chips that can currently be bonded per day. However, there can be no assurance that the Company will be able to operate at full capacity or have sufficient sales to warrant doing so. Due to the growth of business, the Company plans to expand the Factory in two stages.

The first stage, due to be completed and usable by the end of May , will add , square feet of factory space and dormitory capacity to accommodate 1, additional workers. The second stage to be completed by the end of August will add a further , square feet of factory space and accommodation for a further 1, workers. In June, the Company entered into a joint venture agreement "Joint Venture Agreement" with the local government to operate the Factory.

The Company funded the construction costs. Such amounts will be applied as a 30 year prepaid leasehold on the Factory. Upon commencement of production, the local government received a fixed annual fee as the joint venture partner. The annual fee is subject to increases every three years.

The Company also manufactures under a processing agreement "Processing Agreement" with the local government. The Processing Agreement provides by its terms that the local government will provide manufacturing facilities and supply workers to the Company and that the Company will pay a management fee and processing fee and certain other charges.

The management fee is paid to the local government and is based on a negotiated sum per worker at the Factory. The processing fee is based on the value of raw materials shipped into the Factory and the value of products shipped from the Factory and is established in semi-annual production agreements agreed upon with local government officials.

The Company pays the processing fees through the Bank of China in Hong Kong and the funds are then placed in an operating account including other Company funds in China, all of which are used to pay the costs of the Factory. In practice, the Company operates all aspects of the Factory, including hiring, paying and terminating workers. Most of the Company's factory workers are hourly employees and are provided room and board in addition to their wages.

In addition, the Company bears all other costs of operating the Factory, including utilities and certain employee social welfare charges established by the local government. Many aspects of the Processing Agreement and operation of the Factory are dependent on the Company's relationship with the local government and existing trade practices in addition to the terms of the Processing Agreement. The Company believes that its relationship with the local government is good.

Major components used in the Company's products are liquid crystal displays "LCDs" , semiconductor chips, printed circuit boards "PCBs" and molded plastic parts. The Company generally provides six to nine months order indications to its semiconductor chip suppliers and must place firm orders a minimum of three months in advance of delivery.

The Company tries to maintain only two months supply of semiconductor chips, which may constrain increased production of its products on short notice. The Company pays for most of its materials in U. The Company sells its products directly to over 1, active retailers in the United States and to over 20 distributors worldwide. The Company participates in the electronic data interchange "EDI" program maintained by 25 customers including J.

In fiscal , the largest customer of the Company, Wal-Mart, accounted for Our top five customers excluding OEM business were as follows:.

The following table sets forth certain of the Company's major customers in , including distributors alphabetical order. Over the last seven years, the Company has expanded its distribution channels from Las Vegas souvenir and other specialty shops to general retailers, and from Christmas and other gift season display to year round display.

In fiscal , the Company took control of its marketing in Canada and the United Kingdom by establishing distribution operations in those countries.

Radica's distribution operations use regional sales managers working for the Company to manage manufacturers representatives and brokers that sell its products.

These manufacturers representatives are not employees of the Company and work on a commission basis. The Company's customers normally provide indications of interest, which may be canceled at any time, from three to six months prior to scheduled delivery, but only confirm orders eight weeks in advance of delivery. Accordingly the Company generally operates without a significant backlog of regular orders, however, OEM orders tend to be placed 3 months or more in advance.

The Company does not sell any of its products on consignment except to a limited extent in Hong Kong and China. In certain instances, where retailers are unable to sell the quantity of products which have been ordered from the Company, the Company may, in accordance with industry practice, assist retailers to enable them to sell such excess inventory by offering discounts, accepting returns and other concessions. A portion of firm orders, by their terms, may be canceled if shipment is not made by a certain date.

The Company's products generally carry a 90 days consumer warranty from the date of sale, and the Company generally honors warranty claims even after that period. Radica's engineering and development department has approximately 72 staff worldwide.

The Company has a formalized product development process that includes semiannual meetings of its worldwide product development and sales departments. The Company's research and development is heavily oriented toward market demand. Based on its ongoing contact with consumers, retailers and distributors worldwide, the Company's sales department seeks to understand and assist the product development teams in responding to consumer and retailer preferences.

The sales department also targets certain retail price points for new products which drive the Company's product development, with designs, features, materials, manufacturing and distribution all developed within the parameters of the target retail price.

The Company is also engaged in designing and producing products for the Hasbro Games Group and expects to increase the number of products manufactured for them in In , the Company was successful in establishing a joint venture with the Hasbro Games Group to manufacture products for them.

The Company intends to pursue other OEM business in the future. However, it is uncertain whether the Company can successfully attract additional original product manufacturing business or that it will be profitable.

The Company currently owns 3 patents, 7 trademarks and has certain copyrights over its artwork. It also has 22 design patents and 33 trademark applications in process and will continue to obtain copyrights, trademarks and design patents for new products. The Company anticipates that patents, trademarks, copyrights and other intellectual property rights will become increasingly important in the electronic handheld and mechanical games industry in which the Company operates, particularly since the Company is introducing a wider range of products with themes and features that do not duplicate casino or heritage games.

As the industry focuses on intellectual property matters, there will be opportunities for the Company to protect its products through patents, trademarks and other formalized filings, although the efficacy of these protections is variable at best.

By the same token, the Company will be exposed to risks that its products will be found to infringe the intellectual property rights of others.

The games business is highly competitive. Radica believes that it has a dominant market share of the U. The Company's primary competitor is Tiger Electronics, Inc. Tiger procures its products from manufacturers in China. The barriers for new producers to enter the Company's markets are relatively low and the Company expects that it will face increased competition. The Company competes for consumer purchases on the basis of price, quality and game features and for retail shelf space also on the basis of service, including reliability of delivery, and breadth of product line.

Some competitors offer products at lower prices than the Company, are better established in the toy and games industry and are larger than the Company. The Company's products also compete with other gifts and games for consumer purchases. In addition, with respect to OEM activities, the Company will compete with a number of substantially larger and more experienced manufacturers.

As the Company enters other markets and businesses, it expects to face new competition. There is currently no Bermuda income, corporation or profits tax payable by the Company. The Hong Kong profits tax rate currently applying to corporations is On July 1, the Company's manufacturing operations were transferred to Radica China. Currently, the highest marginal rate of U. As of October 31, the Company had 2, full-time employees 46 in North America, 2 in Europe and 2, in Asia , of whom 2, worked in production processes including manufacturing, purchasing, materials, shipping.

The Company believes that its future success will depend, in part, on its ability to continue to attract and retain highly skilled technical, marketing, support and management personnel. None of the Company's employees are subject to a collective bargaining agreement and the Company has never experienced a work stoppage.

Management believes that its employee relations are good. The shares of Common Stock of the Company involve a significant degree of risk. Prospective investors should carefully consider the following factors together with the other information contained or incorporated by reference herein prior to making any investment decision regarding the Company or its securities.

Its products sold in the United States are currently not subject to U. China currently enjoys most favored nation "MFN" trade status under U. As a result of opposition to certain policies of the Chinese government and China's growing trade surpluses with the United States, there has been, and in the future may be, opposition to the extension of MFN status for China.

The loss of MFN status for China, changes in current tariff structures or adoption in the United States of other trade policies adverse to China could have an adverse effect on the Company's business. Chinese Political, Economic and Legal Risks. The success of the Company's current and future operations in China and Hong Kong which became a Special Administrative Region of China on July 1, is highly dependent on the Chinese government's continued support of economic reform programs that encourage private investment, and particularly foreign private investment.

Although the Chinese government has adopted an "open door" policy with respect to foreign investment, there can be no assurance that such policy will continue. A change in policies by the Chinese government could adversely affect the Company by, among other things, imposing confiscatory taxation, restricting currency conversion, imports and sources of supplies, or expropriating private enterprises.

Although the Chinese government has been pursuing economic reform policies for the past 15 years, no assurance can be given that the Chinese government will continue to pursue such policies or that such policies may not be significantly altered, especially in the event of a change in leadership or other social or political disruption. China does not have a comprehensive system of laws. Enforcement of existing laws may be sporadic and implementation and interpretation thereof inconsistent.

The Chinese judiciary is relatively inexperienced in enforcing the laws that exist, leading to a higher than usual degree of uncertainty as to the outcome of any litigation. Even where adequate law exists in China, it may be impossible to obtain swift and equitable enforcement of such law, or to obtain enforcement of a judgment by a court of another jurisdiction.

Dependence on Local Government. The Company operates its factory in China under agreements with the local government. Many aspects of such agreements and operation of the Factory are dependent on the Company's relationship with the local government and existing trade practices.

The relationship of the Company with the local government could be subject to adverse change in the future, especially in the event of a change in leadership or other social or political disruption. Chinese Taxation.

The Company has not paid any Chinese taxes and believes that, under current Chinese tax rules and practice, its activities in China have not subjected it to Chinese taxes to date as 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.

The Company's subsidiary in China has incurred a tax loss since its commencement of operations. In addition, under the existing processing arrangement. The Chinese tax system is subject to substantial uncertainties and has been subject to recently enacted changes, the interpretation and enforcement of which are also uncertain.

There can be no assurance that changes in Chinese tax laws or their interpretation or their application will not subject the Company to substantial Chinese taxes in the future.

Limited Infrastructure. Electricity, water, sewage, telephone and other infrastructure are limited in the locality of the Factory.

In the past, the Company has experienced temporary shortages of electricity and water supply. The Company has installed three back-up electrical generators in the Factory which can support it in the event of a power shortage. The defendant, Radica Games Ltd. AtGames alleges that Radica intentionally interfered with their contract with Sega Corporation "Sega" , and unfairly competed with them in the electronic games market.

Com pl. AtGames alleges that it informed Sega of its distribution intentions, including the JAKKS Agreement, and that Sega never stated that the sublicense was barred by a conflicting third party license. Sega's counsel then allegedly changed his position and asserted to AtGames that its plan of sublicensing pursuant to the JAKKS Agreement was not permitted because of "exclusive rights" claimed by Radica.

On June 13, , AtGames commenced a civil action against Radica in the Superior Court of the State of California alleging intentional interference with contract and unfair competition, and requesting declaratory relief. On July 12, , Radica filed notice of removal pursuant to 9 U. Section permits a defendant to remove an action to federal court when the subject matter of the suit "relates to" an arbitration agreement that "falls under" the Convention on the Recognition and Enforcement of Foreign Arbitral Awards "Convention".

Removal from state court is proper where the federal court has original jurisdiction over the plaintiff's claim. Conriv Realty Assocs. A federal court may remand a case back to state court for lack of subject matter jurisdiction. Although the statutory language suggests that remand is mandatory if the federal court finds that subject matter jurisdiction is lacking, courts have held that "[i]t is generally within a district court's discretion either to retain jurisdiction to adjudicate the pendent state claims or to remand them to state court.

In order for an arbitration agreement to fall under the Convention it must "arise out of a commercial relationship Weyler, F. Section states that:. The procedure for removal of causes otherwise provided by law shall apply, except that the ground for removal provided in this section need not appear on the face of the complaint but may be shown in the petition for removal. AtGames argues that the Court should remand this action to state court because it lacks subject matter jurisdiction.

Radica argues that its position is correct even if only one party or neither party to the present lawsuit are parties to such arbitration. Radica argues that the Sega-AtGames Arbitration "relates to" the present lawsuit because the outcome of that arbitration will substantially affect the claims in this lawsuit. The Sega-AtGames Arbitration centers on the validity and scope of the license agreement between the two companies. Sega contends that an exclusive agreement it has with Radica precludes AtGames from entering into a sublicense agreement.

In this lawsuit, AtGame alleges that Radica interfered with its contract with Sega and engaged in unfair business practices. Specifically, AtGames alleges that Radica's threat of a lawsuit caused Sega to change its position regarding the sublicense. The Court agrees that the claims against Radica in this lawsuit will, in part, depend upon the arbitrator's ruling on whether AtGames has a right to enter into sublicense agreements. The Court rejects Radica's argument as contrary to the plain meaning of the statute and inconsistent with established Supreme Court authority.

The Court interprets statutes according to their plain meaning. United States v. Ron Pair Enterprises, Inc. The Supreme Court has stated that "arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit. Communications Workers of America, U. There is no arbitration agreement between AtGames and Radica.