UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 20-F

[_]  REGISTRATION  STATEMENT  PURSUANT TO SECTION 12(b) or (g) OF THE SECURITIES
     EXCHANGE ACT OF 1934
                                       OR

[X]  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934

For the Fiscal Year Ended December 31, 2003.

                                       OR

[_]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 or  15(d)  OF THE  SECURITIES
     EXCHANGE ACT OF 1934

For the Transition period from _____________________ to ________________________
Commission File Number:  0-23696

                              RADICA GAMES LIMITED
             (Exact name of registrant as specified in its charter)

                                     BERMUDA
                 (Jurisdiction of incorporation or organization)

                       SUITE V, 6/FL. 2-12 AU PUI WAN ST.
                                FO TAN, HONG KONG
                    (Address of principal executive offices)

           Securities Registered Pursuant to Section 12(b) of the Act:

                                      None

           Securities registered pursuant to section 12(g) of the Act:

                          Common Stock, Par Value $.01

              Securities for which there is a reporting obligation
                     pursuant to Section 15(d) of the Act.

                                      None

Indicate the number of  outstanding  shares of each of the  issuer's  classes of
capital  or common  stock as of the close of the  period  covered  by the annual
report.

         Title of each class                           Amount Outstanding
         -------------------                           ------------------
    Common Stock, Par Value $.01                          18,225,204

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 by check mark which financial statement item the registrant has elected
to follow:

         Item 17           Item 18    X
                 ---------        ---------
<PAGE>


<TABLE>
<CAPTION>
                                                       RADICA GAMES LIMITED

                                               INDEX TO ANNUAL REPORT ON FORM 20-F
                                                   YEAR ENDED DECEMBER 31, 2003


                                                        ITEMS IN FORM 20-F

                                                                                                                            Page
                                                                                                                            ----

<S>                                                                                                                         <C>
PART I                                                                                                                         4

         ITEM 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS                                                        4

         ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE                                                                      4

         ITEM 3.  KEY INFORMATION                                                                                              4

         ITEM 4.  INFORMATION ON THE COMPANY                                                                                  13

         ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                                                27

         ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                                                  35

         ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                                                           42

         ITEM 8.  FINANCIAL INFORMATION                                                                                       43

         ITEM 9.  THE OFFER AND LISTING                                                                                       44

         ITEM 10.  ADDITIONAL INFORMATION                                                                                     44

         ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK                                                  50

         ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                                                     51


PART II                                                                                                                       51

         ITEM 13.  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                                                            51

         ITEM 14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS                               51

         ITEM 15.  CONTROLS AND PROCEDURES                                                                                    51

         ITEM 16A.  AUDIT COMMITTEE FINANCIAL EXPERT                                                                          51

         ITEM 16B.  CODE OF ETHICS                                                                                            51

         ITEM 16C.  PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                    52

         ITEM 16D.  EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                                                52

         ITEM 16E.  PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS                                    52

PART III                                                                                                                      52

         ITEM 17.  FINANCIAL STATEMENTS                                                                                       52

         ITEM 18.  FINANCIAL STATEMENTS                                                                                       52

         ITEM 19.  EXHIBITS                                                                                                   52
</TABLE>

                                                                2
<PAGE>




DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

         This report includes "forward-looking statements" within the meaning of
Section 27A of the  Securities  Act of 1933 and  Section  21E of the  Securities
Exchange Act of 1934. For example,  statements included in this report regarding
our financial  position,  business  strategy and other plans and  objectives for
future operations,  and assumptions and predictions about future product demand,
supply,   manufacturing,   costs,   marketing   and  pricing   factors  are  all
forward-looking  statements.  We believe that the assumptions  and  expectations
reflected  in  such   forward-looking   statements  are  reasonable,   based  on
information  available to us on the date hereof,  but we cannot  assure you that
these  assumptions and  expectations  will prove to have been correct or that we
will  take  any  action  that  we may  presently  be  planning.  Forward-looking
statements  involve risks and  uncertainties  that could cause actual results to
differ  materially from projected  results.  These risks include those set forth
elsewhere in this Annual Report on Form 20-F for the fiscal year ended  December
31, 2003.  See "Item 3. Key  Information  - Risk Factors" in this report on Form
20-F. We are not  undertaking to publicly  update or revise any  forward-looking
statement if we obtain new  information  or upon the occurrence of future events
or otherwise.




                                       3

<PAGE>


                                     PART I


ITEM 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

         Not Applicable

ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE

         Not Applicable

ITEM 3.  KEY INFORMATION

SELECTED FINANCIAL DATA

         Set forth below is the selected income statement and balance sheet data
for each of the five years in the period ended  December 31, 2003.  This data is
derived from the financial  statements included herein and from those previously
reported for earlier  periods.  This summary should be read in conjunction  with
"Operating and Financial  Review and Prospects" and the  consolidated  financial
statements and notes thereto included elsewhere in this document.

<TABLE>
<CAPTION>

(in thousands, except per share                                      YEAR ENDED DECEMBER 31,
data and margins)                              2003           2002           2001           2000           1999
                                               ----           ----           ----           ----           ----

<S>                                          <C>           <C>            <C>            <C>            <C>
INCOME STATEMENT DATA:
Net sales                                    $ 105,200     $ 124,646      $  98,554      $ 106,696      $ 136,716
Cost of sales                                   64,571        77,481         64,698         83,041         80,910
                                             ---------     ---------      ---------      ---------      ---------

Gross profit                                    40,629        47,165         33,856         23,655         55,806
                                             ---------     ---------      ---------      ---------      ---------

Operating expenses:
  Selling, general and administrative           25,779        27,695         26,279         32,322         28,353
  Research and development                       3,895         4,094          5,775          5,210          6,036
  Depreciation and amortization                  2,033         2,858          4,013          5,427          4,956
  Restructuring charge                              87          --            1,551          1,190           --
                                             ---------     ---------      ---------      ---------      ---------
Total operating expenses                        31,794        34,647         37,618         44,149         39,345
                                             ---------     ---------      ---------      ---------      ---------

Operating income (loss)                          8,835        12,518         (3,762)       (20,494)        16,461
Other income                                       317           306             24            781            718
Foreign currency gain (loss), net                  178         1,744           (219)            49            304
Share of loss of affiliated company               --            --             --             --           (1,748)
Net interest income                                295            35            136            664          1,469
                                             ---------     ---------      ---------      ---------      ---------

Income (loss) before income taxes                9,625        14,603         (3,821)       (19,000)        17,204
Credit (provision) for income taxes              2,866        (2,669)          (553)           901           (149)
                                             ---------     ---------      ---------      ---------      ---------

Net income (loss)                            $  12,491     $  11,934      $  (4,374)     $ (18,099)     $  17,055
                                             =========     =========      =========      =========      =========

Net income (loss) per share - basic          $    0.69     $    0.67      $   (0.25)     $   (1.03)     $    0.94
                                             =========     =========      =========      =========      =========

Weighted average number of common shares        18,017        17,726         17,612         17,608         18,144

Net income (loss) per share - diluted        $    0.66     $    0.65      $   (0.25)     $   (1.03)     $    0.90
                                             =========     =========      =========      =========      =========

Weighted average number of common shares
  and common equivalent shares                  19,060        18,336         17,612         17,608         18,979

                                                                                       (continued)
</TABLE>


                                       4

<PAGE>
<TABLE>
<CAPTION>

(in thousands, except per share                                      YEAR ENDED DECEMBER 31,
data and margins)                              2003           2002           2001           2000           1999
                                               ----           ----           ----           ----           ----
<S>                                          <C>           <C>            <C>            <C>            <C>
STATISTICAL DATA:
Gross margin                                      38.6%         37.8%         34.4%          22.2%          40.8%
Operating margin                                   8.4%         10.0%         (3.8%)        (19.2%)         12.0%

BALANCE SHEET DATA (AT PERIOD END):
Working capital                               $ 65,616      $ 50,155      $ 36,709       $ 42,619       $ 65,123
Total assets                                   102,214        95,302        88,407         99,315        122,174
Long-term debt                                    --            --           1,825          5,473         10,946
Total debt                                        --           2,671         6,319         12,901         13,809
Common stock                                       182           178           176            176            176
Shareholders' equity                            89,156        74,636        63,052         67,388         86,062
</TABLE>

RISK FACTORS

         Our common  stock  involves a  significant  degree of risk.  You should
carefully  consider  the  following  risk  factors  and  the  other  information
contained or incorporated by reference in this annual report before investing in
our common stock. Any of the following factors,  depending upon the severity and
circumstances  of a particular  occurrence,  could result in a material  adverse
effect  on  our  business,   prospects,   financial  condition  and  results  of
operations.

RISK OF MANUFACTURING IN CHINA

         Our factory is in Southern China and our headquarters are in Hong Kong,
which is a Special Administrative Region of China.

         Risk of China  Losing  Normal Trade  Relations  Status or of Changes in
Tariff or Trade Policies.  We manufacture in China and export from Hong Kong and
China to the United States and worldwide. Our products sold in the United States
are currently not subject to U.S. import duties. On September 19, 2000, the U.S.
Senate  voted to  permanently  normalize  trade  with  China,  which  provides a
favorable  category of U.S.  import  duties.  In addition,  on December 11, 2001
China  was  accepted  into  the  World  Trade   Organization   (WTO),  a  global
international organization of 144 countries that regulates international trade.

         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 Normal Trade Relations,  or
NTR,  status  for China.  The loss of NTR  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 our business.

         Chinese  Political,  Economic and Legal  Risks.  Our current and future
operations  in  China  and  Hong  Kong  are  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,  we cannot  assure you that this policy will  continue.  A change in
policies by the Chinese government could adversely affect our business 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 nearly two
decades,  we cannot  assure you that the  Chinese  government  will  continue to
pursue these policies or that these policies may not be  significantly  altered,
especially  in the event of a change in  leadership or other social or political
disruption.


                                       5
<PAGE>

         Our production and shipping capabilities could be adversely effected by
ongoing  tensions  between the Chinese and Taiwanese  governments.  In the event
that  Taiwan  does  not  adopt a plan  for  unifying  with  China,  the  Chinese
government has threatened  military action against Taiwan. As of yet, Taiwan has
not indicated that it intends to propose and adopt a  reunification  plan. If an
invasion  were to occur,  our supply of  components  from  Taiwanese  suppliers,
including  computer  processing  units  (CPUs),  could be cut  off,  potentially
limiting our production  capabilities.  Invasion could also lead to sanctions or
military action by the U.S. and/or European  countries,  which could  materially
affect our sales to those countries.

         China  Does Not Have a  Comprehensive  System of Laws.  Enforcement  of
existing laws in China may be sporadic and  implementation and interpretation of
laws may be 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.  We operate our Factory in China under
agreements  with  the  local  government.   These  agreements  and  our  factory
operations  are  dependent on our  relationship  with the local  government  and
existing trade practices.  This relationship  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.  We paid $365,000 in foreign  enterprise  tax on our
joint  venture  in China in 2003.  This is the fifth  year we have paid  foreign
enterprise tax in China. We were granted 50% relief from foreign  enterprise tax
through  December  31, 2001 under the Foreign  Enterprise  Income Tax Law of The
People's Republic of China, or PRC, and were therefore taxed at 12%. In 2002 and
2003,  we were taxed at the full rate of tax of 27%;  however,  we  successfully
applied to be  designated  as an "Export  Oriented  Enterprise"  in 2002,  which
reduced our tax rate to 12% for 2002.  The  application  to be  designated as an
"Export  Oriented  Enterprise" is required to be made on a yearly basis.  We are
applying for the same designation for 2003 and if our application is successful,
we will  reduce our tax rate for 2003 to 12%.  These  rates do not  include  the
local tax of 3%, that would result in an effective rate of 15%.

         The PRC assesses tax on us based on a joint venture contract. The joint
venture  contract is a joint venture with the local  township that lasts through
August 12, 2024 and tax is payable  quarterly based on tax rates determined upon
entering the agreement.

         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. We cannot assure you that changes in Chinese tax laws,
their  interpretation  or their  application  will not subject us to substantial
Chinese taxes in the future. In addition,  the negotiation and settlement of tax
obligations with the local tax authorities are a normal occurrence.

         Chinese Customs.  We have  intercompany  invoicing  whereby our Chinese
subsidiary  invoices the Hong Kong and Macau  entities who then invoice the U.S.
and U.K.  entities for sales  rendered.  As required by Chinese  customs and the
Chinese tax  authority in each  jurisdiction,  our Chinese  subsidiary  seeks to
apply arms length  pricing to this process.  Should the customs or tax authority
in any jurisdiction consider the pricing not to be arms-length,  it may deem the
prices charged to be different from those we have applied. If this decision were
to be applied unilaterally,  it could lead to an increase in our overall customs
duties and taxes. In addition,  we may have to expend resources in defending our
position, irrespective of the outcome determined.

                                       6
<PAGE>

         Chinese  Value  Added Tax.  China's  turnover  tax system  consists  of
value-added  tax, or VAT,  consumption  tax and business  tax.  Export sales are
exempted  under VAT rules and an  exporter  who incurs  input VAT on purchase or
manufacture  of  goods  should  be  able to  claim a  refund  from  Chinese  tax
authorities.  However,  due to a reduction in the VAT export refund rate of some
goods,  exporters  might bear part of the VAT they incurred in conjunction  with
the exported goods. In 2003,  changes to the Chinese Value Added Tax system were
announced  affecting the  recoverability of input VAT beginning January 1, 2004.
Our VAT expense will depend on the reaction of both our suppliers and customers.
Continued  efforts by the Chinese  government  to increase  tax  revenues  could
result in revisions to tax laws or their  interpretation,  which could  increase
our VAT and various tax liabilities.

         We establish  provisions for our known and estimated customs duties and
tax  obligations.  However,  we may be exposed to  additional  taxation  whether
through  a  challenge  by one of  the  many  tax  authorities  in  international
jurisdictions  of our transfer  pricing,  our claim  regarding lack of permanent
establishment, or other interpretations regarding our tax obligations.

         Limited Infrastructure. Electricity, water, sewage, telephone and other
infrastructure are limited in the locality of our factory.  In the past, we have
experienced  temporary  shortages  of  electricity  and  water  supply.  We have
installed seven back-up  electrical  generators in our factory which can support
it  in  the  event  of  a  power  shortage.   We  cannot  assure  you  that  the
infrastructure on which our factory is dependent will be adequate to operate the
factory successfully.

DEPENDENCE ON CURRENT PRODUCT APPEAL AND NEW PRODUCT INTRODUCTIONS

         Our operating results depend largely upon the appeal of our products to
consumers.  Consumer  preferences  are  highly  subjective,  and there can be no
assurance that consumers  will continue to find existing  products  appealing or
will find new  products  appealing.  Also,  we  continue  to offer a  relatively
limited range of products that are all in the categories of electronic  toys and
games or video game  accessories.  This  exposes us to the risks of any narrowly
focused  business.  Changes  in  consumer  preferences  away  from the  kinds of
products we offer could have an adverse effect on our business.

         Some of our products  have been only recently  introduced  and although
they may  experience  good initial sales growth,  we cannot assure you that this
initial success is indicative of significant  future sales. As a general matter,
we expect that the sales of these products will  eventually  decline.  We cannot
predict  how long the  product  cycle  will  last for any  product.  In order to
control costs,  and take advantage of the finite shelf space available to us, we
need to delete  products from our line  periodically.  Our  long-term  operating
results will therefore  depend  largely upon our continued  ability to conceive,
develop and introduce new appealing products at competitive prices.

         Once  a  new  product  is  conceived,   the  principal   steps  to  the
introduction  of  the  product  include  design,  sourcing  and  testing  of the
electronic  components,  tooling,  and  purchase  and  design  of  graphics  and
packaging.  At any stage in the process,  there may be difficulties or delays in
completing the necessary  steps to meet the  contemplated  product  introduction
schedule.  It is, for example,  common in new product  introductions  or product
revisions to encounter technical and other difficulties affecting  manufacturing
efficiency and, at times, the ability to manufacture at all, that will typically
be  corrected  or improved  over a period of time with  continued  manufacturing
experience  and  engineering  efforts.  If one or  more  aspects  necessary  for
introduction  of  products  are not met in a  timely  fashion,  or if  technical
difficulties take longer than anticipated to overcome,  the anticipated  product
introductions will be delayed, or in some cases may be terminated.  Therefore we
cannot assure you that products will be introduced in a timely fashion.


                                       7
<PAGE>

         Future  products  may  utilize   different   technologies  and  require
knowledge  of  markets  in which we do not  presently  participate.  Significant
delays in the  introduction  of, or the failure to  introduce,  new  products or
improved products would have an adverse effect on our operating results.

         We cannot  assure  you that  retailers  will  react  positively  to new
product introductions.  There is also a risk that the demand for new or existing
products could drop  suddenly.  As a result,  we may build excess  quantities of
certain products and subsequently  have to put inventory  provisions in place to
mark the value of excess  inventory  quantities down to their  estimated  market
value.

         There  are often  technical  challenges  in  bringing  a  product  into
production. We may announce and sell a product but later find it must be delayed
or abandoned due to  difficulties in engineering  and  manufacturing.  We cannot
assure you that an announced product will ship on time or not be abandoned.

NO ASSURANCE OF GROWTH

         We cannot assure you that we will achieve future growth in net sales or
that  we  will  be  able  to  maintain  our  present  levels  of  net  sales  or
profitability. Our current business strategy emphasizes the sale of a controlled
number of products,  while representing a more diverse range of products than in
the past. Our products include handheld games,  Barbie(TM) electronic games, the
Girl Tech(R) line, Play TV(R) products, the  Twinkleberries(TM)  electronic doll
line, the Off Limits(TM) boys electronics  line, the Nitro  Battlerz(TM)  remote
control  car line,  video game  accessories  sold under the  Gamester(R)  brand,
original design manufacturing,  or ODM, and original equipment manufacturing, or
OEM, products.  In any period, our financial results are likely to vary with the
success or lack of success of newly  introduced  products,  which are inherently
uncertain. We cannot simply rely on continuing sales of existing products.

DEPENDENCE ON MAJOR CUSTOMERS

         Historically, a significant portion of our sales have been concentrated
with a few large retail customers.  These customer  concentrations are disclosed
in the notes to our  consolidated  financial  statements in this annual  report.
Most of our retail  customers  operate on a purchase  order  basis and we do not
have  long-term  contracts with our retail  customers.  While we believe we have
good  relationships  with our major  retail  customers,  the loss of one or more
these retail customers would have an adverse effect on our operating results.

         On January 22, 2002 the Kmart Corporation filed for protection from its
creditors under Chapter 11 of the United States  Bankruptcy Code. Our receivable
exposure  to Kmart was  entirely  provided  for  during  2001 and no  additional
write-downs or expenses  related to the bankruptcy were incurred during 2002. We
continue to sell our products to Kmart and closely monitor our account with them
in order to minimize future exposure.

         During  2003,  both FAO,  the parent  company of FAO  Schwartz and Zany
Brainy stores,  and KB Toys, Inc. filed for Chapter 11 protection.  Our exposure
was limited in both of these cases and any outstanding receivables were provided
for during 2003. Currently,  we are not selling to either retailer, but may sell
to them in the future under a debtor-in-possession agreement. As with Kmart, the
accounts will be closely monitored in order to minimize future exposure.

         During 2003, a  significant  portion of our OEM sales came from Hasbro,
which is also one of our  competitors.  We do not have a specific  contract with
Hasbro  regarding these projects and there is no assurance that we will continue
to receive  orders  from  Hasbro,  which  could  have an  adverse  effect on our
business.


                                       8
<PAGE>

DEPENDENCE ON SUPPLIERS AND SUBCONTRACTORS

         We are  dependent on  suppliers  for the  components  and parts that we
assemble to produce our  products.  We generally  purchase  the specific  liquid
crystal displays,  or LCDs, and semiconductor  chips for any particular  product
model  from  a  single  supplier.   An  interruption  of  the  supply  of  LCDs,
semiconductor   chips  or  other  supplies  from  a  supplier  could  result  in
significant production delays.

         SSD Company Limited,  or SSD,  supplies the chips used in Radica's Play
TV and Connectv(R)  lines of products.  If SSD refused or were unable to provide
these chips,  we would be unable to  manufacture  and  distribute  these product
lines.

         We also rely on outside  manufacturers  for  production  of some of our
electronic games and video game accessories. While we have moved the majority of
this  production  into our own factory,  manufacturer  delays or shutdowns could
have a significant impact on future sales of certain products.

CONCENTRATED MANUFACTURING FACILITIES

         A disruption of operations at our factory due to fire,  labor  dispute,
dispute with the local government or otherwise,  would have an adverse effect on
our  operating  results.  In such  event,  we  believe  that we could  partially
mitigate the effect of a disruption by increasing the use of  subcontractors  to
assemble our products,  but we cannot assure you that we would be able to do so.
In addition, our manufacturing facilities are dependent on our relationship with
the local government.

NO ASSURANCE OF SUCCESS IN NEW BUSINESS

         From time to time, we expand into related or new businesses in order to
diversify  and  grow.  Examples  include  the  development  of its  ODM  and OEM
operations and our expansion into the video game accessories  market.  We cannot
assure you that such businesses can be retained or that we will be successful in
such ventures.

NO ASSURANCE OF CONTINUED ODM/OEM BUSINESS

         We manufacture goods for third parties,  often without a contract.  Our
contracts with ODM and OEM customers can generally be terminated by either party
on short  notice,  therefore  we cannot  assure  you that such  business  can be
retained for an extended period of time. Loss of such business would  materially
effect our revenues.

DEPENDENCE ON KEY PERSONNEL

         Our success is substantially  dependent upon the expertise and services
of our  senior  management  personnel.  The  loss  of  the  services  of  senior
executives would have an adverse effect on our business.

SEASONALITY

         We experience a significant  seasonal pattern in our operating  results
and working capital requirements. We typically generate most of our sales in the
third and fourth  quarters of our fiscal  year,  prior to the  traditional  gift
season.  The high  level of  seasonality  causes us to take  large  risks in the
purchase of inventory and extending  credit to customers for the holiday season.
We cannot assure you that we or our customers  will sell all their  inventories.
Excess  inventory at year-end may result in financial  losses from  obsolescence
reserves, returns, markdowns and bad debts.

         Our operating  results may also fluctuate  during the year due to other
factors such as the timing of the introduction of new products. The market price
of our common stock may be subject to  significant  fluctuations  in response to
variations in quarterly operating results and other factors.  These fluctuations
are reflected in our  statement  regarding  selected  quarterly  financial  data
attached as Exhibit 12.1 to this annual report.


                                       9
<PAGE>

INDUSTRY AND PRODUCT LINE VOLATILITY

        The toy and game  industry is known for a high level of volatility as a
result of changing  consumer tastes,  competition and over saturation of popular
products. We have experienced  significant volatility in its results in our past
history.  While we have  diversified  our  business  in  recent  years to reduce
volatility,  there can be no guarantee that this history of volatility  will not
continue.

COMPETITION

         The electronic  games,  youth  electronics  and video game  accessories
businesses are highly  competitive.  We currently face direct competition from a
number  of  other  producers  of  handheld   electronic  games  and  video  game
accessories.  The  barriers  for new  producers  to enter into our  markets  are
relatively  low and we expect  that we will face  increased  competition  in the
future.  Some competitors offer products at lower prices, are better established
in the industry and are larger than we are. In addition, with respect to ODM and

OEM,  we compete  with a number of  substantially  larger  and more  experienced
manufacturers.  As we enter other markets and businesses,  we expect to face new
competition.

INTELLECTUAL PROPERTY RISKS

         From time to time, other companies and individuals may assert exclusive
patent,   copyright,   trademark  and  other  intellectual  property  rights  to
technologies  or marks that are  important to our  industry  generally or to our
business  specifically.  We will evaluate each claim relating to our products or
other  aspects of our business and, if  appropriate,  will seek a license to use
the  protected  technology.  There can be no  assurance  that we will be able to
obtain  licenses  to  intellectual  property  of third  parties on  commercially
reasonable  terms, if at all. In addition,  we could be at a disadvantage if our
competitors  obtain licenses for protected  technologies on more favorable terms
than we do. If we or our  suppliers are unable to license  protected  technology
used in our products,  we could be prohibited  from marketing  those products or
may have to market  products  without  desirable  features.  We could also incur
substantial  costs to redesign  our products or to defend any legal action taken
against us. If our products or manufacturing methods should be found to infringe
protected  technology,  we could  be  enjoined  from  further  infringement  and
required to pay damages to the infringed  party. Any of the foregoing could have
an adverse effect on our operating results and financial position.

PRODUCT LIABILITY

         Historically,  we have  received  only  minor  complaints  relating  to
injuries or other damages  caused by our products.  However,  in recent years we
have introduced products that involved more active play including our Play TV(R)
baseball,  snowboard and boxing  games.  In fiscal 2000, we received a number of
consumer  complaints that bats used in the Play TV baseball game could be broken
resulting in a projectile striking a game participant.  We recalled the bats for
replacement  with a  reengineered  bat. We are in the  process of  handling  all
remaining  claims  resulting  from damages from the recalled bat and all pending
claims are  covered by our  product  liability  insurance.  We may be exposed to
claims for damages in these or other circumstances, some or all of which may not
be covered by insurance. We cannot guarantee you that current or future products
may not result in claims or that our insurance will be adequate.

INCREASED TAXATION

         We cannot predict whether our tax rates will remain as low as they have
been in the past as tax regulations and the application or interpretation in the
various  jurisdictions  where we operate are always subject to change. Our taxes
are subject to audit. We cannot  guarantee that additional taxes will not be due
as a result of audits or other factors.
PRODUCT "KNOCK-OFFS"

         On  occasion  in  the  electronic  games  and  video  game  accessories
industries,  successful products are "knocked-off" or copied. While we strive to
protect our  intellectual  property we cannot guarantee that knock-offs will not
have a significant effect on our business.  The costs incurred in protecting our
intellectual property rights could be significant and there is no assurance that
we will be able to successfully protect our rights.


                                       10
<PAGE>

BAD DEBTS AND RETURNS

         While we perform full credit  checks on all of our  customers we cannot
be assured  that any  customer  will not default on a payment of debt. A default
could have a significant  effect on our operating  results.  It is our policy in
North America to only take back defective  products and while we believe we will
be able to enforce this policy under normal industry  conditions,  it may not be
possible to enforce this policy in all cases. The video game accessories  market
generally  experiences a higher rate of defective and overstock returns than the
electronic  and mechanical  game market does.  Generally,  defective  video game
accessories that are manufactured by third party  manufacturers  are returned to
the  manufacturer  or destroyed on site for credit.  In such cases,  there is no
guarantee that we will be paid by the manufacturer.

         In certain  instances,  where retailers are unable to sell the quantity
of products which have been ordered from us, we may, in accordance with industry
practice,  assist  retailers  to enable  them to sell such excess  inventory  by
offering  discounts or  accepting  returns.  A portion of firm orders,  by their
terms,  may be canceled if shipment is not made by a certain  date.  We minimize
the related costs of such  discounts and returns by engaging  personnel to visit
selected  customers  and assist in the  management  of our product  returns.  We
establish  provisions based on historical  experience at the time of sale of the
related products.  The return of non-defective  products occurs  infrequently in
the U.S. In the UK market,  accepting  non-defective product returns occurs more
frequently, requiring higher provisions.

CONTROL BY EXISTING SHAREHOLDERS

         Our  largest  shareholders,  including  a group that  consists  of Dito
Devcar Corporation and certain related persons, and a group that consists of RAD
Partners 1999 LLC and certain related persons, own beneficially in the aggregate
a  majority  of our  outstanding  common  stock.  Assuming  that  they  were  in
agreement,  such  persons  would  have the power to elect our  directors  and to
approve  or  disapprove  all  other  matters  requiring   shareholder   approval
regardless of the vote of any other shareholders.

DIFFICULTIES IN ENFORCING CIVIL LIABILITIES

         We are a Bermuda  holding  company,  and a  substantial  portion of our
assets are located outside the United States. In addition, many of our directors
and  officers  and the experts  named herein  reside  outside the United  States
(principally  in Hong Kong,  the United  Kingdom  and the  People's  Republic of
China),  and all or a substantial  portion of their assets are or may be located
outside the United States.  As a result, it may not be possible for investors to
effect  service of process  within the United  States  upon them,  or to enforce
judgments  against them or us obtained in the United  States  courts  predicated
upon the civil liability  provisions of the United States securities laws. Among
other things,  we  understand  that there is doubt as to the  enforceability  in
Bermuda and other foreign  jurisdictions,  in original actions or in actions for
enforcement  of  judgments  of  United  States  courts,   of  civil  liabilities
predicated solely upon the United States securities laws.

SHARES ELIGIBLE FOR FUTURE SALE

         At  December  31,  2003,  we had  18,225,204  shares  of  common  stock
outstanding.  We  estimate  that most of these  shares were  previously  sold in
registered  offerings  or in  transactions  under Rule 144,  and  therefore  are
tradable   without   restriction,   other  than  any  shares  purchased  by  our
"affiliates." The remaining shares owned by existing shareholders are restricted
securities  under the Securities  Act of 1933, as amended,  and may be sold only
pursuant  to a  registration  statement  or an  applicable  exemption  from  the
registration  requirements,  including Rule 144. Most of these restricted shares
are currently eligible for sale pursuant to Rule 144, subject to the limitations
of  that  rule.  Market  sales  of  shares  by  existing   shareholders  or  the
availability  of shares  for future  sale may  depress  the market  price of our
common stock.

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<PAGE>

LICENSES AND ROYALTIES

         We have entered into various license and royalty agreements in which we
pay fees in exchange for rights to use product  inventions or trademarked names,
shapes and likenesses for use in development of our product line. The agreements
generally  include minimum fee guarantees  based on a reasonable  expectation of
the product  sales to be  generated  throughout  the life of the  agreement.  We
cannot  assure  you that we will be able to meet these  expectations  and may be
obligated to pay unearned fees as a result.  Our license and royalty  agreements
are for fixed terms and often contain  performance-related  covenants. We cannot
assure you that we will be able to maintain or extend the rights to our existing
licenses.

LABOR

         Labor  disputes  initiated by unions and trade groups could  negatively
impact our business or the business of our vendors and customers.  Such disputes
could  ultimately  cause  shipping  delays,  increased  costs and lost  revenues
resulting  from  failure to  deliver  product  to  customers.  We have no way of
anticipating when such actions will occur.

SOURCING

         We source batteries,  power sources and various electronic devices from
several manufacturers for our customers and receive most of our sourcing revenue
from one customer.  This revenue is subject to bid and we cannot assure you that
this customer will not find another agent or method of sourcing.

DEPENDENCE ON VIDEO GAME ACCESSORIES ("VGA") PLATFORM PROVIDERS

         Our VGA  product  range  (Gamester(R)),  is  dependent  on first  party
manufacturers  of video game  consoles  such as Sony,  Microsoft and Nintendo to
continue to support and market existing games platforms like  PlayStation(R)  2,
Xbox(TM), Game Boy(R) Advance and Game Boy(R) Advance SP(TM), and to continue to
develop  gaming  formats and  accompanying  software  in the  future.  We cannot
guarantee success in this category without the ongoing support of these platform
providers.  If a platform is withdrawn  from the market or fails to sell, we may
be  forced  to  liquidate  our  inventories  or  accept  returns   resulting  in
significant losses.

UNPROFITABILITY OF THE VGA BUSINESS

         Our  VGA  product  line,  Gamester(R),  has  yet to be  profitable  and
incurred  losses  of $2.9  million  in  2003,  primarily  related  to  inventory
write-downs associated with leaving the commodity video game accessory market in
Europe. Several factors contributed to losses incurred in prior years, including
delays in third-party platform  introductions,  slower than expected realization
of full U.S.  distribution and price wars on certain commodity VGA items.  While
we  believe  that we have  taken  measures  to  ensure  that  the  line  will be
successful in 2004 and in the future, we cannot guarantee that the VGA line will
be  profitable  in the  future  or that  we will  continue  to  manufacture  and
distribute  the line in future years.  Insufficient  future profits and positive
cash  flows  or  withdrawal  from  VGA  business  would  result  in  significant
write-downs of our assets, including goodwill.

         We have goodwill  totaling $9.6 million  related to the  acquisition of
our Gamester(R) video game accessory line in 1999. Effective January 1, 2002, we
adopted SFAS No. 142, Goodwill and Other Intangible Assets. Goodwill is required
to be tested on an annual  basis for  impairment  at the  reporting  unit level.
Furthermore,  goodwill is required to be tested on an interim  basis if an event
or change in  circumstances  indicates  that the asset  might be  impaired.  Our
testing  included a discounted  future cash flow  analysis  based on a five-year
financial  projection of the Gamester  line.  The financial  projection  assumed
year-on-year  sales growth and  profitability of the line in all five years. The
analysis  showed  future cash flows in excess of the total  goodwill at December
31, 2003 and therefore it was determined that no impairment  exists.  We believe
we have made progress in making our  Gamester(R)  line profitable by eliminating
commodity items from the line and concentrating on the innovative, higher margin
sector  of the  market.  We have  projected  that our  Gamester(R)  line will be
profitable beginning in 2004 and every year following through 2008. However, the

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<PAGE>

line has not been  profitable  since the  acquisition  of Leda Media Products in
1999 and we cannot  assure you that the  measures  taken in 2003 will  equate to
future  profitability.  If the Gamester(R)  line does not become  profitable and
generate sufficient cash flows, we will have to write down our related goodwill.

SEVERE ACUTE RESPIRATORY SYNDROME ("SARS") OR OTHER COMMUNICABLE DISEASES

         In 2003,  several  economies in Asia,  including Hong Kong and southern
China, where our operations are located,  were affected by the outbreak of SARS.
If there is a  recurrence  of an  outbreak  of SARS,  or similar  infectious  or
contagious  diseases such as avian flu, it could  adversely  affect our business
and  operating  results.  For example,  a future SARS  outbreak  could result in
quarantines or closures to our factory,  and our  operations  could be seriously
disrupted as the majority of our work force is housed in a single dormitory.  In
addition,  ongoing concerns  regarding SARS,  particularly its effect on travel,
could  negatively  impact our  customers  and  suppliers,  in  particular  their
willingness to travel to do business.

ADVERSE WORLDWIDE ECONOMIC CONDITIONS

         Several  factors,  including  the  war  in  Iraq,  increased  worldwide
unemployment, threats of global terrorist attacks and softening global economies
have caused  uncertainties in the U.S. and other countries.  These uncertainties
make it difficult for us to estimate  growth in the regional  economies in which
we sell our products and therefore may negatively affect our sales, increase our
exposure to bad debt or increase our operating cost.

VOLATILE MASS MARKET RETAIL SECTOR

         Most of our sales are made to mass-market  retailers.  The  mass-market
retail channel in the U.S. has  experienced  significant  shifts in market share
among  competitors  in  recent  years,  causing  several  of  our  customers  to
experience  liquidity problems,  including several customers that have filed for
bankruptcy  during the past two years.  While we attempt to minimize  our credit
exposure,  there is always a risk that our  customers  will not pay or that they
will delay payment,  subjecting us to exposure to bad debt losses.  In addition,
if these  customers were to cease doing  business as a result of bankruptcy,  it
could have a material adverse effect on our sales.

HONG KONG REAL ESTATE

         We own certain commercial and residential properties in Hong Kong, some
of which we occupy and some of which we lease to third parties. Market values of
Hong Kong real  estate  have  dropped in recent  years and while we expect  real
estate values to recover, we cannot assure you that they will do so. In general,
we currently  intend to retain  ownership of our properties and either occupy or
lease them, but if we were to decide to make any of the properties available for
sale prior to a recovery of the market, we could suffer permanent losses.

CHINA CURRENCY VALUATION

         Currently China's currency, the Yuan Renminbi, or RMB, is pegged to the
U.S. dollar. The Chinese Government is receiving pressure from other governments
to trade its  currency on the open  market.  If the Chinese  Government  were to
trade its  currency  on the open  market and the RMB were to  increase  in value
relative  to  the  U.S.  dollar,  we  would  experience  increased  factory  and
production  costs,  including  labor and certain raw materials that could have a
material impact on the cost of our product.

ITEM 4.  INFORMATION ON THE COMPANY

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  our products in our factory in southern China. In 1994 we
went public when our shares began trading on the Nasdaq National Market.

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<PAGE>

         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  &
accessories,   girls'  lifestyle  electronics  carrying  the  Girl  Tech(R)  and
Barbie(TM)  brand names and two new  categories  being  introduced in 2004.  Our
factory also  manufactures  for other  companies in the electronic game industry
and  provides  sourcing  services for retail  customers.  We market our products
through  subsidiaries in the United States, the United Kingdom,  Canada and Hong
Kong. Our largest market is in the United States where in 2003 we had the second
largest market share in the electronic  handheld and tabletop  electronic  games
according to industry data source, The NPD Group, Inc.

         We employ about 4,000 people  worldwide in our group of companies.  Our
largest retail customers include Wal-Mart,  Target,  Toys`R'Us,  Kmart,  Kohl's,
Argos  and  Best  Buy.   Our   largest   manufacturing   customer   is   Hasbro.
Internationally we sell products in approximately 30 countries.

HISTORY OF PRODUCT LINES

ELECTRONIC GAMES

         We have  operated as a marketer and  manufacturer  of games since 1983,
starting a small operation in Hong Kong providing  souvenir casino games for the
Las Vegas market including  mechanical bank slot machines.  We expanded into the
electronic  game  business  setting  up  a  factory  in  China  in  1991  and  a
distribution  operation  in  the  United  States  in  1992.  The  business  grew
substantially  from that point and we became the leading supplier of casino type
electronic  handheld games in the U.S. market with games such as Video Poker and
Video Blackjack. Our electronic game products are sold under the Radica and Play
TV brand names.

         In 1995 we began to diversify  our product  line into other  electronic
handheld game areas beyond casino themed games.  We began to offer classic games
such as  Solitaire,  Hearts  and Gin Rummy,  and sports  games such as its World
Class  Golf(TM) and  Football.  In addition to the casino and classic games that
helped build the company,  in recent years we have expanded our electronic  game
offerings to a very broad line of electronic  games  including  virtual  fishing
games such as Bass Fishin'(R), virtual hunting games such as Buckmasters(R) Deer
Huntin'(TM), a line of games based on popular EA SPORTS(TM) products,  TETRIS(R)
and Rush  Hour(TM),  and other  games such as  Talking  Bingo(TM)  and  Ultimate
Pinball(TM). New in 2004 is 20Q(TM)!, based on the classic guessing game.

         During our history we have become known as a leader in the creative use
of technology.  For example,  our line of fishing games,  one of the top-selling
product lines in the history of electronic games,  revolutionized the electronic
handheld  games  category  after its  introduction  in 1996.  The games  feature
virtual  motion-sensing  technology  that allows the player to use the  physical
game as a rod and reel.  The player  casts,  feels the fish bite,  sets the hook
with a jerk, and reels in the fish with a real handle.  This product  started an
industry trend in creating  virtual reality games where the product provides the
feel of the real sport.  This is  delivered by uniquely  realistic  game shapes,
featuring  motion  sensors and tactile  feedback.  We have  expanded our line of
virtual motion sensing games beyond the fishing category.  An example of this is
our Buckmasters(R) Deer Huntin' 3(TM) game.

         In 2000,  we  pioneered  virtual  reality  further  when we  introduced
NASCAR(R)  I-Racer(TM).  The full headset complete with headphones,  produces 3D
graphics and digital  dimensional  sound. The steering wheel provides  vibration
feedback.  In 1999, we also introduced a line of Tiger Woods licensed electronic
golf games  shaped like a real golf club that were able to sense  direction  and
velocity of swing as an input to the game.

         In  2000,  we  introduced  Radica  Play  TV  games  featuring  XaviX(R)
technology licensed from SSD. The technology provides consumers with easy-to-use
Play TV games, which are freestanding devices that plug directly into the TV and
use the screen as the  display.  This  single-chip,  multi-processor  integrated
circuit is designed to generate  high-quality graphics and sound on a television
set without the use of a video game console.  Most  importantly  the  technology
allows  motion  sensing  control  devices to interact with the TV images such as
using a physical  baseball  bat  controller  to hit video  pitches or a physical
snowboard controller to control a race down a video ski slope. Play TV Baseball,
Play TV  Snowboarder,  and  Play TV  Buckmasters(R)  Huntin'  were  successfully
introduced  in 2000 and 2001.  For 2004,  we entered into a licensing  agreement
with EA Sports(TM) to translate their popular Madden Football(TM) and SSX Tricky
video game titles into the Play TV format.

                                       14
<PAGE>

         In  2001 we  introduced  Skannerz(R).  Targeting  boys  7-12,  Skannerz
utilizes  UPC scanner  technology  to create a  collectible-driven,  interactive
battle game. The game can be played alone or linked to battle with another unit.
Building on this success for 2003 we launched  Skannerz  Commander  and Skannerz
Battle Orbz, two variations on the original version.  In 2004, the Skannerz line
will be extended by incorporating  the Yu Yu Hakusho and Dragon Ball GT licenses
from the anime company Funimation.

         In 2004, we have a license with Sega Toys to manufacture and distribute
Arcade Legends(TM)  Sega(R)  Genesis(TM).  It is the first official Sega Genesis
multi-game  unit,  which replicates in detail the classic popular Genesis games,
game codes and graphics and  utilizes an exact  replica of the original  Genesis
control pad. All of the software and content are stored in the game pad. We have
also licensed games from Taito including their Space  Invaders(TM) game, as well
as Tetris(R) for our new Arcade Legends product line.

         In  2004,  we  will  also  introduce  a line  of  multiplayer  tabletop
electronic  games.  Total  Meltdown is a skill and action  game that  challenges
players to four code-breaking games.  Tetris(R) Tower 3D incorporates the Tetris
game play into a tabletop format.  Mind  Scrambler(TM)  asks players to follow a
series of lights to match the pattern while the game turns and reverses itself.

GAMESTER VIDEO GAME CONTROLLERS & ACCESSORIES

         In June 1999, we announced the acquisition of Leda Media Products, a UK
company that, with its Gamester brand, is a leader in video game  controllers in
Europe (now known as Radica UK Ltd.).  To date, we have  established  video game
controller and accessory  products to enhance game play and performance on video
game consoles for  Nintendo,  Sony and  Microsoft  including  game control pads,
steering wheels and memory cards. All Gamester products are designed to make the
game  more  fun  or  make  the  user  a  better  player,   bringing  the  unfair
advantage(TM) to the gamer.

         We began  shipping and selling the Gamester  product line to the United
States  and Canada  during  the  second  half of 2001 and have moved most of the
manufacturing of controllers into our factory in China.  Product  development is
designed  and  built in house  for the  Gamester  brand,  except  for a few less
technically  demanding  items which are outsourced to officially  approved third
parties.

         In 2001 we signed a worldwide  licensing  agreement  with  Microsoft to
design,  manufacture and market  peripherals for the Xbox(TM) video game system.
Xbox  peripherals  include  the  Vortex(TM)  Controller,  and the Pro  Racer(TM)
Hand-Held Wheel. We recently introduced the Phoenix game pad for all Xbox games.

         The portable video game segment  expanded in 2001 with the introduction
of Nintendo's Game Boy(R) Advance (GBA). We have introduced products for the GBA
including the Flood Light(TM),  which provides an illumination of the GVA screen
using a fluorescent  light.  We have  licensed  NXT(R),  manufacturers  of sound
technology,  to develop  speakers  to  enhance  surround  sound of GBA  software
titles.  The licensing  agreement has created the GBA Mini Woofer.  The GBA line
includes a broad  selection of cases,  bags,  chargers,  adaptors and  accessory
packs.  With the 2003  introduction  to  Nintendo's  Game Boy Advance SP, we are
introducing several products for the SP under the Gamester brand.

         We introduced new peripherals in 2002 including the  pressure-sensitive
slim line Sportsboard(TM),  an interactive  skateboard/snowboard for top selling
PS2  "boarding"  games such as Tony Hawk,  Shaun  Palmer  and SSX.  We  licensed
Lotus(R) in order to develop  official  replica racing wheels to enhance play on
some of the most popular racing game titles. Under the licensing  agreement,  we
have produced the popular Lotus Pro Racer and the Lotus Xbox Steering Wheel.

         In 2003, we introduced the FPS Master(TM),  a first person shooter game
for both PS2 and  Xbox.  The FPS  features  symmetrical  left and  right  analog
sticks, rubber grips, programmable buttons and an ergonomic shape.

                                       15
<PAGE>

YOUTH ELECTRONICS

         In 1998 we acquired the start up Girl Tech Company. Girl Tech's product
line targets  girls ages 8-12.  These  products  are  designed  with girls' play
preferences in mind addressing issues that are important to them such as privacy
and communication.

         In 1999, Girl Tech  introduced a line of products for girls,  including
the Password Journal(R),  which uses voice recognition  technology to unlock the
journal.  In 2001,  2002,  and  2003,  Password  Journal  was  among the top ten
products in the Youth Electronics  market according to The NPD Group. In 2003 we
updated and improved the Password  Journal with a new Password  Journal product.
While  maintaining  the voice  recognition  lock and other  features  of the two
previous  versions of this product,  the new Password  Journal  allowed girls to
customize their journal by designing their own cover.  Password Journal includes
a gel pen and custom fit paper.

          We  continue  to  expand  the  Password  segment  for  2004  with  the
introduction  of new accessory  items  designed to expand the Password  Journal:
Password  Journal  Scrapbook(TM)  allows girls to customize  the inside cover of
their  journal and record  messages to accompany  photos or  mementos.  Password
Journal  Jam N Shred  Pen(TM)  combines  an FM radio with ear bud and a built-in
shredder to shred private notes. Both products fit into the Password Journal.

         In 2003, Girl Tech introduced  Dare Ya!(TM),  an electronic  version of
the  children's  game of "Truth or Dare".  Girls can  create  their own dares by
recording  them into the game.  Dare Ya! has a "truth  detector" to determine if
the girls are telling the truth.

         In 2004,  Friend  Chips(TM)  is being  introduced.  Friend  Chips  uses
instant messaging lingo to create password protected, digitally encoded messages
on the four included chips that can be passed on and used in other units. Friend
Chips includes two reader units and four chips to share with a friend.

         Another new  addition to the Girl Tech line is My Photo  Booth(TM).  My
Photo Booth gives the photo booth experience at home. Girls set the timer,  pose
in the mirror and watch the lights that  countdown to the flash.  My Photo Booth
uses Polaroid iZone film for refill.

         In February of 2002 we received a license to bring to market electronic
girls lifestyle products and electronic games under the Barbie(TM) brand name.

         The new Barbie  electronics  product  line was led by the Barbie  Dance
Party(TM) game. This product allows girls to dance with Barbie on TV through the
use of the  XaviX  technology  that is used on our Play TV line.  The  player is
asked to follow  Barbie's lead in dance moves and steps  demonstrated  on the TV
set.  In  2003,  we  introduced  Scanimals(TM)  Pet  Rescue  applying  the  same
technology used in our Skannerz product.  Girls scan UPC codes in search of lost
pets. Based on Password Journal,  we also introduced My Secret Diary(TM) for the
Barbie age girl. My Secret Diary opens  electronically  with a magnetic pen. For
2004, we are introducing the Barbie  Doorbell(TM),  a motion sensing door device
allowing girls to personalize their message and keep their room private. We will
also introduce Barbie Balance Beam(TM),  a game of lights and sounds designed to
simulate a gymnastic balance beam routine.  Additional games and accessories are
planned for the future.

         During 2004,  we will  introduce Off Limits for boys.  Voice  MegaVault
uses voice  recognition  technology and opens to the owner's voice.  It has high
and low security modes,  adjustable  shelves for storage,  and can be mounted to
the wall or used as a desktop  safe.  The Track `N Blast  Room  Defender  uses a
motion  sensor to  identify  and detect  intruders.  It then fires  twelve  soft
projectiles at the offender.

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<PAGE>

NEW ELECTRONIC TOY CATEGORIES

         We are  diversifying  the product line with two new category entries in
2004. The first is Nitro Battlerz,  a remote control racing game. Kids customize
their cars, then race them in the "dome" track.  The object of the game is to be
the last car in the dome,  as you force  others over the edge to crash to pieces
on the floor.  The starter  set  includes  the battle  dome track,  two cars and
controllers, extra body parts, and decorative decals.

         In our second new category for 2004, we are introducing Twinkleberries,
a new line of interactive  dolls that respond to the  "teacher/child".  When the
child slides a card into the chalkboard and presses the chalk to the card,  each
doll  responds to the teacher.  The starter set includes one  interactive  doll,
chalkboard,  chalk  and a set  of  cards.  Add-on  dolls  with  cards  are  sold
separately to expand the classroom.

MANUFACTURING SERVICES

         Since 1996 we have designed,  engineered and manufactured  products for
other  companies  in the  electronic  games  business.  Our factory in Tai Ping,
Dongguan,  Southern  China has 524,000  square feet of factory space and 308,000
square feet of  dormitory  space,  which has the  capacity to house in excess of
5,000  people,  currently  employs  approximately  3,500  people and  employment
typically  varies  from 3,000 to 6,000  depending  upon  seasonal  demands.  The
factory is capable of manufacturing up to 800,000 units per week. We manufacture
for other  companies  on an ODM  (original  design and  manufacture)  basis.  We
currently design and manufacture games for Hasbro, as well as other companies in
the U.S. and Japan.  We also provide  sourcing  services for customers in the UK
market, the largest customer of which is Argos.

BUSINESS STRATEGY

         As a  result  of our  efforts  toward  diversification,  we now  have a
significant  presence in four core product  lines  including  electronic  games,
youth electronics, video game accessories and manufacturing services. We believe
that these  product  lines are  significantly  related to each other in terms of
their  entertainment  value and the  expertise  that is involved  in  delivering
products in each  category of  electronic  entertainment.  As a result there are
synergistic  skills  that can be used to  benefit  each  area of our  four  core
product lines. Within these product lines we are focused on building five brands
including the Radica brand of electronic  games, the Play TV brand of electronic
games,  the Girl  Tech and  Barbie(TM)  brands  of  youth  electronics  and game
products,  and the Gamester brand of video game accessories.  It is our strategy
to focus on building each of these product lines and brands  through  aggressive
product development and marketing programs.

         Our  products are sold to retailers  and foreign  distributors  who sub
distribute to retailers in certain other  worldwide  markets.  We sell direct to
retailers in North  America and the United  Kingdom.  While we may  occasionally
sell  directly to retailers in other  worldwide  markets we usually sell through
sub distributors.

         We also manufacture most of our own products in our factory in China in
order  to  maintain  quality  and to  minimize  inventories  of  long  lead-time
electronic  components.  A small  percentage of product sales come from products
that are sourced  from other  factories by our  sourcing  group.  We utilize the
excess  capacity of our factory to  manufacture  products of a similar nature to
our own products for other  companies  such as the Hasbro Games Group and SSD in
Japan. We also provide sourcing  services to certain  retailers such as Argos in
the United Kingdom.  By providing such  manufacturing  and sourcing  services to
other  companies we seek to spread the overhead  cost of our  manufacturing  and
sourcing operations in order to improve profitability.

                                       17
<PAGE>

PRODUCT LINE SALES

         The  following  table  sets  forth a  breakdown  of our  sales by major
product category for the last four fiscal years.

<TABLE>
<CAPTION>
                                                                    YEAR ENDED DECEMBER 31,
                             -------------------------------------------------------------------------------------------------------
                                                    2003                                                 2002
                             --------------------------------------------------   --------------------------------------------------
                               % OF NET         NET         UNITS      NO. OF       % OF NET         NET          UNITS     NO. OF
PRODUCT LINES                SALES VALUE    SALES VALUE     SOLD      MODELS*      SALES VALUE   SALES VALUE      SOLD     MODELS*
------------------------------------------ -------------- ----------  ---------   -------------- -------------  ---------- ---------
(in thousands, except percentage and no. of models information)

<S>                                 <C>         <C>           <C>           <C>           <C>        <C>            <C>         <C>
Games and Youth Electronics Segment
  Electronic Games                  59.3%       $ 62,374      6,422         97            50.3%      $ 62,684       6,277       101
  Youth Electronics                 14.5%         15,227      1,324         27            13.4%        16,744       1,208        22
  Manufacturing Services             9.8%         10,385      3,924         23            19.8%        24,634       6,666        30
                             ------------- -------------- ----------  ---------   -------------- -------------  ---------- ---------
                                    83.6%         87,986     11,670        147            83.5%       104,062      14,151       153

VGA Segment
  Video Game Accessories            13.6%         14,294      2,150        152            12.7%        15,844       2,118       150
  Manufacturing Services             2.8%          2,920        N/A        N/A             3.8%         4,740         N/A       N/A
                             ------------- -------------- ----------  ---------   -------------- -------------  ---------- ---------
                                    16.4%         17,214      2,150        152            16.5%        20,584       2,118       150

Total                              100.0%        105,200     13,820        299           100.0%       124,646      16,269       303
                             ============= ============== ==========  =========   ============== =============  ========== =========
</TABLE>


<TABLE>
<CAPTION>
                                                                    YEAR ENDED DECEMBER 31,
                             -------------------------------------------------------------------------------------------------------
                                                    2001                                                 2000
                             --------------------------------------------------   --------------------------------------------------
                               % OF NET         NET         UNITS      NO. OF       % OF NET         NET          UNITS     NO. OF
PRODUCT LINES                SALES VALUE    SALES VALUE     SOLD      MODELS*      SALES VALUE   SALES VALUE      SOLD     MODELS*
------------------------------------------ -------------- ----------  ---------   -------------- -------------  ---------- ---------
(in thousands, except percentage and no. of models information)

<S>                                 <C>         <C>           <C>          <C>            <C>        <C>            <C>         <C>
Games and Youth Electronics Segment
  Electronic Games                  53.0%       $ 52,268      6,007        137            54.2%      $ 57,868       6,933       114
  Youth Electronics                 11.9%         11,720      1,042         16            13.0%        13,897       1,211        12
  Manufacturing Services            19.2%         18,941      3,973         15            18.1%        19,271       4,686        22
                             ------------- -------------- ----------  ---------   -------------- -------------  ---------- ---------
                                    84.1%         82,929     11,022        168            85.3%        91,036      12,830       148

VGA Segment
  Video Game Accessories            10.5%         10,335      2,070        130             9.5%        10,116       1,752       108
  Manufacturing Services             5.4%          5,290        N/A        N/A             5.2%         5,544         N/A       N/A
                             ------------- -------------- ----------  ---------   -------------- -------------  ---------- ---------
                                    15.9%         15,625      2,070        130            14.7%        15,660       1,752       108

Total                              100.0%         98,554     13,092        298           100.0%       106,696      14,582       256
                             ============= ============== ==========  =========   ============== =============  ========== =========

<FN>
* Number of models includes new and continuing  products as well as a significant  number of discontinued  items often sold in small
quantities from existing closeout inventories.
</FN>
</TABLE>

NEW PRODUCT INTRODUCTION

         Each year we plan to  introduce  new products to refresh and extend our
product  line.  In  fiscal  2004,  we  intend  to  update  our  product  line by
introducing approximately 44 new products.

                                       18
<PAGE>

             2004 vs. 2003 New Product Introductions (by category)


                                           2004             2003
                                       -------------      ----------
PRODUCT LINES

Games and Youth Electronics Segment
  Electronic Games                               15              23
  Youth Electronics                              14              10
  New                                             7               -
                                       -------------      ----------
                                                 36              33

VGA Segment                                       8              22
                                       -------------      ----------

Total                                            44              55
                                       =============      ==========

         We believe  that our  strategy  of  offering  various  game models with
differing  features  enables  us to  market  our  games to a wide  age  range of
consumers with different tastes and financial means.

         We  anticipate  that new product  introductions  in fiscal 2004 will be
concentrated  in the second and third quarters of that year. It is possible that
we will  determine  not to  proceed  with  any  given  product  or that  certain
anticipated  product  introductions  will be delayed  due to one or more  future
developments.

LICENSING

         During fiscal 2003, we engaged in several licensing agreements in which
we were given permission to use the name, logo, game concept and/or license of a
person, company or brand in exchange for a royalty fee.

         Among  the  licensors  were  Electronic  Arts,  Group  Lotus  plc,  UK,
Buckmasters,  Harley-Davidson, Elvis Presley Enterprises, the Tetris(R) Company,
New Transducers  Limited,  developers of NXT(R)  manufacturing sound technology,
SSD,  developers  of XaviX(R)  technology,  Microsoft,  developers  of Microsoft
Xbox(TM), Mattel, makers of Barbie(TM), Taito(R) Corporation, creators of Arcade
Legends Space  Invaders,  Sega(R),  makers of the original Sega Genesis  system,
Funimation(R),  developers of Yu Yu Hakusho(R) and Dragon Ball GT(R) anime,  and
20Q.net  Inc,  developers  of  the  "artificial   intelligence"  version  of  20
Questions.

         We intend to  incorporate  some of these licenses into our 2004 product
line and will pursue new licenses in instances  where  management  feels it will
enhance the value and marketability of a particular product.

MANUFACTURING

         Our  manufacturing  is generally  limited to  integrated  chip bonding,
plastic  injection,  clamshell  production,  mold  manufacture,   surface  mount
technology,  or SMT, and assembly operations. We order customized components and
parts from suppliers and use subcontractors for more complicated operations such
as masking of our proprietary  software onto the semiconductor chips used in our
games, LCD tooling and a proportion of tooling of molds for its plastic parts.

         In 2003 we assembled most of the Radica and Girl Tech lines of products
in order to control our costs, quality,  production and delivery schedules.  VGA
were assembled both in-house and by third party manufacturers.

                                       19
<PAGE>

         Our products are not required to obtain any quality  approvals prior to
sales in the United States.  However,  we are required to have and have obtained
CE approval,  Europe's toy safety standard, for products sold in Europe. We have
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. In addition, we voluntarily comply with ASTM 963,
a U.S. toy safety standard.

         We  received  renewal  of  our  ISO  9001  quality  certification  from
Underwriters Laboratory on February 9, 2004 which runs through February 8, 2007.
The scope of the  registration  covers the  design,  sales and  distribution  of
electronic and electro-mechanical games and related gift products.

MANUFACTURING FACILITIES

         We  currently  manufacture  our  products  at our Tai Ping  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 our design  specifications on a 3.7 acre site and contains 524,000 sq. ft. of
factory  space and 308,000 sq. ft. of dormitory  space,  capable of housing over
5,000  workers.  An extension of the factory  commenced in December  1999 to add
202,000 square feet of factory space and 178,000 square feet of dormitory  space
allowing  for up to an  additional  3,000  employees  to be housed.  The cost of
construction  of the  extension  would  have been  approximately  $3.0  million,
exclusive of manufacturing  equipment. As a result of the drop in demand for our
product in the U.S.  during 2000,  work towards  completion of this addition has
been  postponed  and  may  continue  when  market  demand  warrants  use  of the
additional  space.  The expansion has been  sufficiently  completed to the point
that no  impairment  issues  exist and it is  currently  being used for  storage
during peak production  season.  The unit capacity of the factory depends on the
product mix produced.  In any event,  there can be no assurance  that we will be
able to operate at full capacity or have sufficient sales to warrant doing so.

         In June 1994 we entered into a joint venture  agreement  with the local
government to operate the factory.  We contributed the cost of the  construction
of the factory to the joint  venture  while the local  village  contributed  the
land-use  rights.  The  joint  venture  is for 30  years  after  which it may be
renegotiated. The construction cost of the factory is being treated as a prepaid
30-year leasehold on the factory. Upon the 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 and had originally  been set at a
20%  increase  every 3 years but has been  successfully  renegotiated  to be 10%
every 3 years.  Aside  from the  fixed  annual  fee  paid to the  joint  venture
partner, we are the sole beneficiary of the results of the joint venture, and we
solely  control the joint  venture's  operations,  including  the  operating and
capital decisions of the joint venture in the ordinary course of business.

         Formerly,  we manufactured in the factory under a processing  agreement
with the local government. A 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
was 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 was established in production  agreements
agreed upon with local government officials. We paid the processing fees through
the Bank of China in Hong Kong and the funds  were then  placed in an  operating
account  including  other company funds in China,  all of which were used to pay
the costs of the factory  including fees due to the local  government as part of
the  processing  agreement.  Changes  in PRC tax and  customs  law have  made it
increasingly  difficult to use the processing agreement.  During 2001, we made a
decision to end its use of the processing agreement and as of December 31, 2003,
we had completely phased out use of processing agreement.

                                       20
<PAGE>

         All of our  operations in the PRC,  whether within the joint venture or
the  processing  agreement  are  accounted for as  wholly-owned  operations  and
included in our consolidated financial statements.

         In practice,  we operate all aspects of the factory,  including hiring,
paying and terminating workers. Most of the factory workers are hourly employees
and are provided room and board in addition to their wages. In addition, we bear
all other  costs of  operating  the  factory,  including  utilities  and certain
employee  social  welfare  charges  established  by the local  government.  Many
aspects of the operation of the factory are dependent on our  relationship  with
the  local  government  and  existing  trade  practices.  We  believe  that  our
relationship with the local government is good.

         Should we decide to curtail our  manufacturing  activities in China, we
may be required to pay back  certain tax  benefits we have  received  and may be
held liable for certain fees. Such liabilities may be substantial.

MATERIALS

         Major components used in our products are liquid crystal  displays,  or
LCDs,  semiconductor  chips, printed circuit boards, or PCBs, and molded plastic
parts. We purchase LCDs, PCBs, and semiconductor  chips from several  suppliers.
We generally  provide six to nine months order  indications to our semiconductor
chip  suppliers  and must place firm orders a minimum of six weeks in advance of
delivery.  This lead time in some cases  extends to twenty weeks when the market
is in short  supply.  We generally  try to maintain  about two months  supply of
semiconductor chips, which may constrain increased production of our products on
short notice. We pay for most of our materials in U.S. dollars.

         Our major suppliers of electronic and mechanical  handheld and tabletop
game materials in fiscal 2003 included BASF China Limited (plastic resin), C & L
Electric Mfg. Co., Ltd.  (cables),  Evergreen PCB Factory  Limited  (PCBs),  GPI
International  Limited  (batteries),  Lead Jump Development Limited (PCBs), Ngai
Hing Hong Plastic Materials Ltd.  (plastic resin),  Senmax,  Limited  (keypads),
Sensory,  Inc.  (semiconductor  chips),  Safe Power Industrial Ltd.  (printing),
Silicon  Application  Co.,  Ltd  (semi-conductor  chips),  SSD  Company  Limited
(semi-conductor chips), Vbest Electronics Ltd. (LCDs), Wintek Corporation (LCDs)
and Yu Lee Printing Co. (printing).

         Our major  suppliers  of VGA in fiscal 2003  included Hip Hing Cables &
Plug Mfy Ltd. (cables and plugs), Mascotte Industrial Associates (HK) Ltd. (bags
and cases) and Minwa Electronics Co. Ltd. (power adaptors),

SALES AND DISTRIBUTION

         Our products are sold in  approximately  30 countries,  with the United
States accounting for approximately 70% of net sales in fiscal 2003. We sell our
products  directly  to over  350  active  retailers  in the  U.S.  and UK and to
approximately 30 distributors  worldwide.  We participate in the electronic data
interchange  ("EDI")  program  maintained by 14 customers in the U.S.  including
Wal-Mart,  Target, Kmart, Kohl's, Toys`R'Us and Best Buy, and 4 customers in the
UK: Argos, Comet,  Dixon's and John Lewis. In fiscal 2003, our largest customer,
Wal-Mart,   accounted  for  31.9%  of  net  sales.  All  sales  to  third  party
distributors and retail customers are final upon transfer of title. The top five
customers were as follows:

                                                   % OF SALES
        CUSTOMER NAME                          FOR THE FISCAL YEAR
        -------------                          -------------------
                                               2003            2002
                                               ----            ----
        1.  Wal-Mart (USA)                        31.9%          24.7%
        2.  Toys`R'Us (USA)                        8.9%           8.5%
        3.  Hasbro (USA)                           8.2%           7.4%
        4.  Argos (UK)                             8.0%           8.1%
        5.  Target (USA)                           5.5%           7.4%

                                       21
<PAGE>

         The following  table sets forth certain of our major customers in 2003,
including distributors (alphabetical order).

<TABLE>
<CAPTION>
CATALOG SHOWROOMS                            DRUG/MASS MERCHANDISERS                   ELECTRONICS/GROCERY/ CONVENIENCE
-----------------                            -----------------------                   --------------------------------

<S>                                          <C>                                       <C>
Argos                                        Army Airforce Exchange                    About Time
Brookstone                                   Fred Meyer                                Argos
Index                                        Kmart                                     Best Buy
Sharper Image                                Meijer                                    Biggs Hypermarket
                                             Pamida                                    Blockbuster
                                             QVC                                       Circuit City
                                             Target                                    Comet
DEPARTMENT STORES                            Wal-Mart                                  Corner Distributors
-----------------                            Zellers                                   Dixon's
Dillard's                                                                              Electronics Boutique
J.C. Penney's                                                                          Game
John Lewis                                                                             Gamestop
Kohl's                                                                                 Ingram Entertainment
Macy                                                                                   Mill's Fleet Farm
Woolworth's (UK)                                                                       Musicland
                                                                                       Production Solutions
                                                                                       Radioshack

MAIL ORDER/SPECIALTY GIFT SHOP OPERATORS     SPORTING GOODS STORES                     DISTRIBUTORS (RADICA)
----------------------------------------     ---------------------                     ---------------------
Avon                                         Bass Pro Shops                            Algos Corp. (Japan)
Buckmaster                                   Dunham's                                  Amo oy (Finland)
Dufferin Game Room Stores                                                              Automaten Hoffmann (Germany)
Figis                                                                                  Caesars Gauteng (South Africa)
Fingerhut                                    TOY RETAILERS                              Edu Toys (Russia)
Hammacher Schlemmer                          -------------                             Galeria 765 S.A. de C.V. (Mexico)
Host Marriott Corp                           Kay Bee                                   Gromart Import & Marketing (Israel)
Littlewoods                                  Toymaster                                 Importadora Maduro S.A. (Panama)
Next Retail                                  Toys`R'Us                                 Irwin Pacific Pty, Ltd. (Australia)
Spiegel                                                                                John Hansen Co. (USA)
Spillsbury                                                                             Koch (Germany)
Spencer Gifts                                DISTRIBUTORS (VGA)                        Lansay (France)
Starboard Cruise Services                    ------------------                        Planet Fun (New Zealand)
Wish Book                                    First Game (Korea)                        Playthings Pte Ltd. (Singapore)
                                             Forte Co., Ltd. (Japan)
                                             Imbi Mario Trading (Malaysia)
</TABLE>

<TABLE>
<S>                                          <C>                                       <C>
                                             Master Genius (Thailand)                  S. I. D. Cadeaux (France)
                                             Nobilis (France)                          Souvenirworld (USA)
OEM                                          Replay Interactive (Singapore)            The Oriental Trading Co. (Hong Kong)
---                                          Super Chi-Yuen (Taiwan)                   Top Toy (Denmark)
Hasbro, Inc.                                 Top Toy (Denmark)                         Universal Electronics (Lebanon)
SSD Company Limited                          Universal Electronics (Lebanon)

</TABLE>

         In the United States,  we use regional sales managers working for us to
manage our customers as well as manufacturers  representatives  and brokers that
sell our products to certain retailers. These manufacturers  representatives are
not our employees and work on a commission basis. In the United Kingdom,  we use
brand sales managers and manufacturers  representatives  to sell our products in
the UK and Europe.

         Our 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 we generally
operate without a significant backlog of regular orders.

                                       22
<PAGE>

         In certain  instances,  where retailers are unable to sell the quantity
of  products  which have been  ordered,  we may,  in  accordance  with  industry
practice,  assist  retailers  to enable  them to sell such excess  inventory  by
offering  discounts or  accepting  returns.  A portion of firm orders,  by their
terms,  may be canceled if shipment is not made by a certain  date.  We minimize
the related costs of such  discounts and returns by engaging  personnel to visit
selected customers and assist in the management of product returns. We establish
provisions  based on  historical  experience  at the time of sale of the related
products.  The return of non-defective  products occurs infrequently in the U.S.
In the UK market,  accepting  non-defective product is regular industry practice
and we establish our return provisions on such sales based on experience.

         Our Radica,  Girl Tech,  Play TV and Connectv  products carry a 90 days
consumer  warranty  from  the date of sale.  Our VGA  products  carry a one year
warranty from the date of sale. In each of the last three years,  warranty costs
incurred  have been less than 3% of net  sales and  substantially  all  warranty
claims are received within 90 days of invoice.

INDUSTRY

         NPD Group, the service that has historically  tracked our retail sales,
no longer  provides this service for us. It does,  however,  continue to provide
industry data.  According to NPD, the toy industry in the U.S. saw a significant
overall  decline in 2003. Toy sales in gross dollars were down 4.1% in 2003 from
2002 among top 10 retailers  and were down 3% overall.  Electronic  handheld and
tabletop  games  were  down  17.1%  in 2003  from  2002 in the  U.S.  and  youth
electronics and communication  devices were down 7.2%.  Management believes that
these  declines were the result of weaker  overall  retail sales and  discounted
excess inventories from prior years and limited new product introductions in the
categories in 2003.  Our U.S.  sales  declined  less  sharply,  falling 3.8% for
electronic games. Our U.S. sales of Youth Electronics fell 25.2%, primarily as a
result of decline in sales of Barbie licensed products.

         NPD's UK data showed a 5% increase in the toy market in 2003 from 2002.
Electronic and tabletop games were up 5% and youth electronics were up 1%. As of
the reporting  date, we do not have similar data for the rest of Europe.  Our UK
sales of  electronic  games  and  youth  electronics  increased  62.7% and 0.6%,
year-on-year, respectively.

         Annual  industry-wide  video game accessory sales were flat in the U.S.
in 2003.  According to the NPD Group,  VGA sales in gross dollars were down only
0.3% in 2003 from 2002. Our U.S. sales of video game  accessories  were up 16.3%
in 2003.

         The UK and Europe do not have a reliable  retail  tracking  service for
video  game   accessories.   During  2003,  our  UK  operations   changed  their
distribution  strategy  in the UK and Europe  from  providing a full line of VGA
product,  including  low-margin  commodity  items,  to selling a smaller line of
innovative, higher margin products. As a result of this restructuring, sales for
VGA product in the UK dropped 63.4% in 2003 from 2002. During 2003, we secured a
VGA distributor in France and Germany and as a result,  European sales increased
58.0% in 2003 from 2002.

PRODUCT DEVELOPMENT

         At the end of 2003,  our  engineering  and  development  department had
approximately 87 staff worldwide.  Our product  development starts with a design
team in Dallas, Texas and continues through to the engineering teams in Shenzhen
and in the Dongguan factory.  We have a formalized product  development  process
that includes quarterly meetings of its worldwide product  development and sales
departments. In fiscal 2001, 2002 and 2003, we spent approximately $5.8 million,
$4.1 million and $3.9

                                       23

<PAGE>

million respectively,  on research and development. Our research and development
is heavily  oriented  toward market  demand.  Based on our ongoing  contact with
consumers,  retailers  and  distributors  worldwide,  our  sales  and  marketing
departments  seek 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 our product
development, with designs, features,  materials,  manufacturing and distribution
all developed  within the parameters of the target retail price.  We also review
product  submission  from a  network  of third  party  inventors  that have been
approved  by  management.  These  submissions  are  subject to the same  product
development process and market demand considerations as internal submissions.

         In January of 2002, we executed our December 2001  reorganization  plan
that included the closure of the San Francisco  research and development  office
and the relocating of the Hong Kong  engineering  positions to offices in China.
During 2003,  we  eliminated  our  Hertfordshire,  England  design  team.  These
reorganizations  significantly reduced costs without decreasing  efficiency.  We
expect to continue  developing the majority of products  internally during 2004.
However,  changes in business  philosophy or unforeseen  circumstances may arise
that  could  force  us to  outsource  a  larger  than  expected  amount  of  our
development work.

SEGMENT INFORMATION
         See  Note 17 of the  Notes  to the  Consolidated  Financial  Statements
included herein.

ORIGINAL DESIGN MANUFACTURING AND ORIGINAL EQUIPMENT MANUFACTURING

         In 1995, we were  successful in  establishing a  relationship  with the
Hasbro Games Group to design and  manufacture  products for them. We continue to
manufacture  for  Hasbro,  which is also our  largest  competitor,  as well as a
number of other customers including Lexibook, SSD, B,D&A and Kemco. We intend to
pursue other ODM and OEM business in the future. However it is uncertain whether
we can retain our current business on a long-term basis or successfully  attract
additional ODM business or that it will be profitable.

INTELLECTUAL PROPERTY

         We own a number of patents, trademarks and copyrights and we are in the
process of registering other intellectual properties.  We will continue to apply
for  intellectual  property  registrations  on new products as management  deems
necessary.

         We  anticipate   that  patents,   trademarks,   copyrights   and  other
intellectual   property  rights  will  become  increasingly   important  in  the
electronic entertainment industry in which we operate, particularly since we are
introducing a wider range of products.  As the industry  focuses on intellectual
property  matters,  there will be  opportunities  for us to protect our products
through patents,  trademarks and other formalized filings, although the efficacy
of these  protections  is  uncertain.  By the same token,  we will be exposed to
risks  that our  products  or other  aspects  of our  business  will be found to
infringe  the  intellectual   property  rights  of  others.  See  "Item  3.  Key
Information - Risk Factors - Intellectual Property Risks".

COMPETITION

         The games business is highly competitive. We believe that we are one of
the  leading  sellers of  electronic  games and youth  electronics.  Our primary
competitor is the Hasbro Games Group ("Hasbro"),  which is also an OEM customer.
Hasbro procures its products from manufacturers in China including Radica. Other
competitors  include  Jakks  Pacific,  Wild Planet and MGA. The barriers for new
producers  to enter our  markets are  relatively  low and we expect that we will
face strong  competition.  We compete  for  consumer  purchases  on the basis of
price, quality and game features and for retail shelf space also on the basis of


                                       24
<PAGE>

service,  including  reliability of delivery,  and breadth of product line. Some
competitors offer products at lower prices than we do, are better established in
the toy and games industry and are larger than we are. Our products also compete
with other gifts and games for consumer purchases.  In addition, with respect to
ODM/OEM  activities,  we compete with a number of substantially  larger and more
experienced  manufacturers.  As we enter other markets and businesses, we expect
to face strong competition.

         The VGA market is also highly competitive. The market share in the U.S.
is spread  primarily  amongst ten companies that have  approximately  60% of the
market.  We began  significant  distribution  of VGA in the U.S. market in 2001.
Like the handheld  electronic games market, we compete for customer purchases on
the basis of price,  quality,  and  features  and for retail  shelf space on the
basis of service. Major competitors are MadCatz, Pelican, Logitech and Joytech.

TAXATION OF OUR COMPANY AND OUR SUBSIDIARIES

         There is  currently  no Bermuda  income,  corporation  or  profits  tax
payable by our  company.  As an  exempted  company,  we are liable to pay to the
Bermuda  government  an annual  registration  fee  calculated on a sliding scale
basis by reference to our  assessable  capital,  that is, our  authorized  share
capital plus any share premium on our issued shares of Common Stock currently at
a rate not exceeding $25,000 per annum.

         The Hong Kong profits tax rate for 2003 is 17.5%,  which is an increase
from the 16% tax rate during the past several years.  Currently,  our subsidiary
Radica HK pays Hong Kong profits tax on service and sales income.

         On July 1, 1994, our  manufacturing  operations  were  transferred to a
Sino-Foreign joint venture. As our company itself does not carry on any business
in China,  it is not subject to tax.  The joint  venture  enjoyed a two year tax
holiday  which  expired in 1999.  From  January 1, 1999 to December 31, 2001 the
joint  venture's  profits were taxed at a reduced rate of 12%,  half the regular
tax rate of 24%.  In 2002,  the joint  venture was taxed at the regular tax rate
plus a local tax rate of 3%, but  successfully  applied to be  designated  as an
"Export  Oriented  Enterprise",  which reduced its regular tax rate to 12%. This
designation  led to the refund of the excess  tax to the joint  venture.  On the
basis of the success of this application, we are optimistic that we will be able
to maintain the effective tax rate of 15% for the joint venture.

         Our  subsidiaries  Radica USA,  Radica  Canada and Disc Inc.  are fully
subject to U.S. and Canada federal taxation,  as well as any applicable state or
local taxation, on their taxable income. Currently, the highest marginal rate of
U.S.  federal  corporate  income tax is 35%; the highest marginal rate of Canada
federal  corporate income tax is 25%. In addition,  dividends paid by Radica USA
and Disc Inc. to our company will be subject to a 28% U.S.  federal  withholding
tax,  resulting in an effective  rate of U.S.  federal  taxation on  distributed
profits of up to 53.2%.

         Our subsidiary Radica UK is fully subject to UK corporate taxation. The
UK profits tax rate currently applying to corporations is 30%.

         During 2003,  we formed  Radica  (Macau  Commercial  Offshore)  Ltd., a
company  incorporated  in The Special  Administrative  Region of Macau,  for the
purpose of carrying on export trade activities.  To the extent that Radica Macau
sells all of its products outside of Macau, it is exempt from tax in Macau.

EMPLOYEES

         As of December 31, 2003 our workforce was comprised of the following:

          Production     Sales and     R&D      Finance    Operations   Total by
                         Marketing                          & Admin     location
--------------------------------------------------------------------------------
Asia         3,321          11          73          24         124       3,553

USA              1          26          14           8          16          65

Europe           1           9          --           5           7          22

Total        3,323          46          87          37         147       3,640


                                       25

<PAGE>

         At December 31, 2002 and 2001 our workforce comprised 4,332 persons and
4,185 persons, respectively.

         None of our employees are subject to a collective  bargaining agreement
and we have never  experienced  a work  stoppage.  Management  believes that our
employee relations are good.

DESCRIPTION OF PROPERTIES

         See  "Manufacturing  Facilities" above. We completed the first phase of
construction  of our factory  (241,000  sq. ft.) on a 3.7 acre parcel of land in
May 1995 and the second  phase  (223,000  sq. ft.) in August  1998.  The factory
currently  contains  524,000  sq. ft. of factory  space and  308,000  sq. ft. of
dormitory  space,  capable of housing  over 5,000  workers.  An extension of the
factory  commenced  in December  of 1999 to add  202,000  square feet of factory
space and 178,000  square feet of  dormitory  space.  As a result of the drop in
demand for our product in the U.S. during 2000, work towards  completion of this
addition has been postponed and will continue when market demand warrants use of
the  additional  space.  We own a long-term  leasehold on our executive  offices
(21,500 sq. ft.  inclusive  of one leased  unit of 2,300 sq. ft.) and  warehouse
space (7,900 sq. ft.) in Fo Tan,  Hong Kong as well as a house (2,100 sq. ft) in
Hong  Kong.  We  operate  our  factory  under  the  terms of the  joint  venture
agreement.  We lease  additional  office space in  Hertfordshire,  UK; Macau and
Shenzhen,  China; Dallas, Texas and Pasadena,  California. We lease showrooms in
Tsim Sha Tsui, Hong Kong and New York, New York and provide  individual  offices
for sales  personnel  employed in  Massachusetts  and Illinois.  During 2003, we
leased one of our executive  units in Fo Tan, Hong Kong totaling  2,390 sq. ft.,
and plan to lease one and sell one Fo Tan unit  (2,500 sq. ft each) in 2004.  In
addition, during 2003 we sold one house and leased out another one that had been
made  available to Mr. Howell and Mr. Scott and we are currently  paying rent on
two different houses for Mr. Howell and Mr. Scott in Hong Kong. We also leased a
flat in Macau  which has been made  available  to Mr.  Chu,  an  officer  of our
company.

LEGAL PROCEEDINGS

         We are  subject to pending  claims and  litigation.  On April 4, 2000 a
lawsuit was filed by the Lemelson Foundation  ("Lemelson") against us 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  (Auto ID) operations.  The Auto ID operation is used in machines
that are part of our bonding and heat-sealing manufacturing processes.  Lemelson
is contesting that the use of machines that incorporate this patented technology
infringes  on their IP rights and  therefore  we are  obligated to pay a royalty
based on the use of this technology.

         The suit by Lemelson  has been  stayed  pending the outcome of Lemelson
vs. Cognex, a similar suit filed by Lemelson, which had some bearing on our case
with Lemelson.  On January 23, 2004, the U.S.  District Court in Nevada issued a
ruling in favor of  Cognex.  The Court  ruled  that all of the  Lemelson  patent
claims at issue were invalid and  unenforceable.  It is believed  that  Lemelson
will appeal.  We cannot predict the outcome of the anticipated  Lemelson appeals
or the effect of such litigation on our financial  results.  No accrual has been
recorded at December 31, 2003 in respect of the Lemelson case or other claims or
legal actions, in accordance with SFAS No. 5 Accounting for Contingencies.

         We have  other  pending  litigation  against  us.  Management  does not
believe that the ultimate  disposition of the other matters will have a material
adverse effect on our consolidated financial position,  results of operations or
liquidity.

                                       26
<PAGE>

ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS

RESULTS OF OPERATIONS

FISCAL 2003 COMPARED TO FISCAL 2002

         The following table sets forth items from our  Consolidated  Statements
of Operations as a percentage of net revenues:

                                                   Year ended December 31,
                                                   ----------------------
                                                      2003        2002
                                                   --------     --------

Net sales                                            100.0%       100.0%
Cost of sales                                         61.4%        62.2%
                                                   --------     --------

Gross profit                                          38.6%        37.8%
Selling, general and administrative expenses          24.5%        22.2%
Research and development                               3.7%         3.3%
Depreciation and amortization                          1.9%         2.3%
Restructuring charge                                   0.1%         0.0%
                                                   --------     --------

Operating income                                       8.4%        10.0%
Other income                                           0.3%         0.3%
Foreign currency gain, net                             0.2%         1.4%
Interest income, net                                   0.3%         0.0%
                                                   --------     --------

Income before income taxes                             9.2%        11.7%
Credit (provision) for income taxes                    2.7%        (2.1%)
                                                   --------     --------

Net income                                            11.9%         9.6%
                                                   ========     ========

         We  reported  net  income  for the  year of $12.5  million  or $.66 per
diluted  share  compared to $11.9 million or $.65 per diluted share for the same
period in 2002.  Sales for the year  decreased  by 15.6% to $105.2  million from
$124.6 million in 2002 due to the reduction in "one-off"  manufacturing business
generated by the  production of the "Ekara"  karaoke  product  manufactured  for
Takara in 2002,  reduced  sales in the United  Kingdom  which was  impacted by a
particularly  weak fourth  quarter retail  environment  and weaker than expected
sales of Barbie(TM) licensed products.

         Our UK subsidiary  experienced a large shift in its sales mix and gross
sales during  2003.  Sales of video game  accessories  fell from $6.1 million in
2002 to $2.2  million in 2003.  This was  primarily  due to our decision to stop
selling less profitable  commodity-type  video game  accessories  such as memory
cards,  cables and carrying bags and begin  selling a more  focused,  profitable
line  that  includes  products  with  unique,  trademark  and  patent  protected
features.  In the  fourth  quarter  of  2003,  we wrote  down our UK video  game
accessory  inventory by $1.25 million with plans to sell our remaining commodity
product in 2004.  Our sales of  electronic  games in the UK were $8.0 million in
2003, up from $7.0 million in 2002. This was the result of management's focus on
broadening  our  electronic  game  distribution  in the UK,  which was  achieved
through increased  promotional  spending and pursuing new retail outlets.  Going
forward, management expects sales in the UK to grow by broadening its electronic
games line and getting better placement of its video game accessories at retail.
We anticipate the 2004 sales mix to be similar to that in 2003.

                                       27
<PAGE>

         Summary of sales achieved from each category of products:

<TABLE>
<CAPTION>
                                               YEAR ENDED DECEMBER 31,
                             ------------------------------------------------------------
                                         2003                           2002
                             ----------------------------    ----------------------------
                               % OF NET         NET            % OF NET         NET
PRODUCT LINES                SALES VALUE    SALES VALUE      SALES VALUE    SALES VALUE
------------------------------------------ --------------    ------------- --------------
(US$ in thousands)

<S>                                 <C>         <C>                 <C>         <C>
Games and Youth Electronics
Segment
  Electronic Games                  59.3%       $ 62,374            50.3%       $ 62,684
  Youth Electronics                 14.5%         15,227            13.4%         16,744
  Manufacturing Services             9.8%         10,385            19.8%         24,634
                             ------------- --------------    ------------- --------------
                                    83.6%         87,986            83.5%        104,062

VGA Segment
  Video Game Accessories            13.6%         14,294            12.7%         15,844
  Manufacturing Services             2.8%          2,920             3.8%          4,740
                             ------------- --------------    ------------- --------------
                                    16.4%         17,214            16.5%         20,584

Total                              100.0%        105,200           100.0%        124,646
                             ============= ==============    ============= ==============
</TABLE>

         Gross  profit  margin for the year was 38.6%  compared to 37.8% for the
year ended  December  31, 2002 as a result of a favorable  product mix  shifting
from lower margin OEM sales  offset by a charge  taken in the fourth  quarter of
$1.25 million to reflect inventory  write-downs  related to our decision to exit
the commodity side of the video game accessories business and concentrate on the
higher margin, innovative product sector of the video game accessories market.

         Operating  expenses for the year  decreased to $31.8 million from $34.6
million for the year ended  December 31, 2002.  The decrease was the result of a
decrease  in variable  expenses.  In  addition,  depreciation  and  amortization
charges  dropped by $0.8  million for the year due to certain  fixed assets that
have become fully amortized during the year.

         During the fourth  quarter we released our deferred tax  provisions  in
the U.S. This,  combined with a larger than expected tax reimbursement in China,
resulted in a net tax credit for the year of $2.9 million.

         The  following  table  shows the major  operating  expenses  and income
taxes:

                                                Year ended December 31,
                                            ------------------------------
(US$ in millions)                                 2003             2002
                                            ------------      ------------

Advertising and Co-op expenses                  $  7.6           $   7.4
Other selling and promotion expenses               1.8               2.4
Indirect salaries and bonus                        8.3              10.0
Research and development expenses                  3.9               4.1
Depreciation and amortization                      2.0               2.9
(Credit) Provision for income taxes               (2.9)              2.7


                                       28
<PAGE>

CAPITAL RESOURCES AND LIQUIDITY

         Our cash and investment  securities totaled $42 million at December 31,
2003. We had cash and cash equivalents of $13.9 million at December 31, 2003. We
generated $10.0 million in cash from operating activities during 2003, down from
$12.0 million  generated in 2002.  This decrease in 2003 from 2002 was primarily
the result of decreased gross profit and earnings before income tax. There was a
$4.9 million decrease in inventories,  in part due to a $1.25 million write-down
taken  against  excess  video  game  accessories   inventories  in  the  UK  and
management's  decision  to  limit  fourth  quarter  production  due to the  soft
worldwide retail markets.

         Our accounts  receivable  increased  $0.2 million during the year ended
December 31, 2003.  The aggregate of the (i) allowance for sales,  marketing and
the (ii) advertising expenses and allowance for sales returns as a percentage of
total accounts  receivable was 21.5% and 23.8% as of December 31, 2003 and 2002,
respectively.  The  reserve  for  doubtful  accounts  as a  percentage  of total
accounts  receivable  was 1.3%  and  1.6% as of  December  31,  2003  and  2002,
respectively.  These changes in accounts  receivable are due to  fluctuations in
revenues and the timing of customer payments.  Management  monitors and analyzes
the  accounts  receivable  for  doubtful  accounts,  sales  expenses and returns
allowances and adjusts these reserves accordingly.

         Current  liabilities were $13.1 million at December 31, 2003, down $7.6
million from the $20.7 reported at December 31, 2002. As a result of the reduced
fourth quarter factory production,  accounts payable decreased $1.6 million from
December 31, 2002 to December 31, 2003.  Accrued  payroll and employee  benefits
dropped  $1.4  million from $2.8 million at December 31, 2002 to $1.4 million at
December 31, 2003.  This was due to the  reduction  of accrued  employee  profit
sharing distributions and management incentive bonuses over the prior year.

         Cash used from investing  activities  was $28.0 million,  up from a net
utilization  of $1.1 million in 2002.  The large  increase was the result of the
purchase of $28.1 million of investment  securities  during 2003. The investment
securities  are  liquid,  of  investment  grade  and  are in U.S.  dollars.  The
investment portfolio is primarily invested in short-term  securities to minimize
interest rate risk and facilitate deployment for cash needs.

         Cash used in financing  activities  during 2003 was $1.5 million,  down
from  $3.3  million  in 2002.  The  reduction  in cash  used was the  result  of
repayment of the remaining short-term loan balance with HSBC during the year.

         At December 31, 2003, we had net assets of $89.2 million  compared with
$74.6  million at December  31,  2002.  Our  business  generates  a  significant
majority of its cash from its normal  operations but seasonal cash  requirements
have been met with the use of short-term  borrowings,  which included borrowings
under secured lines of credit.

         During the normal course of business,  we enter into debt arrangements,
licensing  agreements and commitments  with various third parties for the use of
their inventor concepts and intellectual  property.  Certain of these agreements
and commitments  containing provisions for guaranteed or minimum royalty amounts
during  the  term of the  contracts.  Additionally,  we lease  certain  offices,
warehouses and equipment  under various  operating  lease  arrangements.  In the
normal course of business, leases that expire will be renewed or replaced. Under
the terms of a joint venture agreement with the local government in Dongguan, we
are also  committed to pay the fees over the next 21 years  (please see "Item 3,
Key  Financial  Data,  Risk  Factors,  Risk of  Manufacturing  in  China - China
Taxation").

                                       29
<PAGE>

          As of December 31, 2003, we were obligated under various licensing and
joint venture  agreements and  non-cancelable  operating leases requiring future
minimum payments as follows:

(US$ in thousands)

Licensing commitments             $  507
Operating leases                   3,314
Joint venture fees                 3,426
                                  ------

Total minimum payments            $7,247
                                  ======

         We  had  no  derivative  instruments  or  off-balance  sheet  financing
activities  during fiscal years 2002 and 2003. We believe that our existing cash
and cash  equivalents  and cash  generated  from  operations  are  sufficient to
satisfy the current anticipated working capital needs of our core business.

         Management  believes that our existing  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 2004, we expect to continue to fund our working
capital  needs  through  operations  and the  revolving  credit  facility and we
believe  that the funds are  available  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 5, 2004, we announced a quarterly dividend program.  For the
first  dividend,  our Board of  Directors  declared a dividend of $.04 per share
payable on January 30, 2004, to  shareholders  of record as of January 20, 2004.
The Board has also  approved an initial  target  quarterly  dividend of $.04 for
subsequent quarters;  however, the actual amount of each quarterly dividend,  as
well as each declaration  date,  record date and payment date, is subject to the
discretion of the Board,  and the target  dividend level may be adjusted  during
the year at the  discretion  of the Board.  The factors the Board is expected to
consider  in  determining  the actual  amount of each  quarterly  dividend  will
include our financial  performance  and on-going  capital needs,  our ability to
declare and pay dividends in light of other  financial  requirements,  and other
factors deemed relevant.

FISCAL 2002 COMPARED TO FISCAL 2001

         We reported  net income of $11.9  million for fiscal year 2002 or $0.65
per diluted  share versus a net loss of $4.4 million or $0.25 per diluted  share
for fiscal year 2001.


                                       30
<PAGE>

         Summary of sales achieved from each category of products:

<TABLE>
<CAPTION>
                                               YEAR ENDED DECEMBER 31,
                             ------------------------------------------------------------
                                         2002                            2001
                             ----------------------------    ----------------------------
                               % OF NET         NET            % OF NET         NET
PRODUCT LINES                SALES VALUE    SALES VALUE      SALES VALUE    SALES VALUE
------------------------------------------ --------------    ------------- --------------
(US$ in thousands)

<S>                                 <C>         <C>                 <C>         <C>
Games and Youth Electronics
Segment
  Electronic Games                  50.3%       $ 62,684            53.0%       $ 52,268
  Youth Electronics                 13.4%         16,744            11.9%         11,720
  Manufacturing Services            19.8%         24,634            19.2%         18,941
                             ------------- --------------    ------------- --------------
                                    83.5%        104,062            84.1%         82,929

VGA Segment
  Video Game Accessories            12.7%         15,844            10.5%         10,335
  Manufacturing Services             3.8%          4,740             5.4%          5,290
                             ------------- --------------    ------------- --------------
                                    16.5%         20,584            15.9%         15,625

Total                              100.0%        124,646           100.0%         98,554
                             ============= ==============    ============= ==============
</TABLE>

         Gross  margin  for the year was  37.8%  compared  to 34.4% for the year
ended  December  31,  2001  as  a  result  of  improved  cost  control,  factory
efficiencies and product mix.

         Operating  expenses for the year were $34.6  million  compared to $37.6
million for the year ended December 31, 2001. The decrease in expenditure was as
a result of cost reductions, including R&D due to the restructuring announced in
the fourth quarter of 2001, offset by increased  variable costs due to the 26.5%
increase in sales. In addition  depreciation and amortization charges dropped by
$1.2  million of which $0.8  million was due to the adoption of SFAS 142 and the
resulting cessation of amortization of goodwill.

         The  following  table  shows the major  operating  expenses  and income
taxes:

                                               Year ended December 31,
                                           -------------------------------
(US$ in millions)                                2002             2001
                                           ------------      -------------

Advertising and Co-op expenses                  $   7.4          $  7.0
Other selling and promotion expenses                2.4             2.8
Indirect salaries and bonus                        10.0             8.3
Research and development expenses                   4.1             5.8
Depreciation and amortization                       2.9             4.0
(Credit) Provision for income taxes                 2.7            (0.6)

         Research and development  costs in 2002 decreased from 2001 as a result
of  the  2001  reorganization  (see  "Item  4.  Information  on  the  Company  -
Description of Business - Product  Development").  The increase in the provision
for income taxes from 2001 was primarily the result of a valuation allowance put
in place to offset the UK deferred tax asset.


                                       31
<PAGE>

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

         We prepare our  consolidated  financial  statements in accordance  with
generally  accepted  accounting  principles  in the  United  States of  America.
Management is required to make certain estimates and assumptions that affect the
reported  amounts of assets and liabilities and the reported  amounts of revenue
and  expenses.  Below is a  listing  of  accounting  policies  that we  consider
critical in preparing our  consolidated  financial  statements.  These  policies
include estimates made by management using the information  available to them at
the time the estimates are made, but these estimates  could change  considerably
if different information or assumptions were used.

BAD DEBT ALLOWANCE

         The bad debt allowance is an adjustment to customer  trade  receivables
for amounts that are determined to be uncollectible or partially  uncollectible.
The bad debt allowance  offsets gross trade receivables and is computed based on
management's  best assessment of the impact on trade receivables of the business
environment,  customers'  financial  condition,  historical  trends and customer
disputes.

         The  movement  of the  doubtful  accounts  allowance  by region  was as
follows for 2003:

<TABLE>
<CAPTION>
                       Balance at                                          Balance at
                       beginning      Charged to       Utilization /          end of
(US$ in thousands)      of year    income statement     write-offs            year
                        -------    ----------------     ----------            ----
<S>                      <C>              <C>               <C>               <C>
Allowance for Doubtful
Accounts
North America            $ 194            $  95             $ (81)            $ 208
Europe                     121               19               (97)               43
                         -----            -----             -----             -----
                         $ 315            $ 114             $(178)            $ 251
                         =====            =====             =====             =====
</TABLE>

         The North American  provision  increase was primarily for accruals made
in  anticipation  of unpaid  receivables  related to the  Chapter 11  bankruptcy
filing  made  by Kay Bee Toy in  2003.  The  utilization  of the  provision  was
principally to write off receivables that were  uncollectible as a result of the
Ames liquidation in 2002. The UK provision utilization was predominately related
to the  write-off  of  uncollectible  receivables  due from a former  video game
accessory distributor in Australia.

         Management  believes that the current  Doubtful  Accounts  allowance is
adequate  to  provide  for our  expected  probable  bad  debt  losses.  However,
deterioration  in the retail  environment or the economy could adversely  impact
the trade receivables valuation which would increase our bad debt allowance thus
decreasing our earnings.

ALLOWANCE FOR SALES RETURNS

         A sales return  allowance is recorded for estimated  sales returns from
customers.  The allowance is based on historical  trends and  management's  best
assessment of sales returns as a percentage of overall sales.

                                       32
<PAGE>

         The movement in the allowance for estimated sales returns by region was
as follows for 2003:

<TABLE>
<CAPTION>
                        Balance at                                                 Balance at
                        beginning        Charged to           Utilization /          end of
(US$ in thousands)       of year       income statement        write-offs             year
                         -------       ----------------        ----------             ----
<S>                      <C>                <C>                 <C>                 <C>
Allowance for Estimated
Sales Returns
North America            $   531            $   353             $  (600)            $   284
Europe                       716                726                (336)              1,106
                         -------            -------             -------             -------
                         $ 1,247            $ 1,079             $  (936)            $ 1,390
                         =======            =======             =======             =======
</TABLE>

         The utilization of the provision was mostly related to a) the return of
various  defective  product (net of warranty cost) and b) a one-time return of a
specific  product from a major customer.  The Company's sales terms and policies
do not allow for the return of non-defective products, however such a return may
occur  infrequently  if the Company can  maintain the same  economic  benefit by
reselling the product at a similar margin.  The Company  increases its provision
for  returns  based  on the  estimated  impact,  if any,  of such  non-defective
returns.  The UK took additional  return provisions in the fourth quarter of the
year in anticipation of returns resulting from the slow fourth quarter at retail
in the  UK.  Utilization  of  the  provision  was  consistent  with  anticipated
overstock and defective returns (net of warranty cost) during the year.

         Management  believes that the current  Allowance  for  Estimated  Sales
Returns is adequate to provide  for sales  returns  during  2004.  If  defective
returns were to exceed historical  estimates,  or if we were to experience large
overstock  returns in the UK, then we may have to take  higher than  anticipated
charges in order to adequately  increase the allowance  which would decrease our
earnings.

ALLOWANCE FOR SALES, MARKETING AND ADVERTISING EXPENSES

         We record an  allowance  for sales,  marketing  and  advertising  costs
agreed  with  certain   customers.   These  allowances  are  based  on  specific
dollar-value  programs or percentages of sales,  depending on how the program is
negotiated with the individual customer.  The largest of these allowances is for
Accrued Sales Expenses;  the movement of this allowance by region in 2003 was as
follows:

<TABLE>
<CAPTION>
                        Balance at                                               Balance at
                        beginning      Charged to           Utilization /           end of
(US$ in thousands)       of year      income statement       write-offs             year
                         -------      ----------------       ----------             ----

<S>                      <C>                <C>                 <C>                 <C>
Accrued Sales Expenses
Allowance
North America            $ 2,345            $ 1,824             $(1,741)            $ 2,428
Europe                     1,246                985              (1,766)                465
                         -------            -------             -------             -------
                         $ 3,591            $ 2,809             $(3,507)            $ 2,893
                         =======            =======             =======             =======
</TABLE>
         The increases to the North  American  allowance  were expensed  monthly
based on the cumulative total of the amounts granted under  individual  customer
sales programs,  including  volume rebates and co-op  advertising  credits.  The
utilization of the provisions related to sales discounts  subsequently  provided
and customer claims made under various sales programs throughout the year.


                                       33
<PAGE>

         Management has reviewed its existing  allowances  for sales,  marketing
and advertising and believes them to be adequate at year-end.  Several  factors,
including poor  sell-through of our product at retail could result in management
having to authorize  higher than anticipated  increases to the allowance,  which
would decrease our earnings.

WARRANTY

         We record a warranty  allowance for costs related to defective  product
sold to  customers.  The warranty  allowance is based on  historical  trends and
management's best assessment of what the defective return percentage will be for
a given product.  Projecting  defective  return  percentages on new products can
lead to deviations  between  recorded  warranty  allowances and actual defective
returns.  Significant negative deviations could have a significant impact on our
financial  results,  if  large  amounts  of  finished  goods  were  found  to be
defective.

INVENTORIES

         We state our inventory values at the lower of cost or market. Inventory
write-downs are recorded for slow-moving and obsolete inventory. Management uses
estimates to record these write-downs.  Slow-moving and obsolete inventories are
written-down  depending  on the length of time the product has been in inventory
and the forecast  sales for the product over the course of the  following  year.
Changes in public and consumer  preferences and demand for product or changes in
the buying patterns and inventory management of customers could adversely impact
the inventory valuation.

         The write-down for slow-moving  and obsolete  inventory as a percentage
of total  inventory  was  12.6%  and  17.1% as of  December  31,  2003 and 2002,
respectively.  Inventories are valued at lower of cost or market.  The inventory
write-downs  reflect a decrease below  inventory cost as result of  slow-moving,
markdown or  closeout  in market.  For the  purposes  of this  calculation,  the
current market situation is generally to be considered.  Management monitors and
analyzes the inventory for  obsolescence  and adjusts the carrying amount of the
inventory accordingly.

         After  experiencing  difficulties  during  the 2003  holiday  season in
selling off excess stock of commodity VGA items in the UK and Europe,  we marked
down  related  inventories  $1.25  million  in the fourth  quarter  of 2003.  At
December 31, 2003,  we had $1.7  million in inventory  write-downs  against $7.0
million in gross video game accessory  inventories and $0.5 million in inventory
write-downs against $10.7 million in gross Toy inventories.

IMPAIRMENT OF LONG-LIVED ASSETS AND GOODWILL

         Long-lived  assets have been reviewed for impairment based on Statement
of Financial Accounting Standards ("SFAS") No. 144.

         In accordance with SFAS No. 144,  long-lived assets,  such as property,
plant, and equipment,  and purchased  intangibles  subject to amortization,  are
reviewed for impairment  whenever  events or changes in  circumstances  indicate
that the carrying amount of an asset may not be recoverable.  Recoverability  of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to the estimated  discounted future cash flows expected to be generated
by the asset.  If the carrying  amount of an asset exceeds its estimated  future
cash  flows,  an  impairment  charge is  recognized  by the  amount by which the
carrying  amount of the asset exceeds the fair value of the asset.  Based on our
analysis, no impairment existed at December 31, 2003.


                                       34
<PAGE>

         In accordance  with SFAS No. 142,  goodwill and  intangible  assets not
subject to amortization  are tested annually for impairment,  and are tested for
impairment more frequently if events and  circumstances  indicate that the asset
might be  impaired.  An  impairment  loss is  recognized  to the extent that the
carrying  amount  exceeds the  asset's  fair value.  Based on our  analysis,  no
impairment existed at December 31, 2003.

         Prior to the  adoption  of SFAS No. 144, we  accounted  for  long-lived
assets in accordance with SFAS No. 121,  Accounting for Impairment of Long-lived
Assets and for Long-lived Assets to be Disposed Of.

         Prior to the  adoption of SFAS No. 142, we  accounted  for  goodwill in
accordance with APB Opinion No. 17, Intangible Assets.

DEFERRED TAX ASSETS

         We record  valuation  allowances  against our deferred  tax assets.  In
determining  the  allowance,  management  considers all  available  evidence for
certain tax credit,  net  operating  loss and capital  loss  carryforwards.  The
evidence used in assessing the need for valuation allowances includes the use of
business  planning,  projections of future taxable income and corporate-wide tax
planning. Differences in actual results from projections used in determining the
valuation allowances could result in future adjustments to the allowance.

         In the fourth  quarter of 2003,  we reversed  the  valuation  allowance
against our deferred tax asset in the U.S. An assessment of our track record and
projected  profitability  in the U.S. market was conducted and  subsequently the
release  was  made in  accordance  with  SFAS No.  109.  This  release  does not
guarantee  future  profitability  of our U.S.  division and future losses in the
market could prompt reinstatement of the valuation allowance.

         During  2003,  we put a new  management  team  in  place  in the UK and
altered the  distribution  strategy  in that  market.  We expect  these moves to
return our UK  operations  to  profitability.  If this occurs,  depending on the
level of actual and projected profitability, we would then reverse the valuation
allowance,  potentially  creating a one-time credit to income tax expense in the
future.

RECENTLY ISSUED ACCOUNTING STANDARDS

         A discussion of certain recently issued accounting  standards and their
estimated impacts is set out in note 2 to the consolidated financial statements.

ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

         The following table sets forth the directors and executive  officers of
the Company in fiscal 2003.
<TABLE>
<CAPTION>
                               Term
Name                          Expires       Residency         Position
----                          -------       ---------         --------
<S>                             <C>         <C>               <C>
Jon N. Bengtson (3)             2004        USA               Chairman of the Board and Director

Timothy R. Busch (1)            2004        USA               Director

Albert J. Crosson (1)(2)        2004        USA               Director

Theodore J. Eischeid (1)(3)     2004        USA               Director

Patrick S. Feely (3)            2004        USA               President, Chief Executive Officer and Director

David C.W. Howell               2004        Hong Kong         President Asia Operations,
                                                              Chief Financial Officer and Director

James J. O'Toole (2)(4)         2004        USA               Director

Peter L. Thigpen (2)(4)         2004        USA               Director

Jeanne M. Olson                 N/A         USA               President North American Operations

</TABLE>

                                       35
<PAGE>
<TABLE>
<CAPTION>
                               Term
Name                          Expires       Residency         Position
----                          -------       ---------         --------
<S>                             <C>         <C>               <C>
Denis Horton                    N/A         UK                Managing Director, Radica UK

James M. Romaine                N/A         USA               Senior Vice President Sales

Laurence M. Scott Jr.           N/A         Hong Kong         Senior Vice President of Asia Operations

Craig D. Storey                 N/A         USA               Vice President and Chief Accounting Officer

Larry C.N. Cheng                N/A         Hong Kong         Vice President Engineering

Tiki K.K. Ho                    N/A         Hong Kong         Vice President Engineering

Louis S.W. Kwok                 N/A         Hong Kong         Assistant General Manager, DRGM

Eric K.W. Chan                  N/A         Hong Kong         Quality Director

Vincent K.M. Ching              N/A         Hong Kong         Manufacturing Director

Rick C.K. Chu                   N/A         Hong Kong         Director of Customer Service

Robert E. Esterbrook            N/A         UK                Finance & Operations Director

Paul Fogarty                    N/A         UK                Sales Director

Donny K.W. So                   N/A         Hong Kong         Director of Project Management

Hermen H.L. Yau                 N/A         Hong Kong         MIS Director

<FN>
(1)  Member of the Audit Committee.
(2)  Member of the Compensation Committee.
(3)  Member of the Executive Committee.
(4)  Member of the Corporate Governance and Nominations Committee.
</FN>
</TABLE>

         We annually prepare a proxy  statement/management  information circular
for  distribution  to our  shareholders in connection with the annual meeting of
shareholders.  Additional  information is contained in such proxy statement with
respect  to the  ownership  of  shares  of our  common  stock by  directors  and
executive  officers,  the  ages of such  persons,  and the  functions  or  board
practices of the committees of our board of directors. The information contained
in such proxy  statement for the current fiscal year is  incorporated  herein by
reference.  Such proxy  statement is furnished as part of our report on Form 6-K
for the period in which the proxy statement is sent to  shareholders.  The proxy
does not  necessarily  contain  all the  information  required  by the SEC for a
domestic  registrant  since such information is not required for foreign private
issuers.

         Jon N.  Bengtson,  formerly  the  Executive  Vice  President  and Chief
Operating  Officer  of the  Company,  became  the  Chairman  of the Board of the
Company in January  1996,  and has been a director of the Company  since January
1994.  He was Chief  Financial  Officer  of the  Company  from  January  1994 to
September  1995,  and was  appointed  President and Chief  Executive  Officer of
Radica USA in December  1993. Mr.  Bengtson  joined The Sands Regent in 1984 and
served  in  various   positions,   including   Vice  President  of  Finance  and
Administration,  Chief Financial  Officer,  Treasurer and Director,  Senior Vice
President and Director and Executive Vice President and Chief Operating  Officer
and Director until December 1993. From 1980 to 1984, Mr. Bengtson was a director
and served in various  positions with  International  Game  Technology  ("IGT"),
including  Treasurer and Vice President of Finance and  Administration  and Vice
President of  Marketing.  Mr.  Bengtson is  currently  the Chairman of The Sands
Regent.

                                       36
<PAGE>

         Timothy R. Busch is CEO and founder of The Busch Firm. Founded in 1979,
The Busch Firm specializes in estate planning, asset protection,  tax, corporate
law,  partnership  and  real  estate  matters.  He is also  founder  of  Pacific
Hospitality  Group,  an  Irvine-based  hotel firm that  constructs  and operates
hotels;  St.  Anne  School of Laguna  Niguel,  California,  a private  Christian
elementary school; and the new private JSerra High School. Mr. Busch serves on a
number of private and public boards in various  industries,  including  Advanced
Materials,  Inc. of Rancho Dominguez,  California.  Mr. Busch received his Juris
Doctor degree from the Wayne State University of Law, and his B.B.A.,  summa cum
laude,  degree from Western Michigan  University.  He is an attorney licensed in
Michigan,  California,  Texas,  and  Washington,  D.C.,  and a CPA  licensed  in
Michigan,  California,  and Nevada. He is a member of the Orange County and Palm
Springs Chapters of Legatus, an organization of Catholic CEOs.

         Albert J. Crosson was  appointed a director of the Company in May 2001.
He became a director of International Game Technology ("IGT") in 1988. He became
Vice  Chairman of the Board of IGT in July 1996 and an employee of such company.
He  resigned as an  employee  in  December  2000 and as Vice  Chairman of IGT in
August 2001.  Mr.  Crosson was  employed  for 34 years by ConAgra,  Inc. and its
predecessor  companies.  He was President of ConAgra Grocery Products  Companies
from 1993 until  January 1996 when he retired.  From 1986 until January 1993, he
was President of Hunt-Wesson Foods, Inc., a ConAgra company.

         Theodore  J.  Eischeid  was  appointed a director of the Company in May
2003. Mr.  Eischeid is currently Vice  President - Global CDMA  Partnership  and
Product Management for Motorola,  Inc., a global leader in wireless,  automotive
and broadband  communications.  Prior to that, he was Senior Vice  President and
Chief Financial Officer of K12 Inc., a developer of online curriculum for grades
K-12;  formerly  President  and CEO of  Educational  Insights,  Inc., a publicly
traded developer,  manufacturer and marketer of educational products;  and prior
to  that  served  as  President  of  Revell-Monogram,   Inc.,  an  international
manufacturer  and  marketer of plastic  hobby kits,  where he lead a  successful
initial public  offering in 1991 and continued as President when the company was
acquired by Hallmark Inc. in 1994. Mr.  Eischeid also served as Chief  Financial
Officer of Arvey  Corporation,  a  manufacturer  and retailer of paper and paper
products,  and began his career with Arthur Andersen & Co. He is a past Chairman
of the Toy  Manufacturers of America,  and is a member of the Board of Directors
of K.I.D.S.  (Kids in Distressed  Situations).  Mr. Eischeid  received his Juris
Doctor,  cum laude,  degree from the Loyola University of Chicago School of Law,
his MBA from  Northwestern  University's  Kellogg Graduate School of Management,
and  his  BS  degree  from  Iowa  State  University.  He is a  Certified  Public
Accountant and a member of the Illinois Bar.

         Patrick S. Feely has been Chief Executive  Officer since April 1999. He
has been Chief  Operating  Officer and  President of the Company since July 1997
and a director of the Company since July 1996. Previously,  he was President and
CEO of Spectrum HoloByte,  Inc. from 1993 to 1995;  President of Bandai America,
Inc.  from 1991 to 1992;  founder and  President of Toy  Soldiers,  Inc.  (which
merged  with  Bandai  America)  from 1988 to 1991;  and  President  of the Tonka
Products Division of Tonka, Inc. from 1986 to 1988, after previously  serving as
Senior Vice President  Commercial  Operations from 1982 to 1986. As President of
Tonka,  Mr. Feely was  responsible  for the successful  launch of the Sega video
game system into the U.S. market. Mr. Feely was an executive at Mattel Toys from
1977 to 1982 and began his career at RCA  Corporation in 1970. Mr. Feely is also
an advisor to the Toy  Industry  Association  Board of  Directors,  where he was
Chairman from 2000 to 2002. He is currently Chairman of the Board of Trustees of
the Toy Industry  Foundation.  He has a BA from Duke  University and an MBA from
the University of Michigan.

         David C.W.  Howell was appointed  President Asia Operations in December
1998. He has been  Executive Vice  President and Chief  Financial  Officer and a
director  of the  Company  since  September  1995.  Prior to  that,  he was Vice
President  and Chief  Accounting  Officer  and a director  of the  Company  from
January 1994 to September  1995.  From 1992 to 1994,  Mr. Howell was the Finance
Director and Company  Secretary of Radica HK. From 1984 to 1991,  Mr. Howell was
employed by Ernst & Young in London,  Hong Kong and Vietnam. He has a B.Sc. from
Nottingham University,  is a Fellow of the Institute of Chartered Accountants in
England and Wales and is a Fellow of the Hong Kong Society of Accountants.


                                       37
<PAGE>

         James J. O'Toole has been a director of the Company since June 1994. He
is Research Professor in the Center for Effective Organization at the University
of Southern  California's  Marshall  School of  Business.  He is the Mortimer J.
Adler Senior Fellow of the Aspen Institute.

         Peter L. Thigpen has been a Director of the Company since June 1998. He
is a Lecturer in Ethics & Great  Books in the  Graduate  Business  School at the
University  of  California,  Berkeley,  a Senior Fellow & Moderator at the Aspen
Institute,  and is on the Board of Trustees of the Kentfield,  California School
District and the Board of Trustees of Branson  High School in Ross,  California.
Prior to 1992,  Mr.  Thigpen was Senior Vice  President - U.S.  Operations and a
member of the Executive Management Committee at Levi Strauss & Company, retiring
after 23 years with the San Francisco-based  apparel company.  During his tenure
at Levi Strauss, Mr. Thigpen held positions of President of European Operations,
President - Levi Strauss USA,  President - The Jeans Company and was a member of
the Board of Directors.

         Jeanne  M.  Olson is  President  North  American  Operations.  Prior to
joining the company in 2000,  she was Senior Vice President of Sales & Marketing
at Lyrick Studios, a privately-held  children's entertainment company. Ms. Olson
has over 15 years of  experience  in the toy  industry,  having  held  executive
marketing and management  positions at Mattel Toys, Hasbro Inc., and Tonka Toys.
She started her career in marketing research with The Pillsbury Company and with
Custom Research Inc.

         Denis Horton has been Managing  Director of Radica UK, Ltd. since April
2003. He has over 18 years of experience in the toy industry,  previously having
held  Managing  Director  positions at Mattel UK, Fisher Price and Tonka Europe.
Prior to entering the toy  industry,  Mr. Horton worked in the food industry and
held management positions at United Biscuits and H J Heinz Co., Ltd. He received
his BA (Honors) degree in Business Studies from Nottingham Trent University, and
is a Fellow of the Chartered Institute of Marketing in the UK.

         James M. Romaine  joined  Radica USA in  September  1999 as Senior Vice
President  of Sales for Radica USA. He has been an executive in the Toy Industry
for over 31  years.  He spent  the  1980's  and into the  early  90's at  Parker
Brothers  where he was Senior  Vice  President  of Sales.  Mr.  Romaine  was the
President of Play Tech Inc.,  a VTech  company,  for seven years before  joining
Radica USA. His most recent  educational  credentials  include the completion of
the  Executive  Program for General  Managers at the  University  of  Michigan's
School of Business.

         Laurence  M.  Scott,  Jr. was  appointed  Senior  Vice  President  Asia
Operations in April 2002. Previously he was Managing Director - Asian Operations
for iLogistix  Singapore Supply Chain Management Pte. Limited.  Prior to that he
was Managing Director for MGA  Entertainment  (Hong Kong) Limited (1998 - 2000);
Vice  President - Operations for Atari  Corporation  (1992 - 1996) and then Vice
President - Worldwide  Materials for JTS  Corporation  (1996 - 1997) after Atari
merged with JTS; and  President  and Managing  Director for Radofin  Electronics
(Far East) Limited.  (1975 - 1991).  Mr. Scott has over 25 years experience with
Asian  Manufacturing  Operations.  He has a BSc. and MBA from the  University of
Southern California.

         Craig D. Storey has been Vice President and Chief Accounting Officer of
the Company since July of 1999.  Prior to that, he was the Financial  Controller
of Radica USA from 1995 to 1999.  From 1993 to 1995,  Mr. Storey was employed by
Kafoury,  Armstrong and Company in Reno,  Nevada. He has a BS from Arizona State
University  and is a  member  of the  American  Institute  of  Certified  Public
Accountants and the Nevada Society of CPA's.

         Larry C.N.  Cheng has been Vice  President  Engineering  of the Company
since April 2003. Prior to that, he was an Engineering  Director from April 1999
to March  2003.  Mr.  Cheng  joined the  Company in 1991 and was an  Engineering
Manager  from  April  1993 to March  1999.  Mr.  Cheng  has  more  than 15 years
experience  in ODM and the toy  industry.  He has a  Higher  Diploma  in  Marine
Electronics from the Hong Kong Polytechnic University.


                                       38
<PAGE>

         Tiki K.K. Ho has been Vice  President  Engineering of the Company since
April 2003. Prior to his present position, he was an Engineering Director of the
Company  from April 1, 1999 to March 31,  2003 and a manager in the  engineering
department  since  joining  the  Company in 1994.  Mr. Ho worked in STD  Company
Limited and Management,  Investment and Technology  Company Limited.  He has had
over 15 years  experience in  manufacturing,  product  design,  and  engineering
management and plastic mold shop management. He has a B.Sc. Honors in Mechanical
Engineering from University of Manchester, Institute of Science and Technology.

         Louis S.W. Kwok has been the Assistant General Manager, DRGM from April
2003. Prior to that, he was the Materials and Logistics  Director of the Company
from March 2002 to March 2003 and the Plant Administration Director from January
2001 to February 2002. He has over 15 years  experience in  manufacturing  plant
operations. Major companies he has worked with are Pymetics (Hong Kong) Limited,
Management, Investment and Technology Company Limited, and Sunciti Manufacturers
Limited.  He  has  a  Higher  Diploma  in  Mechanical  Engineering,  Diploma  in
Mechanical  Engineering  (Manufacturing  Technology),  and  National  Diploma in
Mechanical Engineering.

         Eric K.W. Chan has been the Quality  Director of the Company since July
2, 2001.  Prior to that,  he was Senior QA  Manager/Quality  Director in various
major toy companies such as Tonka Kenner Parker, Hasbro and Galoob. Mr. Chan has
over 20 years of solid  experience in QA/QC  operations in the toy industry.  He
has a Diploma in Production  and Industrial  Engineering,  Diploma in Management
Study and Diploma in Industrial Management (UK).

         Vincent K.M. Ching joined the Company as the Manufacturing  Director in
September  2002. He has over 16 years  experience in research,  consultancy  and
manufacturing  sectors,  has been  working  in PRC for 10 years at a  managerial
level with Philips,  Procter & Gamble (P & G) and  previously  as  Manufacturing
Director in  Honeywell  Consumer  Products  (H.K.) Ltd.  from June 1999.  He has
achieved a number of prizes and awards in both academic and  industrial  sectors
including  the Ford Design  Prize from Ford Motor (UK) Co.  Ltd. in 1985,  First
Class  Honors  degree  in  Mechanical  Engineering  in 1986,  Overseas  Research
Students  Award  from  the  Committee  of  Vice-Chancellors  and  Principals  of
Universities (UK) in 1987,  Postdoctoral  Research  Fellowship from the Croucher
Foundation of Hong Kong in 1990 and Hong Kong Productivity  Council Productivity
Award for the 2002 Hong Kong Awards for Industry.

         Rick C.K. Chu has been the Director of Customer  Service of the Company
since January 2004.  Prior to that, he was the  International  Sales Director of
the  Company  from  April  1996 to  December  2003 and the  International  Sales
Administration Manager of the Company from April 1994 to April 1996. He has more
than 17 years experience in international  trade and business  management.  From
1988 to 1994,  he was the  Senior  Manager  managing  the  sales  administration
function and marketing of industrial  materials for a leading trading company in
Hong Kong.

         Robert E. Esterbrook  joined Radica UK as Finance  Director and Company
Secretary  during  July  2001.  He has held  executive  positions  in the UK toy
industry for over 25 years.  He has previously  worked at Tonka Toys,  Playmates
Toys and Ideal Toys as Finance Director and was involved with the  establishment
of  Mattel  Toys  in  the  UK in  1980.  He  re-joined  Invicta  Plastics,  Ltd,
originators  of the board game  Mastermind,  as Managing  Director  from 1989 to
1991. He is a fellow member of the Chartered Institute of Management Accountants
and completed a program in legal studies at Demontfort University.

         Paul  Fogarty  commenced  working  as Sales  Director  for Radica UK in
January  2004.  He has over 9 years  experience  in the toy industry  previously
having held senior  management  positions  for Mattel UK, Tyco Toys UK and JAKKS
Pacific.  Prior to this Mr. Fogarty worked in the paper industry for Scott Paper
Ltd. Mr. Fogarty, who is originally from New Zealand,  moved to England in 1989.
He received his Bachelor of Commerce  degree in Marketing from the University of
Auckland.


                                       39
<PAGE>

         Donny K.W. So joined the Company as Director of Project  Management  in
September  2002.  Before joining the Company,  he held  management  positions in
product  development at VTech HK for 4 years.  Mr. So has 16 years experience in
project management and product development in major appliances,  electronics and
toys  industries.  He obtained his 6 Sigma  experience while working for General
Electric  Company,  and led the development of Total Cycle Time management skill
at VTech. He has a Postgraduate  Certificate in Business Administration from the
Open  University  of Hong Kong,  a BA in  Industrial  Design  from the Hong Kong
Polytechnic  University  and a Diploma  in  Product  Design  from LWL  Technical
Institute.

         Hermen H.L. Yau has been the MIS Director of the Company since March 1,
1994.  From 1982 to 1994, he worked in Outboard Marine  Corporation  Asia Ltd in
various positions in the Systems & Data Processing Department.  He has more than
18 years experience in Information  Technology and particular  experience in IBM
mid-range  computer  systems and solutions.  He has a Higher Diploma in Computer
Studies  from the  National  Computing  Center  UK and a Diploma  in  Management
Studies from the Hong Kong Polytechnic and Hong Kong Management Association.

COMPENSATION OF OFFICERS AND DIRECTORS

COMPENSATION

         In  fiscal  2003,  the  aggregate  amount of  compensation  paid to all
executive   officers  and   directors  for  services  in  all   capacities   was
approximately  $2.5  million.  In  addition,  bonus  payments  made  to  certain
executive  officers as a group in April of 2004 related to 2003 performance that
was accrued at the end of 2003 was $17,000.

         In fiscal 2003, each outside (i.e.,  non-employee  and  non-affiliated)
director  of the  Company  received  a  $10,000  annual  fee  paid in  quarterly
installments.  Directors  could elect to receive some or all of this fee payable
in shares of the Company's Common Stock valued at the then current market price.
Each outside  director of the Company also received a fee of $600 for attendance
at each Committee meeting.

         Commencing  in  fiscal  2004,   each  outside   director  will  receive
compensation according to the following schedule:

    o  Board retainer                       $10,000 annually
    o  Quarterly board meeting fee          $1,250 per meeting
    o  Committee retainer                   $4,000 annually (excluding Executive
                                               Committee)
    o  Audit chair additional retainer      $4,000 annually
    o  Other committee chairs additional    $2,000 annually
        retainer

Payments will be made  quarterly.  Any director may elect to receive some or all
of the above fees payable in shares of the Company's  Common Stock valued at the
then current market price.

         Directors  who are  employees or affiliates of the Company are not paid
any fees or  additional  remuneration  for  service  as  members of the Board of
Directors or its Committees.

         Upon each annual  re-election  to the Board of Directors,  each outside
director  receives  stock  options to purchase  2,500  shares per quarter  (i.e.
10,000  shares per annum) of Common  Stock of the Company at an  exercise  price
equal to the then  current  market  price of the  Company's  Common  Stock.  The
average  exercise  price  was  $6.41  per  share  in  2003.  These  options  are
exercisable after one year from the date of grant.

         The Company also follows the practice that upon the initial election or
appointment of a new outside  director to the Board of Directors,  such director
receives a stock option to purchase 30,000 shares of the Company's  Common Stock
at an exercise price equal to the  then-current  market price, and these options
are exercisable after one year from the date of grant.


                                       40
<PAGE>

EMPLOYMENT AGREEMENTS

         Messrs. Feely, Howell, Bengtson,  Horton and Ms. Jeanne Olson have each
entered into individual  employment  agreements  with the Company.  After giving
effect  to  the  latest   renewals,   the  employment   agreements  are  renewed
automatically on an annual basis unless 90 days notice is given by either party,
for periods of two years each, from July 2001 for Mr. Feely,  from December 2001
for Messrs.  Howell,  Bengtson and Ms. Olson and from March 2003 for Mr. Horton.
Each  employment  agreement is terminable by the Company for cause.  Under their
agreements  Messrs.  Feely,  Howell,  Bengtson,  Horton and Ms. Olson shall each
receive minimum annual base salaries of $332,600,  $250,000,  $43,200,  $212,500
and  $250,000   (the  amount  for  Mr.  Horton  is  stated  in  UK  currency  as
(pound)125,000),  respectively.  The agreement with Mr.  Bengtson,  in operation
since  December  1995,  is for  part-time  services.  Under  the  terms of their
employment agreements Messrs. Feely, Howell, Bengtson,  Horton and Ms. Olson are
eligible to participate in the Company's  bonus plan. The employment  agreements
for Messrs.  Feely, Howell, Horton and Ms. Olson contain certain restrictions on
their  involvement  in  businesses  other than the Company  during the course of
their  employment  and  certain  provisions   applicable  after  termination  of
employment  which prohibit the  solicitation of customers and other employees of
the Company, employment or engagement with competing entities, or the disclosure
of proprietary  information of the Company.  The Company provides residences for
Mr. Howell and Mr. Scott in Hong Kong.  In the  agreement for Mr. Feely,  he was
granted  300,000  stock  options of the Company  common stock at market price at
$3.625 per share,  another  60,000 stock  options at market price at $14.125 per
share in November  1998 and a further  60,000  stock  options at market price at
$3.00  per  share in May  2000,  subject  to the  terms  and  conditions  of the
agreement and the 1994 Stock Option Plan.  Additionally,  in May 2001, Mr. Feely
would have been  granted  60,000  stock  options  at market  price  provided  he
achieved certain conditions as stated in the agreements, however, these were not
achieved.  In the agreements for Mr. Howell, he was granted 25,000 stock options
per annum of the  Company  common  stock at market  price at $3.00 and $2.90 per
share in May 2000 and 2001  respectively.  In June 2002,  Mr. Howell was granted
25,000 stock options at market price, subject to the terms and conditions of the
agreement and the 1994 Stock Option Plan.  In the  agreement for Ms. Olson,  she
had been granted 60,000 stock options upon initial employment and was granted an
additional  40,000  stock  options at market price at $3.45 per share in January
2002 subject to the terms and  conditions  of the  agreement  and the 1994 Stock
Option Plan. In the agreement for Mr.  Horton,  he had been granted 60,000 stock
options of the Company  common stock at market price at $4.43 in March 2003 upon
initial  employment subject to the terms and conditions of the agreement and the
1994 Stock Option Plan.  Additionally,  Messrs. Feely, Howell and Ms. Olson were
granted 60,000, 25,000 and 25,000 stock options at market price, respectively in
February  2001.  Mr.  Howell was granted  3,750 stock  options in March 2002 for
achieving  certain  requirements  under  an  incentive  plan.  Based  upon  2002
performance  the  Company's  Compensation  Committee  voted  in  March  2003  to
accelerate  the vesting of 60,000  options for Mr. Feely and 25,000  options for
Ms. Olson and Mr. Howell.  The acceleration of the stock options was approved in
accordance  with the  original  terms of the contract  and these  options  would
become vested in five years  regardless of the  achievement  of the  performance
goals and  therefore the  acceleration  did not result in a new  measurement  of
compensation costs for accounting purposes. In March 2003, Mr. Feely was granted
120,000 options at market price at $4.43 per the Company's prior practices.

OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES

         The Company's 1994 Stock Option Plan provides for the granting of stock
options to directors,  officers and  employees of the Company.  The Stock Option
Plan is  administered by the  Compensation  Committee of the Board of Directors.
Subject to the provisions of the Stock Option Plan, the  Compensation  Committee
shall have sole  authority to  determine  which of the  eligible  directors  and
employees of the Company  shall  receive  stock  options,  the terms,  including
applicable vesting periods, of such options,  and the number of shares for which
such options shall be granted.


                                       41
<PAGE>

         The total  number of shares of the  Company's  Common Stock that may be
purchased pursuant to stock options under the Stock Option Plan shall not exceed
in the aggregate 3.7 million shares.  The option price per share with respect to
each such option shall be determined by the Compensation  Committee but shall be
not less than 100% of the fair market value of the Company's Common Stock on the
date  such  option is  granted  as  determined  by the  Compensation  Committee.
Ordinarily,  either twenty  percent or  thirty-three  and a third percent of the
stock  options  vest and become  exercisable  on each of the first five or three
anniversaries  of the date of grant,  respectively and all of the options expire
in ten  years.  The Stock  Option  Plan  terminates  in 2004  unless  terminated
earlier.  The Company anticipated that it will ask shareholders to approve a new
plan, the 2004 Omnibus Equity  Incentive  Plan, at the 2004 Annual  Shareholders
Meeting.

         In fiscal year 2001, an aggregate of 432,600 options  (exclusive of the
outside  directors'  options and net of stock  options that were both issued and
forfeited in the year) were granted to directors,  officers and other  employees
under the Stock Option Plan to purchase the Company's  shares at exercise prices
ranging from $1.63 to $4.15 per share.

         In fiscal year 2002, an aggregate of 448,150 options  (exclusive of the
outside  directors'  options and net of stock  options that were both issued and
forfeited in the year) were granted to directors,  officers and other  employees
under the Stock Option Plan to purchase the Company's  shares at exercise prices
ranging from $2.74 to $4.51 per share.

         In fiscal year 2003, an aggregate of 259,200 options  (exclusive of the
outside  directors'  options and net of stock  options that were both issued and
forfeited in the year) were granted to directors,  officers and other  employees
under the Stock Option Plan to purchase the Company's  shares at exercise prices
ranging from $4.21 to $6.54 per share.

         As a result of the  foregoing,  at the end of fiscal  year 2003,  after
giving effect to all prior exercises and forfeitures of options, an aggregate of
1,732,172 options (exclusive of the outside directors' options) were outstanding
at exercise prices ranging from $1.09 to $19.63 per share,  and of such amount a
total of 1,279,200 options were held by directors and executive  officers of the
Company as a group.  Also, an aggregate of 215,000  outside  director's  options
were  outstanding  at exercise  prices  ranging  from $2.00 to $12.63 per share.
During 2003, a total of 426,000 shares were issued upon the exercise of options,
at exercise prices ranging from $1.09 to $6.78 per share. Prior to 2003, a total
of  1,210,042  shares had been issued  upon the  exercise of options at exercise
prices ranging from $0.57 to $11.00 per share.

         Additional  information  with respect to stock  options is contained in
Note 11 of the Notes to the Consolidated  Financial  Statements included in this
filing.

         Information with respect to employees is contained in Item 4 above.

ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

CONTROL OF REGISTRANT

(a)  The  registrant  is not  controlled by another  corporation  or any foreign
     government.

(b)  The following  table is based on  information  available to the Company and
     identifies  the owners of more than five percent  (5%) of the  registrant's
     common  stock  and the  amount of common  stock  beneficially  owned by the
     officers and directors as a group, as of January 31, 2004. The Company must
     rely on  information  provided by  individual  shareholders  and  therefore
     cannot verify its accuracy:


                                       42
<PAGE>

<TABLE>
<CAPTION>
                    Identity of
Title of Class    Person or Group                     Amount Owned    Percent of Class
--------------    ---------------                     ------------    ----------------
<S>               <C>                                    <C>                 <C>
Common stock      Dito Devcar Corporation, et al.        8,686,780           46.8%
Common stock      RAD Partners 1999 LLC, et al.          1,651,200            8.9%
Common stock      Officers & Directors as a Group        3,042,738           16.4%
</TABLE>

(c)  There are no arrangements known to the registrant which may at a subsequent
     date result in a change of control of the registrant.

(d)  As of January 31, 2004, the Company had approximately 110 record holders of
     its  Common  Stock,  and  approximately  80% of such stock was held by U.S.
     holders.

INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS

         At the time of the Company's IPO in 1994, certain members of management
who were also the  principal  shareholders  of the  Company,  were  parties to a
shareholders  agreement (the  "Shareholders  Agreement")  with the Company which
provided  for  certain  matters  relating to the  management  of the Company and
ownership of its Common Stock. In January 1998, the  Shareholders  Agreement was
amended  to  eliminate  provisions   respecting  the  election  and  removal  of
directors,   restrictions  on  transfer  and  a  right  of  first  refusal.  The
registration rights provisions of the Shareholders Agreement remained operative.

         Pursuant to the Shareholders Agreement, the Company agreed, at any time
after February 16, 1996 and subject to certain specified conditions,  to use its
reasonable  efforts to prepare and file one registration  statement on behalf of
each shareholder that is a party to the  Shareholders  Agreement  (collectively,
the "Shareholders")  under the Securities Act of 1933, and to use its reasonable
efforts to qualify the shares for offer and sale under any applicable U.S. state
securities laws. The Shareholders Agreement also grants each Shareholder certain
"piggyback"  registration  rights entitling each Shareholder,  at any time after
February  16,  1996,  to sell Common  Stock in certain  registered  offerings of
equity  securities of the Company.  These  "piggyback"  registration  rights are
exercisable by each Shareholder only twice.  The foregoing  registration  rights
are subject to other limitations set forth in the Shareholders Agreement.

         Albert J. Crosson, one of the Company's directors, owns no Radica Games
Limited stock shares ("shares") directly.  However, he owns 1% of the beneficial
interest in Crossfire,  LLC ("Crossfire") which beneficially owns 200,000 shares
through its class A membership  interest in RAD Partners 2001, LLC ("RAD 2001").
RAD 2001 is  controlled  by RAD Partners  1999 LLC which is one of the Company's
major stockholders.  Mr. Crosson's 1% ownership of Crossfire  constitutes voting
control of Crossfire and Crossfire has the right to withdraw such 200,000 shares
from  RAD  2001.  Additionally,  under an  economic  arrangement  involving  its
membership interest in RAD 2001,  Crossfire may acquire beneficial  ownership in
an additional 400,000 shares over time from RAD 2001; however,  Crossfire cannot
vote or dispose of such  shares  without  the  consent of all the members of RAD
2001.  In  December  2002,  Crossfire  purchased  250,000  shares  bringing  its
ownership of the Company's stock to 450,000 shares  including the 200,000 shares
beneficially  owned  through  its  class  A  membership  interest  in RAD  2001.
Crossfire is owned beneficially by Mr. Crosson and his four children.

         Additional  information on management  transactions  is contained under
Item 6 above.

ITEM 8.  FINANCIAL INFORMATION

FINANCIAL STATEMENTS

         The Company's Consolidated Financial Statements are included herein.


                                       43
<PAGE>

ITEM 9.  THE OFFER AND LISTING

         The  Company's  common  stock is traded on the Nasdaq  National  Market
under the symbol RADA.  The Company's  common stock is not traded on any foreign
trading  market.  The following table lists the high and low closing stock price
for each quarter of fiscal 2003 and fiscal 2002:

                      Fiscal year ended           Fiscal year ended
                      December 31, 2003           December 31, 2002
                      -----------------           -----------------
                      High          Low           High          Low
                      ----          ---           ----          ---
First Quarter         6.540        4.200         4.400         3.400
Second Quarter        8.000        5.540         4.600         3.800
Third Quarter         8.170        6.880         4.029         3.560
Fourth Quarter        7.950        6.300         4.600         3.450

         The annual high and low closing  stock  prices in fiscal 2001 were $4.9
and $1.625; in fiscal 2000 were $10 and $1.625;  and in fiscal 1999 were $16 and
$7.25.

         The monthly high and low closing  stock prices over the last six months
in fiscal  2003 were  $8.17 and $6.90 in July  2003;  $8.056 and $7.01 in August
2003; $7.34 and $6.88 in September 2003; $7.349 and $6.3 in October 2003; $7.211
and $6.461 in November 2003; and $7.95 and $6.89 in December 2003.

         Radica  Games  Limited  was  formed in 1993 as a holding  company  and,
through fiscal 2003, had not paid any dividends.  Except to the extent set forth
below,  the Company  intends to retain its earnings for operations and expansion
of its business for the foreseeable future.

         On January 5, 2004, the Company announced a quarterly  dividend program
(see "Item 4. Information on the Company,  Capital  Resources and Liquidity" for
details of the program).

         The  Company  intends  to  make  cash  distributions  at the end of its
taxable  year at least  equal to 50% of its  foreign  personal  holding  company
income for any year in which it is a foreign  personal holding company (see Item
10. Additional Information - Taxation).

ITEM 10.  ADDITIONAL INFORMATION

MEMORANDUM AND BY-LAWS

         A summary of the Company's memorandum and bye-laws and other provisions
pertaining  to its  common  stock is  contained  in the  Company's  registration
statement on Form F-3 filed with the Securities  and Exchange  Commission on May
21, 1999 (file no.  33-79005).  Such summary in that  registration  statement is
incorporated herein by reference.

EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS

         The  Company  has been  designated  as a  non-resident  of Bermuda  for
exchange control purposes by the Bermuda Monetary Authority.

         The  transfer  of shares of the  Company  between  persons  regarded as
non-resident  of Bermuda for exchange  control  purposes and the issue of shares
within the authorized share capital of the Company of US$1,000,000 to or by such
persons may be effected  without specific consent under the Exchange Control Act
1972 and  regulations  thereunder  subject to such  shares  being  listed on the
National  Association of Securities Dealers Automated  Quotation System.  Issues
and transfers of shares involving any person regarded as resident in Bermuda for
exchange  control  purposes  require  specific prior approval under the Exchange
Control Act 1972.

                                       44
<PAGE>

         There are no limitations on the rights of non-Bermuda  resident holders
of the Common Stock to hold or vote their  shares.  Because the Company has been
designated as non-resident for Bermuda exchange control  purposes,  there are no
restrictions  on its ability to  transfer  funds in and out of Bermuda or to pay
dividends to United States residents who are holders of the Common Stock,  other
than in respect of local Bermuda currency.

         In accordance with Bermuda law, share  certificates  are only issued in
the names of corporations or individuals.  In the case of an applicant acting in
a special capacity (for example,  as an executor or trustee),  certificates may,
at the request of the  applicant,  record the capacity in which the applicant is
acting.  Notwithstanding the recording of any such special capacity, the Company
is not bound to investigate or incur any responsibility in respect of the proper
administration of any such estate or trust.

         The Company will take no notice of any trust  applicable  to any of its
shares whether or not it had notice of such trust.

         As an exempted  company,  the Company is exempt from the usual  Bermuda
requirement  which restricts the percentage of share capital that may be held by
non-Bermudians,  but  as  an  exempted  company  the  Company  may  not,  unless
authorized by its memorandum of association and with the consent of the Minister
of Finance,  participate in certain business  transactions,  including:  (1) the
acquisition  and  holding  of land in  Bermuda  (except  that  required  for its
business and held by way of lease or tenancy for terms of not more than 50 years
or with the Minister's consent,  land by way of lease or tenancy agreement for a
term not exceeding 21 years in order to provide  accommodation  or  recreational
facilities for its officers and employees);  (2) the taking of mortgages on land
in Bermuda to secure an amount in excess of $50,000;  (3) the acquisition of any
bonds or  debentures  secured on any land in Bermuda  except bonds or debentures
issued by the Bermuda  Government or a public authority;  or (4) the carrying on
of  business  of any kind or type  whatsoever  in  Bermuda,  either  alone or in
partnership,  except the  carrying on of business  of the Company  with  persons
outside  Bermuda  or under a license  granted  by the  Minister  of  Finance  of
Bermuda.

TAXATION

         The  following  discussion  is a summary  of  certain  anticipated  tax
consequences  of the ownership of Common Stock under Bermuda tax laws, Hong Kong
income tax laws,  Macau income tax laws,  and United States  Federal  income tax
laws. The discussion does not deal with all possible tax  consequences  relating
to the Company's  operations or to the ownership of Common Stock. In particular,
the  discussion  does not address the tax  consequences  under State,  local and
other  (e.g.,  non-Bermuda,  non-Hong  Kong,  non-Macau  and  non-United  States
Federal)  tax laws.  Accordingly,  each owner  should  consult  his tax  advisor
regarding the tax  consequences of the ownership of Common Stock. The discussion
is based upon laws and relevant interpretations thereof in effect as of the date
of this report, all of which are subject to change.

BERMUDA TAXATION

         The Company is incorporated in Bermuda.  At date of this filing,  there
is no Bermuda income, corporation or profits tax, withholding tax, capital gains
tax,   capital   transfer  tax,  estate  duty  or  inheritance  tax  payable  by
shareholders  of the  Company  other than  shareholders  ordinarily  resident in
Bermuda. The Company is not subject to stamp or other similar duty on the issue,
transfer or redemption of its shares of Common Stock.  Furthermore,  the Company
has  received  from the  Minister  of  Finance  of  Bermuda  under The  Exempted

                                       45
<PAGE>

Undertakings  Tax  Protection  Act 1966,  an assurance  that,  in the event that
Bermuda enacts any  legislation  imposing any tax computed on profits or income,
or computed  on any  capital  assets,  gain or  appreciation,  or any tax in the
nature of estate duty or  inheritance  tax, the imposition of such tax shall not
be  applicable  to the  Company  or any of  its  operations,  or to the  shares,
debentures  or other  obligations  of the Company,  until March 28,  2016.  This
assurance does not,  however,  prevent the imposition of any such tax or duty on
such  persons as are  ordinarily  resident in Bermuda and holding  such  shares,
debentures or  obligations of the Company or on land in Bermuda leased or let to
the Company.

         The United States does not have a comprehensive  income tax treaty with
Bermuda.

HONG KONG TAXATION

         Under the laws of Hong  Kong,  a holder  of shares of a company  is not
subject to Hong Kong tax on dividends paid with respect to such shares. Further,
there is no tax on capital  gain  realized  upon the  disposal  of  investments,
including  investments in Common Stock, except that Hong Kong profits tax may be
chargeable  on  assessable  profits,  to the extent that they arise in or derive
from Hong Kong,  arising on the sale or disposal of such  investments  where the
transactions  are or form part of a trade,  profession or business carried on in
Hong Kong.  Hong Kong does not impose a withholding tax on dividends paid by the
Company or its  subsidiaries.  In  addition,  the Company will not be subject to
Hong  Kong  taxes  as a  result  of its  receipt  of  dividends  from any of its
subsidiaries.

         Hong Kong stamp duty is levied on the  transfer of Common Stock of Hong
Kong companies at the rate of 0.02% on the fair  consideration  of the transfer.
For companies not  incorporated in Hong Kong, no stamp duty is chargeable on the
transfer so long as the shareholders' registers are kept outside of Hong Kong.

         Hong Kong also  levies an  estate  duty on the  estate of a person  who
holds Common Stock in a Hong Kong company at the time of his death. No such duty
is levied where the company is not incorporated in Hong Kong and where its share
register is kept outside of Hong Kong.

MACAU TAXATION

         Under  the  Macau  Offshore  Law,  there is no tax to be  levied on the
profits of a company generated from its offshore activities, defined as economic
activities dedicated to foreign markets, pursued exclusively with non-residents,
and by means of transactions in currencies other than the Macau pataca.

UNITED STATES FEDERAL INCOME TAXATION

         General.  The  following is a general  discussion  of the material U.S.
federal  income tax  consequences  to a U.S.  Holder (as  defined  below) of the
ownership of Common Stock and does not address the U.S. tax treatment of certain
types of investors (e.g., individual retirement and other tax-deferred accounts,
life  insurance  companies,  tax-exempt  organizations,  dealers in  securities,
traders  in  securities  that  elect  to  mark to  market,  persons  liable  for
alternative minimum tax, persons that hold common stock as part of a straddle or
a hedging or conversion  transaction,  persons whose functional  currency is not
the U.S.  dollar and persons owning directly or indirectly  (under  constructive
ownership rules) 10% or more of the Common Stock), all of whom may be subject to
tax rules that differ significantly from those summarized below.

         A "U.S.  Holder" is a  beneficial  owner of Common Stock that is a U.S.
citizen or resident, a domestic  corporation,  an estate subject to U.S. federal
income  taxation on a net income basis,  or a trust if a court within the United
States is able to exercise primary  supervision over the  administration  of the
trust and one or more United  States  persons have the  authority to control all
substantial decisions of the trust.

                                       46
<PAGE>

         Dividends. Under the United States federal income tax laws, and subject
to the passive foreign  investment  company,  or PFIC,  foreign personal holding
company,  or FPHC and controlled  foreign  corporation,  or CFC rules  discussed
below, if you are a U.S. holder,  the gross amount of any dividend we pay out of
our current or accumulated earnings and profits (as determined for United States
federal  income  tax  purposes)  is  subject  to United  States  federal  income
taxation.  If you  are a  noncorporate  U.S.  holder,  dividends  paid to you in
taxable years  beginning after December 31, 2002 and before January 1, 2009 that
constitute  qualified  dividend  income  will be taxable to you at a maximum tax
rate of 15%  provided  that you hold the shares for more than 60 days during the
120-day  period  beginning  60 days before the  ex-dividend  date and meet other
holding  period  requirements.  On February 19, 2004,  the IRS announced that it
will  permit  taxpayers  to apply a proposed  legislative  change to the holding
period  requirement  described in the preceding  sentence as if such change were
already  effective.  This legislative  "technical  correction"  would change the
minimum required holding period, retroactive to January 1, 2003, to more than 60
days during the 121-day period  beginning 60 days before the  ex-dividend  date.
Dividends we pay with respect to the shares generally will be qualified dividend
income provided that, in the year that you receive the dividend,  the shares are
readily tradable on an established securities market in the United States.

         Distributions in excess of the earnings and profits of the Company will
be treated,  for U.S.  federal  income tax purposes,  as a nontaxable  return of
capital to the extent of the U.S. Holder's basis in the Common Stock and then as
gain from the sale or exchange of a capital asset. A corporate  shareholder will
not be eligible for the dividends-received deduction.

         Sale or Exchange  of Common  Stock.  Subject to the PFIC,  FPHC and CFC
rules  discussed  below,  if you are a U.S.  holder  and you  sell or  otherwise
dispose  of your  shares,  you will  recognize  capital  gain or loss for United
States  federal  income tax purposes  equal to the  difference  between the U.S.
dollar  value of the amount that you realize and your tax basis,  determined  in
U.S. dollars, in your shares. Capital gain of a noncorporate U.S. holder that is
recognized on or after May 6, 2003 and before January 1, 2009 is generally taxed
at a maximum rate of 15% where the holder has a holding  period greater than one
year.

         PFIC Rules.  We believe that shares should not be treated as stock of a
PFIC for United States  federal  income tax purposes,  but this  conclusion is a
factual determination that is made annually and thus may be subject to change.

         In general, if you are a U.S. holder, we will be a PFIC with respect to
you if for any taxable year in which you held our shares:

     o    at least 75% of our  gross  income  for the  taxable  year is  passive
          income or
     o    at least 50% of the  value,  determined  on the  basis of a  quarterly
          average,  of our assets is  attributable to assets that produce or are
          held for the production of passive income.

         Passive income generally includes dividends, interest, royalties, rents
(other than certain rents and royalties derived in the active conduct of a trade
or business),  annuities and gains from assets that produce passive income. If a
foreign  corporation  owns  at  least  25% by  value  of the  stock  of  another
corporation,  the foreign  corporation is treated for purposes of the PFIC tests
as owning its proportionate share of the assets of the other corporation, and as
receiving directly its proportionate share of the other corporation's income.

         If we are  treated as a PFIC,  and you are a U.S.  holder  that did not
make a  mark-to-market  election,  as  described  below,  you will be subject to
special rules with respect to:

     o    any gain you realize on the sale or other  disposition  of your shares
          and


                                       47
<PAGE>

     o    any  excess   distribution  that  we  make  to  you  (generally,   any
          distributions  to you during a single  taxable  year that are  greater
          than  125% of the  average  annual  distributions  received  by you in
          respect of the shares during the three preceding  taxable years or, if
          shorter, your holding period for the shares).

          Under these rules:

     o    the gain or excess  distribution  will be allocated  ratably over your
          holding period for the shares,

     o    the amount  allocated  to the taxable  year in which you  realized the
          gain or excess distribution will be taxed as ordinary income,

     o    the amount allocated to each prior year, with certain exceptions, will
          be taxed at the highest tax rate in effect for that year, and

     o    the interest charge generally  applicable to underpayments of tax will
          be imposed in respect of the tax attributable to each such year.

         If you own shares in a PFIC that are treated as marketable  stock,  you
may also make a mark-to-market election. If you make this election, you will not
be subject to the PFIC rules  described  above.  Instead,  in general,  you will
include as  ordinary  income  each year the  excess,  if any, of the fair market
value of your shares at the end of the taxable year over your adjusted  basis in
your  shares.  These  amounts of ordinary  income  will not be eligible  for the
favorable tax rates applicable to qualified dividend income or long-term capital
gains.  You will also be  allowed  to take an  ordinary  loss in  respect of the
excess,  if any,  of the  adjusted  basis of your  shares over their fair market
value at the end of the  taxable  year (but only to the extent of the net amount
of previously included income as a result of the mark-to-market  election). Your
basis in the shares will be adjusted to reflect any such income or loss amounts.

         In addition,  notwithstanding  any election you make with regard to the
shares,  dividends  that  you  receive  from us will  not  constitute  qualified
dividend  income  to you if we are a PFIC  either  in the  taxable  year  of the
distribution or the preceding  taxable year.  Dividends that you receive that do
not constitute  qualified  dividend  income are not eligible for taxation at the
15% maximum rate  applicable to qualified  dividend  income.  Instead,  you must
include the gross amount of any such dividend paid by us out of our  accumulated
earnings  and  profits  (as  determined  for United  States  federal  income tax
purposes)  in  your  gross  income,  and it  will  be  subject  to tax at  rates
applicable to ordinary income.

         If you own  shares  during  any year that we are a PFIC,  you must file
Internal Revenue Service Form 8621.

         Foreign  Personal Holding Company Rules. We believe that we are not and
are not likely to become a foreign  personal  holding  company for United States
tax  purposes  (on the basis that last year we did not meet the asset  test) but
this  conclusion  is a factual  determination  that is made annually and thus is
subject to change. In general, if we are a foreign personal holding company:

     o    if you are a U.S.  holder,  you will be  taxed  currently  on  certain
          categories of our undistributed passive income,

     o    a U.S.  person who  acquires  shares  from a decedent  will not have a
          stepped-up  basis in the shares or but will have a tax basis  equal to
          the lower of the fair  market  value of the  shares or the  decedent's
          basis in the shares, and

         if you are a U.S.  holder,  any dividends that we pay in a taxable year
that we are a  foreign  personal  holding  company  and the  next  taxable  year
thereafter will be taxable to you at rates  applicable to ordinary income rather
than the special rates applicable to qualified dividend income.

                                       48
<PAGE>

          CFC Rules. A foreign corporation  generally is treated as a controlled
foreign  corporation  ("CFC") for U.S.  federal income tax purposes if more than
50% of its stock is owned by certain 10% shareholders. The Company believes that
it is not  currently  a CFC  because  such  shareholder  test  is not  met.  The
treatment  of the Company as a CFC would not in any event  adversely  affect any
person who owns (directly or indirectly or by attribution)  less than 10% of the
Common Stock.

         Backup Withholding and Information Reporting. If you are a noncorporate
U.S. holder,  information  reporting  requirements,  on Internal Revenue Service
Form 1099, generally will apply to:

     o    dividend  payments or other taxable  distributions  made to you within
          the United States, and

     o    the payment of  proceeds to you from the sale of shares  effected at a
          United States office of a broker.

         Additionally,  backup withholding may apply to such payments if you are
a noncorporate U.S. holder that:

     o    fails to provide an accurate taxpayer identification number,

     o    is notified by the  Internal  Revenue  Service that you have failed to
          report all interest and dividends required to be shown on your federal
          income tax returns, or

     o    in   certain   circumstances,   fails  to   comply   with   applicable
          certification requirements.

         If you are a non-U.S.  holder,  you are  generally  exempt  from backup
withholding and information reporting requirements with respect to:

     o    dividend  payments  made to you  outside  the  United  States by us or
          another non-United States payor and

     o    other dividend  payments and the payment of the proceeds from the sale
          of shares  effected at a United States office of a broker,  as long as
          the income  associated  with such  payments is  otherwise  exempt from
          United States federal income tax, and:

          o    the payor or broker does not have actual  knowledge  or reason to
               know that you are a United States  person and you have  furnished
               the payor or broker:

               o    an Internal  Revenue  Service  Form W-8BEN or an  acceptable
                    substitute  form upon which you certify,  under penalties of
                    perjury, that you are a non-United States person, or

               o    other  documentation  upon  which it may  rely to treat  the
                    payments as made to a non-United States person in accordance
                    with U.S. Treasury regulations, or

               o    you otherwise establish an exemption.

         Payment  of the  proceeds  from the sale of  shares  or  effected  at a
foreign  office  of a  broker  generally  will  not be  subject  to  information
reporting or backup  withholding.  However, a sale of shares or that is effected
at a foreign  office of a broker will be subject to  information  reporting  and
backup withholding if:

                                       49
<PAGE>

     o    the proceeds are  transferred  to an account  maintained by you in the
          United States,

     o    the payment of proceeds or the  confirmation  of the sale is mailed to
          you at a United States address, or

     o    the sale has some other specified connection with the United States as
          provided in U.S. Treasury regulations,

unless the broker does not have actual  knowledge or reason to know that you are
a United States person and the  documentation  requirements  described above are
met or you otherwise establish an exemption.

         In  addition,  a sale of shares or  effected  at a foreign  office of a
broker will be subject to information reporting if the broker is:

     o    a United States person,

     o    a controlled foreign corporation for United States tax purposes,

     o    a foreign  person  50% or more of whose  gross  income is  effectively
          connected  with the conduct of a United States trade or business for a
          specified three-year period, or

     o    a foreign partnership, if at any time during its tax year:

          o    one or more of its  partners  are "U.S.  persons",  as defined in
               U.S.  Treasury  regulations,  who in the aggregate hold more than
               50% of the income or capital interest in the partnership, or

          o    such  foreign  partnership  is engaged in the conduct of a United
               States trade or business,

unless the broker does not have actual  knowledge or reason to know that you are
a United States person and the  documentation  requirements  described above are
met or you otherwise  establish an exemption.  Backup  withholding will apply if
the sale is subject to information reporting and the broker has actual knowledge
that you are a United States person.

         You  generally  may obtain a refund of any amounts  withheld  under the
backup  withholding  rules that  exceed your  income tax  liability  by filing a
refund claim with the United States Internal Revenue Service.

DOCUMENTS ON DISPLAY

         The  documents  concerning  the Company  which are  referred to in this
report may be inspected  on-line at websites  maintained by the  Securities  and
Exchange  Commission  and by  private  companies  offering  access  to  the  SEC
database. See, e.g., www.sec.gov.

ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

MARKET RISK DISCLOSURES

         The following  discussion  about the Company's  market risk disclosures
contains forward-looking  statements.  Forward-looking statements are subject to
risks and  uncertainties.  Actual  results  could differ  materially  from those
discussed in the  forward-looking  statements.  The Company is exposed to market
risk related to changes in interest rates and foreign  currency  exchange rates.
The  Company  does  not  have  derivative  financial  instruments  for  hedging,
speculative, or trading purposes.

                                       50
<PAGE>

INTEREST RATE SENSITIVITY

         The Company  currently has no debt and borrowings that are sensitive to
interest rate.

FOREIGN CURRENCY RISK

         The Company has net monetary  asset and  liability  balances in foreign
currencies  other  than the U.S.  dollar,  including  the  Pound  Sterling,  the
Canadian dollar,  the Hong Kong dollar and the RMB.  International  distribution
and sales revenues usually are made by the Company's  subsidiaries in the United
States,  United Kingdom and Canada, and are denominated typically in their local
currency.  However,  the  expenses  incurred  by  these  subsidiaries  are  also
denominated in the local  currency.  As a result,  the operating  results of the
Company  are  exposed to changes in exchange  rates  between  the United  States
Dollar and the Pound  Sterling or the  Canadian  dollar.  The  Company  does not
currently  hedge its foreign  exchange  risk,  which is not  significant at this
time.   The  Company   will   continue  to  monitor  its  exposure  to  currency
fluctuations,  and, where  appropriate,  may use financial hedging techniques in
the  future  to  minimize  the  effect  of  these   fluctuations.   Due  to  the
rearrangement of the Group's internal financing structure, exposure to movements
in  exchange  rates  has been  limited  going  forward.  See  also  "Item 3. Key
Information - Risk Factors - China Currency Valuation".

ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

         Not Applicable


                                     PART II

ITEM 13.  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

         None

ITEM 14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
          PROCEEDS

         None or Not Applicable

ITEM 15.  CONTROLS AND PROCEDURES

         An  evaluation  was  carried  out  under the  supervision  and with the
participation of the Company's management, including our Chief Executive Officer
and Chief Financial Officer, of the effectiveness of our disclosure controls and
procedures  (as defined in Rule 13a-15(e)  under the Securities  Exchange Act of
1934) at December  31, 2003.  Based upon that  evaluation,  the Chief  Executive
Officer and Chief Financial Officer concluded that these disclosure controls and
procedures were effective.  In addition,  no change in our internal control over
financial  reporting (as defined in Rule 13a-15(f) under the Securities Exchange
Act or 1934)  occurred  during the fiscal year ended  December 31, 2003 that has
materially affected,  or is reasonably likely to materially affect, our internal
control over financial reporting.

ITEM 16A.  AUDIT COMMITTEE FINANCIAL EXPERT

         On May 12,  2003,  Theodore  J.  Eischeid  was  named  Chairman  of the
Company's Audit Committee (please see "Item 6. Directors,  Senior Management and
Employees"  for Mr.  Eischeid's  experience and  qualifications).  The Board has
determined  Mr.  Eischeid  meets  all of the  criteria  required  to be  named a
"Financial  Expert,"  as  defined  in  applicable  rules of the  Securities  and
Exchange Commission.

ITEM 16B.  CODE OF ETHICS

         The Company has adopted a Code of Ethics that is  applicable to all its
directors,  senior management and employees. The Code of Ethics contains general
guidelines for conducting the business of the Company.


                                       51
<PAGE>

         The  Company  will make  available  a copy of the Code of Ethics to any
person without charge,  if a written request is made to its Company Secretary at
the Company's  registered address at Suite V, 6th Floor, 2-12 Au Pui Wan St., Fo
Tan, N.T., Hong Kong.

ITEM 16C.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

(US$ in thousands)         Audit fees    Audit-related fees    Tax fees    Total
                           ----------    ------------------    --------    -----

2002                         $ 186             $ 8               $ 53      $ 247
2003                           250               5                137        392

AUDIT-RELATED FEES

         Services  provided  primarily  consist  of  statutory  audit of pension
contributions to the Company's defined contribution plan.

TAX FEES
         Services provided  primarily consist of corporate tax advisory services
and preparation of corporate income tax returns.

ITEM 16D.  EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

         Not Applicable

ITEM 16E.  PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
           PURCHASERS

         Not Applicable

                                    PART III

ITEM 17.  FINANCIAL STATEMENTS

         Not Applicable

ITEM 18.  FINANCIAL STATEMENTS

INDEX TO FINANCIAL STATEMENTS                                              PAGE

         Independent Auditors' Reports                                     F-1

         Consolidated Balance Sheets                                       F-2

         Consolidated Statements of Operations                             F-3

         Consolidated Statements of Shareholders' Equity
           and Comprehensive Income (Loss)                                 F-4

         Consolidated Statements of Cash Flows                             F-5

         Notes to the Consolidated Financial Statements                    F-6

ITEM 19.  EXHIBITS

         The  exhibit  index  appears  at page I-2 of this  report,  immediately
following the signature page.


                                       52

<PAGE>


                          INDEPENDENT AUDITORS' REPORT


The Board of Directors and Shareholders
Radica Games Limited:


We have audited the  accompanying  consolidated  balance  sheets of Radica Games
Limited  and  subsidiaries  as of December  31,  2003 and 2002,  and the related
consolidated  statements of operations,  shareholders'  equity and comprehensive
income  (loss),  and cash flows for each of the years in the  three-year  period
ended  December  31,  2003.  These  consolidated  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of Radica Games Limited
and  subsidiaries  as of December  31,  2003 and 2002,  and the results of their
operations and their cash flows for each of the years in the  three-year  period
ended  December 31, 2003, in conformity  with  accounting  principles  generally
accepted in the United States of America.

As  discussed in Notes 2 and 6 to the  consolidated  financial  statements,  the
Company changed its method of accounting for goodwill in 2002.





/S/ KPMG

HONG KONG
February 13, 2004





                                      F-1

<PAGE>

<TABLE>
<CAPTION>
                                   RADICA GAMES LIMITED
                               CONSOLIDATED BALANCE SHEETS
                                DECEMBER 31, 2003 AND 2002

                                          ASSETS

(US dollars in thousands, except share data)                           2003        2002
                                                                    --------     --------

<S>                                                                 <C>          <C>
Current assets:
Cash and cash equivalents                                           $ 13,944     $ 32,692
Investment securities                                                 28,009         --
Accounts receivable, net of allowances for doubtful accounts
  of $251 ($315 in 2002)                                              15,360       15,139
Inventories                                                           15,503       20,385
Prepaid expenses and other current assets                              2,748        1,674
Income taxes receivable                                                1,404          931
Deferred income taxes                                                  1,706         --
                                                                    --------     --------

     Total current assets                                             78,674       70,821
                                                                    --------     --------

Property, plant and equipment, net                                    11,908       14,034

Goodwill                                                               9,551        9,551

Other asset                                                              875          896

Deferred income taxes, noncurrent                                      1,206         --
                                                                    --------     --------

     Total assets                                                   $102,214     $ 95,302
                                                                    ========     ========

                          LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings                                               $   --       $    846
Accounts payable                                                       6,350        7,974
Current portion of long-term debt                                       --          1,825
Accrued payroll and employee benefits                                  1,353        2,753
Accrued warranty expenses                                              1,040        1,040
Other accrued liabilities                                              3,976        5,840
Income taxes payable                                                     339          309
Deferred income taxes                                                   --             79
                                                                    --------     --------

     Total current liabilities                                        13,058       20,666
                                                                    --------     --------

     Total liabilities                                                13,058       20,666
                                                                    --------     --------

Shareholders' equity:
Common stock
  par value $0.01 each, 100,000,000 shares authorized,
  18,225,204 shares issued and outstanding (17,796,131 in 2002)          182          178
Additional paid-in capital                                             3,517        2,320
Retained earnings                                                     85,437       72,946
Accumulated other comprehensive income (loss)                             20         (808)
                                                                    --------     --------

     Total shareholders' equity                                       89,156       74,636
                                                                    --------     --------

     Total liabilities and shareholders' equity                     $102,214     $ 95,302
                                                                    ========     ========
<FN>
        See accompanying notes to the consolidated financial statements.
</FN>
</TABLE>
                                       F-2

<PAGE>

<TABLE>
<CAPTION>
                                           RADICA GAMES LIMITED
                                   CONSOLIDATED STATEMENTS OF OPERATIONS
                               YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001


(US dollars in thousands,                                2003                2002                2001
except per share data)                               ------------        ------------        ------------

<S>                                                  <C>                 <C>                 <C>
Revenues:
Net sales                                            $    105,200        $    124,646        $     98,554
Cost of goods sold (exclusive of items
  shown separately below)                                 (64,571)            (77,481)            (64,698)
                                                     ------------        ------------        ------------
Gross profit                                               40,629              47,165              33,856
                                                     ------------        ------------        ------------

Operating expenses:
Selling, general and administrative expenses              (25,779)            (27,695)            (26,279)
Research and development                                   (3,895)             (4,094)             (5,775)
Depreciation                                               (2,033)             (2,438)             (2,631)
Amortization of goodwill and intangible assets               --                  (420)             (1,382)
Restructuring charge                                          (87)               --                (1,551)
                                                     ------------        ------------        ------------
  Total operating expenses                                (31,794)            (34,647)            (37,618)
                                                     ------------        ------------        ------------

Operating income (loss)                                     8,835              12,518              (3,762)

Other income                                                  317                 306                  24

Foreign currency gain (loss), net                             178               1,744                (219)

Interest income                                               344                 253                 733

Interest expense                                              (49)               (218)               (597)
                                                     ------------        ------------        ------------

Income (loss) before income taxes                           9,625              14,603              (3,821)

Credit (provision) for income taxes                         2,866              (2,669)               (553)
                                                     ------------        ------------        ------------

Net income (loss)                                    $     12,491        $     11,934        $     (4,374)
                                                     ============        ============        ============

Net income (loss) per share:

     Basic                                           $       0.69        $       0.67        $      (0.25)
                                                     ============        ============        ============

     Diluted                                         $       0.66        $       0.65        $      (0.25)
                                                     ============        ============        ============

Weighted average number of common and
  common equivalent shares

     Basic                                             18,016,789          17,725,879          17,611,886
                                                     ============        ============        ============

     Diluted                                           19,059,974          18,335,827          17,611,886
                                                     ============        ============        ============

<FN>
       See accompanying notes to the consolidated financial statements.
</FN>
</TABLE>

                                       F-3
<PAGE>


<TABLE>
<CAPTION>
                                                       RADICA GAMES LIMITED
                                         CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                                 AND COMPREHENSIVE INCOME (LOSS)
                                           YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001


(US dollars in thousands)                   Common stock                                                 Accumulated
                                            ------------        Additional  Warrants to                    other           Total
                                         Number                  paid-in       acquire      Retained    comprehensive  shareholders'
                                       of shares     Amount      capital    common stock    earnings    income (loss)    equity
                                      ----------   ----------   ----------  ------------   ----------   -------------  ------------

<S>                                   <C>          <C>          <C>          <C>           <C>           <C>           <C>
Balance at December 31, 2000          17,564,297   $      176   $    1,188   $      667    $   65,386    $      (29)   $   67,388
Issuance of stock                          6,847         --             22         --            --            --              22
Stock options exercised                   75,596         --            117         --            --            --             117
Expiration of stock warrants                --           --            222         (222)         --            --            --
Net loss                                    --           --           --           --          (4,374)         --          (4,374)
Foreign currency translation                --           --           --           --            --            (101)         (101)
                                      ----------   ----------   ----------   ----------    ----------    ----------    ----------

Balance at December 31, 2001          17,646,740   $      176   $    1,549   $      445    $   61,012    $     (130)   $   63,052
Issuance of stock                          4,945            1           20         --            --            --              21
Stock options exercised                  144,446            1          306         --            --            --             307
Expiration of stock warrants                --           --            445         (445)         --            --            --
Net income                                  --           --           --           --          11,934          --          11,934
Foreign currency translation                --           --           --           --            --            (678)         (678)
                                      ----------   ----------   ----------   ----------    ----------    ----------    ----------

Balance at December 31, 2002          17,796,131   $      178   $    2,320   $     --      $   72,946    $     (808)   $   74,636
Issuance of stock                          3,073         --             20         --            --            --              20
Stock options exercised, inclusive       426,000            4        1,177         --            --            --           1,181
     of $44 tax benefit
Net income                                  --           --           --           --          12,491          --          12,491
Unrealized loss on investment               --           --           --           --            --             (46)          (46)
     securities available-for-sale,
     net of nil tax
Foreign currency translation,               --           --           --           --            --             874           874
     net of nil tax
                                      ----------   ----------   ----------   ----------    ----------    ----------    ----------

Balance at December 31, 2003          18,225,204   $      182   $    3,517   $     --      $   85,437    $       20    $   89,156
                                      ==========   ==========   ==========   ==========    ==========    ==========    ==========

<FN>
The comprehensive  income (loss) of the Company,  which represents the aggregate of the net income (loss),  tax benefit from stock
options exercised and the foreign currency translation adjustments, was $13,319, $11,256 and $(4,475) for the years ended December
31, 2003, 2002 and 2001, respectively.


                                 See accompanying notes to the consolidated financial statements.
</FN>
</TABLE>

                                      F-4
<PAGE>

<TABLE>
<CAPTION>
                                                RADICA GAMES LIMITED
                                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                                    YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001


(US dollars in thousands)                                                    2003            2002            2001
                                                                           --------        --------        --------

<S>                                                                        <C>             <C>             <C>
Cash flow from operating activities:
Net income (loss)                                                          $ 12,491        $ 11,934        $ (4,374)
Adjustments to reconcile net income (loss) to net cash
  provided by operating activities:
  Deferred income taxes                                                      (2,947)          2,134            (918)
  Depreciation                                                                2,033           2,438           2,631
  Amortization                                                                 --               420           1,382
  Loss on disposal and write off of property, plant and equipment               102              57              73
  Compensatory elements of stock issuances                                       20              21              22
  Unrealized gain on trading investments                                        (55)           --              --
  Changes in current assets and liabilities:
    (Increase) decrease in accounts receivable                                 (221)         (1,271)          8,678
    Decrease (increase) in inventories                                        4,882          (3,206)         (3,208)
    (Increase) decrease in prepaid expenses and other current assets         (1,074)            609            (709)
    (Decrease) increase in accounts payable                                  (1,624)         (1,227)          2,124
    (Decrease) increase in accrued payroll and employee benefits             (1,400)          1,810              (7)
    Increase (decrease) in accrued warranty expenses                           --               140             (50)
    (Decrease) increase in other accrued liabilities                         (1,864)         (1,645)          1,036
    (Decrease) increase in income taxes payable                                (443)           (198)          3,638
                                                                           --------        --------        --------

Net cash provided by operating activities                                     9,900          12,016          10,318
                                                                           --------        --------        --------

Cash flow from investing activities:
Purchases of investment securities                                          (28,000)           --              --
Proceeds from sale of property, plant and equipment                             955             201              64
Purchase of property, plant and equipment                                      (943)         (1,316)         (1,103)
                                                                           --------        --------        --------

Net cash used in investing activities                                       (27,988)         (1,115)         (1,039)
                                                                           --------        --------        --------

Cash flow from financing activities:
Funds from stock options exercised                                            1,137             307             117
Decrease in short-term borrowings                                              (846)           --            (2,934)
Repayment of long-term debt                                                  (1,825)         (3,648)         (3,648)
                                                                           --------        --------        --------

Net cash used in financing activities                                        (1,534)         (3,341)         (6,465)
                                                                           --------        --------        --------

Effect of currency exchange rate change                                         874            (678)           (101)
                                                                           --------        --------        --------

Net (decrease) increase in cash and cash equivalents                        (18,748)          6,882           2,713

Cash and cash equivalents:
  Beginning of year                                                          32,692          25,810          23,097
                                                                           --------        --------        --------

  End of year                                                              $ 13,944        $ 32,692        $ 25,810
                                                                           ========        ========        ========

Supplementary disclosures of cash flow information:
  Interest paid                                                            $     50        $    220        $    594
  Income taxes paid                                                             538           1,314             433

<FN>
                          See accompanying notes to the consolidated financial statements.
</FN>
</TABLE>

                                       F-5
<PAGE>

                              RADICA GAMES LIMITED

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                 (YEARS ENDED DECEMBER 31, 2003, 2002 and 2001)
                            (US dollars in thousands)

1.   ORGANIZATION AND BASIS OF FINANCIAL STATEMENTS

     The Company  manufactures  and markets a diverse line of electronic  games,
     youth  electronics and video game  accessories  including  electronic games
     carrying  the  Radica(R)  and Play TV(R) brand names,  Gamester(R)  branded
     video game  controllers &  accessories,  and girls'  lifestyle  electronics
     carrying  the Girl  Tech(R)  and  Barbie(TM)  brand  names.  The Company is
     headquartered  in Hong Kong and manufactures its products in its factory in
     Southern China.  The primary  markets for the Company's  products are North
     America and Europe.

     The consolidated  financial  statements include the accounts of the Company
     and  its  subsidiaries.   All  significant  intercompany  transactions  and
     balances  have  been   eliminated  on   consolidation.   The   accompanying
     consolidated  financial  statements  have been prepared in accordance  with
     accounting  principles  generally  accepted in the United States of America
     and are presented in US dollars.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Cash and Cash Equivalents
     Cash and cash  equivalents  include  cash on hand,  cash in bank  accounts,
     interest-bearing  savings  accounts,  and time certificates with an initial
     term of less than three months. For purposes of the consolidated statements
     of cash flows,  the Company  considers all highly  liquid debt  instruments
     with original maturities of three months or less to be cash equivalents.

     Trade Receivables
     Trade accounts  receivable  are recorded at the invoiced  amount and do not
     bear  interest.  The allowance for doubtful  accounts is the Company's best
     estimate of the amount of probable credit losses in the Company's  existing
     accounts  receivable.   The  Company  determines  the  allowance  based  on
     historical  write-off  experience.  The Company  reviews its  allowance for
     doubtful  accounts  monthly.  Past  due  balances  over 90 days  and over a
     specified  amount are reviewed  individually  for  collectibility.  Account
     balances  are  charged  off  against  the  allowance  after  all  means  of
     collection have been exhausted and the potential for recovery is considered
     remote.  The Company does not have any  off-balance-sheet  credit  exposure
     related to its customers.

     Investment Securities
     Investment  securities  at December  31, 2003  consist of  certificates  of
     deposits and money-market  mutual fund investments.  The Company classifies
     its investment  securities in one of three categories:  trading,  available
     for sale,  or held to  maturity.  Trading  securities  are  bought and held
     principally   for  the   purpose  of   selling   them  in  the  near  term.
     Held-to-maturity  debt securities are those securities in which the Company
     has the  ability  and  intent  to hold the  security  until  maturity.  All
     securities  not included in trading or held to maturity are  classified  as
     available for sale.

     Trading  and  available-for-sale  securities  are  recorded  at fair value.
     Unrealized  holding gains and losses on trading  securities are included in
     earnings.  Unrealized  holding  gains and  losses,  net of the  related tax
     effect, on available-for-sale securities are excluded from earnings and are
     reported  as a  separate  component  of other  comprehensive  income  until
     realized.  Realized  gains and losses  from the sale of  available-for-sale
     securities are determined on a specific-identification basis.


                                      F-6
<PAGE>


                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2003, 2002 and 2001)
                            (US dollars in thousands)

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     A decline in the market value of any available-for-sale security below cost
     that  is  deemed  to be  other-than-temporary  results  in a  reduction  in
     carrying amount to fair value.  The impairment is charged to earnings and a
     new cost basis for the security is  established.  To  determine  whether an
     impairment is  other-than-temporary,  the Company  considers whether it has
     the ability and intent to hold the investment until a market price recovery
     and considers  whether  evidence  indicating  the cost of the investment is
     recoverable outweighs evidence to the contrary. Evidence considered in this
     assessment  includes  the  reasons for the  impairment,  the  severity  and
     duration of the  impairment,  changes in value  subsequent  to year-end and
     forecast performance of the investee.

     Premiums  and  discounts  are  amortized  or accreted  over the life of the
     related held-to-maturity or available-for-sale security as an adjustment to
     yield using the effective-interest method. Dividend and interest income are
     recognized when earned.

     Inventories
     Inventories  are stated at the lower of cost,  determined  by the  weighted
     average method,  or market.  Write-downs are provided for potentially  slow
     moving  and  obsolete   inventory  or  inventory  of  which  estimated  net
     realizable value is below its carrying value based on management's analysis
     of inventory levels and future expected sales.

     Depreciation and Amortization of Property, Plant and Equipment
     Property,  plant and equipment is stated at cost. Depreciation of plant and
     equipment is expensed  using the  straight-line  method at rates based upon
     the estimated useful lives of the asset, ranging from 3 to 5 years.

     All of the  Company's  land and building  holdings in the PRC and Hong Kong
     are   considered   to  be  leasehold   property  and  are  amortized  on  a
     straight-line  basis  over the  term of the  lease,  ranging  from 30 to 50
     years. The buildings on the land are also depreciated over the same period.
     Costs of leasehold  improvements  and capital  leased  assets are amortized
     over  the  useful  life of the  related  asset  or the  term of the  lease,
     whichever is shorter.

     The  Company  expenses  all  mold  costs in the year of  purchase  or,  for
     internally  produced  molds,  in the  year of  construction.  Upon  sale or
     retirement,  the costs and related accumulated depreciation or amortization
     are  eliminated and any resulting gain or loss is included in the statement
     of operations.

     Goodwill
     Goodwill  represents  the  excess  of costs  over  fair  value of assets of
     businesses  acquired.  Effective  January 1, 2002, the Company  adopted the
     provisions of SFAS No. 142, Goodwill and Other Intangible Assets.  Goodwill
     and  intangible  assets  acquired in a purchase  business  combination  and
     determined to have an indefinite useful life are not amortized, but instead
     tested for impairment at least  annually in accordance  with the provisions
     of SFAS No. 142.  SFAS No. 142 also requires  that  intangible  assets with
     estimable useful lives be amortized over their respective  estimated useful
     lives to their estimated  residual  values,  and reviewed for impairment in
     accordance  with SFAS No. 144,  Accounting  for  Impairment  or Disposal of
     Long-lived Assets.

                                      F-7
<PAGE>


                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2003, 2002 and 2001)
                            (US dollars in thousands)

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     SFAS No. 142 requires the Company to perform an assessment of whether there
     was an  indication  that  goodwill is impaired.  To  accomplish  this,  the
     Company is required to determine the fair value of each  reporting unit and
     compare it to the carrying  amount of the reporting unit. In estimating the
     fair value of the reporting  unit,  the Company used  discounted  projected
     cash flows, EBITDA, and market-multiple approaches to valuation.

     In  connection  with  SFAS  No.  142's  transitional   goodwill  impairment
     evaluation  in 2002,  the  Statement  required  the  Company  to perform an
     assessment of whether there was an indication  that goodwill is impaired as
     of the date of adoption.  To accomplish  this,  the Company was required to
     identify its  reporting  units and  determine  the  carrying  value of each
     reporting  unit by  assigning  the assets and  liabilities,  including  the
     existing  goodwill and intangible  assets,  to those  reporting units as of
     January 1, 2002.  The Company was required to  determine  the fair value of
     each reporting unit and compare it to the carrying  amount of the reporting
     unit  within six months of  January  1,  2002.  To the extent the  carrying
     amount of a reporting  unit exceeded the fair value of the reporting  unit,
     the  Company   would  be  required  to  perform  the  second  step  of  the
     transitional  impairment  test, as this is an indication that the reporting
     unit goodwill may be impaired. Management determined that no indications of
     impairment  existed as the fair value of the reporting unit was higher than
     the carrying amount and accordingly, the second step was not required to be
     performed.  The fair  value of the  reporting  unit  was  determined  using
     discounted projected cash flows, EBITDA, and market-multiple  approaches to
     valuation.

     Prior  to the  adoption  of SFAS  No.  142,  goodwill  was  amortized  on a
     straight-line basis over the expected periods to be benefited, generally 15
     years,  and  assessed  for   recoverability  by  determining   whether  the
     amortization  of the  goodwill  balance  over its  remaining  life could be
     recovered through  undiscounted future operating cash flows of the acquired
     operation.  The  Company's  other  intangible  asset  was  amortized  on  a
     straight-line basis over its estimated useful lives.

     Impairment of Long-lived Assets
     The Company  evaluates the  recoverability of long-lived assets with finite
     lives in accordance  with SFAS No. 144,  Accounting  for the  Impairment or
     Disposal of Long-Lived  Assets.  SFAS No. 144 requires  long-lived  assets,
     such as property,  plant, and equipment,  and purchased intangibles subject
     to amortization,  are reviewed for impairment whenever events or changes in
     circumstances  indicate  that the  carrying  amount  of an asset may not be
     recoverable.  Recoverability of assets to be held and used is measured by a
     comparison  of the carrying  amount of an asset to  estimated  undiscounted
     future cash flows  expected to be generated  by the asset.  If the carrying
     amount of an asset exceeds its estimated  future cash flows,  an impairment
     charge is  recognized  by the  amount by which the  carrying  amount of the
     asset exceeds the fair value of the asset.

     Goodwill  and  intangible  assets not  subject to  amortization  are tested
     annually for  impairment,  and are tested for impairment more frequently if
     events and  circumstances  indicate  that the asset might be  impaired.  An
     impairment  loss is  recognized  to the  extent  that the  carrying  amount
     exceeds the asset's fair value.


                                      F-8
<PAGE>


                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2003, 2002 and 2001)
                            (US dollars in thousands)

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     Prior to the adoption of SFAS No. 144, the Company accounted for long-lived
     assets in  accordance  with SFAS No.  121,  Accounting  for  Impairment  of
     Long-lived Assets and for Long-lived Assets to be Disposed Of.

     Revenue Recognition
     Revenue  from  product  sales are  recognized  at the time of shipment  and
     passage of title,  which is in accordance  with the terms of the sale,  FOB
     shipping  point.  This  represents  the point at which the  customer  takes
     ownership  and  assumes  risk of  loss.  Prior  to 2003,  the  Company  had
     consignment  agreements  with certain  European  distributors  and recorded
     these  shipments  as revenues  upon  confirmation  of  sell-through  by the
     distributor.

     The Company  records  reductions  to gross  revenue for customer  incentive
     programs,  such as discounts to retailers and volume-based cash incentives.
     The Company also records provisions against the gross revenue for estimated
     product  returns and  allowances in the period when the related  revenue is
     recorded.  These  estimates are based on factors that include,  but are not
     limited to,  historical  sales returns,  analyses of credit memo activities
     and  current  known  trends.   Should  these  actual  product  returns  and
     allowances exceed those estimates,  additional  reductions to the Company's
     revenue would result.

     Shipping and Handling Costs
     The Company  records  costs  incurred  for the shipping and handling of the
     products as cost of goods sold in the consolidated statement of operations.

     Warranty
     The Company provides reserves for the estimated cost of product  warranties
     at  the  time  revenue  is  recognized.  The  estimated  cost  of  warranty
     obligations  is based on historical  experience  of known  product  failure
     rates and the terms of product warranties.

     Advertising
     Advertising  costs are  expensed  as  incurred.  The cost of media  related
     advertising  is  incurred  by the Company the sooner of the first time that
     the advertising takes place or the invoice date for the media purchase.  In
     addition,  the Company offers  discounts to customers who advertise  Radica
     products.  These Co-op  advertising  costs associated with customer benefit
     programs  are  accrued  as  the  related  revenues  are  recognized.  Co-op
     advertising  costs are  characterized  as a cost if the Company  receives a
     benefit that is sufficiently  separable from the retailer's purchase of the
     Company's  products and the fair value of the co-op advertising  benefit is
     determinable and greater than or equal to the co-op  advertising  allowance
     provided  to the  retailer.  Co-op  advertising  costs  not  meeting  these
     criteria  are  recorded as  reductions  in revenue.  Advertising  and Co-op
     advertising  expenses are recorded as selling,  general and  administrative
     expenses  in  the   consolidated   statement  of   operations.   They  were
     approximately  $7,614,  $7,350 and $6,982 for the years ended  December 31,
     2003, 2002 and 2001, respectively.

     Research and Development
     Research  and  development  costs are  expensed as  incurred.  Research and
     development  costs amounted to $3,895,  $4,094 and $5,775 in 2003, 2002 and
     2001, respectively.


                                      F-9
<PAGE>


                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2003, 2002 and 2001)
                            (US dollars in thousands)

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     Foreign Currency Translation
     Foreign  currency  assets and  liabilities  are translated  into US dollars
     using the exchange  rate on the balance  sheet date.  Revenues and expenses
     are translated at average rates  prevailing  during each reporting  period.
     Current  earnings  (loss)  include gains or losses  resulting  from foreign
     currency transactions. Other gains and losses resulting from translation of
     financial  statements  of foreign  subsidiaries  are recorded as a separate
     component of other comprehensive income (loss) within shareholders' equity.
     Cumulative translation adjustments are recognized as income or expense upon
     disposal or liquidation of a foreign entity.

     Post-retirement and Post-employment Benefits
     The Company does not have any material  post-retirement  or post-employment
     benefit  plans.   The  Company  makes   contributions  to  certain  defined
     contribution   arrangements   with  groups  of  employees.   The  Company's
     contributions  and any related  costs are  immaterial  and are  expensed as
     incurred.

     Income Taxes
     Income taxes are  accounted  for under the asset and  liability  method for
     financial  accounting  and reporting of income taxes.  Deferred  income tax
     liabilities  and assets are  recorded  to reflect the tax  consequences  in
     future  years of  differences  between  the  taxable  bases of  assets  and
     liabilities and the respective financial statement carrying amounts at each
     period end using enacted tax rates  expected to apply in the year temporary
     differences  are expected to reverse.  A valuation  allowance is recognized
     for any  portion of the  deferred  tax asset for which  realization  is not
     deemed to be more  likely than not.  The effect on deferred  tax assets and
     liabilities  of a change in tax rates is recognized in income in the period
     that includes the enactment date.

     Stock-based Compensation
     The  Company  applies  the   intrinsic-value-based   method  of  accounting
     prescribed by Accounting  Principles Board (APB) Opinion No. 25, Accounting
     for Stock Issued to Employees,  and related interpretations  including FASB
     Interpretation No. 44, Accounting for Certain Transactions  involving Stock
     Compensation,  an  interpretation  of APB Opinion  No. 25,  issued in March
     2000,  to account for its  fixed-plan  stock  options.  Under this  method,
     compensation  expense is  recorded on the date of grant only if the current
     market price of the underlying stock exceeded the exercise price.  SFAS No.
     123, Accounting for Stock-based  Compensation,  established  accounting and
     disclosure  requirements using a fair-value-based  method of accounting for
     stock-based  employee  compensation  plans. As allowed by SFAS No. 123, the
     Company has elected to continue to apply the  intrinsic-value-based  method
     of  accounting  described  above,  and  has  adopted  only  the  disclosure
     requirements of SFAS No. 123 (See Note 11). The following table illustrates
     the effect on net income  (loss) if the fair  value  based  method had been
     applied to all outstanding and unvested awards in the period:

<TABLE>
<CAPTION>

                                                         2003          2002          2001
                                                       --------      --------      --------

<S>                                                    <C>           <C>           <C>
Net income as reported                                 $ 12,491      $ 11,934      $ (4,374)
Add back total stock-based employee compensation           --            --            --
    expenses under APB 25
Deduct total stock-based employee compensation
  expense determined under fair-value-based method
  for all rewards, net of tax                              (657)         (746)         (793)
                                                       --------      --------      --------
Prof forma net income                                  $ 11,834      $ 11,188      $ (5,167)
                                                       ========      ========      ========
</TABLE>


                                      F-10
<PAGE>


                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2003, 2002 and 2001)
                            (US dollars in thousands)

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     Earnings (Loss) Per Share
     Basic earnings (loss) per share is based on the weighted  average number of
     shares of common  stock,  and with respect to diluted  earnings  (loss) per
     share,  also  includes  the effect of all dilutive  potential  common stock
     outstanding.  Dilutive  potential  common stock results from dilutive stock
     options and warrants. The effect of such dilutive potential common stock on
     net income per share is  computed  using the  treasury  stock  method.  All
     potentially  dilutive  securities are excluded from the computation in loss
     making periods as their inclusion would be anti-dilutive.

     Comprehensive Income (Loss)
     Other comprehensive income (loss) refers to revenues,  expenses,  gains and
     losses that under accounting  principles  generally  accepted in the United
     States of America  are  included  in  comprehensive  income  (loss) but are
     excluded  from  net  income  (loss)  as these  amounts  are  recorded  as a
     component of shareholders' equity. The Company's other comprehensive income
     (loss) represented foreign currency translation  adjustments and unrealized
     gains and losses on available-for-sale securities, net of tax.

     Use of Estimates
     The  preparation  of financial  statements  in conformity  with  accounting
     principles  generally  accepted  in the United  States of America  requires
     management to make estimates and assumptions  that affect reported  amounts
     of certain assets, liabilities, revenues and expenses 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  goodwill,  property,  plant and  equipment,  valuation
     allowances for receivables,  inventories and deferred income tax assets and
     reserves for warranties and product returns. Actual results may differ from
     such estimates. Differences from those estimates are recorded in the period
     they become known.

     Commitments and contingencies
     Liabilities  for  loss  contingencies  arising  from  claims,  assessments,
     litigation, fines and other sources are recorded when it is probable that a
     liability  has  been  incurred  and the  amount  of the  assessment  can be
     reasonably estimated.

     Recently Adopted Accounting Standards
     In June 2001,  FASB  Statement  No. 143,  Accounting  for Asset  Retirement
     Obligations,  was issued.  Statement 143 requires the Company to record the
     fair value of an asset  retirement  obligation as a liability in the period
     in which it incurs a legal  obligation  associated  with the  retirement of
     tangible long-lived assets that result from the acquisition,  construction,
     development, and/or normal use of the assets. The Company also would record
     a  corresponding  asset  that is  depreciated  over the life of the  asset.
     Subsequent to the initial  measurement of the asset retirement  obligation,
     the  obligation  would be adjusted at the end of each period to reflect the
     passage of time and changes in the estimated  future cash flows  underlying
     the obligation.  The Company was required to adopt Statement 143 on January
     1, 2003.  The  adoption  of  Statement  143 had no effect on the  Company's
     financial statements.


                                      F-11
<PAGE>


                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2003, 2002 and 2001)
                            (US dollars in thousands)

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     In April 2002, FASB Statement No. 145, Rescission of FASB Statements No. 4,
     44 and 64,  Amendment of FASB Statement No. 13, and Technical  Corrections,
     was issued.  Statement 145 amends existing  guidance on reporting gains and
     losses on the  extinguishment of debt to prohibit the classification of the
     gain or  loss as  extraordinary,  as the use of such  extinguishments  have
     become part of the risk management  strategy of many  companies.  Statement
     No. 145 also amends  FASB  Statement  No. 13,  Accounting  for  Leases,  to
     require sale-leaseback accounting for certain lease modifications that have
     economic effects similar to sale-leaseback transactions.  The provisions of
     Statement 145 related to the  rescission of FASB Statement No. 4, Reporting
     Gains and Losses from  Extinguishment of Debt, were applied in fiscal years
     beginning  after May 15, 2002.  The  provisions of Statement 145 related to
     Statement 13 were effective for transactions  occurring after May 15, 2002.
     The  adoption of  Statement  145 had no effect on the  Company's  financial
     statements.

     In June 2002, FASB Statement No. 146,  Accounting for Costs Associated with
     Exit or Disposal Activities,  was issued. Statement 146 addresses financial
     accounting  and  reporting  for  costs  associated  with  exit or  disposal
     activities and nullifies  EITF Issue No. 94-3,  Liability  Recognition  for
     Certain Employee  Termination Benefits and Other Costs to Exit an Activity.
     The  provisions  of  Statement  146 were  effective  for  exit or  disposal
     activities  initiated  after  December  31,  2002,  with early  application
     encouraged.  Costs  relating  to  closure  of the  Company's  research  and
     development  center in the UK have been accounted for in these consolidated
     financial statements pursuant to Statement 146 (see note 9).

     In November 2002, FASB  Interpretation No. 45,  Guarantor's  Accounting and
     Disclosure  Requirements for Guarantees,  Including Indirect  Guarantees of
     Indebtedness to Others,  an interpretation of FASB Statements No. 5, 57 and
     107 and a  rescission  of FASB  Interpretation  No.  34, was  issued.  This
     Interpretation  enhances the  disclosures  to be made by a guarantor in its
     interim  and  annual  financial  statements  about  its  obligations  under
     guarantees issued.  The  Interpretation  also clarifies that a guarantor is
     required to  recognize,  at inception of a guarantee,  a liability  for the
     fair  value of the  obligation  undertaken.  The  initial  recognition  and
     measurement  provisions of the Interpretation were applicable to guarantees
     issued or modified after December 31, 2002 and the disclosure  requirements
     were effective for financial statements of interim or annual periods ending
     after  December  15, 2002.  During 2003 and as at December  31,  2003,  the
     Company did not issue any  guarantees  or indirect  guarantees  which would
     require recognition or disclosure in the consolidated  financial statements
     pursuant to FIN 45.

     In December 2002, the FASB issued SFAS No. 148,  Accounting for Stock-Based
     Compensation  - Transition and  Disclosure,  an amendment of FASB Statement
     No. 123.  This  Statement  amends FASB  Statement No. 123,  Accounting  for
     Stock-Based Compensation,  to provide alternative methods of transition for
     a voluntary  change to the fair value method of accounting for  stock-based
     employee  compensation.  In addition,  this Statement amends the disclosure
     requirements of Statement No. 123 to require prominent  disclosures in both
     annual  and  interim  financial  statements.   Certain  of  the  disclosure
     modifications  are required for fiscal years ending after December 15, 2002
     and are included in the notes to these consolidated financial statements.


                                      F-12

<PAGE>


                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2003, 2002 and 2001)
                            (US dollars in thousands)

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     On December 17, 2003, the Staff of the  Securities and Exchange  Commission
     issued Staff  Accounting  Bulletin  ("SAB") No. 104,  Revenue  Recognition,
     which supersedes SAB No. 101, Revenue Recognition in Financial  Statements.
     SAB No.  104's  primary  purpose  is to  rescind  the  accounting  guidance
     contained in SAB No. 101 related to multiple-element  revenue  arrangements
     that was  superseded as a result of the issuance of EITF 00-21,  Accounting
     for Revenue Arrangements with Multiple Deliverables.  Additionally, SAB No.
     104 rescinds the SEC's related Revenue Recognition in Financial  Statements
     Frequently  Asked  Questions  and Answers  issued with SAB No. 101 that had
     been codified in SEC Topic 13,  Revenue  Recognition.  While the wording of
     SAB No. 104 has changed to reflect the issuance of EITF 00-21,  the revenue
     recognition  principles  of SAB No. 101  remain  largely  unchanged  by the
     issuance of SAB No. 104, which was effective  upon issuance.  The Company's
     adoption  of SAB No.  104 did not have a material  effect on its  financial
     position or results of operations.

     In December 2003, FASB Statement No. 132 (revised),  Employers' Disclosures
     about Pensions and Other Postretirement Benefits, was issued. Statement 132
     (revised) prescribes  employers'  disclosures about pension plans and other
     postretirement  benefit  plans;  it does  not  change  the  measurement  or
     recognition  of  those  plans.  The  Statement   retains  and  revises  the
     disclosure  requirements  contained in the original  Statement 132. It also
     requires additional disclosures about the assets, obligations,  cash flows,
     and net periodic  benefit cost of defined  benefit  pension plans and other
     postretirement  benefit  plans.  The  Statement  generally is effective for
     fiscal years ending after  December 15, 2003. The adoption of Statement 132
     had no effect on the Company's financial statements.

     Recently Issued Accounting Pronouncements
     In  December  2003,  the FASB issued  FASB  Interpretation  No. 46 (revised
     December  2003),   Consolidation  of  Variable  Interest  Entities,   which
     addresses  how a  business  enterprise  should  evaluate  whether  it has a
     controlling financial interest in an entity through means other than voting
     rights and accordingly should consolidate the entity. FIN 46R replaces FASB
     Interpretation No. 46,  Consolidation of Variable Interest Entities,  which
     was issued in January  2003.  The Company will be required to apply FIN 46R
     to variable interests in VIEs created after December 31, 2003. For variable
     interests in VIEs created before January 1, 2004, the  Interpretation  will
     be  applied  beginning  on  January  1,  2005.  For any VIEs  that  must be
     consolidated  under FIN 46R that were created  before  January 1, 2004, the
     assets, liabilities and noncontrolling interests of the VIE initially would
     be measured at their carrying  amounts with any difference  between the net
     amount added to the balance sheet and any  previously  recognized  interest
     being  recognized  as the  cumulative  effect of an accounting  change.  If
     determining the carrying amounts is not practicable, fair value at the date
     FIN 46R first  applies may be used to measure the assets,  liabilities  and
     noncontrolling interest of the VIE.

     The Company has evaluated the impact of applying FIN 46R and believes that,
     other  than  those   entities   already   consolidated   in  the  Company's
     consolidated financial statements,  no additional entities would need to be
     consolidated by the Company.


                                      F-13
<PAGE>


                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2003, 2002 and 2001)
                            (US dollars in thousands)

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     In April 2003, the FASB issued SFAS No. 149,  Amendment of Statement 133 on
     Derivative  Instruments  and  Hedging  Activities.  SFAS No. 149 amends and
     clarifies the  accounting  for derivative  instruments,  including  certain
     derivative  instruments  embedded  in  other  contracts,  and  for  hedging
     activities  under SFAS No. 133,  Accounting for Derivative  Instruments and
     Hedging  Activities.  SFAS No. 149 is  generally  effective  for  contracts
     entered into or modified after June 30, 2003 and for hedging  relationships
     designated after June 30, 2003. The adoption of SFAS No. 149 did not have a
     material  affect  on the  Company's  results  of  operations  or  financial
     position.

     In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
     Instruments with  Characteristics of both Liabilities and Equity.  SFAS No.
     150  requires  that certain  financial  instruments,  which under  previous
     guidance  were  accounted  for as  equity,  must  now be  accounted  for as
     liabilities.   The  financial   instruments  affected  include  mandatorily
     redeemable stock, certain financial instruments that require or may require
     the  issuer to buy back some of its  shares in  exchange  for cash or other
     assets and certain  obligations  that can be settled  with shares of stock.
     For the Company,  the Statement was effective for instruments  entered into
     or  modified  after May 31,  2003 and  otherwise  will be  effective  as of
     January 1, 2004, except for mandatorily  redeemable financial  instruments.
     For certain mandatorily  redeemable  financial  instruments,  the Statement
     will be effective for the Company on January 1, 2005.  The  effective  date
     has been  deferred  indefinitely  for certain  other  types of  mandatorily
     redeemable financial  instruments.  The Company currently does not have any
     financial instruments that are within the scope of this Statement.

     Reclassifications
     Certain  reclassifications  have been made to prior year amounts to conform
     to the current year's presentation.

3.   INVESTMENT SECURITIES

     At December 31,  2003,  investment  securities  represent  municipal  fixed
     income and money market funds with readily  determinable fair market values
     and  original  maturities  in  excess  of three  months.  Investments  with
     maturities  beyond one year have been  classified  as  short-term  based on
     their highly liquid nature and because such marketable securities represent
     the investment of cash that is available for current operations.

     Management  classifies  investments in marketable securities at the time of
     purchase and reevaluates such classification at each balance sheet date. At
     December 31, 2003,  investments in certificates of deposits of $9.9 million
     were  classified as  "available-for-sale"  and  accordingly are reported at
     fair  value with  unrealized  losses of  approximately  $46  reported  as a
     component of shareholder's equity and comprehensive loss. The fair value of
     these investments is based on market information available to management as
     of balance  sheet date  presented.  Unrealized  losses are charged  against
     income when a decline in the fair market value of an individual security is
     determined  to be other  than  temporary.  Realized  gains  and  losses  on
     investments are included in interest income.

     The amortized  cost,  gross  unrealized  holding  gains,  gross  unrealized
     holding losses, and fair value of available-for-sale securities at December
     31, 2003 and 2002 were as follows:


                                      F-14
<PAGE>


                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2003, 2002 and 2001)
                            (US dollars in thousands)

3.   INVESTMENT SECURITIES (Continued)

<TABLE>
<CAPTION>
                                                      Gross           Gross
                                    Amortized       unrealized      unrealized
                                       cost        holding gains  holding losses    Fair value
                                   -------------   -------------  ---------------   -----------

<S>                                   <C>              <C>          <C>               <C>
At December 31, 2003
  Available for sale:
    Certificates of deposits          $10,000          $--          $   (46)          $ 9,954

At December 31, 2002
  Available for sale:                 $  --            $--          $  --             $  --
</TABLE>

     The unrealized  losses on the  investments in certificates of deposits were
     caused by interest rate changes.  The fair value amount above  reflects the
     market price provided by the issuer of the security, assuming an early sale
     were to occur. The contractual  terms of these securities do not permit the
     issuer to settle the  securities at a price less than amortized cost of the
     investment.  Because  the  company has the ability and intent to hold these
     investments until a market price recovery or maturing, these securities are
     not considered other-than-temporarily impaired.

     There was no sale of investment  securities  in 2003 and 2002.  The Company
     also maintains a $18,055 portfolio of investment  securities  classified as
     trading.  These investments  represent primarily municipal fixed income and
     money  market  funds  subject  to  price  volatility  associated  with  any
     interest-bearing  instrument.  There were no net realized  gains on trading
     securities  during  the  years  ended  December  31,  2003  and  2002.  Net
     unrealized holding gains on these investments held at year end and included
     in other income for 2003 and 2002 were $55 and $0, respectively.

4.   INVENTORIES

     Inventories  by major  categories,  net of  provisions  are  summarized  as
follows:

                                       2003               2002
                                  ---------------    ---------------

Raw materials                            $ 1,554            $ 3,004
Work in progress                           2,758              3,462
Finished goods                            11,191             13,308
Consigned finished goods                       -                611
                                  ---------------    ---------------
                                        $ 15,503           $ 20,385
                                  ===============    ===============


                                      F-15
<PAGE>


                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2003, 2002 and 2001)
                            (US dollars in thousands)

5.   PROPERTY, PLANT AND EQUIPMENT

     Property, plant and equipment consists of the following:

                                                      2003          2002
                                                    --------      --------

Land and buildings                                  $ 10,953      $ 12,230
Plant and machinery                                    7,754         7,520
Furniture and equipment                                7,514         7,303
Leasehold improvements                                 2,943         2,879
                                                    --------      --------
     Total                                          $ 29,164      $ 29,932
Less: Accumulated depreciation and amortization      (17,256)      (15,898)
                                                    --------      --------
     Total, net                                     $ 11,908      $ 14,034
                                                    ========      ========

     In November 2002, the AICPA  international  practices task force (the "Task
     Force")  discussed an issue  relating to accounting  for land use rights in
     the  People's  Republic of China  ("PRC").  The Task Force view is that PRC
     land use rights generally would be considered operating leases, as they are
     long-term leases of lands,  which do not transfer title.  Effective January
     1, 2003, the Company followed this guidance and reclassified  $875 and $896
     to other asset from  property,  plant and equipment as of December 31, 2003
     and 2002, respectively.

6.   GOODWILL AND INTANGIBLE ASSETS

     At December 31, 2003 and 2002,  the Company's  cost in excess of fair value
     of assets purchased (goodwill) related primarily to the 1999 acquisition of
     Leda Media Products Limited, now called Radica UK Limited ("Radica UK"). On
     June 24, 1999, the Company purchased Radica UK for  approximately  $15,970.
     During the quarter ended June 30, 2000, upon claiming  certain  breaches of
     warranty  at Radica UK, the Company  and the  ex-shareholders  of Radica UK
     mutually  agreed to cancel  certain loan notes such that the purchase price
     was reduced by $1,399.  The  Company  recorded  goodwill  of  approximately
     $12,100   resulting   from  the  adjusted   purchase   price.   Accumulated
     amortization related to goodwill of $2,518 arising prior to the adoption of
     SFAS No. 142 has been reflected in the gross carrying amount of goodwill as
     of December 31, 2001.

     Effective  January 1, 2002, the Company adopted SFAS No. 142,  Goodwill and
     Other Intangible  Assets.  Goodwill is required to be tested for impairment
     on an annual basis at the reporting  unit level.  Furthermore,  goodwill is
     required  to be  tested  on an  interim  basis  if an event  or  change  in
     circumstances  indicates  that the asset might be  impaired.  The  goodwill
     arising  from the  purchase of Radica UK was  allocated  to the Video Games
     Accessories  ("VGA") reporting unit and the Company has undertaken goodwill
     impairment testing as described in note 2 to determine whether the goodwill
     was  impaired  and the extent of such  impairment.  After  performing  this
     evaluation  there was no impairment of goodwill as at December 31, 2003 and
     2002 as the fair  value of the  reporting  unit (as  determined  using  the
     expected  present value of future cash flows)  exceeded the carrying amount
     of the reporting unit (including goodwill).


                                      F-16
<PAGE>


                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2003, 2002 and 2001)
                            (US dollars in thousands)

6.   GOODWILL AND INTANGIBLE ASSETS (Continued

     In 2000,  the Company  entered into a licensing  agreement with SSD Company
     Limited ("SSD") for the rights to use their patented XaviX  technology.  As
     part  of  its  agreement   with  SSD,  the  Company   became  an  exclusive
     sublicensing  agent for the XaviX  technology in the North American  market
     for use in  entertainment  applications.  The fair  value of the  exclusive
     sublicensing right of $1,260, which is the Company's contractual obligation
     to SSD as defined in the  Sublicensing  Agreement  between the two parties,
     was  recorded as an  intangible  asset and has been fully  amortized  as at
     December 31, 2002.

     Amortization of goodwill and other  intangible  assets totaled $0, $420 and
     $1,382 for the years ended December 31, 2003, 2002 and 2001,  respectively.
     Net  income  (loss) and net income  (loss)  per share  adjusted  to exclude
     amortization  of goodwill as if the provision of SFAS 142 were in effect in
     prior periods are as follows (in thousands, except per share data):

                                        2003           2002          2001
                                     ----------     ----------     ---------

Reported net income (loss)           $   12,491     $   11,934     $  (4,374)
Add back: Goodwill amortization            --             --             796
                                     ----------     ----------     ---------
Adjusted net income (loss)           $   12,491     $   11,934     $  (3,578)
                                     ==========     ==========     =========

Basic income (loss) per share:
Reported net income (loss)           $     0.69     $     0.67     $   (0.25)
Goodwill amortization                      --             --            0.05
                                     ----------     ----------     ---------
Adjusted net income (loss)           $     0.69     $     0.67     $   (0.20)
                                     ==========     ==========     =========

Diluted income (loss) per share:
Reported net income (loss)           $     0.66     $     0.65     $   (0.25)
Goodwill amortization                      --             --            0.05
                                     ----------     ----------     ---------
Adjusted net income (loss)           $     0.66     $     0.65     $   (0.20)
                                     ==========     ==========     =========


                                      F-17
<PAGE>


                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2003, 2002 and 2001)
                            (US dollars in thousands)

7.   OTHER ACCRUED LIABILITIES

     Other accrued liabilities consist of the following:

                                      2003       2002
                                     ------     ------

Accrued advertising expenses         $1,091     $1,243
Accrued license and royalty fees      1,062      1,479
Commissions payable                     166        191
Other accrued liabilities             1,657      2,927
                                     ------     ------
     Total                           $3,976     $5,840
                                     ======     ======

8.   INCOME TAXES

     The components of income (loss) before income taxes are as follows:

                    2003          2002          2001
                  --------      --------      --------

United States     $  9,964      $ 10,807      $ (5,523)
International         (339)        3,796         1,702
                  --------      --------      --------
                  $  9,625      $ 14,603      $ (3,821)
                  ========      ========      ========

     As the Company's  subsidiary in the People's Republic of China ("PRC") is a
     sino-foreign joint venture enterprise, it is eligible for an exemption from
     income  tax for two  years  starting  from  the  first  profitable  year of
     operations  and  thereafter  a 50 percent  relief  from  income tax for the
     following  three years under the Income Tax Law of the PRC. That subsidiary
     had its first  profitable year of operations in the year ended December 31,
     1997 and the  statutory,  net of rebate,  tax rate was 27%, 12% and 12% for
     the years ended December 31, 2003, 2002 and 2001, respectively.

     The provisions (credits) for income taxes consist of the following:

<TABLE>
<CAPTION>
                                                    2003          2002       2001
                                                   -------      -------     -------
<S>                                                <C>          <C>         <C>
Current:
    US federal and state                           $    39      $    51     $   644
    International                                       42          950         827
                                                   -------      -------     -------
  Total current income tax provision               $    81      $ 1,001     $ 1,471
                                                   -------      -------     -------

Deferred:
    US federal                                     $(2,857)     $  --       $  --
    International                                      (90)       1,668        (918)
                                                   -------      -------     -------
  Total deferred income tax (credit) provision     $(2,947)     $ 1,668     $  (918)
                                                   -------      -------     -------

Total income taxes (credit) provision              $(2,866)     $ 2,669     $   553
                                                   =======      =======     =======
</TABLE>


                                      F-18
<PAGE>


                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2003, 2002 and 2001)
                            (US dollars in thousands)

8.   INCOME TAXES (Continued)

     The income taxes for the years ended December 31, 2003,  2002 and 2001 were
     allocated as follows:

<TABLE>
<CAPTION>
                                                       2003         2002        2001
                                                      -------      -------     -------

<S>                                                   <C>          <C>         <C>
Income from continuing operations                     $(2,866)     $ 2,669     $   553
Stockholders' equity - compensation expense for
     tax purposes in excess of amounts recognized
     for financial reporting purposes                      44         --          --
                                                      -------      -------     -------

                                                      $(2,822)     $ 2,669     $   553
                                                      =======      =======     =======
</TABLE>

     A  reconciliation   between  income  tax  expense   (benefit)  and  amounts
     calculated using the US statutory rate is as follows:

<TABLE>
<CAPTION>
                                                      2003          2002         2001
                                                    -------       -------       -------
<S>                                                 <C>           <C>           <C>
The US statutory rate                                  35%           34%          34%
Computed "expected" tax expense (benefit)
  at the US statutory rate                          $ 3,369       $ 4,965       $(1,299)
State tax, net of federal tax benefit                     1             4            13
Foreign tax rate differential                          (807)         (763)         (647)
Change in valuation allowance                        (4,476)       (1,282)        2,163
Effect of change in deferred tax effective rate        (478)         --            --
Other, net                                             (475)         (255)          323
                                                    -------       -------       -------

Income tax (credit) provision                       $(2,866)      $ 2,669       $   553
                                                    =======       =======       =======
</TABLE>

     The US  statutory  rate has been used since the  majority of the  Company's
     taxable income arises in the US. Other, net in the tax reconciliation above
     primarily  includes China tax rebates of $472 in 2003 and $nil for 2002 and
     2001, the tax effect of foreign exchange rate changes and the tax effect of
     non-deductible expenses.


                                      F-19
<PAGE>

8.   INCOME TAXES (Continued)

     The tax effects of the Company's  temporary  differences  that give rise to
     significant  portions of the  deferred  tax assets and  liabilities  are as
     follows:

                                            2003               2002
                                       ---------------    ---------------
Deferred tax assets:
Property, plant and equipment                   $ 386              $ 239
Net operating loss carryforwards                4,169              5,456
Advertising allowances                            399                413
Accounts receivable                                75                 56
Inventories                                       232                405
Sales allowance and returns                       968                974
Other                                             366                616
                                       ---------------    ---------------
  Total gross deferred tax assets               6,595              8,159
Valuation allowance                            (3,683)            (8,159)
                                       ---------------    ---------------
  Net deferred tax assets                     $ 2,912                $ -
                                       ===============    ===============

Deferred tax liabilities:
Property, plant and equipment                     $ -              $ (79)
                                       ===============    ===============

     The following  table  represents  the  classification  of the Company's net
     deferred  tax  (liabilities)  assets:

                                                   2003       2002
                                                  ------     ------

Current deferred tax assets                       $1,706     $ --
Long-term deferred tax (liabilities) assets        1,206        (79)
                                                  ------     ------
  Total net deferred tax (liabilities) assets     $2,912     $  (79)
                                                  ======     ======


                                      F-20
<PAGE>


                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2003, 2002 and 2001)
                            (US dollars in thousands)

8.   INCOME TAXES (Continued)

     As of December 31, 2003,  the  Company's US  subsidiary  had  approximately
     $1,900 of tax net operating loss  carryforwards  which will begin to expire
     after 2020.  In  addition,  as of  December  31,  2003,  the  Company's  UK
     subsidiary had approximately  $11,400 tax net operating loss  carryforwards
     which will carryforward indefinitely.

     Under the  provisions of SFAS No. 109,  Accounting  for Income  Taxes,  the
     realization of the future tax benefits of a deferred tax asset is dependent
     on future  taxable  income  against which such tax benefits can be applied.
     All available  evidence must be considered in the  determination of whether
     sufficient future taxable income will exist. Such evidence includes, but is
     not limited to, the company's financial performance, the market environment
     in which the company operates, the utilization of past tax credits, and the
     length of relevant  carryback and carryover  periods.  Sufficient  negative
     evidence,  such as cumulative  net losses  during a three-year  period that
     includes  the  current  year and the prior two years,  may  require  that a
     valuation  allowance  be  established  with  respect to existing and future
     deferred tax assets.  Differences in actual results from available evidence
     used in  determining  the  valuation  allowances  could  result  in  future
     adjustments to the allowance.

     Based on management's  assessment of the need for a valuation  allowance as
     at the balance  sheet dates,  the Company views the  recoverability  of the
     deferred tax assets, net of existing valuation  allowances,  as more likely
     than not  realizable.  Movement  in the  valuation  allowance  during  2003
     reflected the net effect of the change in deferred tax assets in respect of
     tax losses carried forward,  which increased in the UK and decreased in the
     US, as well as the reversal of the remaining valuation allowance in the US.

     The Company's operations involve a significant amount of transactions which
     cross a  number  of  international  borders.  In  addition,  the  Company's
     manufacturing operations are in China, where the negotiation and settlement
     of tax obligations with the local tax authorities are a normal occurrence.

     The Company  establishes  provisions for its known and estimated income tax
     obligations.  However,  whether  through a challenge by one of the many tax
     authorities  in  international  jurisdictions  where  the  Company  and its
     subsidiaries operate of the Company's transfer pricing, the Company's claim
     regarding lack of permanent establishment, or other matters that may exist,
     the Company is exposed to possible  additional  taxation  that has not been
     accrued.


                                      F-21
<PAGE>


                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2003, 2002 and 2001)
                            (US dollars in thousands)

9.   RESTRUCTURING CHARGE

     In the second quarter of 2003, the Company recorded a restructuring  charge
     of $87 for  personnel  costs  relating to the closure of the UK R&D office,
     Radica Innovations (UK) Limited. The restructuring  resulted in a workforce
     reduction of  approximately  5 positions.  The  reductions in workforce are
     permanent  and affected the  Company's  VGA segment.  During the year,  the
     Company has completed  the process of closing the UK R&D office.  There was
     no restructuring reserve as at December 31, 2003.

     During  December  2001,  the Board of  Directors  approved  a company  wide
     restructuring  plan which included the  consolidation of operations in Hong
     Kong and the China factory,  the closure of the Company's San Francisco R&D
     office, the consolidation of the Company's product  development  operations
     as well as other head count reductions in the US, UK and Hong Kong offices.
     The Company recorded an accrual of $1,551 of pre-tax  restructuring charges
     in fiscal 2001.  The  consolidation  of  operations  in Hong Kong and China
     consisted  of  the  localization  in  the  China  factory  of a  number  of
     departments,   which   previously   operated   out  of  Hong  Kong.   These
     restructuring  actions  occurred in the  Company's  first and second fiscal
     quarters,  and were  taken to  align  the  Company's  cost  structure  with
     prevailing market conditions. The localization and consolidation of product
     development and manufacturing  operations resulted in a workforce reduction
     of approximately 170 employees worldwide.

     The accrued restructuring charges were substantially disbursed during 2002.
     The total  restructuring  charges consisted of $1,514 of cash outlays,  the
     majority of which  occurred in fiscal  2002,  and $40 of non-cash  charges,
     primarily   for   leasehold   improvements   write-offs.    The   remaining
     restructuring  reserve as at December 31, 2002 consisted of $34,  primarily
     related to certain termination benefits which were paid in 2003.

     The components of restructuring charges are as follows:

<TABLE>
<CAPTION>
                                        Balance                                       Balance
                                     at beginning     Charges /        Amount          at end
                                        of year       (Release)       incurred         of year
                                     ------------     ---------      ----------      ----------
<S>                                     <C>            <C>             <C>             <C>
2003
Severance and other compensation        $    34        $    87         $  (121)        $  --
                                        =======        =======         =======         =======

2002
Severance and other compensation        $ 1,389        $   (78)        $(1,277)        $    34
Lease termination costs and                 199             78            (277)           --
related asset writedowns
                                        -------        -------         -------         -------
                                        $ 1,588        $  --           $(1,554)        $    34
                                        =======        =======         =======         =======

2001
Severance and other compensation        $   246        $ 1,352         $  (209)        $ 1,389
Lease termination costs and
related asset writedowns                   --              199            --               199
                                        -------        -------         -------         -------
                                        $   246        $ 1,551         $  (209)        $ 1,588
                                        =======        =======         =======         =======
</TABLE>

                                      F-22
<PAGE>


                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2003, 2002 and 2001)
                (US dollars in thousands, except per share data)

10.  EARNINGS PER SHARE

     The  following  table sets forth the  computation  of basic and diluted net
     income  (loss) per share as of December 31:

<TABLE>
<CAPTION>
                                            2003             2002             2001
                                        ------------     ------------     ------------

<S>                                     <C>              <C>              <C>
Numerator for basic and diluted
  earnings (loss) per share:
  Net income (loss)                     $     12,491     $     11,934     $     (4,374)
                                        ============     ============     ============

Denominator:
Basic weighted average shares             18,016,789       17,725,879       17,611,886
Effect of dilutive options and
  warrants                                 1,043,185          609,948             --
                                        ------------     ------------     ------------

Diluted weighted average shares           19,059,974       18,335,827       17,611,886
                                        ============     ============     ============

Basic net income (loss) per share       $        069     $       0.67     $      (0.25)
                                        ============     ============     ============

Diluted net income (loss) per share     $       0.66     $       0.65     $      (0.25)
                                        ============     ============     ============
</TABLE>

     Options and  warrants on 136,500,  441,700 and  2,440,867  shares of common
     stock for the years ended  December 31, 2003,  2002 and 2001,  respectively
     were not  included  in  computing  diluted  earnings  per share since their
     effects were  antidilutive.  Stock options and warrants  were  antidilutive
     because they had an exercise  price  greater than the average  market price
     during the year or due to the net loss in 2001.

11.  STOCK-BASED COMPENSATION

     The  Company's  1994 Stock Option Plan for  employees  and  directors  (the
     "Stock Option Plan") provided for options to be granted for the purchase of
     an aggregate  of  1,600,000  shares of common stock at per share prices not
     less than 100% of the fair market value at the date of grant as  determined
     by the Compensation Committee of the Board of Directors. Following approval
     at the annual shareholders  meetings in April 1997 and 1998, the meeting of
     the Board of Directors in June 1999 and the annual shareholders  meeting in
     May 2000,  the Stock Option  Plan's  aggregated  common stock  increased by
     400,000,  800,000,  60,000 and  840,000,  respectively  bringing  the total
     number  of shares  of the  Company's  common  stock  that may be  purchased
     pursuant  to  options  under  such plan to  3,700,000  shares.  Options  to
     employees are generally  exercisable over three to five years from the date
     of grant and vest, or are exercisable,  in equal  installments,  the period
     beginning  one year  after  the date of grant  unless  otherwise  provided.
     Options  granted to employees under the stock option plan must be exercised
     no later than ten years from the date of grant.  The Company also maintains
     plans under which it offers  stock  options to  directors.  Pursuant to the
     terms of the plans under which  directors are eligible to receive  options,
     each director is entitled to receive  options to purchase common stock upon
     initial  election  to the  Board  and at each  subsequent  quarterly  Board
     meeting. Options are exercisable during the period beginning one year after
     the date of grant.

                                      F-23
<PAGE>


                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2003, 2002 and 2001)
           (US dollars in thousands, except share and per share data)

11.  STOCK-BASED COMPENSATION (continued)

     In 2001, the Company  issued some stock options to management  based on the
     terms of various  employment  contracts.  Based upon 2002 performance,  the
     Company's  Compensation  Committee  voted in March 2003 to  accelerate  the
     vesting of 110,000  options.  The  acceleration  of the stock  options  was
     approved in  accordance  with the original  terms of the contract and these
     options would become vested in five years  regardless of the achievement of
     the performance  goals and therefore the  acceleration  did not result in a
     new  measurement of  compensation  costs in the  consolidated  statement of
     operations.

     A summary of option activity is as follows:-

<TABLE>
<CAPTION>
                                             2003                       2002                       2001
                                   -------------------------  -------------------------  -------------------------

                                                 Weighted                   Weighted                   Weighted
                                                 average                    average                    average
                                                 exercise                   exercise                   exercise
(Shares in thousands)               Shares        price        Shares        price        Shares        price
                                    ------        -----        ------        -----        ------        -----

<S>                                    <C>           <C>          <C>           <C>          <C>           <C>
Outstanding at
  beginning of year                    2,313         $ 4.05       2,191         $ 3.88       2,354         $ 5.81
Options granted                          370           5.10         585           3.75         521           2.64
Options exercised                       (426)          2.67        (145)          2.13         (76)          1.56
Options forfeited                       (310)         11.24        (318)          3.21        (608)         10.60
                                   ----------                 ----------                 ----------
Outstanding at end of year             1,947                      2,313         $ 4.05       2,191         $ 3.88

Options exercisable
  at year end                          1,232         $ 2.88       1,352         $ 4.52       1,151         $ 4.54
</TABLE>

     The following is additional information relating to options outstanding as
     of December 31, 2003:

<TABLE>
<CAPTION>
                                                   Options outstanding                          Options exercisable
                           -----------------------------------------------------------   ------------------------------
                                                                   Weighted average
                                               Weighted average       remaining                        Weighted average
Exercise                        Number          exercise price         contractual          Number       exercise price
price range                    of shares           per share          life (years)         of shares       per share
-----------                    ---------           ---------          ------------        ----------       ---------
(Shares in thousands)

<S>                                   <C>               <C>                      <C>           <C>             <C>
    $ 1.090 to 2.000                    365             $ 1.40                   3.29            359           $ 1.39
    $ 2.001 to 4.000                  1,088               3.21                   6.32            794             3.14
    $ 4.001 to 6.000                    346               4.36                   8.90             38             4.29
    $ 6.001 to 8.000                    124               6.74                   8.69             17             6.76
    $ 8.001 to 10.000                     7               8.57                   4.29              7             8.14
    $ 12.001 to 14.000                   16              12.63                   5.25             16            12.44
    $ 18.001 to 20.000                    1              19.00                   4.00              1            20.00
                           -----------------                                             ------------
                                      1,947             $ 3.41                   6.35          1,232           $ 2.88
                           =================                                             ============
</TABLE>


                                      F-24

<PAGE>


                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2003, 2002 and 2001)
           (US dollars in thousands, except share and per share data)

11.  STOCK-BASED COMPENSATION (continued)

     Pro forma  information  regarding  net  income  and  earnings  per share is
     required by SFAS No.  123,  and has been  determined  as if the Company had
     accounted  for its employee  stock  options  under the fair value method of
     SFAS No. 123. The weighted  average fair value of stock  options at date of
     grant were $1.47,  $1.51 and $1.24 per option for the years ended  December
     31, 2003, 2002 and 2001, respectively.  The values were estimated using the
     Black-Scholes  option  pricing  model with the following  weighted  average
     assumptions:

                                                2003         2002          2001
                                              ---------    ---------     -------

Expected life of options                      3.6 years    3.4 years     4 years
Risk-free interest rate                         2.8%         4.1%         4.5%
Expected volatility of underlying stock         33%          51%          55%
Dividends                                        0%           0%           0%

     The  Black-Scholes  option  pricing  models  require  the  input of  highly
     subjective  assumptions,  including the expected volatility of stock price.
     Because changes in subjective input  assumptions can materially  affect the
     fair value estimate,  in management's  opinion, the existing model does not
     necessarily  represent the estimated  fair value of freely  tradable  fully
     transferable  options  without vesting  restrictions  which differ from the
     Company's stock option awards.

     If the  Company  had  accounted  for its stock  option  plans by  recording
     compensation expenses based on the fair value at grant date for such awards
     consistent with the method of SFAS No. 123, the Company's net income (loss)
     and  earnings  (loss) per share  would have been  adjusted to the pro forma
     amounts as follows:

<TABLE>
<CAPTION>
                                             2003           2002           2001
                                          ----------     ----------     ----------

<S>                                       <C>            <C>            <C>
Reported net income (loss)                $   12,491     $   11,934     $  (4,374)
Pro forma net income (loss)                   11,995         11,188        (5,167)

Reported net income (loss) per share
     Basic                                $     0.69     $     0.67     $   (0.25)
     Diluted                                    0.66           0.65         (0.25)

Pro forma net income (loss) per share
     Basic                                $     0.66     $     0.63     $   (0.29)
     Diluted                                    0.62           0.61         (0.29)
</TABLE>


                                      F-25
<PAGE>

                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2003, 2002 and 2001)
           (US dollars in thousands, except share and per share data)

12.  RETIREMENT PLAN

     In Hong Kong,  the Company has both  mandatory  provident  fund and defined
     contribution  retirement plans covering substantially all employees.  Under
     these  plans,   eligible  employees   contribute  amounts  through  payroll
     deductions  which  are 5% or more of  individual  salary,  supplemented  by
     employer  contributions  ranging  from  5%  to  10%  of  individual  salary
     depending on the years of service. The expenses related to these plans were
     $253,  $142 and $240 for the years ended December 31, 2003,  2002 and 2001,
     respectively.

     Radica's US and UK employees are eligible to  participate  in savings plans
     sponsored  by the  Company and its  subsidiaries,  all of which are defined
     contribution  plans.  The  Company  makes  company  contributions  and both
     individual and company  contributions  are invested into a balanced variety
     of investment funds. The Company contributed approximately $74, $60 and $59
     to these  plans for the  years  ended  December  31,  2003,  2002 and 2001,
     respectively.

13.  FAIR VALUE OF FINANCIAL INSTRUMENTS

     The  amounts  reported  for  cash  and  cash  equivalents,  trade  accounts
     receivable,  certain other current  assets,  trade  accounts  payable,  and
     accrued expenses (nonderivatives) are considered to approximate fair values
     because of the short duration of these instruments.

     Investment securities (both  available-for-sale and trading securities) are
     carried at fair values  which are based on quoted  prices at the  reporting
     date for those or similar investments.

14.  PLEDGE OF ASSETS

     At December 31, 2003, the Company's  general banking  facilities  including
     overdraft and trade  facilities were  collateralized  by leasehold land and
     buildings with an aggregate net book value of $2,302.

15. COMMITMENTS AND CONTINGENCIES

     Leases

     The Company leases certain offices,  warehouses and equipment under various
     operating lease arrangements. The rental expense under the operating leases
     was  approximately  $589,  $509 and $491 for the years ended  December  31,
     2003, 2002 and 2001, respectively. In the normal course of business, leases
     that expire will be renewed or replaced by leases on other  properties.  As
     of  December  31,  2003,  the Company was  obligated  under  non-cancelable
     operating leases requiring future minimum rental payments as follows:

                                      Operating leases
                                     ---------------

2004                                     $      680
2005                                            537
2006                                            480
2007                                            373
2008                                            301
Thereafter                                      943
                                     ---------------
Total minimum lease payments             $    3,314
                                     ===============

                                      F-26
<PAGE>

                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2003, 2002 and 2001)
                            (US dollars in thousands)

15. COMMITMENTS AND CONTINGENCIES (Continued)

     Joint Venture Agreement

     Under the terms of a joint venture  agreement with the local  government in
     Dongguan  the  Company  is  committed  to pay a total of $3,426 in  varying
     amounts over the next 21 years.

     Warranties

     The Company provides product warranties to its customers for a period of 90
     days from the date of  purchase  for  games and one year for VGA  products.
     Details of the movement in the warranty  provision  during the year are set
     out in note 18.

     Licensing Commitments

     In the normal course of business, the Company enters into certain licensing
     agreements and commitments  with various third parties for the use of their
     inventor  concepts and intellectual  property.  Certain of these agreements
     and  commitments  contain  provisions  for  guaranteed  or minimum  royalty
     amounts  during the term of the  contracts.  Under the terms of  agreements
     which  contain  provisions  for future  minimum  payments,  the  Company is
     obligated to pay royalty amounts as follows:

                               Minimum
                               Payments
                            -------------

2004                           $      66
2005                                 371
2006                                  30
2007                                  30
2008                                  10
                            -------------

                               $     507
                            =============

     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 owners of nearly  800 issued  and  pending  patents,
     including the patent on Machine Vision and Automatic  Identification  (Auto
     ID) operations.  The Auto ID operation is used in machines that are part of
     the Company's bonding and heat-sealing manufacturing processes. Lemelson is
     contesting  that  the  use  of  machines  that  incorporate  this  patented
     technology  infringes  on their IP rights  and  therefore  the  Company  is
     obligated to pay a royalty based on the use of this technology. The suit by
     Lemelson  has been stayed  pending the outcome of Lemelson  vs.  Cognex,  a
     similar suit filed by Lemelson,  which will have some bearing on the Radica
     case with Lemelson. On January 23, 2004 a declaratory judgment was given in
     the Cognex case that the  Lemelson's  patent  claims are  invalid.  If this
     judgment  is upheld  following  appeal,  assuming  an  appeal is made,  the
     Company believes that this result is favorable to the Company's  defense of
     the Lemelson lawsuit.


                                      F-27

<PAGE>

                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2003, 2002 and 2001)
                            (US dollars in thousands)

15. COMMITMENTS AND CONTINGENCIES (Continued)

     The Company  cannot  predict the outcome of the Lemelson case or the effect
     of such litigation on the financial results of the Company.  No accrual has
     been recorded at December 31, 2003 in respect of the Lemelson case or other
     claims or legal  actions,  in  accordance  with SFAS No. 5  Accounting  for
     Contingencies. Management does not believe that the ultimate disposition of
     the other  matters  will have a material  adverse  effect on the  Company's
     consolidated financial position, results of operations or liquidity.

16.  CONCENTRATIONS OF CREDIT RISK, MAJOR CUSTOMERS AND MAJOR SUPPLIERS

     Accounts receivable of the Company are subject to a concentration of credit
     risk with  customers in the North  American and the United  Kingdom  retail
     sector and customers in the Company's  manufacturing services. This risk is
     somewhat  limited  due to the  large  number  of  customers  composing  the
     Company's  customer  base  and  their  geographic  dispersion,  though  the
     Company's  Games  business had one customer  which  accounted for more than
     thirty-one  percent of  consolidated  net sales for the year ended December
     31, 2003, one customer which accounted for more than twenty-four percent of
     consolidated  net  sales  for the  year  ended  December  31,  2002 and two
     customers  which  accounted  for more than  twenty-two  percent  and eleven
     percent of consolidated net sales for the year ended December 31, 2001. The
     Company  performs  ongoing credit  evaluations of its customers'  financial
     condition and, generally, requires no collateral from its customers.

     During 2003,  $18,672 of the  Company'  sales came from the Play TV line of
     products.  Each of these  products  contains a XaviX CPU which is purchased
     from SSD under the terms of the Basic License Agreement dated July 1, 1999.
     If this CPU were to become unavailable, the Company would need to source an
     alternative  CPU which would require all software to be re-written  and may
     involve additional cost to achieve a similar level of quality.  In addition
     the  Company  purchases  other CPUs from other  suppliers  around the world
     which are specific to individual  products,  however, no individual product
     accounted for more than nine percent of sales during the year.

17.  SEGMENT INFORMATION

     The Company is a worldwide  designer,  producer and marketer of  electronic
     entertainment  devices.  The Company has two reportable segments from which
     it derives its  revenues:  the Games  business that sells product under the
     Company's  Radica(R)  and Girl  Tech(R)  brand  names,  and the Video  Game
     Accessory   ("VGA")   business  that  sells  product  under  the  Company's
     Gamester(R)  brand name.  The Company  also  sources  certain VGA and other
     electronic products through third party manufacturers for retailers to sell
     under  their own brands;  this is also  included  in the VGA  segment.  The
     reportable segments are strategic businesses that offer different products.

     The accounting  policies of the  reportable  segments are the same as those
     described elsewhere in these Notes to the Company's  consolidated financial
     statements  for the year ended  December  31,  2003.  The Company  measures
     segment  performance  based on net income before  interest and other income
     and income taxes.  Inter-segment  sales and transfers have been  eliminated
     and are not included in the following table. Certain corporate expenses are
     managed  outside of the  operating  segments.  Corporate  expenses  consist
     primarily of costs  related to business  integration  and other general and
     administrative  expenses.  All  corporate  and  indirect  costs  have  been
     apportioned on the basis of corresponding sales and direct costs.

                                      F-28
<PAGE>

                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2003, 2002 and 2001)
                            (US dollars in thousands)

17.  SEGMENT INFORMATION (Continued)

     A large  proportion of the  Company's  assets are utilized by both segments
     and are  therefore  not suitable for  allocating  to specific  assets.  The
     segment  assets are  comprised  of  accounts  receivable,  inventories  and
     intangible assets. Other assets included in corporate  principally are cash
     and cash equivalents, investment securities, deferred tax assets, property,
     plant and  equipment,  and all other  insignificant  assets not  reportable
     under  other  segments.  Information  by segment  and a  reconciliation  to
     reported amounts for the year ended December 31, 2003, 2002 and 2001 are as
     follows:

     A summary of the Company's two reportable segments is set forth below.

<TABLE>
<CAPTION>
                                                      2003               2002               2001
                                                 ---------------    ---------------    ---------------
<S>                                                   <C>               <C>                 <C>
Revenues from external customers
  Games and Youth Electronics                         $ 87,986          $ 104,062           $ 82,929
  VGA                                                   17,214             20,584             15,625
                                                 ---------------    ---------------    ---------------
Total revenues from external customers                $ 105,200          $ 124,646           $ 98,554
                                                 ===============    ===============    ===============

Depreciation and amortization
  Games and Youth Electronics                           $ 1,671            $ 2,446            $ 3,120
  VGA                                                       362                412                893
                                                 ---------------    ---------------    ---------------
Total depreciation and amortization                     $ 2,033            $ 2,858            $ 4,013
                                                 ===============    ===============    ===============

Segment income (loss)
  Games and Youth Electronics                          $ 11,777           $ 16,459              $ 990
  VGA                                                    (2,942)            (3,941)            (4,752)
                                                 ---------------    ---------------    ---------------
Total segment income (loss)                             $ 8,835           $ 12,518           $ (3,762)

Corporate
  Net interest and other income                             790              2,085                (59)
  Credit (Provision) for income taxes                     2,866             (2,669)              (553)
                                                 ---------------    ---------------    ---------------
Total consolidated net income (loss)                   $ 12,491           $ 11,934           $ (4,374)
                                                 ===============    ===============    ===============

Segment assets
  Games and Youth Electronics                          $ 23,061           $ 26,037           $ 22,712
  VGA                                                    17,353             19,038             18,306
  Corporate                                              61,800             50,227             47,389
                                                 ---------------    ---------------    ---------------
Total consolidated assets                             $ 102,214           $ 95,302           $ 88,407
                                                 ===============    ===============    ===============
</TABLE>

     Revenues and costs related to the  manufacturing  services product category
     are allocated  between Games and Youth Electronics and VGA based on product
     type.

                                      F-29
<PAGE>


                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2003, 2002 and 2001)
                            (US dollars in thousands)

17.  SEGMENT INFORMATION (Continued)

     Revenues  from  external  customers by product  category are  summarized as
     follows:

                              2003            2002            2001
                          -------------   ------------    ------------

Electronic Games              $ 62,374       $ 62,684        $ 52,268
Youth Electronics               15,227         16,744          11,720
VGA                             14,294         15,844          10,335
Manufacturing Services          13,305         29,374          24,231
                          -------------   ------------    ------------
Total net revenues           $ 105,200      $ 124,646        $ 98,554
                          =============   ============    ============

     Information about the Company's operations in different geographic areas is
     set forth in the table below.  Net sales are attributed to countries  based
     on the location of customers, while long-lived assets are reported based on
     their location.  Long-lived assets principally include property,  plant and
     equipment and intangible assets:

                                             2003         2002         2001
                                         ------------  -----------  -----------

Net sales:
     United States and Canada               $ 74,711     $ 79,205     $ 59,584
     Asia Pacific and other countries         14,008       25,690       21,300
     Europe                                   16,481       19,751       17,670
                                         ------------  -----------  -----------
                                           $ 105,200    $ 124,646     $ 98,554
                                         ============  ===========  ===========

Long-lived assets:
     United States and Canada                $ 9,937        $ 771      $ 1,662
     Asia Pacific and other countries         12,283       13,977       14,851
     Europe                                      114        9,733        9,768
                                         ------------  -----------  -----------
                                            $ 22,334     $ 24,481     $ 26,281
                                         ============  ===========  ===========


                                      F-30
<PAGE>


                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                 (YEARS ENDED DECEMBER 31, 2003, 2002 and 2001)
                            (US dollars in thousands)

18.  VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                                 Balance at                                                Balance at
                                                 beginning            Charged to      Utilization /          end of
                                                  of year          income statement    write-offs            year
                                                  -------          ----------------    ----------            ----

<S>                                                <C>                <C>                 <C>                 <C>
2003
   Allowance for doubtful accounts                 $   315            $   114             $  (178)            $   251
   Allowance for estimated product returns           1,247              1,079                (936)              1,390
   Accrued warranty expenses                         1,040              2,495              (2,495)              1,040
   Accrued sales allowance                           3,591              2,809              (3,507)              2,893
                                                   -------            -------             -------             -------
                                                   $ 6,193            $ 6,497             $(7,116)            $ 5,574
                                                   =======            =======             =======             =======

2002
   Allowance for doubtful accounts                 $ 2,207            $    60             $(1,952)            $   315
   Allowance for estimated product returns           1,555                390                (698)              1,247
   Accrued warranty expenses                           900              1,771              (1,631)              1,040
   Accrued sales allowance                           3,912              1,864              (2,186)              3,590
                                                   -------            -------             -------             -------
                                                   $ 8,574            $ 4,085             $(6,467)            $ 6,192
                                                   =======            =======             =======             =======

2001
   Allowance for doubtful accounts                 $ 2,073            $ 1,056             $  (922)            $ 2,207
   Allowance for estimated product returns           1,494              1,528              (1,467)              1,555
   Accrued warranty expenses                           950              1,911              (1,961)                900
   Accrued sales allowance                           3,717              2,914              (2,719)              3,912
                                                   -------            -------             -------             -------
                                                   $ 8,234            $ 7,409             $(7,069)            $ 8,574
                                                   =======            =======             =======             =======
</TABLE>

19.  SUBSEQUENT EVENT (UNAUDITED)

     On January 5, 2004,  we  announced a quarterly  dividend  program.  For the
     first  dividend,  our Board of  Directors  declared a dividend  of $.04 per
     share payable on January 30, 2004, to  shareholders of record as of January
     20, 2004. The Board has also approved an initial target quarterly  dividend
     of $.04  for  subsequent  quarters;  however,  the  actual  amount  of each
     quarterly  dividend,  as well as each  declaration  date,  record  date and
     payment  date, is subject to the  discretion  of the Board,  and the target
     dividend  level may be adjusted  during the year at the  discretion  of the
     Board.  The factors the Board is  expected to consider in  determining  the
     actual  amount  of each  quarterly  dividend  will  include  our  financial
     performance  and  on-going  capital  needs,  our ability to declare and pay
     dividends  in light of other  financial  requirements,  and  other  factors
     deemed relevant.

--------------------------------------------------------------------------------

                                      F-31
<PAGE>



SIGNATURES


         Pursuant to the  requirements of Section 12 of the Securities  Exchange
Act of 1934, the registrant  certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused  this annual  report to be signed on its
behalf by the undersigned, thereunto duly authorized.



                                             RADICA GAMES LIMITED




Date:    March 25, 2004                          /S/ Craig D. Storey
         -----------------                   -----------------------------------
                                                 Craig D. Storey
                                                 Chief Accounting Officer











                                      I-1

<PAGE>


EXHIBIT INDEX

                     1.1       Memorandum  of   Association   (incorporated   by
                               reference  to  exhibit  3.1 to the  filing of the
                               registrant identified in footnote 1 below).

                     1.2       Bye-Laws  (incorporated  by  reference to exhibit
                               3.2 to the filing of the registrant identified in
                               footnote 1 below).

                     1.3       Certificate  of  Incorporation  on Change of Name
                               (incorporated  by reference to exhibit 3.3 to the
                               filing of the registrant identified in footnote 1
                               below)

                     2.1       Specimen  Certificate  for the  Shares  of Common
                               Stock  (incorporated  by reference to exhibit 4.1
                               to the  filing of the  registrant  identified  in
                               footnote 1 below).

                     4.1       Cooperative Joint Venture Contract of D.G. Radica
                               Games  Manufacturing  Co.,  Ltd.,  dated June 24,
                               1994  (incorporated by reference to exhibit 10.16
                               to the  filing of the  registrant  identified  in
                               footnote 2 below).

                     4.2       Shareholders  Agreement,  dated January 12, 1994,
                               among the  Company and the  shareholders  parties
                               thereto  (incorporated  by  reference  to exhibit
                               10.4 to the filing of the  registrant  identified
                               in footnote 1 below)

                     4.3       Amendment to Shareholders Agreement,  dated as of
                               February  16,  1994,  among the  Company  and the
                               shareholders   party  thereto   (incorporated  by
                               reference  to  exhibit  10.5 to the filing of the
                               registrant identified in footnote 1 below).

                     4.4       Amendment to Shareholders Agreement,  dated as of
                               September  5,  1997,  among the  Company  and the
                               shareholders   party  thereto   (incorporated  by
                               reference to exhibit 10.5(a) to the filing of the
                               registrant identified in footnote 5 below).

                     4.5       Employment  Agreement,  dated as of December  15,
                               2001,   between   Radica  USA  and  Jeanne  Olson
                               (incorporated by reference to exhibit 10.6 to the
                               filing of the registrant identified in footnote 7
                               below).

                  *  4.6       Amendment No. 1 to Employment Agreement, dated as
                               of March 31, 2003,  between Radica USA and Jeanne
                               Olson.

                  *  4.7       Change in Control  Bonus  Agreement,  dated as of
                               March 31,  2003,  between  Radica  USA and Jeanne
                               Olson.

                  *  4.8       Agreement  (in  connection  with  Executive's
                               sale of  shares),  dated  as of March  31,  2003,
                               between Radica USA and Jeanne Olson.

                                      I-2
<PAGE>

                     4.9       Employment  Agreement,  dated as of November  28,
                               1993,  among  Radica  HK,  Radica  USA and Jon N.
                               Bengtson  (incorporated  by  reference to exhibit
                               10.8 to the filing of the  registrant  identified
                               in footnote 1 below).

                     4.10      Form of Amendment to Employment  Agreement  among
                               Radica Games  Limited,  Radica HK, Radica USA and
                               Jon N.  Bengtson  (incorporated  by  reference to
                               exhibit  10.8(a) to the filing of the  registrant
                               identified in footnote 1 below).

                     4.11      December  1995   Amendment  to  such   Employment
                               Agreement  (incorporated  by reference to exhibit
                               10.8(b)   to  the   filing   of  the   registrant
                               identified in footnote 3 below).

                     4.12      December  1997   Amendment  to  such   Employment
                               Agreement  (incorporated  by reference to exhibit
                               10.8(c)   to  the   filing   of  the   registrant
                               identified in footnote 4 below).

                     4.13      1994 Stock  Option  Plan,  most recent  amendment
                               restated   in  May  2000  to   increase   options
                               (incorporated by reference to exhibit 10.9 to the
                               filing of the registrant identified in footnote 6
                               below).

                  *  4.14      2004 Omnibus Equity Incentive Plan.

                     4.15      Amendment and Restatement to Employment Agreement
                               among  Radica  USA,   Radica  Games  Limited  and
                               Patrick   Feely   dated    September   27,   2000
                               (incorporated  by reference  to exhibit  10.11 to
                               the  filing  of  the  registrant   identified  in
                               footnote 6 below).

                  *  4.16      Amendment No. 1 to Employment Agreement, dated as
                               of March 31, 2003, among Radica USA, Radica Games
                               Limited and Patrick Feely.

                  *  4.17      Change in Control Bonus Agreement,  dated as
                               of March 31, 2003, among Radica USA, Radica Games
                               Limited and Patrick Feely.

                  *  4.18      Agreement (in connection  with  Executive's
                               sale of  shares),  dated  as of March  31,  2003,
                               among  Radica  USA,   Radica  Games  Limited  and
                               Patrick Feely.

                     4.19      Amendment and Restatement to Employment Agreement
                               between  Radica  Games  Limited  and  David  C.W.
                               Howell dated September 29, 2000  (incorporated by
                               reference  to exhibit  10.13 to the filing of the
                               registrant identified in footnote 6 below).

                  *  4.20      Amendment No. 1 to Employment Agreement, dated as
                               of March 31, 2003,  between  Radica Games Limited
                               and David C.W. Howell.

                  *  4.21      Change in Control  Bonus  Agreement,  dated as of
                               March 31, 2003,  between Radica Games Limited and
                               David C.W. Howell.

                  *  4.22      Employment Agreement,  dated as of April 7, 2003,
                               between  Radica UK Limited,  Radica Games Limited
                               and Denis Horton.

                                      I-3
<PAGE>


                  *  6.1       Statement re Computation of Per Share Earnings.

                  *  8.1       List of subsidiaries

                  * 12.1       Section 302 Certification of Patrick S. Feely

                  * 12.2       Section 302 Certification of David C.W. Howell

                  * 13.1       Section  906/1350  Certification  of  Patrick  S.
                               Feely

                  * 13.2       Section  906/1350  Certification  of  David  C.W.
                               Howell

                  * 14.1       Statement re Selected Quarterly Financial Data

                  * 14.2       Consent of KPMG

----------

1    Incorporated by reference to  Registration  Statement on Form F-1, File No.
     33-75794, filed by the Registrant.

2    Incorporated by reference to Form 20-F for the year ended October 31, 1994.

3    Incorporated by reference to Form 20-F for the year ended October 31, 1996.

4    Incorporated by reference to Form 20-F for the year ended October 31, 1997.

5    Incorporated by reference to Form 20-F for the year ended October 31, 1998.

6    Incorporated  by  reference  to Form 20-F for the year ended  December  31,
     2000.

7    Incorporated  by  reference  to Form 20-F for the year ended  December  31,
     2001.

The file number for each of the above reports on Form 20-F is 0-23696.

The exhibits marked with an asterisk are included as part of this filing.



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