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, 2005.
                                       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                          19,080,004

Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.

         Yes                        No     X
             ---------                 --------

If this report is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.

         Yes                        No     X
             ---------                 ---------

Note - Checking the box above will not relieve any registrant required to file
reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
from their obligations under those Sections.

<PAGE>

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 whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of accelerated
filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check
one):
<TABLE>
<CAPTION>
<S>                             <C>                       <C>
Large Accelerated filer         Accelerated filer         Non-accelerated filer    X
                        -----                     -----                          -----
</TABLE>

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

         Item 17                      Item 18    X
                 ------                        ------

If this is an annual report, indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act).

         Yes                        No     X
             ---------                 ---------







                                       2
<PAGE>

                              RADICA GAMES LIMITED

                       INDEX TO ANNUAL REPORT ON FORM 20-F
                          YEAR ENDED DECEMBER 31, 2005

                               ITEMS IN FORM 20-F
                                                                           Page
                                                                           ----
PART I                                                                        5
------

   ITEM 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS             5

   ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE                           5

   ITEM 3.  KEY INFORMATION                                                   5

   ITEM 4.  INFORMATION ON THE COMPANY                                       15

   ITEM 4A.  UNRESOLVED STAFF COMMENTS                                       25

   ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS                     25

   ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                       36

   ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                43

   ITEM 8.  FINANCIAL INFORMATION                                            44

   ITEM 9.  THE OFFER AND LISTING                                            44

   ITEM 10.  ADDITIONAL INFORMATION                                          45

   ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK       49

   ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES          50

PART II                                                                      50
-------

   ITEM 13.  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                 50

   ITEM 14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY
             HOLDERS AND USE OF PROCEEDS                                     50

   ITEM 15.  CONTROLS AND PROCEDURES                                         50

   ITEM 16A.  AUDIT COMMITTEE FINANCIAL EXPERT                               50

   ITEM 16B.  CODE OF ETHICS                                                 51

   ITEM 16C.  PRINCIPAL ACCOUNTANT FEES AND SERVICES                         51

   ITEM 16D.  EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES     51

   ITEM 16E.  PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND
              AFFILIATED PURCHASERS                                           51

PART III                                                                      51
--------

   ITEM 17.  FINANCIAL STATEMENTS                                             51

   ITEM 18.  FINANCIAL STATEMENTS                                             51

   ITEM 19.  EXHIBITS                                                         52


                                       3
<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, 2005.  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.







                                       4
<PAGE>

                                     PART I

         Except as expressly indicated or unless the context otherwise requires,
as used herein, "Radica", the "Company",  "we", or "us", means Radica Games Ltd.
and its subsidiaries.

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
as of and for each of the years in the five-year period ended December 31, 2005.
This data is derived from the consolidated  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.







                                       5
<PAGE>
<TABLE>
<CAPTION>
                                                                            YEAR ENDED DECEMBER 31,
(in thousands, except per share data and margins)         2005          2004          2003          2002          2001
                                                          ----          ----          ----          ----          ----
<S>                                                     <C>           <C>           <C>           <C>            <C>
INCOME STATEMENT DATA:
Net sales                                               $162,779      $123,399      $105,200      $124,646       $98,554
Cost of goods sold (exclusive of items
  shown separately below)                                101,927        81,576        65,350        78,138        65,332
                                                        --------      --------      --------      --------       -------
Gross profit                                              60,852        41,823        39,850        46,508        33,222
                                                        --------      --------      --------      --------       -------
Operating expenses:
  Selling, general and administrative                     37,979        30,071        25,000        27,038        25,645
  Research and development                                 4,908         4,164         3,895         4,094         5,775
  Depreciation and amortization of goodwill and
    intangible assets                                      1,984         1,693         2,033         2,858         4,013
  Impairment of goodwill                                   6,015         3,536             -             -             -
  Restructuring charge                                         -             -            87             -         1,551
                                                        --------      --------      --------      --------       -------
Total operating expenses                                  50,886        39,464        31,015        33,990        36,984
                                                        --------      --------      --------      --------       -------
Operating income (loss)                                    9,966         2,359         8,835        12,518        (3,762)
Other income                                                 216           754           317           306            24
Foreign currency gain (loss), net                            135           417           178         1,744          (219)
Net interest income                                          859           765           295            35           136
                                                        --------      --------      --------      --------       -------
Income (loss) before income taxes                         11,176         4,295         9,625        14,603        (3,821)
(Provision) credit for income taxes                         (644)         (839)        2,866        (2,669)         (553)
                                                        --------      --------      --------      --------       -------
Net income (loss)                                        $10,532        $3,456       $12,491       $11,934       $(4,374)
                                                        ========      ========      ========      ========       =======
Net earnings (loss) per share - basic                      $0.55         $0.19         $0.69         $0.67        $(0.25)
                                                        ========      ========      ========      ========       =======
Weighted average number of common shares                  18,993        18,653        18,017        17,726        17,612

Net earnings (loss) per share - diluted                    $0.54         $0.18         $0.66         $0.65        $(0.25)
                                                        ========      ========      ========      ========       =======
Weighted average number of common shares
  and common equivalent shares                            19,663        19,526        19,060        18,336        17,612

Cash dividends declared and paid per share                $ 0.18        $ 0.16        $    -        $    -        $    -

STATISTICAL DATA:
Gross margin                                                37.4%         33.9%         37.9%         37.3%         33.7%
Operating margin                                             6.1%          1.9%          8.4%         10.0%         (3.8%)

BALANCE SHEET DATA (AT PERIOD END):
Working capital                                          $82,448       $71,775       $65,616       $50,155       $36,709
Total assets                                             117,268       109,941       102,214        95,302        88,407
Long-term debt                                                 -             -             -             -         1,825
Total debt                                                     -             -             -         2,671         6,319
Common stock                                                 191           187           182           178           176
Shareholders' equity                                      98,395        91,077        89,156        74,636        63,052

<FN>
Note: Working capital represents current assets less current liabilities.
</FN>
</TABLE>


                                       6
<PAGE>

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 Tai  Ping,  Dongguan,  People's  Republic  of China
("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 many
years, 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.

         Our production and shipping capabilities could be adversely affected 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.  In 2005, we incurred $587,760 in foreign  enterprise
tax relating to our Chinese  subsidiary that is operated through a joint venture
("JV") contract. This is the seventh 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 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",  which resulted in a tax rebate received in 2005,
2004 and 2003 that reduced our China tax rate  applicable to 2004, 2003 and 2002
to 12%  excluding  the local tax of 3%. The  application  to be designated as an
"Export  Oriented  Enterprise"  is  required  to be made on a yearly  basis.  We
applied for the

                                       7
<PAGE>

same  designation for 2005 and if our application is successful,  it will result
in the receipt of a tax rebate in 2006 that will reduce our China tax applicable
to 2005 to 12%.

         The PRC assesses tax on us based on a JV contract. The JV contract is a
JV with the local township that lasts through August 12, 2044  (inclusive of the
contract  renewal  with  respect to  extension  of the lease period for 20 years
after its first  expiration in 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. Our Chinese subsidiary invoices the Macau entity which
then  invoices the Hong Kong,  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.

         Chinese Value Added Tax (VAT).  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.  In addition  from 2006  onwards the China
customs authorities intend to change their method of calculating both import and
export VAT which will  increase our  liability.  It is also  possible they could
choose  to  make  this  change  retroactive.  If  the  change  were  to be  made
retroactive, it would be subject to negotiation with China customs at that time.

         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 nine back-up electrical generators in our factory which can support it
in the event of a power shortage and have  constructed a water storage tank that
was put into service in early 2005. We cannot assure you that the infrastructure
on which our  factory is  dependent  will be  adequate  to operate  the  factory
successfully.

         Availability of Factory Workers. Due to increases in demand for workers
in  southern  China,  we  cannot  assure  you that we can  adequately  staff the
factory. Labor shortages could have a material impact on production, which could
lead to missed sales, increased air freight costs and vendor fines.

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 only recently  been  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 life cycle will last for any product. Our long-term
operating  results will therefore  depend largely upon our continued  ability to
conceive, develop and introduce new appealing products at competitive prices.

                                       8
<PAGE>

         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.

         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  which may result in termination  of a product.  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 make  inventory  provisions  to markdown  the value of excess  inventory
quantities to their estimated market or net realizable 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 casino and heritage electronic games,  mechanical
slot  banks,  youth  electronic  games,  tabletop  games,  the  20Q(TM)  line of
electronic handheld and tabletop games, Play TV(R) games, the Girl Tech(R) girls
electronic line, the Cupcakes(R) doll line, the Street Muttz(TM) plush line, the
Cube  World(TM)  line of  interactive  electronic  stick  people  and video game
accessories  sold under the  Gamester(R)  brand.  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 of
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 this  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 FAO Schwartz and are selling
in limited  quantities to KB Toys.  As with Kmart,  the accounts will be closely
monitored in order to minimize future exposure.

         During  2005,  a   significant   portion  of  our  Original   Equipment
Manufacturing  ("OEM")  sales  were  sales to  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.

         On March 17, 2005, Toys R Us (TRU) announced that they had agreed to be
acquired for $6.6  billion by Kohlberg  Kravis  Roberts & Co.,  Bain Capital and
Vornado Realty Trust.  In early 2006, the acquiring  group announced the closure
of 85 TRU

                                       9
<PAGE>

stores in the US. TRU has stated  that they do not plan to close any more stores
in 2006 but there are no assurances that they won't continue to downsize further
in the future.  This closure could have an adverse effect on our future business
with TRU.

DEPENDENCE ON SUPPLIERS AND SUBCONTRACTORS

         We are  dependent on  suppliers  for the  components  and parts that we
assemble  to  produce  our  products.  An  interruption  of the  supply of LCDs,
semiconductor   chips  or  other  supplies  from  a  supplier  could  result  in
significant production delays. Additionally, recent increases in oil prices have
resulted in significant price increases from suppliers of plastics.  Most of our
products  are  primarily  made from  plastic.  While our  products  also contain
significant  electronic  components  and the cost of the  plastic may not be the
most significant material costs, if oil prices continue to rise, it could result
in  additional  increases  in the price of  plastic,  which would  increase  our
product  costs and  subsequently  reduce our profits.  We are also  encountering
increases  in the costs of other  materials  such as copper,  which is used in a
number of our electronic components,  that could also potentially impact product
costs.

         We also rely on outside  manufacturers  for  production  of some of our
electronic  games  and  video  game  accessories.  While  the  majority  of  our
production  occurs in 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 China  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 PRODUCT LINES

         From time to time, we expand into related or new product lines in order
to diversify and grow.  Examples included the development of our Original Design
Manufacturing  ("ODM") and OEM  operations and our expansion into the video game
accessories market. We cannot assure you that such product lines can be retained
or that we will be successful in such ventures.

NO ASSURANCE OF CONTINUED ODM/OEM OPERATIONS

         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  operations  would
materially affect 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 will sell all our inventories.  Excess inventory at
year-end may result in financial losses from obsolescence  writedowns,  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 14.1 to this annual report.

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<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 our 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 and youth  electronics and video game accessories
market is 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.

         In 2005, Radica and our subsidiary  Radica (Macao Commercial  Offshore)
Limited were involved in litigation  initiated by AtGames Holdings Limited which
challenged the exclusivity of Radica's rights to the Play TV Sega Genesis games.
This litigation,  which related to Sega Corporation and Sega Toys, was described
in detail in Radica's  Form 6-K reports  under the  Securities  Exchange  Act of
1934,  most  recently in the Form 6-K dated  December 19, 2005. In late December
2005, the arbitrator  issued an interim decision in favor of Sega Corporation in
its  arbitration  against  AtGames.   Subsequently,  in  January  2006,  AtGames
voluntarily  dismissed  (without  prejudice)  its complaint  against  Radica and
Radica Macao. At present,  there is no pending litigation or arbitration against
the Radica  parties  arising out of this  matter.  However,  we are  considering
whether to take legal action against the other companies involved in this matter
with respect to  infringement of Radica's  intellectual  property rights and, if
such action is taken,  counterclaims may be made against the Radica parties.  We
could incur  substantial  legal costs to initiate  such  actions and there is no
guarantee that we would prevail. The Company's agreement with Sega Toys includes
certain indemnity provisions that allow the Company to seek repayment of certain
legal  expenses in its defense of the AtGames  lawsuit.  The Company  plans seek
recovery of certain expenses under this agreement.

         On  December 9, 2005  University  Games  Corporation  filed a Notice of
Opposition with the US Patent and Trademark  Office  opposing  registration of a
trademark  application  for "20Q" filed by 20Q.net,  Inc.,  the  inventor of the
software  licensed  by Radica  for use in our 20Q line of  products.  University
Games claims that the trademark filed by 20Q.net could create confusion with the
Twenty Questions trademark  registration and game name they use for a board game
that they distribute.  Both 20Q.net and Radica believe that the Twenty Questions
name is generic and not a valid  trademark owned by University  Games,  and that
University Games' opposition to the 20Q trademark  application is without merit.
In late January of 2006,  20Q.net  filed a response to the Notice of  Opposition
and filed a counterclaim  to cancel the Twenty  Questions  registration.  In the
event  that  University  Games  filed a federal  district  court  case  alleging
trademark  infringement,  a court could order Radica to cease using the 20Q name
or pay damages for past or future use of the 20Q name.

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 golf  games.  We may be exposed to claims for  damages
related to the use of our  products,  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.

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<PAGE>

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 by the  taxing  authorities.  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.

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 U.K. 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,  a group that consists of RAD
Partners 1999 LLC and certain related persons, and Royce & Associates,  LLC, 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  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,  2005,  we had  19,080,004  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

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<PAGE>

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.

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 if our
sales do not reach a certain level agreed with our customers, we are required to
at least pay the  minimum  fee under the  agreement.  Our  license  and  royalty
agreements are based on a fixed  percentage of sales made during the period.  We
cannot  assure you that we will be able to  maintain or extend the rights to our
existing  licenses.  Several of our licenses  apply to products  that generate a
large volume of sales. Were we unable to maintain these licenses, the lost sales
could have a significant impact on future earnings.

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.  None of our  employees are in labor
unions or trade groups.

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

         Our VGA  product  line  (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,
PSP(TM),  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.

         During  2005,  Microsoft  introduced  its Xbox 360  platform.  Prior to
introduction of the platform,  our management attempted to negotiate a licensing
agreement to manufacture and distribute accessories for Xbox 360 but were unable
to reach an  agreement  that made  commercial  and  financial  sense for Radica.
Currently we have no plans or intention  to seek an  agreement  with  Microsoft.
Sony has not announced the introduction  date of the  Playstation(R) 3 platform.
Sony typically does not enter into licensing agreements for platform accessories
and we have no  assurance  that we  will be able to  successfully  engineer  and
manufacture accessories for the new platform when it is brought to market.

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 AND LOCAL ECONOMIC AND POLITICAL CONDITIONS

         Worldwide  and  local  economic  and  political  conditions  can have a
significant negative impact on our Company. Examples of these conditions include
the  impact  of wars  such  as the  Iraq  conflict.  Natural  disasters  such as
devastating  typhoons  or the recent  tsunami  in South  East Asia.  Laws may be
passed that impact the costs of  manufacturing  products such as the EU's recent
RoHS  Directive.  Laws may be passed  banning  certain types of toys such as toy
guns in states or local  municipalities.  Terrorist  attacks may result in major
economic  disruptions  affecting  sales in areas or around the  world.  Ports or
shipping lines may be impacted by many factors including labor disputes,  storms
and security measures.  Shortages may occur in critical materials and components
as well as labor.  Inflation may accelerate in one or many economic sectors such
as the increase in the price of oil and its impact on plastics,  other materials
and shipping costs.  Countries may levy unfavorable duties and taxes or increase
the minimum wage or work rules. Many of the factors can lower profits,  restrict
sales and damage the Company in many unforeseen

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<PAGE>

ways. These uncertainties make it difficult for us to estimate growth or profits
in the  regional  economies  where  we  sell  our  products  and  therefore  may
negatively affect our financial results.

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 three 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  properties  in Hong Kong,  some of which we
occupy and one of which we lease to a third  party.  Market  values of Hong Kong
real  estate  dropped  significantly  during  1997 to 2003 but in the recent two
years, the properties market has staged a strong recovery.

         While we  expect  commercial  real  estate  values  to  continue  their
recovery, we cannot assure you that our commercial properties will follow.

CUSTOMER COMPLIANCE

         Periodically,  our factory is inspected by auditors  either employed by
or contracted by individual  customers to ensure that we are in compliance  with
various safety and social standards. These standards can vary widely by customer
and  failure to meet  customer  standards  can lead to fines and  suspension  or
termination of shipping from our factory to the customer.  The  management  team
makes every  reasonable  effort to ensure that we are in compliance  with all of
our  customers'  safety and social  standards,  but there is no  assurance  that
customer  auditors  will find us in  compliance.  Failure to comply could have a
significant adverse impact on our revenues.

CURRENCY VALUATION

         Efforts  to  increase  worldwide  distribution  have made our  business
increasingly  global.  We  expect  that  international  sales  may  continue  to
represent  a  significant   portion  of  our  revenue.   Although  most  of  our
international  sales are denominated in the US dollars,  fluctuations in foreign
currencies may have an impact on our financial results. We are prepared to hedge
against fluctuations in foreign currencies if the exposure is material, and held
Chinese  Renminbi  (RMB)  deposits  of  RMB55.5  million  at  the  end  of  2005
(approximately  US$6.9 million) to reduce the foreign currency  exposure against
future movements of the RMB against the US dollar.

         We have  monetary  asset and liability  balances in foreign  currencies
other than the U.S. dollar,  including the Pound Sterling,  the Canadian dollar,
the  Hong  Kong  dollar  and  the  Chinese  Renminbi,   or  RMB.   International
distribution  and sales  revenues  usually are made by our  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,  our  operating  results  are
exposed to changes in exchange  rates  between the United  States Dollar and the
Pound Sterling, the RMB or the Canadian dollar.

         Currently  China's  currency,  the  RMB,  is  pegged  to  a  basket  of
currencies.  On July 21, 2005,  China allowed the RMB to appreciate  2.1 percent
against the dollar,  but the Chinese  Government  continues to receive  pressure
from other  governments to trade its currency on the open market and allow it to
move in a wider band than before.  If the Chinese  Government  were to trade its
currency  freely  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 products.

EFFICACY OF ADVERTISING AND PROMOTION

         Radica promotes some of its products through advertising and promotion.
This  promotion  occurs  primarily  in the  second  half of the year  during the
traditional  holiday season and includes  television  commercials,  magazine and
newspaper  advertisements,  in-store  displays  and  viral  marketing  campaigns
orchestrated by contracted  public relations firms.  During 2005, we spent $12.3

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<PAGE>

million on such  programs.  Our ability to sell products is dependent in part on
our ability to successfully  advertise and promote our products.  If the cost of
these programs  increases or if we were unsuccessful in our efforts to advertise
and  promote  our  products,  it could  have a  material  adverse  affect on our
financial results.

ROHS COMPLIANCE

         Pursuant to  Directive  2002/95/EC  (on the  Restriction  of  Hazardous
Substances) of the European  Parliament,  effective July 1, 2006, new electrical
and  electronic  equipment  put on the  European  market may not  contain  lead,
mercury,  cadmium,  hexavalent  chromium,   polybrominated  biphenyls  (PBB)  or
polybrominated  dephenyl ethers (PBDE). As lead is currently the main ingredient
in our soldering  process we are changing to 'lead free soldering'.  In order to
do this we have purchased  certain surface mount  technology (SMT) equipment and
are in the  process  of  setting up a lead free  workshop  within  our  Dongguan
factory.  Our goal is to have this workshop fully operational by March 31, 2006.
In the event  that we are not  successful  either  we will have to have  product
assembled at another  facility that can produce product to this standard or stop
shipping to the European Union.

INTERNAL CONTROL SYSTEMS

         Changing  laws,   regulation   and  standards   relating  to  corporate
governance and public  disclosure,  including the Sarbanes-Oxley Act of 2002 and
related  regulations  implemented by the US Securities  and Exchange  Commission
("SEC"),  and the NASDAQ National Market ("NASDAQ"),  are making some activities
more time  consuming.  We will be evaluating  our internal  controls  systems to
allow management to report on, and our independent  registered public accounting
firm to attest to, our internal  controls.  We will be performing the system and
process  evaluation  and testing  (and any  necessary  remediation)  required to
comply with the management  certification  and the registered  public accounting
firm  attestation  requirements of Section 404 of the  Sarbanes-Oxley  Act. As a
result,  we expect to incur  substantial  additional  expenses and  diversion of
management's  time.  While  we  anticipate  being  able to fully  implement  the
requirements  relating to internal controls and all other aspects of Section 404
by our December 31, 2006 deadline (this deadline may be extended to December 31,
2007   depending  on  whether  our  stock  value  is  beneath   certain   market
capitalization  thresholds as of June 30, 2006),  we cannot be certain as to the
timing of completion of our evaluation,  testing and remediation  actions or the
impact of the same on our  operations  since there is  presently  no  definitive
standard available by which to measure compliance adequacy.  If we are unable to
implement  the  requirements  of Section 404 in a timely manner or with adequate
compliance,  we may be subject  to  sanctions  or  investigation  by  regulatory
authorities  such as the SEC or NASDAQ.  Any such action could harm our business
or  investors'  confidence  in our  Company,  and could cause the stock price to
fall.

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.

         We  manufacture  and market a diverse line of electronic  entertainment
products  covering multiple product lines - Electronic games carrying the Radica
and Play TV(R) brand  names,  Gamester(R)  branded  video game  controllers  and
accessories, youth electronics carrying the Girl Tech(R) brand names and two new
categories,  Cupcakes(R)  dolls and  Street  Muttz(TM)  electronic  plush  dogs,
introduced in 2005.  Our factory also  manufactures  for other  companies in the
electronic  game industry.  We market our products  through  subsidiaries in the
United  States,  the United  Kingdom,  Canada,  Macau and Hong Kong. Our largest
market is in the United  States where in 2004 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 and
Argos. Our largest  manufacturing  customer is Hasbro.  Internationally  we sell
products in approximately 40 countries.

HISTORY OF PRODUCT LINES

ELECTRONIC GAMES

         We have  operated as a marketer and  manufacturer  of games since 1983,
starting with a small  operation in Hong Kong  providing  souvenir  casino games
such as mechanical  slot banks for the Las Vegas and other markets.  We expanded
into the

                                       15
<PAGE>

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 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 Deer  Huntin'(TM),
TETRIS(R),  and other games such as Talking Bingo(TM) and Ultimate  Pinball(TM).
In 2004 we introduced  20Q(TM),  based on the classic guessing game. 20Q(TM) was
named "The Number One Non-Television  Promoted Toy" of 2004 according to The Toy
Book, an industry trade magazine and won the Electronic Entertainment Toy of the
Year at the 2006 TOTY awards in New York. We continued to expand the 20Q line in
2005 with tabletop and big screen versions of the 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 Deer Huntin' 3(TM) 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. In 2006, we will expand the line with
Golden  Tee(R) Golf,  based on the popular  arcade games  created by  Incredible
Technologies,  and Play TV  Skateboarding(TM),  an  interactive  game that gives
players the feeling  they are riding in a skate park with the ability to perform
tricks,  grinds  and  jumps  using  the  skateboard  interface  and  a  handheld
directional pad.

         In 2004,  we  expanded  the "plug and play"  category  with our Play TV
Legends  line.  We  have  a  license  to  manufacture  and  distribute  Play  TV
Legends(TM)   Sega(R)   Genesis(TM)  games.  The  Play  TV  Legends(TM)  Sega(R)
Genesis(TM)  games are the first  official  Sega Genesis  multi-game  units that
replicate  several of the original Sega Genesis  games,  game codes and graphics
and utilize a replica of the original  Genesis  control pad. All of the software
and content are stored in the game pad. The Play TV Legends  line also  includes
other Play TV Legends Sega games,  Street  Fighter(R) II,  Menacer(R) and Outrun
2019(R) and Tetris.

         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 2005, the Skannerz line
was  extended  to include  Skannerz(R)  Racerz(TM),  a racing  game based on the
original Skannerz product. In 2006, we are introducing Scannerz(R)TV(TM),  which
combines the collectibility of the original game with the high-quality  graphics
of our Play TV line of products.

         In 2005 we introduced Cube World(TM), a portable handheld device
consisting of stick characters and simplistic interactive objects that can be
stacked side-by-side or on top of each other to provide interaction between the
characters.

         In 2006, we will introduce Thumb  Warriors(TM),  an updated  electronic
version  of the  traditional  thumb  wrestling  game.  Sold in sets of two,  the
individual  warriors  slide onto the thumb,  secure around the wrist with a tail
and include  sound.  We will also  expand the 20Q line of product  with four new
versions, Music, Movies/TV, Sports and Junior 20Q, as well as additional foreign
language versions.

                                       16
<PAGE>

GAMESTER VIDEO GAME CONTROLLERS & ACCESSORIES

         In June 1999,  we  announced  the  acquisition  of Leda Media  Products
("LMP"),  a UK company that, with its Gamester brand, was 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  moved  most of the
manufacturing  of  controllers to 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 Phoenix  game pad, the Phoenix for Xbox Live pad,
which enables voice communication  technology and the Race Pac(R) controller,  a
functioning  wheel,  seat and pedals in a portable unit compatible with both the
Xbox and Sony Playstation 2 platforms.

         The video game accessories product line expanded in 2001 with the
introduction of Nintendo's Game Boy(R) Advance (GBA). We introduced products for
the GBA including the Flood Light(TM), which provides an illumination of the GVA
screen using a fluorescent light. 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 introduced several products for the SP
under the Gamester brand, including Game Changer(TM), which allows gamers to
switch games without removing cartridges.

         In 2005 we  introduced a line of  accessories  for the new Sony PSP(TM)
portable Playstation  platform.  The line includes a case for carrying the unit,
power  adaptors  and game discs,  a car docking  station and  attachable  grips.
However,  we did not get a  license  for the Xbox 360 as we could  not  agree on
terms with Microsoft,  so the platform  transition during 2005 from Xbox to Xbox
360 and the expected  transition in 2006 of  Playstation 2 to Playstation 3 have
left us with a greatly reduced revenue and cash flow streams and reduced line of
products.  Based on the results of the annual  impairment  test of the  goodwill
related to the acquisition of LMP, an impairment  charge on the goodwill of $6.0
million was recorded during 2005.

YOUTH ELECTRONICS

         In 1998 we acquired  the assets of the Girl Tech  product line from Kid
Active LLC,  which  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 the  years  2001-  2004,  Password  Journal  was  among the top ten
products in the Youth Electronics market according to The NPD Group. In 2005, we
updated  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  includes  a light and a
calendar and has an auto-opening tri-fold layout.

         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) was  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 was 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.

         For  2006 we are  adding  two  new  products  to the  Girl  Tech  line.
B-bop(TM),  an affordable compact music player that allows girls to record up to
thirty minutes of music from any audio out-jack and Digi Makeover(TM), a product
developed  with Sega Toys that is a makeup  case styled  touch pad with  digital
camera  that plugs  directly  into the TV and lets girls take their  picture and
create their own makeover, including makeup, hairstyles and accessories.

                                       17
<PAGE>

NEW CATEGORIES

         In 2005 we reintroduced  Cupcakes(R),  a popular doll line that debuted
in 1990 for Tonka.  The  scented  dolls  transform  from a cupcake to a doll and
include a charm, a brush and a hat. Bedroom,  vanity and tea party play sets are
sold separately.  In 2005 we also introduced Street  Muttz(TM),  a collection of
interactive  homeless  plush  dogs.  The dogs  react to the touch of a hand with
sound and movement.

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 665,000  square feet of factory space and 308,000
square feet of  dormitory  space.  Our  dormitory  has the  capacity to house in
excess of 5,000 people.  Depending upon seasonal demands,  our factory typically
employs 3,000 to 6,000 people and currently we have  approximately  4,000 people
working in the factory.  The factory is capable of  manufacturing  up to 800,000
units per week. We manufacture for other companies on an ODM basis. We currently
design and manufacture  games for Hasbro, as well as other companies in the U.S.
and Japan.  During  2005,  we completed an expansion of the factory that created
141,000 square feet of factory space and cost $2.8 million, including machinery,
to complete.

BUSINESS STRATEGY

         As a  result  of our  efforts  toward  diversification,  we now  have a
significant  presence in our four core product lines of electronic games,  youth
electronics,  other electronic games and video game accessories. 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 four brands  including the
Radica brand of electronic  games,  the Play TV brand of electronic  games,  the
Girl Tech brand 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.

         We sell direct to retailers in North America and the United Kingdom and
while we may  occasionally  sell  directly to  retailers  in other  markets,  we
usually sell through sub  distributors  which sell our products to retailers and
foreign distributors in certain other worldwide markets.

         We  manufacture  most of our own  products  in our  factory in China in
order to  maintain  quality  and to  minimize  inventories  of  finished  goods.
Consistent  with  previous  years,  to cope with  product  demand,  we have been
outsourcing  certain  productions to third party suppliers.  We also 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.  By
providing such  manufacturing  services to other companies we seek to spread the
overhead cost of our manufacturing operations in order to improve profitability.

PRODUCT LINE SALES

         The  following  table  sets  forth a  breakdown  of our  sales by major
product category,  including  manufacturing  services,  for the last four fiscal
years.
<TABLE>
<CAPTION>
                                                                    YEAR ENDED DECEMBER 31,
                         ---------------------------------------------------------------------------------------------------
                                               2005                                                2004
                         ------------------------------------------------    -----------------------------------------------
                           % 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>
Electronic Games               77.4%      $ 125,965     15,199        110           65.4%     $ 80,640       7,761       100
Youth Electronics              11.0%         17,868      1,385         22           13.8%       17,038       1,443        28
Other Toys                      1.7%          2,839        271         15            2.8%        3,490         189        12
Video Game Accessories          4.5%          7,266        582         47           10.4%       12,840       1,264        97
Manufacturing Services          5.4%          8,841      4,003         28            7.6%        9,391       3,920        28
                              100.0%        162,779     21,440        222          100.0%      123,399      14,577       265
</TABLE>
                                       18
<PAGE>

<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>
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
Video Game Accessories          13.6%        14,294      2,150        152          12.7%        15,844       2,118       150
Manufacturing Services          12.6%        13,305      3,924         23          23.6%        29,374       6,666        30
                               100.0%       105,200     13,820        299         100.0%       124,646      16,269       303
<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>

LICENSING

         During fiscal 2005, 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(TM),  World Poker  Tour(TM),
Codemasters(R),  owners of the  Sensible  Soccer  license,  SSD,  developers  of
XaviX(R) technology, the Tetris(R) Company,  Microsoft,  developers of Microsoft
Xbox(R),  Sega(R),  makers  of the  original  Sega  Genesis  system,  Incredible
Technologies(R),  makers of Golden Tee golf and 20Q.Net Inc,  developers  of the
"artificial intelligence" version of 20Q.

         We intend to  incorporate  some of these licenses into our 2006 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 and packaging 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, Liquid Crystal Display ("LCD") tooling and a proportion
of tooling of molds for plastic parts.

         In 2005 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.

         We are not  required to obtain any quality  approvals  for our products
sold 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 665,000 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.  As a
result of the drop in demand  for our  product  in the U.S.  during  2000,  work
towards  completion  of this  addition was  postponed  until the end of 2004. We
began  completion of the expansion of the factory in late 2004 and completed the
expansion in 2005. The completed  facility created an additional  141,000 square
feet of factory space and cost $2.8 million,  including machinery,  to complete.
The unit capacity of the

                                       19
<PAGE>

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 JV agreement  with the local  government
to operate the factory.  The JV agreement was established  for the  construction
and operation of the factory. We contributed the cost of the construction of the
factory to the JV while the local government  contributed the land use rights of
50 years. The JV agreement term is 30 years after which it may be extended by 20
years to match the land use  rights of 50 years.  The JV  partner  has agreed to
extend the JV agreement for 20 years when it expires without compensation and we
intend to renew it. We pay two types of costs to the China  Government under the
JV  agreement.  The first was the  payment  for  construction  of the factory or
building.  This cost is being  depreciated over the estimated useful life of the
building of 50 years which corresponds to the term of the land use rights.

         The second,  which began upon  commencement  of production,  are annual
fees made in the form of a fixed fee to the local government.  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
three  years.  The  scheduled  increases  of the annual  payment are intended to
reflect the anticipated  growth in our overall business.  We continue to believe
that we will  renegotiate any increases in this fee. As a result,  we record the
fee as an  expense  in  the  income  statement  as  incurred  rather  than  on a
straight-line  basis  over  the  term of the  agreement.  If we were  unable  to
renegotiate  the terms of the  agreement  and were  forced to pay the  scheduled
increases,  the amount of the increases would be immaterial over the life of the
contract and therefore  accounting for the JV payment on a  straight-line  basis
would not have a material  financial  impact. In 2005, the fee was approximately
$125,700.

         Aside from the fixed annual fee paid to the JV partner, we are the sole
beneficiary of the results of the JV, and we solely control the JV's operations,
including the operating and capital  decisions of the JV in the ordinary  course
of  business.  When  the JV  expires  or in the  event  that  the  agreement  is
terminated, the local government will be entitled to the fixed assets of the JV.
As we are providing for depreciation of the building over a 50-year period,  the
assets will have been fully depreciated at the end of such time.

         All the results of our factory operations in China are accounted for as
wholly-owned  operations and included in our consolidated  financial  statements
since we  operate  all  aspects of the  factory,  including  hiring,  paying and
terminating workers.  Most of the factory workers are hourly employees,  live in
the on site dormitories and eat in the on site canteen. 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.

         Had we decided to terminate its manufacturing activities in China prior
to  December  31,  2004,  we would have been  required  to pay back  certain tax
benefits we had  received and may have been held liable for certain  fees.  Such
liabilities  could have been  substantial.  Effective January 1, 2005 we were no
longer  subject to these fees should we terminate  manufacturing  activities  in
China.

MATERIALS

         Major components used in our products are liquid crystal  displays,  or
LCD's,  semiconductor  chips, printed circuit boards, or PCB's,  batteries,  and
molded plastic parts. We purchase LCD's,  PCB's,  and  semiconductor  chips from
several  suppliers.  We generally provide six to twelve 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 pay for most of our  materials in
U.S. dollars.

         Our major suppliers of electronic and mechanical  handheld and tabletop
game  materials in fiscal 2005 included C & L Electric Mfg. Co., Ltd.  (cables),
DongGuan Qi Long Ind. Co., Ltd (cartons), GPI International Limited (batteries),
Hong Kong Vigour Co., Ltd. (LCD's),  Lead Jump Development Limited (PCB's), Shan
Tou Qiheng Trading Co., Ltd (plastic  material  resins),  Silicone  Applications
Co., Ltd.  (semi-conductor chips), SSD Company Limited (semi-conductor chips), U
Kwong  Industrial Co., Ltd. (PVC  materials),  WB Japan Co., Ltd. (PCB Assembly)
and Yu Lee Printing Co. Ltd. (printing).

         Our major  suppliers  of VGA in fiscal 2005  included Hip Hing Cables &
Plug Mfy Ltd.  (cables and plugs) and Mascotte  Industrial  Associates (HK) Ltd.
(bags and cases).

                                       20
<PAGE>

SALES AND DISTRIBUTION

         Our products are sold in  approximately  40 countries,  with the United
States accounting for approximately 68% of net sales in fiscal 2005. We sell our
products  directly  to over 200 active  retailers  in the U.S.  and U.K.  and to
approximately 30 distributors  worldwide.  We participate in the electronic data
interchange  ("EDI")  program  maintained by 11 customers in the U.S.  including
Wal-Mart,  Target, Kmart, Kohl's, Toys`R'Us and Best Buy, and 5 customers in the
U.K.: Argos, Comet,  Dixon's,  Asda Wal-mart and John Lewis. In fiscal 2005, our
largest customer,  Wal-Mart,  accounted for 30.8% of net sales. In general,  all
sales to third party  distributors  and retail customers are final upon transfer
of title.  The top six customers for each of the three years ended  December 31,
2005, 2004 and 2003 were as follows:

                                                    % OF SALES
      CUSTOMER NAME                             FOR THE FISCAL YEAR
      -------------                             -------------------
                                         2005          2004         2003
                                         ----          ----         ----
      1.  Wal-Mart (USA)                30.8%         24.5%         31.9%
      2.  Target (USA)                  11.9%          9.6%          5.5%
      3.  Toys`R'Us (USA)                8.9%         10.0%          8.9%
      4.  Kohl's (USA)                   5.5%          2.6%          2.5%
      5.  Argos (U.K.)                   4.6%          6.7%          8.0%
      6.  Hasbro (USA)                   3.3%          4.5%          8.2%

         The following  table sets forth certain of our major customers in 2005,
including distributors (in alphabetical order):
<TABLE>
<CAPTION>
<S>                                               <C>                                <C>

CATALOG SHOWROOMS                                 DRUG/MASS MERCHANDISERS            ELECTRONICS/GROCERY/ CONVENIENCE
-----------------                                 -----------------------            --------------------------------
Argos                                             Army Airforce Exchange             Argos
Index                                             Boots                              Asda/Wal-Mart
                                                  Fred Meyer                         Best Buy
DEPARTMENT STORES                                 Kmart                              Biggs Hypermarket
-----------------
J.C. Penney's                                     Meijer                             Blockbuster
John Lewis                                        Pamida                             Circuit City
Kohl's                                            QVC                                Comet
May Co.                                           Target                             Dixon's
                                                  Wal-Mart                           Electronics Boutique
MAIL ORDER/SPECIALTY GIFT SHOP OPERATORS          Woolworth's (U.K.)                 Game
----------------------------------------
Avon                                              Zellers                            Gamestop
Brookstone                                                                           Ingram Entertainment
Buckmaster                                        SPORTING GOODS STORES              Mill's Fleet Farm
                                                  ---------------------
Figis                                             Bass Pro Shops                     Musicland
Fingerhut                                         Dunham's                           Production Solutions
Hammacher Schlemmer                                                                  Radioshack
Littlewoods                                       TOY RETAILERS                      Tesco
                                                  -------------
Next Retail                                       Entertainer
Sharper Image                                     Kay Bee                            DISTRIBUTORS (RADICA)
                                                                                     ---------------------
Spillsbury                                        Toymaster                          Amo oy (Finland)
Starboard Cruise Services                         Toys`R'Us                          Alec Cooper (South Africa)
Wish Book                                         Youngsters                         Valid Trade (South Africa)
                                                                                     Dorcy Irwin Pacific Pty, Ltd. (Australia)
ONLINE RETAILERS                                  DISTRIBUTORS (VGA)                 Giochi Preziosi (Italy)
----------------                                  ------------------
Toysrus.com                                       First Game (Korea)                 Goliath (France/Belgium)
Walmart.com                                       Imbi Mario Trading (Malaysia)      Importadora Maduro S.A. (Panama)
Target.com                                        Just for Fun Toys (South Africa)   John Hansen Co. (USA)
Etoys.com                                         Master Genius (Thailand)           Joker (Germany)
Firebox.com                                       Super Chi-Yuen (Taiwan)            Ansaldo (Chile)
Amazon.co.uk                                      Tai Sing/Fowa (Singapore)          Zegatron (Greece)
                                                  Top Toy (Denmark)                  Newbay (Middle East)
ODM/OEM                                           Universal Electronics (Lebanon)    Planet Fun (New Zealand)
-------
Bensussen Deutch & Associate, Inc.                Valid Trade (South Africa)         Tai Sing/Fowa (Singapore)
Cranium, Inc.                                                                        Sablon (Germany/Benelux)
</TABLE>


                                       21
<PAGE>
<TABLE>
<CAPTION>
<S>                                               <C>                                <C>
Forte Co., Ltd.                                                                      S. I. D. Cadeaux (France)
Hasbro, Inc.                                                                         Souvenirworld (USA)
KEMCO Co., Ltd.                                                                      Top Toy (Denmark)
Konami Corporation                                                                   Infinity (China)
Lexibook Limited                                                                     Global Express (Eastern Europe)
Sega Toys                                                                            Famosa (Spain and Portugal)
WiZ Co. Ltd.                                                                         Kroeger (Canada)
                                                                                     Universal Electronics (Lebanon)
</TABLE>

         In the North America, we use mainly regional sales managers working for
us to  manage  our  customers  as well as a  limited  number  of  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  rest  of the  world,  we use
third-party  distributors  in which we are represented by sales agents with some
of these distributors.

         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  approximately eight weeks in advance of requested delivery.
Accordingly  we  generally  operate  without a  significant  backlog  of regular
orders.

         We do not have any sell-through arrangement with our customers, that is
the  title of the  products  is  transferred  upon  delivery  to or  receipt  by
customers.  We generally do not allow for the return of non-defective  products;
however such a return may occur  occasionally due to overstock by our customers,
if we can  maintain  the same  economic  benefit by  reselling  the product at a
similar margin. In certain  instances,  where our retail customers are unable to
sell the quantity of products  which have been  ordered,  we may, in  accordance
with industry practice and at our discretion, assist retailers to enable them to
sell such excess  inventory  by offering  discounts  or  accepting  returns.  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.  A
portion of firm orders,  by their terms, may be canceled if shipment is not made
by a certain date. We establish provisions based on historical experience at the
time of sale of the related products.

         In the US, Canada and the U.K., we store our products and pick and ship
orders for domestic  sale in shared  warehouse  facilities  owned by third party
logistics  companies.  We are assessed  storage,  labor,  materials  and freight
charges, as well as for capital costs such as fork lifts and computer equipment.

         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. It does, however,  continue to provide industry
data.  According to NPD,  the toy  industry in the U.S.  declined by 4% in 2005.
Management  believes  that the  declines  were the result of  continuing  weaker
overall  sales at the mass  retailers.  NPD's U.K.  data showed the toy sales in
2005 were flat against 2004,  and up 1% from 2003.  Annual  industry-wide  video
game accessory sales were down  significantly in the U.S. in 2005.  According to
the NPD Group, VGA sales in gross dollars were down 11.0% in 2005 from 2004.

         The U.K. and Europe do not have a reliable retail tracking  service for
video  game  accessories.   During  2003,  our  U.K.  operations  changed  their
distribution  strategy in the U.K. 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.

PRODUCT DEVELOPMENT

         At the end of 2005,  our  engineering  and  development  department had
approximately 102 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 2003, 2004 and 2005, we spent approximately $3.9 million,
$4.2 million and $4.9 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

                                       22
<PAGE>

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 submissions 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.  Additionally, we use third-party
developers  in the  creation of software  programs  that are used in some of our
products.

         We expect to continue  developing  the majority of products  internally
during 2006. 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.

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  Cranium,  Lexibook,  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".

WORKING CAPITAL REQUIREMENTS

         Our working capital needs are primarily financed through operating cash
and, when necessary, credit lines secured through various banks in Hong Kong and
China. Our revenues are significantly higher in the second half of the year than
in the first half in order to support our retail customers that purchase most of
their  goods in the third and  fourth  quarters  to support  the fourth  quarter
holiday  buying  season.  In order to meet the customer third and fourth quarter
product  requirements,  we typically  purchase the majority of our raw materials
and build  inventory in the second and third  quarters of the year.  Advertising
expenditures are typically highest in the fourth quarter of the year in order to
support retail sales of our products during the holiday  season.  Because of the
concentrated retail buying season, our receivables are highest in the fourth and
first quarters of the year.

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
continue to 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 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  87% 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.

                                       23
<PAGE>

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  2005 is  17.5%.  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 JV. The JV enjoyed a two year tax holiday which expired in 1999. In
2005,  we incurred  $587,760 in foreign  enterprise  tax relating to our Chinese
subsidiary that is operated  through a JV contract.  This is the seventh 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,  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",  which
resulted in a tax rebate  received in 2005, 2004 and 2003 that reduced our China
tax applicable to 2004,  2003 and 2002 to 12% excluding the local tax of 3%. The
application to be designated as an "Export  Oriented  Enterprise" is required to
be made on a yearly basis.  We applied for the same  designation for 2005 and if
our application is successful,  it will result in the receipt of a tax rebate in
2006.

         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 30% U.S.  federal  withholding
tax,  resulting in an effective  rate of U.S.  federal  taxation on  distributed
profits of up to 54.5%.

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

         During 2003,  we formed  Radica  (Macao  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, 2005 our workforce was comprised of the following:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
                      Production       Sales and          R&D            Finance        Operations       Total by
                                       Marketing                                         & Admin         location
-----------------------------------------------------------------------------------------------------------------
<S>                     <C>               <C>              <C>             <C>             <C>             <C>
Asia                    3,737             14               84              24              145             4,004
-----------------------------------------------------------------------------------------------------------------
USA                       1               31               18               9               17              76
-----------------------------------------------------------------------------------------------------------------
Europe                    -                6               -                5               7               18
-----------------------------------------------------------------------------------------------------------------
Total                   3,738             51              102              38              169             4,098
-----------------------------------------------------------------------------------------------------------------
</TABLE>

         At December 31, 2004 and 2003 our workforce comprised 4,480 persons and
3,640 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 a second phase  (223,000  sq. ft.) in August 1998.  An extension of
the factory commenced in December of 1999. As a result of the drop in demand for
our product in the U.S.  during 2000,  work towards  completion of this addition
was postponed  until the end of 2004.  During 2005, we completed an expansion of
the factory  that  created  141,000  square feet of factory  space and cost $2.8
million,  including  machinery,  to  complete.  The factory  currently  contains
665,000 sq. ft. of factory space and 308,000 sq. ft. of dormitory space, capable
of housing over 5,000  workers.  We own a long-term  leasehold on our  executive
offices  (8,800  sq. ft.  inclusive  of one  leased  unit of 2,500 sq.  ft.) and
warehouse space (7,900 sq. ft.) in Fo Tan, Hong

                                       24
<PAGE>

Kong.  During  2005,  we sold one unit (1,900 sq. ft.) that was leased out in Fo
Tan, Hong Kong.  We operate our factory under the terms of the JV agreement.  We
lease additional office space in Hertfordshire, U.K.; 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.  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

         On  April 4,  2000 a  lawsuit  was  filed  by the  Lemelson  Foundation
("Lemelson") against us in Arizona for patent  infringement.  Lemelson claims to
be owner of nearly 800  issued  and  pending  patents,  including  the patent on
Machine Vision and Automatic  Identification  (AutoID)  operations.  The Auto ID
operation  is used in machines  that are part of our  bonding  and  heat-sealing
manufacturing  processes.  Lemelson was contesting that the use of machines that
incorporate this patented  technology  infringes on their intellectual  property
("IP")  rights and  therefore we are obligated to pay a royalty based on the use
of this  technology.  The suit by  Lemelson  was stayed  pending  the outcome of
Lemelson vs. Cognex, a similar suit filed by Lemelson,  which had bearing on the
Radica case with Lemelson.  On January 23, 2004 a declaratory judgment was given
in the Cognex case that  Lemelson's  patent claims are invalid.  On September 9,
2005,  Lemelson's  appeal to the Court of Appeals  for the  Federal  Circuit was
denied  and the  judgment  of the  District  Court was  affirmed.  Subsequently,
Lemelson  filed a Petition for Panel  Rehearing  and Rehearing En Banc to review
the Court of Appeals'  September 9, 2005 Order that affirmed the judgment of the
District  Court.  On  November  16,  2006 the Court of Appeals  for the  Federal
Circuit  affirmed  its  September  9, 2005  ruling and denied the  Petition  for
Rehearing En Banc. The prior pending claim or litigation, specifically, Lemelson
Medical Education Foundation v. ESCO Electronics, et al.; CIV-00-0660 PHX HRH in
the U.S. District Court for the District of Arizona was dismissed with prejudice
and final judgment was entered in favor of Radica on February 3, 2006.

         In 2005, Radica and our subsidiary  Radica (Macao Commercial  Offshore)
Limited (the "Radica parties") were involved in litigation  initiated by AtGames
Holdings  Limited which  challenged the exclusivity of our rights to the Play TV
Sega Genesis games.  In late December  2005,  the  arbitrator  issued an interim
decision  in favor  of Sega  Corporation  in its  arbitration  against  AtGames.
Subsequently, in January 2006, AtGames voluntarily dismissed (without prejudice)
its complaint  against Radica and Radica Macao. At present,  there is no pending
litigation or arbitration against us arising out of this matter. However, we are
considering whether to take legal action against the other companies involved in
this matter with respect to  infringement  of our  intellectual  property rights
and,  if such  action is taken,  counterclaims  may be made  against  the Radica
parties.

ITEM 4A.  UNRESOLVED STAFF COMMENTS

         None

ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS

RESULTS OF OPERATIONS

FISCAL 2005 COMPARED TO FISCAL 2004

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

                                       25
<PAGE>

                                                      Year ended December 31,
                                                      -----------------------
                                                       2005            2004
                                                      -------         ------

Net sales                                              100.0%         100.0%
Cost of goods sold                                      62.6%          66.1%
                                                       ------         ------
Gross profit                                            37.4%          33.9%
Selling, general and administrative expenses            23.4%          24.4%
Research and development                                 3.0%           3.4%
Depreciation and amortization                            1.2%           1.4%
Impairment of goodwill                                   3.7%           2.9%
                                                       ------         ------
Operating income                                         6.1%           1.9%
Other income                                             0.1%           0.6%
Foreign currency gain, net                               0.1%           0.3%
Interest income, net                                     0.6%           0.6%
                                                       ------         ------
Income before income taxes                               6.9%           3.5%
(Provision) credit for income taxes                      (.4%)          (.7%)
                                                       ------         ------
Net income                                               6.5%           2.8%
                                                       ======         ======

         We  reported a net  profit  for the year of $10.5  million or $0.54 per
diluted  share  compared to $3.5  million or $0.18 per  diluted  share for 2004.
During  the years  ended  December  31,  2005 and  2004,  we  incurred  goodwill
impairment charges of $6.0 million and $3.5 million,  respectively, all of which
are related to the VGA reporting  unit. As of December 31, 2005, the goodwill of
this reporting unit has been fully written off.

         Sales for the year  increased  by 31.9% to $162.8  million  from $123.4
million in 2004 due to growth in the core Electronic Games and Youth Electronics
branded  product lines  including our popular 20Q game, but were offset by lower
VGA sales resulting from the current video game platform transition,  as well as
a decrease  in  Manufacturing  Services  sales,  consistent  with our  strategic
direction  to  emphasize  our own branded  products.  Compared to sales in 2004,
North American sales for the year grew by 34.1%,  with European sales increasing
by 35.2% and other  international sales increasing by 16.0%. The following table
shows a comparison of revenue by product lines:

                                         Twelve months ended December 31,
                                         --------------------------------
Product Lines                               2005                 2004
-------------                            ----------          ----------
(US Dollars in thousands)

Electronic Games                          $ 125,965          $  80,640
Youth Electronics                            17,868             17,038
Other Toys                                    2,839              3,490
Video Game Accessories                        7,266             12,840
Manufacturing Services                        8,841              9,391
                                          ---------          ---------
TOTAL                                     $ 162,779          $ 123,399
                                          =========          =========

         Gross  profit  margin for the year  increased  from 33.9% to 37.4%,  an
increase of 350 basis points.  The increase in gross margin for the year related
primarily  to improved  sales mix of higher  margin  products  (in  particular a
reduced  percentage of lower margin VGA and Arcade Legends product lines as well
as less  Manufacturing  Services) together with lower air freight and outsourced
manufacturing costs.

         Operating  expenses for the year  increased to $50.9 million from $39.5
million in 2004.  The increase  was due to the  additional  goodwill  impairment
charges in 2005,  together  with an  increase in  variable  expenses,  including
selling  expenses and  incentive  compensation,  resulting  from the increase in
sales  and  profits,   and   increases  in  R&D  expenses  as  well  as  certain
administrative  costs  including  legal  and  executive  redundancy  costs.  The
following table shows the major operating expenses:

                                       26
<PAGE>
                                               Twelve months ended December 31,
                                               ---------------------------------
                                                   2005                  2004
(US$ in thousands)                             ----------             ----------

Advertising and co-op expenses                 $   12,335             $   10,620
Other selling and promotion expenses                2,640                  2,217
Indirect salaries and bonus                        12,166                  8,827
Research and development expenses                   4,908                  4,164
Depreciation and amortization                       1,984                  1,693
Impairment of goodwill                              6,015                  3,536
Other general and administrative expenses          10,838                  8,407
                                                 $ 50,886               $ 39,464

CAPITAL RESOURCES AND LIQUIDITY

         At  December  31,  2005 we had  $53.3  million  in cash and  investment
securities,  and net assets of $98.4  million as compared  to $40.1  million and
$91.1 million, respectively, at December 31, 2004. There was no debt at December
31, 2005 and December 31, 2004.

         Property,  plant and  equipment  increased to $14.5 million at December
31, 2005 from $11.5 million at December 31, 2004 primarily due to the completion
of the factory expansion and our investment in SMT equipment necessary to comply
with the European lead free soldering regulations.

         Cash provided by operating  activities  increased from $16.7 million in
2004 to $17.2  million in 2005.  The  increase  was mainly due to a decrease  in
inventories from $26.8 million at December 31, 2004 to $21.4 million at December
31,  2005,  resulting  from  improved  inventory  planning and sales of closeout
items. Receivables increased to $18.7 million from $18.4 million at December 31,
2004 reflecting  increased sales during the year.  Accounts  payable and accrued
warranty  expenses at  December  31,  2005 were $8.6  million  compared to $11.8
million at December 31, 2004. This decrease was in line with the decrease of the
year end inventory levels as a result of management  effort in inventory control
during the year.  Accrued  payroll  increased  to $3.8 million from $1.5 million
over the same period due to bonus compensation accruals.

         Cash used in investing  activities  increased from $1.2 million in 2004
to $5.0 million in 2005. This increase was caused by purchase of property, plant
and  equipment,  primarily  due  to the  aforementioned  factory  expansion  and
equipment purchases.

         Cash used in financing  activities  increased from $1.9 million in 2004
to $2.3  million  in 2005.  The  increase  was  mainly  due to  higher  dividend
payments.

         During  the  normal  course  of  business,   we  enter  into  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.  Historically,  actual  royalty  payments  exceeded
guaranteed  royalty  amounts in our  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 JV agreement with the local government in Dongguan,  we are
also  committed  to pay fees over the next 19 years,  as  described  above under
"Item 4.  Information on the Company - Description  of Business -  Manufacturing
Facilities".

         As of December 31, 2005, we were obligated under various licensing,  JV
agreements,  non-cancelable  operating leases and capital commitments  requiring
future minimum payments as follows:
<TABLE>
<CAPTION>
(US$ in thousands)
                             Total         2006       2007        2008       2009        2010      Thereafter
                            ---------------------------------------------------------------------------------
<S>                         <C>           <C>        <C>         <C>        <C>         <C>         <C>
Operating leases            $ 2,481       $ 738      $ 432       $ 319      $ 199       $ 127       $   666
Licensing commitments           250          30        220           -          -           -             -
Joint venture fees            3,263         132        132         140        145         145         2,569
Capital commitments             207         207          -           -          -           -             -
                            --------------------------------------------------------------------------------
Total minimum payments      $ 6,201     $ 1,107      $ 784       $ 459      $ 344       $ 272       $ 3,235
                            ================================================================================
</TABLE>
                                       27
<PAGE>

         We  had  no  derivative  instruments  or  off-balance  sheet  financing
activities  during  fiscal years 2004 or 2005. 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.

         We believe 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.  At December  31,  2005,  we had general  banking  facilities  including
overdraft and trade  facilities  totaling  $5.1 million  available for immediate
borrowing.  During 2006, we expect to continue to fund our working capital needs
through  operations  and the revolving  credit  facility and we believe that the
funds 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.

         We believe that our  existing  capital  structure,  lines of credit and
forecast  cashflows are  sufficient to fund the long-term  cashflow needs of the
Company.  However should we decide to enter into any  acquisitions in the future
then we would need to re-assess our capital structure at that time.

FISCAL 2004 COMPARED TO FISCAL 2003

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

                                                       Year ended December 31,
                                                      --------------------------
                                                       2004                2003
                                                      ------              ------
Net sales                                             100.0%              100.0%
Cost of goods sold                                     66.1%               62.1%
                                                      ------              ------
Gross profit                                           33.9%               37.9%
Selling, general and administrative expenses           24.4%               23.8%
Research and development                                3.4%                3.7%
Depreciation and amortization                           1.4%                1.9%
Impairment of goodwill                                  2.9%                   -
Restructuring charge                                       -                0.1%
                                                      ------              ------
Operating income                                        1.9%                8.4%
Other income                                            0.6%                0.3%
Foreign currency gain, net                              0.3%                0.2%
Interest income, net                                    0.6%                0.3%
                                                      ------              ------
Income before income taxes                              3.5%                9.1%
(Credit) provision for income taxes                    (0.7%)               2.7%
                                                      ------              ------
Net income                                              2.8%               11.9%
                                                      ======              ======

         We reported a net profit for 2004 of $3.5  million or $0.18 per diluted
share compared to $12.5 million or $0.66 per diluted share for 2003. The decline
in net profit was in part the result of a pretax non-cash charge of $3.5 million
for impairment of goodwill for the VGA or Gamester  reporting  unit.  Despite an
increase in sales of $18.2 million,  income before tax decreased by $5.3 million
(55%) and pretax profit  before  goodwill  impairment  decreased by $1.8 million
(19%). The decrease was due largely to a sales mix shift to lower margin Play TV
Legends sales,  which  accounted for $0.5 million of the decline,  increased air
freight  ($1.5 million of the  decline),  outsourcing  costs due to increases in
demand in Q3 and Q4 ($1.5  million of the decline),  and  increased  selling and
advertising  expenses ($3.5 million of the decline).  Other factors contributing
to the profit decline included a $0.6m charge against an underperforming license
guarantee and inventory  writedowns for certain  discontinued product lines. The
effective tax rate was 19.5%.  The income tax expense  increased by $3.7 million
compared to 2003 due to a favorable tax adjustment recorded in Q4 of 2003.


                                       28
<PAGE>

         Sales for the year  increased  by 17.3% to $123.4  million  from $105.2
million in 2003 due to the success of Play TV Legends,  20Q and the  Gamester(R)
Race Pac,  among other items.  The  following  table shows the detailed  revenue
comparisons for the year by product lines:

                                       Year ended December 31,
                                    ----------------------------
Product Lines                          2004               2003
-------------                       ---------          ---------
(US$ in thousands)

Electronic Games                    $  80,640          $  62,374
Youth Electronics                      17,038             15,227
Other Toys                              3,490                  -
Video Game Accessories                 12,840             14,294
Manufacturing Services                  9,391             13,305
                                    ---------          ---------
                                    $ 123,399          $ 105,200
                                    =========          =========

         Gross  profit  margin for the year was 33.9%  compared to 37.9% for the
year ended December 31, 2003. This decrease in gross margin was in large measure
due to the impact of higher mix of our lower  margin  Play TV Legends  line plus
the  impact  of the  previously  mentioned  provision  for  an  under-performing
license,  inventory  writedowns  for  certain  discontinued  product  lines  and
additional air freight and product  outsourcing costs incurred to meet increased
demand in Q3 and Q4.

         Operating  expenses  increased to $39.5 million for the year from $31.0
million in 2003.  The  increase  was due to  variable  expenses  resulting  from
increased sales together with increased advertising expenditure ($8.8 million in
fiscal year ended 2004 compared to $6.2 million in fiscal year 2003),  increased
research and development  costs connected with external  programming of software
for Play TV games and the $3.5 million charge for impairment of goodwill.

         The following table shows the major operating expenses:

                                                       Year ended December 31,
                                                     -------------------------
(US$ in thousands)                                      2004             2003
                                                     --------          --------
                                                             (unaudited)
Advertising and co-op expenses                       $ 10,620          $ 7,614
Other selling and promotion expenses                    2,217            1,772
Indirect salaries and bonus                             8,827            8,299
Research and development expenses                       4,164            3,895
Depreciation and amortization                           1,693            2,033
Impairment of goodwill                                  3,536                -
Restructuring charge                                        -               87
Other general and administrative expenses               8,407            7,315
                                                     --------          --------
                                                     $ 39,464          $ 31,015
                                                     ========          ========

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

         We prepare our  consolidated  financial  statements in accordance  with
generally  accepted  accounting  principles in the United States.  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  reduces gross trade  receivables and is determined based
on management's  assessment of the  collectibility of customer trade receivables
having  considered the business  environment,  customers'  financial  condition,
historical  collection  trends and customer  disputes.  Management  believes the
accounting estimate related to the

                                       29
<PAGE>

allowance  for  doubtful  accounts  is a critical  accounting  estimate  because
changes in the  assumptions  used to develop the estimate  could have a material
effect  on  selling  and  administrative   expenses,  net  income  and  accounts
receivable.

         We have put controls in place to minimize bad debt exposure. Revenue is
recognized   provided  that  there  are  no  uncertainties   regarding  customer
acceptance, vendor agreements are put in place documenting the specific terms of
the  customer  sales  relationship  or  order,  the  sales  price  is  fixed  or
determinable  and  credit  checks  are  conducted  periodically  to ensure  that
collectibility  is  reasonably  assured.  Credit  limits and  payment  terms are
established  based  on the  underlying  criteria  that  collectibility  must  be
reasonably  assured  at the  levels  of credit  being  extended.  For  customers
experiencing financial difficulties, management performs additional analysis and
may reduce credit limits or revoke credit based on the findings of the analysis.
Management  may also  restrict  credit terms of its  customers if  circumstances
warrant by  restricting  payment  terms to cash in  advance,  wire  transfer  or
domestic letter of credit.

         The movement of the doubtful  accounts  allowance by geographic  region
was as follows for 2005:
<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
-------------------------------
U.S. and Canada                         $ 126           $ 22             $  (9)        $ 139
Other countries                            22             12                (8)           26
                                        -----          -----             -----         -----
                                        $ 148           $ 34             $ (17)        $ 165
                                        =====          =====             =====         =====
</TABLE>

         Sales to countries other than U.S.,  Canada and the UK are primarily to
third-party  distributors and manufacturing services customers.  These sales are
generally secured by an irrevocable  letter of credit resulting in no historical
bad debts  writeoffs and therefore no allowance for bad debts has been made. The
U.S. and Canada's  utilization  of the provision was for the write off of unpaid
receivables  deemed  uncollectible for several small customers.  The increase to
provision  for other  countries was made through the third quarter and was based
on historical utilization rates as a percentage of sales.

         On a consolidated  basis,  our five largest  customers,  Wal-mart (US),
Toys R Us (US), Target (US), Argos (UK) and Hasbro (Asia),  account for 61.6% of
2005 sales and 73.7% of total  receivables at December 31, 2005. If any of these
retailers  were to  experience  financial  difficulties,  it could  expose us to
significant  bad debt charges and related  declines in  earnings.  Additionally,
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.

         The  following  table  summaries  our  doubtful  accounts  provision at
December 31:

(US$ in thousands)                      2005          2004         2003
                                     ----------    ----------    ---------

Allowance for bad debts                $ 165          $ 148        $ 251
As a percentage of net sales             0.1%           0.1%         0.2%

         Management  believes that the current  doubtful  accounts  allowance is
adequate to provide for our expected probable bad debt losses.

ALLOWANCE FOR ESTIMATED SALES RETURNS

         We record an allowance for estimated returns of non-defective  products
from customers.  We generally do not accept returns of  non-defective  products,
however, such a return may occur occasionally due to overstock by our customers,
if we can  maintain  the same  economic  benefit by  reselling  the product at a
similar margin. In circumstances  where we accept return as a matter of contract
or as a matter of practice,  we recognize revenue only if the following criteria
are met at time of sale:  (a) our price to the buyer is  substantially  fixed or
determinable  at the date of sale;  (b) the  buyer  has paid us, or the buyer is
obligated  to pay us and the  obligation  is not  contingent  on  resale  of the
product;  (c) the buyer's  obligation to us would not be changed in the event of
theft or physical  destruction or damage of the product; (d) the buyer acquiring
the product for resale has economic  substance  apart from that  provided by us;
(e) we do not have  significant  obligations for future  performance to directly
bring  about  resale of the  product by the buyer and;  (f) the amount of future
returns can be reasonably  estimated.  These  returns are  different  from those

                                       30
<PAGE>

covered by our warranty  allowance  program  (described under "Warranty" in this
section) which is set up for defective products returns. The allowance for sales
returns is based on historical  trends and management's best assessment of sales
returns as a percentage of overall sales.

         Management  believes this to be a critical  accounting estimate because
changes in the assumptions used to develop this estimate could materially affect
key financial measures, such as sales, net income and receivables.

         The movement in the allowance for estimated sales returns by geographic
region was as follows for 2005:
<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
-------------------------------------
U.S. and Canada                                    $ 301           $ 177             $ (231)          $ 247
Other countries                                      623             224               (609)            238
                                             -----------       -----------        -----------     ---------
                                                   $ 924           $ 401             $ (840)          $ 485
                                             ===========       ===========        ===========     =========
</TABLE>

         The  utilization  of the allowance was mostly  related to the return of
over stock of products from customers which were  anticipated at the end of 2004
and during 2005. In the U.K., the return  allowance  balance is adjusted monthly
as a  percentage  of the prior six  months of  sales;  in the U.S.,  the  return
allowance is adjusted  quarterly as a percentage of the prior six months' sales.
The percentage is based on historical data and is reviewed quarterly.

         The following table  summarizes our sales return  provision at December
31:

(US$ in thousands)                        2005           2004           2003
                                      -----------    -----------    -----------

Allowance for sales returns                $ 485         $ 924        $ 1,390
As a percentage of net sales                 0.3%          0.7%           1.3%

         The 2004 and 2005  declines in the  allowance  as a  percentage  of net
sales from prior years  occurred  because demand for our products was strong and
sales to our  third-party  distributors,  for which we do not  accept  return of
non-defective products,  increased significantly in both 2004 and 2005, reducing
the need for the allowance for returns.  The decline in the allowance  from 2004
to 2005 was also  impacted  from a  significant  overstock  return  of our Nitro
Battlerz(TM)  product  from  a  customer  in  the  US in  2004;  no  significant
individual overstock returns were received from our US customers in 2005.

         Management  believes that the current  allowance  for  estimated  sales
returns is adequate to provide for 2005  related  sales  returns  expected to be
received  during  2006.  If  non-defective  returns  were to  exceed  historical
estimates, or if we were to experience large overstock returns, then we may have
to take higher than  anticipated  charges in order to  adequately  increase  the
allowance which would decrease our earnings. For example, if in 2006, we were to
experience returns resulting from a recall or overstocked  product that caused a
25% increase from our estimated sales return provisions for 2005 that were based
on historical  return data, the impact would be roughly  $125,000.  Although our
estimates were primarily based on historical data, there is no way to anticipate
such an increase as actual returns may differ from our estimates.

ALLOWANCE FOR SALES PROGRAMS

         We  record  an  allowance  for  sales  programs  we  offer  to  certain
customers. Management believes this to be a critical accounting estimate because
changes in the assumptions used to develop this estimate could materially affect
key financial  measures,  such as revenue,  net income and accounts  receivable.
This  allowance is based on specific  dollar-value  programs or  percentages  of
sales,  depending on how the program is negotiated with the individual customer.
The movement of this allowance by geographic region in 2005 was as follows:

                                       31
<PAGE>
<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 sales programs
----------------------------
U.S. and Canada                             $ 1,388           $ 2,877           $ (2,265)      $ 2,000
Other countries                                 523             1,114             (1,055)          582
                                        -----------       -----------        -----------     ---------
                                            $ 1,911           $ 3,991           $ (3,320)      $ 2,582
                                        ===========       ===========        ===========     =========
</TABLE>

         The  additions  to  allowances  were  recorded  monthly  based  on  the
cumulative  total  of  the  amounts  granted  under  individual  customer  sales
programs,  including volume rebates. The utilization of the allowance related to
customer  claims made under  various  sales  programs  throughout  the year.  We
request that all customers  submit  claims for annual  programs by no later than
February 28th of the subsequent year but typically we receive significant claims
through  June 30th of the  subsequent  year.  At the end of the third and fourth
quarter,  management  assesses the remaining  provisions from the prior year and
releases any provisions that we believe will not be utilized.

         The following table summarizes our sales programs allowance at December
31:

(US$ in thousands)                        2005           2004           2003
                                      -----------    -----------    -----------

Allowance for sales programs             $ 2,582       $ 1,911        $ 2,893
As a percentage of net sales                 1.6%          1.5%           2.8%

         The decrease in the  allowance  for sales  programs as a percentage  of
total  sales  from 2003 to 2004 was the  result of an  effort by  management  to
replace  allowances  that  were  based on a  certain  percentage  of sales  with
allowance that are based on specific  advertising and promotional targets agreed
to at the  beginning of the year and applied to Radica  products.  Allowance for
sales  programs as a percentage  of sales has remained  consistent  from 2004 to
2005.

         Management has reviewed its existing  allowances for sales programs and
believes them to be adequate at year-end. Several factors, including poor demand
of our product at retail could result in us providing higher sales incentives to
our  customers,  which would  decrease  our  earnings.  We make every  effort to
control the  inventories  of  individual  products that are carried at retail in
order to avoid making  additional sales  incentives due to overstocked  products
and subsequent markdowns of those products by our customers.  However, we cannot
predict consumer reaction to new products or if similar product introductions by
competitors  will have an adverse  reaction on sales of our  existing  products.
This  unpredictability  exposes us to potentially large charges to the allowance
for sales programs, the total impact of which depends on several variables.  The
largest of these variables is the volume of slow-moving  inventory at retail and
the per-unit markdown of the product. For example, there are collectively almost
6,500 individual Wal-mart,  Kmart, Target and Toys R US stores in the U.S. If we
were to have a product that was fully distributed in those stores and the stores
ended up with  unanticipated  excess  inventories  of 20 pieces per store and we
offered a $5 sales incentive on each unit, the total impact of that charge would
be a decrease  in pretax  earnings of  $650,000.  However,  if that  product had
distribution  in half of the total stores,  the markdown  would be $325,000.  In
accruing for the sales programs  allowance,  we include a charge in anticipation
of such events.  However, we typically are not aware that an overstock situation
has occurred until the fourth quarter of the year.

ALLOWANCE FOR CO-OPERATIVE MARKETING AND ADVERTISING EXPENSES

         We record an allowance for co-operative marketing and advertising costs
incurred on Radica products by certain  customers with which we agreed to share.
Management believes this to be a critical accounting estimate because changes in
the  assumptions  used to develop  this  estimate  could  materially  affect key
financial   measures,   such  as  selling  expenses,   net  income  and  current
liabilities.  This allowance is based on specific percentages of sales or actual
advertising  dollars spent,  depending on how the program is negotiated with the
individual customer. The movement of this allowance by geographic region in 2005
was as follows:

                                       32
<PAGE>

<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 co-operative marketing and advertising expenses
--------------------------------------------------------------
U.S. and Canada                               $ 909           $ 2,149           $ (1,502)      $ 1,556
Other countries                                 287               424               (506)          205
                                        -----------       -----------        -----------     ---------
                                            $ 1,196           $ 2,573           $ (2,008)      $ 1,761
                                        ===========       ===========        ===========     =========
</TABLE>

         The  additions  to  allowances  were  recorded  monthly  based  on  the
cumulative total of the amounts granted under individual  customer  co-operative
marketing and advertising programs.  The utilization of the allowance related to
customer  claims  made  under  various  co-operative   programs  and  promotions
throughout  the year.  We request that all  customers  submit  claims for annual
programs by no later than February 28th of the subsequent  year but typically we
receive  significant claims through June 30th of the subsequent year. At the end
of the third and fourth quarter,  management  assesses the remaining  provisions
from the prior year and makes adjustments to the provisions as necessary.

         The following table summarizes our sales programs allowance at December
31:

(US$ in thousands)                        2005           2004           2003
                                      -----------    -----------    -----------

Allowance for co-operative marketing
  and advertising                        $ 1,761       $ 1,196        $ 1,091
As a percentage of net sales                 1.1%          1.0%           1.0%

         The  allowance for  co-operative  marketing  and  advertising  expenses
increased in 2005 as a percentage of total sales from 2004.  This was the result
of increased sales volume with certain customers that require higher promotional
participation in their negotiated  vendor programs.  Similarly,  the decrease in
the allowance  from 2003 to 2004 was the result of reduced sales as a percentage
of total for these same customers.

         Management  has  reviewed  its  existing  allowances  for  co-operative
marketing and advertising expenses and believes them to be adequate at year-end.
Several factors,  including potential customer demands for increased promotional
support of our product at retail could result in us providing  higher  marketing
and advertising allowances to our customers,  which would decrease our earnings,
assuming that sales remain the same  regardless of whether or not the additional
marketing and advertising fees were spent.  For example,  if we were to agree to
allow a customer to increase its co-operative  advertising  allowance from 2% of
net sales to 4% of net sales and we subsequently  sell $10 million in product to
that customer,  the net decrease to earnings  assuming  sales remain  consistent
would be $200,000.

WARRANTY

         We record a warranty  allowance for costs related to defective  product
sold to  customers.  We have two types of warranty  programs.  The first type of
warranty  program grants sales credit to customers for all products  returned to
their stores as  defective.  The second type of warranty  program  ("the minimum
warranty  program"),  which is also the more  common  program,  offers a flat or
minimum allowance negotiated with customers. Under the minimum warranty program,
we issue sales credits based on the agreed  minimum  warranty even if the actual
returns of defective products are lower than the minimum warranty allowance.  If
actual returns  exceed the minimum  warranty  allowance,  we would issue credits
based on actual returns. Based on our experience in the past, actual returns are
rarely lower than the minimum warranty allowance.

         Management  believes  warranty  allowance  to be a critical  accounting
estimate  because changes in the assumptions used to develop this estimate could
materially affect key financial measures,  such as cost of sales and net income.
Additionally,   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 material impact on our
financial  results,  if  large  amounts  of  finished  goods  were  found  to be
defective.

         The movement of this allowance by geographic region is as follows:

                                       33
<PAGE>

<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>
Warranty Allowance
------------------
U.S. and Canada                               $ 771           $ 2,844           $ (2,147)      $ 1,468
Other countries                                 299               542               (253)          588
                                        -----------       -----------        -----------     ---------
                                            $ 1,070           $ 3,386           $ (2,400)      $ 2,056
                                        ===========       ===========        ===========     =========
</TABLE>

         The following table summarizes our warranty allowance at December 31:

(US$ in thousands)                        2005           2004           2003
                                      -----------    -----------    -----------

Warranty allowance                      $ 2,056        $ 1,070        $ 1,040
As a percentage of net sales                1.3%           0.9%           1.0%

         Warranty  allowance  as  a  percentage  of  total  sales  has  remained
consistent  in  2003  and  2004,  but  increased  in 2005  primarily  due to the
strategic  initiative  in the U.S. to move our customers  from regular  warranty
programs  to  minimum  warranty  programs.  Despite  our  continued  efforts  at
improving  the quality of our products,  there can be no assurance  that we will
continue to see the same  defective  product rates.  New product  introductions,
changes to existing  products or changes in material  vendors and  manufacturing
subcontractors  could all have a  negative  impact on our  defective  rates that
could cause us to take  additional  charges to our  allowance.  For example,  an
increase  in  defective  warranty  allowances  of 1% of 2005  sales  would  have
decreased pretax earnings by roughly $1.6 million.

INVENTORIES

         We  value  our  inventory  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. Management believes this to be a critical
accounting  estimate  because  changes in the  assumptions  used to develop this
estimate could materially affect key financial measures,  such as cost of sales,
net income and inventory.  Slow-moving and obsolete inventories are written-down
to their estimated  market value 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 level of inventory provision.

         The following table summarizes our allowance for obsolete  inventory at
December 31:

(US$ in thousands)                        2005           2004           2003
                                      -----------    -----------    -----------

Allowance for obsolescence              $ 1,936        $ 1,353        $ 2,228
As a percentage of total inventory          8.3%           4.8%          12.6%

         In  2003,  we  took   significant   provisions   against   slow-moving,
commodity-type video game accessory products in the U.S., U.K. and Asia, most of
which have been sold.  This  resulted in higher  allowances  as a percentage  of
total inventory than we experienced in 2004. In 2005, we took inventory  against
several slow moving items,  such as the Atlas remote control car and certain VGA
products.

         Orders  are  subject  to  cancellation  or change at any time  prior to
shipment since actual shipments of products ordered and order cancellation rates
are  affected by customer  acceptance  of product  lines,  strength of competing
products,  marketing  strategies  of  retailers,  changes in buying  patterns of
retailers and consumers and overall economic  conditions.  Unexpected changes in
these  factors  could result in excess  inventory in a particular  product line,
which could cause management to make material adjustments to the allowance.

         Management  reviews its  inventories  at the end of each  quarter on an
item by item basis and  identifies  products  that it believes  are  obsolete or
slow-moving. Management records a provision for a specific item based on several
factors, including sell

                                       34
<PAGE>

through data, the level of inventory at customers' retail stores, sales price of
the item and length of time the item has been in inventory.

IMPAIRMENT OF GOODWILL

         On June 24,  1999,  we  purchased  Radica  UK for  approximately  $15.9
million.  During the quarter ended June 30, 2000, upon claiming certain breaches
of  warranty  at Radica  UK, we and the  ex-shareholders  of Radica UK  mutually
agreed to cancel  certain loan notes such that the purchase price was reduced by
$1.4  million.  As a result,  we  recorded  the excess of net  assets  purchased
(goodwill) of approximately  $12.1 million  resulting from the adjusted purchase
price.  Goodwill having a net carrying value of $9.6 million at January 1, 2002,
the  date of  adoption  of SFAS  No.  142,  was  allocated  to the  Video  Games
Accessories ("VGA") reporting unit.

         The methods used in our testing of goodwill  impairment are as follows:
1) We determine  the fair market value of the VGA  reporting  unit by estimating
the  expected  discounted  future  cash  flows  of the VGA  reporting  unit.  In
estimating the discounted  future cash flows, we follow FASB Concepts  Statement
No. 7, Using Cash Flow Information and Present Value in Accounting Measurements,
by taking into account our expectations about possible  variations in the amount
or timing of those cash flows, the risk-free rate of interest and the discounted
interest  rate. 2) We then compare the estimated fair value of the VGA reporting
unit with the carrying value of the VGA reporting unit,  including goodwill.  3)
To the extent the fair value of the VGA reporting unit is less than the carrying
value, the second step is performed which compares the implied fair value of the
VGA reporting unit's goodwill to the book value of the goodwill.

         In performing the goodwill  impairment test for the year ended December
31, 2004,  we  recognized a goodwill  impairment  of $3.5 million as the implied
fair value of the VGA reporting  unit was  determined  to be $6.0  million.  The
facts and circumstances  leading to the goodwill  impairment charge in 2004 were
primarily the result of lower forecasted sales and cash flows which were largely
predicated  by our new adopted  strategy  of  concentrating  on the  innovative,
higher margin sector of the VGA market. At December 31, 2004, our carrying value
of goodwill was $6.0 million net of the impairment charge of $3.5 million.

         In performing the goodwill  impairment test for the year ended December
31, 2005,  we  recognized a goodwill  impairment  of $6.0 million as the implied
fair  value  of the VGA  goodwill  was  determined  to be  nil.  The  facts  and
circumstances  leading to the goodwill  impairment charge in 2005 were primarily
as the result of a  significant  reduction  in  forecasted  sales and cash flows
which were largely predicated by the platform transition of the Xbox to the Xbox
360, the anticipated  transition in 2006 of Sony Playstation 2 to Playstation 3,
as well as  lower  forecasted  sales  and cash  flows  for VGA  products  due to
decrease in market demands.  Prior to the introduction of the Xbox 360 platform,
we attempted to negotiate a licensing  agreement to  manufacture  and distribute
Xbox 360 video  games  accessories  but was  unable to reach an  agreement  with
Microsoft.  Accordingly,  sales of VGA are expected to be significantly lower as
compared to previous year. After this impairment  charge,  the carrying value of
goodwill as of December 31, 2005 was nil.

DEFERRED TAX ASSETS

         We  recognized  deferred  tax  assets  for  all  deductible   temporary
differences and operating loss  carryforwards for regular tax purposes.  At each
reporting  date, we assess  whether a valuation  allowance is required to reduce
the amount of the deferred tax amount to a remaining  amount that is more likely
than not to be realized.  In assessing  the need for a valuation  allowance,  we
consider all available evidence,  including projected future taxable income, tax
planning strategies, historical taxable income, and the expiration period of the
operating loss  carryforwards.  Differences  in actual results from  projections
used in determining the valuation  allowances could result in future adjustments
to the allowances which could adversely affect our operating results.

         Based primarily in our U.K.  subsidiary's  failure to generate profits,
we recorded an  allowance  against  the entire U.K.  deferred  tax asset of $4.2
million.  Differences in actual results from projections used in determining the
valuation allowances could result in future adjustments to the allowance.

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

RECENTLY ISSUED ACCOUNTING STANDARDS

         In  December  2004,  the FASB  issued  SFAS  No.  123  (revised  2004),
Share-Based  Payments,  which addresses the accounting for transactions in which
an entity exchanges its equity instruments for goods or services, with a primary
focus on

                                       35
<PAGE>

transactions in which an entity obtains employee services in share-based payment
transactions.  This  Statement is a revision to Statement 123 and supersedes APB
Opinions  No.25,  Accounting  for Stock  Issued to  Employees,  and its  related
implementation  guidance. This Statement will require measurement of the cost of
employee  services  received in  exchange  for stock  compensation  based on the
grant-date  fair value of the employee stock options,  Incremental  compensation
costs arising from subsequent  modifications of awards after the grant date must
be  recognized.  We will  adopt  this  Statement  on  January  1, 2006 under the
modified prospective method of application. Under that method, we will recognize
compensation costs for new grants of share-based  awards,  awards modified after
the effective date, and the remaining  portion of the fair value of the unvested
awards at the adoption date.

         In December  2004,  the  Financial  Accounting  Standards  Board (FASB)
issued Statement of Financial  Accounting  Standards  (SFAS) No. 151,  Inventory
Costs -- An  Amendment  of ARB No.  43,  Chapter 4 ("SFAS  No.  151").  SFAS 151
clarifies  that abnormal  amounts of idle facility  expense,  freight,  handling
costs and spoilage  should be expensed as incurred and not included in inventory
cost as a component of overhead.  Further, SFAS No. 151 requires that allocation
of fixed and production  facilities overhead to conversion costs should be based
on normal capacity of the production facilities.  The provisions in SFAS No. 151
are effective for inventory  costs incurred  during fiscal years beginning after
June 15, 2005.  SFAS No. 151 became  effective  for the Company on July 1, 2005.
The  adoption  of SFAS No.  151 had no  significant  impact on our  consolidated
financial statements.

         In May 2005, the FASB issued SFAS No.154,  Accounting Changes and Error
Corrections.  SFAS No.  154  establishes,  unless  impracticable,  retrospective
application  as the  required  method  for  reporting  a  change  in  accounting
principle in the absence of explicit transition requirements specific to a newly
adopted  accounting  principle.  This statement will be effective for us for all
accounting  changes and any error  corrections  occurring after January 1, 2006.
The  impact  on  the  consolidated  financial  statements  will  depend  on  new
pronouncements that are subsequently issued.

         In September 2005, the EITF issued EITF Issue No. 04-13  Accounting for
Purchases and Sales of Inventory with the Same Counterparty. EITF 04-13 provides
guidance as to when purchases and sales of inventory with the same  counterparty
should be  accounted  for as a single  exchange  transaction.  EITF  04-13  also
provides  guidance  as to when a  nonmonetary  exchange of  inventory  should be
accounted  for at fair  value.  EITF 04-13  will be applied to new  arrangements
entered into, and modifications or renewals of existing  arrangements  occurring
after January 1, 2007.  The  application of EITF 04-13 is not expected to have a
significant  impact  on  our  consolidated  financial  statements  as it is  now
constituted.

         In March 2004,  the FASB  Emerging  Issues Task Force (EITF)  reached a
consensus on EITF Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment
and Its Application to Certain  Investments (EITF 03-1). The guidance prescribes
a   three-step    model   for    determining    whether   an    investment    is
other-than-temporarily impaired and requires disclosures about unrealized losses
on investments.  The accounting  guidance became effective for reporting periods
beginning  after  June  15,  2004,  while  the  disclosure  requirements  became
effective for annual reporting  periods ending after June 15, 2004. In September
2004, the FASB issued FASB Staff  Position (FSP) EITF 03-1-1,  Effective Date of
Paragraphs  10-20 of EITF Issue No.  03-1 The  Meaning  of  Other-Than-Temporary
Impairment and Its  Application to Certain  Investments  (FSP EITF 03-1-1).  FSP
EITF 03-1-1  delayed the  effective  date for the  measurement  and  recognition
guidance contained in paragraphs 10-20 of EITF Issue 03-1. In November 2005, the
FASB  issued FSP FAS 115-1 and FAS 124-1,  The  Meaning of  Other-Than-Temporary
Impairment and its Application to Certain other-than-temporary Investments. This
FSP addresses the determination as to when an investment is considered impaired,
whether  the  impairment  is  other-than-temporary  and  the  measurement  of an
impairment  loss.  This statement  specifically  nullifies the  requirements  of
paragraph  10-18  of EITF  03-1  and  references  existing  other-than-temporary
impairment  guidance.  The guidance  under this FSP is effective  for  reporting
periods  beginning  after  December  15,  2005.  The Company  continued to apply
relevant  "other-than-temporary"  guidance  as  provided  for in FSP EITF 03-1-1
during fiscal 2005.  The Company does not expect the  implementation  of FSP FAS
115-1  and FAS 124-1  will have a  material  impact on the  Company's  financial
position or results of operations.

ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

         The following table sets forth the directors and executive  officers of
the Company at the end of fiscal  2005,  as updated to reflect  changes in March
2006.
<TABLE>
<CAPTION>
                               Term
Name                          Expires        Residency       Position
----                          -------        ---------       --------
<S>                              <C>         <C>             <C>
Jon N. Bengtson (3)              2006        USA             Chairman of the Board and Director

Timothy R. Busch (1)             2006        USA             Director
</TABLE>

                                       36
<PAGE>

<TABLE>
<CAPTION>
<S>                              <C>         <C>             <C>
John A.F.H. Coulter (2)          2006        U.K.            Director

Albert J. Crosson (2)            2006        USA             Director

Patrick S. Feely (3)             2006        USA             Chief Executive Officer and Director

Floyd W. Glisson (1)             2006        USA             Director

Frank J. O'Connell (2)           2006        USA             Deputy Chairman of the Board and Lead Director

Richard E. Wenz (1) (3)          2006        USA             Director

David C.W. Howell                N/A         Hong Kong       Executive Vice President and Chief Financial Officer

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

Denis Horton                     N/A         U.K.            President International, and Managing Director, Radica U.K.

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

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

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

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

Robert E. Esterbrook             N/A         U.K.            Vice President, UK Finance & Operations

Paul Fogarty                     N/A         U.K.            Vice President U.K. Sales

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

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

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

Martin Frain                     N/A         U.K.            U.K. Marketing Director

Queenie S.F. Lau                 N/A         Hong Kong       Director of International Sales

Sean C.W. Lee                    N/A         Hong Kong       Finance Director - Asia

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

Benedict K.S. Tsang              N/A         Hong Kong       Engineering Director

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

Kenneth K.C. Yu                  N/A         Hong Kong       Engineering Director

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

                                       37
<PAGE>

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.

         Messrs.  Peter L.  Thigpen  and  James J.  O'Toole  did not  stand  for
reelection at the May 2005 shareholder meeting. Theodore J. Eischeid resigned as
a Director in December 2005 and  previously  had resigned as President and Chief
Operating Officer of Radica Games.

         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, Chairman of Altair Nanotechnologies,  and founder and director of Pinyon
Technologies, a startup company developing smart wireless antenna technology.

         Timothy R. Busch was  appointed  a director of the Company in May 2003.
Mr. 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  Catholic  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.

         John  A.F.H.  Coulter is CEO and  founder  of Exact  Products  Ltd.,  a
company which specializes in new product development.  Prior to this Mr. Coulter
had over 20 years of experience  in the toy industry.  He was founder and CEO of
TCL Marketing between 1992 and 2001 acting as the UK distributor for Radica, KID
design and Team  Concepts.  Prior to this he was a Corporate  Vice President and
President of Europe for Tonka  between  1986 and 1990.  Between 1982 and 1986 he
helped build Mattel in the UK, as Managing Director and Vice President. Prior to
entering  the toy  industry  he  worked  in the food  industry  and held  senior
marketing  management  positions at United  Biscuits,  Brooke Bond Oxo,  Cadbury
Schweppes and J. Lyons  Grocery  Division.  Mr.  Coulter is an Alumnus of London
Business School,  Fellow of The Marketing Society (Chairman 1975-76),  Fellow of
the  Chartered  Institute  of Marketing  and Fellow of the British  Institute of
Management.

         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 the Board 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.

         Patrick S. Feely has been Chief Executive  Officer since April 1999. He
was Chief  Operating  Officer and  President  of the  Company  from July 1997 to
January  2005 and has been a director of the Company  since July 1996.  Prior to
joining Radica, he was President and CEO of Spectrum HoloByte, Inc. from 1993 to
1995;  President  of Bandai  America,  Inc.  from 1991 to 1992;  and founder and
President of Toy Soldiers,  Inc. (which merged with Bandai America) from 1988 to
1991.  Mr.  Feely was an executive at Tonka,  Inc.  from 1982 to 1988,  where he
served as President of the Tonka Products  Division and a Director of the parent
company.  At Tonka,  in addition to his other  responsibilities,  he managed the
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
also a director 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.

                                       38
<PAGE>

         Floyd W. Glisson has been Managing  Member of GCM Investors,  LLC since
December 13, 2005. He was CEO of Avantair,  a privately held fractional aircraft
operator,  from July 25,  2005  through  October  7, 2005,  CEO of Acres  Gaming
Incorporated from July 1998 through October 2004, and Chairman of the Board from
April 2000 until the company was acquired in October 2003. He has a BS degree in
Accounting  from  the  University  of  Akron,  an MBA  from  the  University  of
Pittsburgh,  and was a CPA in Colorado.  His previous  experience included audit
and consulting  engagements with Arthur Andersen & Co., and financial management
positions with the Dial Corporation and ConAgra Foods Inc.

         Frank J. O'Connell was appointed  Lead Director and Deputy  Chairman of
the Board in September  2005,  and has been a director of the Company  since May
2005. He was appointed  head of the West Coast office at the Parthenon  Group in
March 2005 having  joined the firm in June 2004 as full time  Senior  Partner to
lead the consumer and specialty  retail  consulting  practice.  He joined Indian
Motorcycle  Corporation  in  November  2000 as  President  and  CEO to lead  the
revitalization of this 100-year old  American-Icon  Brand. He became Chairman in
June  2002,  eventually  overseeing  the  liquidation  of the  company  under  a
California  procedure  in  January  2005.  From 1996 to 2000,  he was  Chairman,
President and CEO of Gibson  Greetings,  Inc., a public  company in the greeting
card and  social  expression  business.  He  negotiated  the sale of  Gibson  to
American  Greetings  Corporation in March 2000.  From 1991-1995 he was President
and Chief Operating Officer of Skybox International,  a sports and entertainment
trading card company,  which he took public. Mr. O'Connell has led other branded
companies including President of Reebok Brands, North America,  President of HBO
Video, Founder and President of Fox Video Games and Senior VP of the Electronics
Divisions  at  Mattel.  He spent  the  first 14 years of his  career in the food
business,  in  various  marketing  and  operating  roles.  Mr.  O'Connell  is  a
co-founder of Tuckerman Capital, a private equity fund in Hanover, NH. He serves
on the  Advisory  Boards  of the  Johnson  Graduate  School of  Management,  the
Personal Enterprise Program,  and the Undergraduate  Business Program at Cornell
University, where he earned his undergraduate and MBA degrees.

         Richard E. Wenz is a  consultant  and private  investor  and  currently
serves on the Board of Directors  of Hunter Fan Company and Inplex  Corporation.
From 2000 to 2002 Mr.  Wenz was an  operating  partner/affiliate  of DB  Capital
Partners,  the private  equity arm of Deutsche Bank A.G. and served on the board
of directors of a number of portfolio  companies  including  NewRoads,  Inc. and
Jenny Craig  International.  Mr. Wenz also served as Chief Executive  Officer of
Jenny Craig International  during 2002. From 1997 to 2000 Mr. Wenz was President
and Chief  Operating  Officer of Safety 1st,  Inc., a publicly  traded  juvenile
products company. During 1995 and 1996 Mr. Wenz was the Partner in charge of the
Chicago  office  with The Lucas  Group,  a business  strategy  consulting  firm.
Previous to 1995 Mr. Wenz held senior  executive  positions with Wilson Sporting
Goods Co.,  Electrolux  Corporation,  The Regina Company and  Professional  Golf
Corporation.  Mr.  Wenz  began his  career in 1971 with  Arthur  Young & Company
(predecessor  of Ernst & Young) and left the firm as a Partner in 1983. Mr. Wenz
is a certified public accountant.

         David C.W. Howell has been Executive Vice President and Chief Financial
Officer of the Company since September  1995. He was President Asian  Operations
from December 1998 to October 2005. He was Vice  President and Chief  Accounting
Officer from  January 1994 to September  1995 and a director of the Company from
January 1994 until May 2005 when he did not stand for  re-election to the Board.
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.

         Jeanne M. Olson was promoted to President North American  Operations in
January 2004. She previously  held the positions of Executive Vice President and
General  Manager from 2002 to 2003,  and Senior Vice  President,  Marketing from
2000 to  2002.  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 U.K. Ltd. since April
2003 and  President  Radica  Europe since  January 2005. He has over 18 years of
experience  in the  toy  industry,  previously  having  held  Managing  Director
positions at Mattel U.K.,  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. Mr. Horton was promoted to
President,  International  effective  December 2005. 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 U.K.

         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 33  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

                                       39
<PAGE>

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  Asian
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.

         Robert E. Esterbrook joined Radica U.K. as Finance Director and Company
Secretary during July  2001,becoming  Vice President U.K. Finance and Operations
in 2004.  He has held  executive  positions in the U.K. 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
U.K. 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 U.K. in
January 2004 and was promoted to Vice  President of U.K.  Sales in January 2005.
He has over 10 years  experience  in the toy  industry  previously  having  held
senior  management  positions for Mattel U.K., Tyco Toys U.K. 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.

         Louis S.W. Kwok has been the General Manager,  Factory from April 2004.
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 16 years  experience  in  manufacturing  plant
operations. Major companies he has worked with are Fymetics (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 (U.K.).

         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.

         Martin  Frain  joined  Radica U.K. as  Marketing  Director in May 2004.
Prior to that he was  marketing  manager at Hasbro  U.K.,  where he worked  from
1999.  He  entered  the toy  industry  in 1993 when he  started a games and toys
distribution  business in Southern  Africa.  Before entering the industry he was
publishing  director at licensing agency  Americom,  and a journalist on a daily
newspaper. He received his MBA from the University of Bath.

         Queenie  S.F.  Lau joined the Company as Sales  Manager in January 2004
and was promoted to Director of  International  Sales in January  2006.  She has
over 10 years  experience  in the toy  industry.  She  received  her Bachelor of
Business degree in

                                       40
<PAGE>

Administrative  Management from University of South Australia,  Graduate Diploma
in  Marketing  from The Chinese  University  of Hong Kong and is a member of the
Chartered Institute of Marketing (U.K.).

         Sean C.W.  Lee has been  Finance  Director - Asia of the Company  since
September  2002.  Prior to that,  he was the  Financial  Controller  of Dongguan
factory. He has more than 10 years experience in electronic manufacturing field.
He has a Professional  Diploma in Accountancy from City University of Hong Kong.
He is also a member of HKICPA and ACCA.

         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 17 years experience in
project management and product development in major appliances,  electronics and
toys industries.  He obtained his Six 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.

         Benedict K.S.  Tsang has been  Engineering  Director  since April 2005.
Prior to that, he was an Mechanical  Engineering  Manager from May 1999 to March
2005. He has 16 years' working  experience in product design,  manufacturing  of
household, networking products and toys industry. He received his BEng degree in
Mechanical  Engineering from University of Newcastle upon Tyne and Master degree
in Polymer  Engineering  from  University  of  Manchester  Institute  of Science
&Technology.

         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 U.K.  and a Diploma in  Management
Studies from the Hong Kong Polytechnic and Hong Kong Management Association.

         Kenneth K.C. Yu has been as Engineering  Director - Asia of the Company
since June 2004.  Prior to that,  he was the  engineering  manager of a Dongguan
factory.  He has  seventeen  years working  experience  in product  engineering,
production and industrial  engineering,  product design,  project management and
manufacturing  of toys and  computer  accessories.  His academic  background  is
engineering and he received a Master in Engineering Business Management in 2003.
He is a member of IEE and also a Chartered Engineer.

COMPENSATION OF OFFICERS AND DIRECTORS

COMPENSATION

         In  fiscal  2005,  the  aggregate  amount of  compensation  paid to all
executive  officers and directors and former officers and directors for services
in all capacities was approximately $4.3 million. In addition, bonus payments of
$2.4 million were  accrued in 2005 for 2005  performance  and are expected to be
paid in April 2006.

         In fiscal 2005, each outside (i.e. non-employee and non-affiliated)
director of the Company received compensation according to the following
schedule:
<TABLE>
<CAPTION>
     <S>                                                <C>
     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 retainer     $2,000 annually
</TABLE>

         Payments were 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.  In addition to the above  schedule for outside
director  compensation,  where  appropriate  in  light  of the  time  commitment
involved,  the Company will  compensate  an outside  director for  accepting the
responsibility  of  chairing  an ad hoc or  other  special  committee.  Any such
compensation  will be included in the aggregate  amount of  compensation  in the
year in which it is paid (see, e.g., first paragraph of this section above.)

         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.

                                       41
<PAGE>

         Commencing in May 2005,  upon each annual  re-election  to the Board of
Directors,  each  outside  director and the Chairman of the Board is entitled to
receive 600 shares of restricted  common stock per quarter  commencing upon such
re-election date (i.e. 2,400 shares per annum) at the then current market price.
The weighted  average price of the  restricted  common stock granted during 2005
was $8.75 per share.  These  shares  become free of any  restrictions,  in equal
annual installments, over two years from the date of grant.

         In addition,  upon the initial election or appointment of a new outside
director to the Board of  Directors,  such director is entitled to receive 5,000
shares of restricted common stock at the then-current market price. These shares
become free of any restrictions,  in equal annual  installments,  over two years
from the date of grant.

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 2003 for Mr.  Feely and from  December
2002 for Messrs.  Howell,  Bengtson and Ms. Olson. The employment  agreement for
Mr.  Horton from April 2003  continues  unless 12 months  notice is given by the
Company or 6 months notice is given by the employee.  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 $365,000,  $250,000,  $43,200, $238,500 and $275,000 (the amount for
Mr.  Horton is stated in U.K.  currency as  (pound)132,500),  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. Upon
the decision of the  Compensation,  Nomination  & Governance  Committee in March
2005, Mr. Bengtson,  as a Chairman of the Board, was granted 2,500 stock options
at the then  market  price of $8.48 per share in April 2005 and is  entitled  to
receive the same stock compensation as independent  directors effective April 1,
2005. In the agreement  for Mr. Feely,  he was granted  300,000 stock options of
the Company  common stock at the then market price of $3.625 per share,  another
60,000  stock  options at the then market price of $14.125 per share in November
1998 and a further  60,000  stock  options at the then market price of $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 the then  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 the then  market  price of $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 the then 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 the then market price of $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 the then market
price of $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 the then 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 the stock options for accounting  purposes.  In
March 2003,  Mr. Feely was granted  120,000  options at the then market price of
$4.43.  In  September  2004,  Ms. Olson was granted  30,000  options at the then
market price of $8.24.  In December  2005,  Mr. Horton was granted  40,000 stock
options at the then market price of $8.81 per share.

         In addition to the foregoing, certain executive officers have change in
control  bonus  agreements  and  non-competition  agreements  that  may  provide
payments to such persons in certain circumstances. In the case of Messrs. Feely,
Howell  and Horton  and Ms.  Olson,  these  additional  agreements  are filed as
exhibits to this Annual Report on Form 20-F.

                                       42
<PAGE>

OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES

         The Company's 1994 Stock Option Plan provided 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.
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 Stock Option Plan terminated in October 2004
but continues in effect for outstanding options under such plan.

         At the Annual Shareholders Meeting in May 2004, the 2004 Omnibus Equity
Incentive Plan which replaced the 1994 Stock Option Plan was approved.  The 2004
Omnibus Equity Incentive Plan includes an  authorization  for a total of 500,000
shares of the  Company's  common  stock to be issued under the plan and the plan
will expire in 2014 unless earlier terminated.

         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.

         In fiscal year 2004, an aggregate of 137,000 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 Omnibus  Equity  Incentive  Plan to purchase the  Company's  shares at
exercise prices ranging from $7.15 to $9.11 per share.

         In fiscal year 2005, an aggregate of 82,500  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 Omnibus  Equity  Incentive  Plan to purchase the  Company's  shares at
exercise prices ranging from $7.90 to $8.81 per share.

         As a result of the  foregoing,  at the end of fiscal  year 2005,  after
giving effect to all prior exercises and forfeitures of options, an aggregate of
1,238,152 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 812,250  options were held by directors and  executive  officers of the
Company as a group.  Also, an aggregate of 115,000  outside  director's  options
were  outstanding  at  exercise  prices  ranging  from $2.90 to $9.55 per share.
During 2005, a total of 305,800 shares were issued upon the exercise of options,
at exercise prices ranging from $2.0 to $8.35 per share.  Prior to 2005, a total
of  2,146,678  shares had been issued  upon the  exercise of options at exercise
prices ranging from $0.57 to $11.0 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 (based on their filings of Forms 13D or 13G) and the amount of
     common stock  beneficially  owned by the officers and directors as a group,
     as of February 28, 2006. The Company must rely on  information  provided by
     individual shareholders and therefore cannot verify its accuracy:
<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. (1)       9,033,938              47.2%
     Common stock        Royce & Associates, LLC (2)               1,216,150               6.4%
     Common stock        RAD Partners 1999 LLC, et al. (3)         1,111,813               5.8%
     Common stock        Officers & Directors as a Group           2,434,915              12.7%

<FN>
     (1)  Includes  shares  of  Common  Stock  owned  by the  following  related
          persons:  Dito  Devcar  Corporation,   DRP  Charitable  Unitrust,  TMP
          Charitable  Unitrust,  Dito Devcar,  LP, Dito Caree, LP, Pickup Family
          Trust, Pickup Charitable  Unitrust II, TD Investments,  LLC, Plus Four
          Equity Partners LP, Dito Devcar Foundation and Richard H. Pickup.  The
          ownership  percentages of this group as reported in the Company's 2004
          and 2003 Forms 20-F were 46.4% and 46.8%, respectively.
</FN>
</TABLE>

                                       43
<PAGE>

     (2)  This shareholder reported ownership in excess of 5% of the outstanding
          Common Stock since 2004.  The ownership  percentages  of this group as
          reported in the Company's 2004 Form 20-F was 5.2%

     (3)  Includes  shares  of  Common  Stock  owned  by the  following  related
          persons:  RAD Partners 1999 LLC,  Lenawee  Trust,  92653 Trust,  Busch
          Family  Foundation  and  Timothy R.  Busch,  who is a director  of the
          Company.  The ownership  percentages  of this group as reported in the
          Company's 2004 and 2003 Forms 20-F were 5.8% and 8.9%, respectively.

(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 February 28, 2006, the Company had  approximately  100 record holders
     of its Common Stock, and over 90% 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.

         In the  Company's  Form  20-F for  2003,  we  reported  that  Albert J.
Crosson, one of our directors,  had a 1% beneficial interest in Crossfire,  LLC,
which in turn had a beneficial  ownership of 450,000  shares of our common stock
and the right for  Crossfire to acquire an additional  400,000  shares over time
from a limited  liability  company (RAD Partners 2001, LLC) which was controlled
by RAD Partners 1999 LLC, one of our  principal  stockholders.  Mr.  Crosson has
reported to the Company that in 2004 the additional 400,000 shares were acquired
by Crossfire  and RAD Partners  2001 was  liquidated,  but Mr.  Crosson sold his
interest in Crossfire to his four adult children.  As a result,  Mr. Crosson has
disclaimed any beneficial  ownership in common stock of the Company,  other than
through his  ownership  of stock  options and  restricted  stocks  acquired as a
director of the Company.

         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.

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 stock price for each
quarter of fiscal 2005 and fiscal 2004:

                                       44
<PAGE>

                                    Year ended               Year ended
                                December 31, 2005        December 31, 2004
                                -----------------        -----------------
                                High          Low        High          Low
                                ----          ---        ----          ---
First Quarter                 $ 9.51        $ 7.61     $11.64       $ 6.88
Second Quarter                  9.30          8.17       9.86         8.00
Third Quarter                   9.16          8.48      10.35         8.24
Fourth Quarter                 10.21          8.68      10.92         7.52

         The  annual  high and low stock  prices in fiscal  2003 were  $8.17 and
$4.20;  in fiscal  2002 were $4.60 and $3.40;  and in fiscal 2001 were $4.90 and
$1.625.

         The  monthly  high and low  stock  prices  over the last six  months in
fiscal 2005 were $8.95 and $8.484 in July 2005;  $9.16 and $8.58 in August 2005;
$9.10 and $8.70 in September 2005;  $9.45 and $8.70 in October 2005;  $10.21 and
$8.68 in November 2005; and $9.00 and $8.75 in December 2005.

         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.
In fiscal 2004 and 2005,  the  Company  paid $3.0  million  and $3.4  million in
dividends to its shareholders.

         On January 6, 2006, our Board of Directors  declared a dividend of $.05
per share payable on January 31, 2006, to  shareholders  of record as of January
16, 2005.  The Board has also approved an initial target  quarterly  dividend of
$.05 per share 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.

ITEM 10.  ADDITIONAL INFORMATION

MEMORANDUM AND BY-LAWS

         A summary of the Company's  memorandum and by-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 issuance of shares
of the Company 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.

         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.

                                       45
<PAGE>

         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 BD$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,  among other things,  the carrying on of business of
the Company with persons outside 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
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.

         As of February 2006, Hong Kong has repealed the estate tax duty on Hong
Kong estates.

                                       46
<PAGE>

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.

         Dividends. Under the United States federal income tax laws, and subject
to the passive  foreign  investment  company,  or PFIC, 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  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
121-day  period  beginning  60 days before the  ex-dividend  date and meet other
holding  period  requirements.  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 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  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:

                                       47
<PAGE>

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

         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

                                       48
<PAGE>

         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 believe 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:

         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 believe
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 believe 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.

                                       49
<PAGE>

INTEREST RATE SENSITIVITY

         The Company  currently has no debt and borrowings that are sensitive to
interest  rate  fluctuation.  Our  exposure  to market  rate risk for changes in
interest  rates relates  primarily to our investment  securities.  We manage our
interest rate risk by maintaining an investment  portfolio primarily  consisting
of  debt  instruments  of high  credit  quality  and  relatively  short  average
maturities.  We maintain  sufficient cash and cash equivalent balances such that
we are typically able to hold our investments to maturity.  However, there is no
assurance that we won't decide to retire any of these  instruments early or that
they will not be called by the issuer.  As there can be no  assurance  as to how
long these  investments  will be held,  we classify  these  securities as either
available-for-sale or trading investments.

         As of December 31, 2005, our cash  equivalents  and  available-for-sale
and trading  investments  included $15.9 million of debt securities,  consisting
primarily of money market funds and certificates of deposit. Notwithstanding our
efforts to manage  interest rate risks,  there can be no assurances that we will
be  adequately  protected  against  the  risks  associated  with  interest  rate
fluctuations.

FOREIGN CURRENCY RISK

         The Company has net monetary  asset and  liability  balances in foreign
currencies  other  than the U.S.  dollar,  including  the  Pound  Sterling,  the
Canadian  dollar,  the Hong  Kong  dollar  and the  Chinese  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 and 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.  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 products.  See also "Item 3. Key
Information - Risk Factors - 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, 2005.  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 of 1934)  occurred  during the fiscal year ended  December 31, 2005 that has
materially affected,  or is reasonably likely to materially affect, our internal
control over financial reporting.

ITEM 16A.  AUDIT COMMITTEE FINANCIAL EXPERT

         During  2004,  our  board of  directors  determined  that  Theodore  J.
Eischeid qualified as an audit committee  financial expert and that Mr. Eischeid
was independent within the meaning of the listing standards applicable to Radica
as a Nasdaq National Market company.  However, on January 31, 2005, Mr. Eischeid
was named President and Chief Operating Officer of Radica and

                                       50
<PAGE>

resigned from the Audit  Committee.  Timothy R. Busch was then named Chairman of
the Audit Committee in replacement of Mr.  Eischeid.  The board  determined that
Mr.  Busch was an  independent  director  within  the  meaning  of such  listing
standards  but made no  determination  that Mr. Busch would  qualify as an audit
committee financial expert.  However, the board did determine that Mr. Busch met
the financial  sophistication  requirement of such listing standards. On May 23,
2005,  the board of directors  determined  that Richard E. Wenz  qualified as an
audit committee  financial  expert and that Mr. Wenz was independent  within the
meaning of the  applicable  listing  standards  and  appointed  him as the audit
committee financial expert.

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 written
standards that are reasonably designed to deter wrongdoing and to promote honest
and ethical conduct and the other standards applicable to public companies.  The
Company's  Code of Ethics is  maintained on the  Company's  internet  website at
www.radicagames.com.

ITEM 16C.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

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

2004                          $ 283           $ 4                $ 91     $ 378
2005                            311            57                 137       505

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

         None.

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

         None.

                                    PART III

ITEM 17.  FINANCIAL STATEMENTS

         Not Applicable

ITEM 18.  FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS                                                   PAGE
    <S>                                                                         <C>

    Report of Independent Registered Public Accounting Firm                     F-1

    Consolidated Balance Sheets                                                 F-2

    Consolidated Statements of Income                                           F-3

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

    Consolidated Statements of Cash Flows                                       F-5

    Notes to the Consolidated Financial Statements                              F-6
</TABLE>

                                       51
<PAGE>

ITEM 19.  EXHIBITS

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





                                       52
<PAGE>


             Report of Independent Registered Public Accounting Firm


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,  2005 and 2004,  and the related
consolidated  statements  of  income,  shareholders'  equity  and  comprehensive
income,  and cash  flows for each of the years in the  three-year  period  ended
December  31,   2005.   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 the standards of the Public  Company
Accounting Oversight Board (United States). 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,  2005 and 2004,  and the results of their
operations and their cash flows for each of the years in the  three-year  period
ended  December 31, 2005, in conformity  with United States  generally  accepted
accounting principles.




/s/ KPMG

Hong Kong, China
March 6, 2006





                                     F - 1
<PAGE>

                              RADICA GAMES LIMITED
                           CONSOLIDATED BALANCE SHEETS
                           December 31, 2005 and 2004

(US dollars in thousands, except share data)                      2005      2004
                                                                  ----      ----
                                     ASSETS

Current assets:
  Cash and cash equivalents                                   $ 37,358  $ 27,614
  Investment securities                                         15,928    12,456
  Accounts receivable, net of allowance
  for doubtful accounts
  of $165 ($148 as at December 31, 2004)                        18,703    18,359
Inventories                                                     21,420    26,818
Prepaid expenses and other current assets                        4,196     3,374
Income taxes receivable                                            479       168
Deferred income taxes                                            3,237     1,850
                                                                 -----     -----

     Total current assets                                      101,321    90,639
                                                               -------    ------

Property, plant and equipment, net                              14,542    11,480

Goodwill                                                             -     6,015

Other assets                                                       833       854

Deferred income taxes                                              572       953
                                                                   ---       ---

        Total assets                                          $117,268  $109,941
                                                              ========  ========

                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Accounts payable                                             $ 6,580    10,770
  Accrued warranty expenses                                      2,056     1,070
  Accrued payroll and employee benefits                          3,833     1,486
  Other accrued liabilities                                      5,987     5,251
  Income taxes payable                                             417       287
                                                                   ---       ---

        Total current liabilities                               18,873    18,864
                                                                ------    ------

Commitments and contingencies

        Total liabilities                                       18,873    18,864
                                                                ------    ------

Shareholders' equity:
  Common stock
     par value $0.01 each,
     100,000,000 shares authorized,
     19,080,004 shares outstanding
     (18,738,112 as at December 31, 2004)                          191       187
  Additional paid-in capital                                     6,122     4,610
  Retained earnings                                             93,025    85,909
  Deferred compensation                                           (203)
  Accumulated other comprehensive (loss) income                   (740)      371
                                                                  ----       ---

       Total shareholders' equity                               98,395    91,077
                                                                ------    ------

       Total liabilities and shareholders' equity              $117,268 $109,941
                                                               ======== ========

        See accompanying notes to the consolidated financial statements.

                                     F - 2
<PAGE>


                              RADICA GAMES LIMITED
                        CONSOLIDATED STATEMENTS OF INCOME
                  Years ended December 31, 2005, 2004 and 2003
<TABLE>
<CAPTION>
(US dollars in thousands,                         2005        2004          2003
  except per share data)                          ----        ----          ----

<S>                                               <C>         <C>            <C>

Revenues:

  Net sales                                       $162,779    $ 123,399     $ 105,200
  Cost of goods sold                              (101,927)     (81,576)      (65,350)
     (exclusive of items shown separately below)  --------      -------       -------
Gross profit                                        60,852       41,823        39,850
                                                    ------       ------        ------

Operating expenses:
  Selling, general and administrative expenses     (37,979)     (30,071)      (25,000)
  Research and development                          (4,908)      (4,164)       (3,895)
  Depreciation and amortization                     (1,984)      (1,693)       (2,033)
  Impairment of goodwill                            (6,015)      (3,536)            -
  Restructuring charge                                   -            -           (87)
                                                     -----        -----           ---
      Total operating expenses                     (50,886)     (39,464)      (31,015)
                                                   -------      -------       -------

Operating income                                     9,966        2,359         8,835

Other income                                           216          754           317

Foreign currency gain, net                             135          417           178

Interest income                                        859          765           344

Interest expense                                         -            -           (49)

Income before income taxes                          11,176        4,295         9,625
                                                    ------        -----         -----

(Provision) credit for income taxes                   (644)        (839)        2,866
                                                      ----         ----         -----

Net income                                        $ 10,532      $ 3,456      $ 12,491
                                                  ========      =======      ========

Net earnings per share:

     Basic                                          $ 0.55       $ 0.19        $ 0.69
                                                    ======       ======        ======

     Diluted                                        $ 0.54       $ 0.18        $ 0.66
                                                    ======       ======        ======

Weighted average number of common and
  common equivalent shares:

     Basic                                      18,993,263   18,653,471    18,016,789
                                                ==========   ==========    ==========

     Diluted                                    19,663,237   19,525,757    19,059,974
                                                ==========   ==========    ==========

Cash dividends declared and paid per share          $ 0.18       $ 0.16   $       -
                                                    ======       ======   =========
</TABLE>

       See accompanying notes to the consolidated financial statements.

                                     F - 3
<PAGE>


                              RADICA GAMES LIMITED
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                            AND COMPREHENSIVE INCOME
                  Years ended December 31, 2005, 2004 and 2003

<TABLE>

<CAPTION>
(US dollars in thousands)                Common stock                                                 Accumulated
                                         ------------        Additional                                 other          Total
                                     Number                   paid-in      Deferred      Retained    comprehensive   shareholders'
                                    of shares     Amount      capital     compensation   earnings    income (loss)     equity
                                    ---------     ------      -------     ------------   --------    -------------     ------

<S>                                 <C>              <C>        <C>                <C>    <C>              <C>       <C>
Balance at December 31, 2002        17,796,131       $ 178      $ 2,320            $ -    $ 72,946         $ (808)   $ 74,636

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                                                                                                       ---
Comprehensive income                                                                                                   13,319

Issuance of stock                        3,073           -           20              -           -              -          20
Stock options exercised, inclusive     426,000           4        1,177              -           -              -       1,181
     of $44 tax benefit                -------           -        -----            ---    --------           ----       -----

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

Net income                                   -           -            -              -       3,456              -       3,456
Unrealized loss on investment
     securities available-for-sale,
     net of nil tax                          -           -            -              -           -            (90)        (90)
Foreign currency translation,
     net of nil tax                          -           -            -              -           -            441         441
                                                                                                                          ---
Comprehensive income                                                                                                    3,807

Issuance of stock                        2,272           -           21              -           -              -          21
Stock options exercised, inclusive
     of nil tax                        510,636           5        1,072              -           -              -       1,077
Dividends paid                               -           -            -              -      (2,984)             -      (2,984)
                                    ----------       -----      -------           ----      ------          -----      ------
Balance at December 31, 2004        18,738,112       $ 187      $ 4,610            $ -    $ 85,909          $ 371    $ 91,077

Net income                                   -           -            -              -      10,532              -      10,532
Unrealized gain on investment
     securities available-for-sale,
     net of nil tax                          -           -            -              -           -             45          45
Foreign currency translation,
     net of nil tax                          -           -            -              -           -         (1,156)     (1,156)
                                                                                                                       ------
Comprehensive income                                                                                                    9,421

Issuance of stock                          892           -            8              -           -              -           8
Issuance of restricted stock            35,200           1          307           (308)          -              -           -
Amortisation of restricted stock             -           -            -            105           -              -         105
Stock options exercised, inclusive     305,800           3        1,197              -           -              -       1,200
     of $93 tax benefit
Dividends paid                               -           -            -              -      (3,416)             -      (3,416)
                                    ----------       -----      -------         ------      ------         ------      ------
Balance at December 31, 2005        19,080,004       $ 191      $ 6,122         $ (203)   $ 93,025         $ (740)   $ 98,395
                                    ==========       =====      =======         ======    ========         ======    ========
</TABLE>

   See accompanying notes to the consolidated financial statements.

                                     F - 4
<PAGE>

                              RADICA GAMES LIMITED
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  Years ended December 31, 2005, 2004 and 2003
<TABLE>
<CAPTION>
(US dollars in thousands)                                                       2005                2004               2003

<S>                                                                             <C>                  <C>               <C>
Cash flow from operating activities:
Net income                                                                      $ 10,532             $ 3,456           $ 12,491
Adjustments to reconcile net income to net cash
  provided by operating activities:
  Deferred income taxes                                                           (1,006)                109             (2,991)
  Depreciation and amortization                                                    1,984               1,693              2,033
  Impairment of goodwill                                                           6,015               3,536                  -
  (Gain) loss on disposal and write off of property, plant and equipment             (64)                (19)               102
  Compensatory elements of stock issuances                                           113                  21                 20
  Tax benefit from stock option exercises                                             93                   -                 44
  Realized gain on trading securities                                                (24)               (108)                 -
  Unrealized gain on trading securities                                              (19)                 (1)               (55)
  Proceeds from sale of trading securities                                         2,616              15,572                  -
  Purchases of trading securities                                                 (6,000)                  -            (18,000)
  Changes in current assets and liabilities:
    (Increase) decrease in accounts receivable                                      (999)             (2,518)               187
    Decrease (increase) in inventories                                             4,965             (11,416)             5,145
    Increase in prepaid expenses and other current assets                           (888)               (575)            (1,058)
    (Decrease) increase in accounts payable                                       (4,162)              4,397             (1,659)
    Increase (decrease) in accrued payroll and employee benefits                   2,385                 122             (1,415)
    Increase in accrued warranty expenses                                          1,023                  30                  -
    Increase (decrease) in other accrued liabilities                                 824               1,219             (1,938)
    (Increase) decrease in net income taxes receivable                              (181)              1,184               (443)

Net cash provided by (used in) operating activities                               17,207              16,702             (7,537)

Cash flow from investing activities:
Purchase of available-for-sale securities                                              -                   -            (10,000)
Proceeds from sale of property, plant and equipment                                  296               1,292                955
Purchase of property, plant and equipment                                         (5,270)             (2,504)              (932)

Net cash used in investing activities                                             (4,974)             (1,212)            (9,977)

Cash flow from financing activities:
Proceeds from stock options exercised                                              1,107               1,077              1,137
Dividends paid                                                                    (3,416)             (2,984)                 -
Decrease in short-term borrowings                                                      -                   -               (846)
Repayment of long-term debt                                                            -                   -             (1,825)

Net cash used in financing activities                                             (2,309)             (1,907)            (1,534)

Effect of currency exchange rate change on cash and cash equivalents                (180)                 87                300

Net increase (decrease) in cash and cash equivalents                               9,744              13,670            (18,748)

Cash and cash equivalents:
  Beginning of year                                                               27,614              13,944             32,692

  End of year                                                                   $ 37,358            $ 27,614           $ 13,944

Supplementary disclosures of cash flow information:
  Interest paid                                                                      $ -                 $ -               $ 50
  Income taxes paid                                                                2,019               1,084                538
</TABLE>

        See accompanying notes to the consolidated financial statements.

                                     F - 5
<PAGE>

                              RADICA GAMES LIMITED

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                 (YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003)
                (US dollars in thousands, except per share data)

1.   ORGANIZATION AND BASIS OF FINANCIAL STATEMENTS

     Radica Games Limited (the "Company") principally manufactures and markets a
     diverse line of  principally  electronic  entertainment  products  covering
     multiple  product lines  including  casino and heritage  electronic  games,
     mechanical slot banks, the 20Q(TM) line of artificial  intelligence  games,
     youth electronic games,  tabletop games, Play TV(R) games, the Girl Tech(R)
     girls  electronic  line, the  Cupcakes(R)  doll line, the Street  Muttz(TM)
     plush line and video game  accessories  ("VGA") sold under the  Gamester(R)
     brand. The Company,  incorporated in Bermuda, is headquartered in Hong Kong
     and manufactures its products in its factory in Dongguan, People's Republic
     of China ("China").  The Company's shares are publicly traded on the NASDAQ
     exchange.

     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
     United States generally accepted accounting principles 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.

     Investment Securities
     Investment securities at December 31, 2005 and 2004 consist of certificates
     of deposit 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 investment securities
     are  determined  on a  specific-identification  basis and included in other
     income.

     A decline in the fair value of an  investment  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.  In  determining  whether  impairment  is
     other-than-temporary,  the Company considers whether it has the ability and
     intent to hold the  investment for a reasonable  period of time  sufficient
     for a  forecasted  recovery  of fair  value up to (or  beyond)  the cost of
     investment  and  considers  whether  evidence  indicating  the  cost of the
     investment  is  recoverable  within a reasonable  period of time  outweighs
     evidence to the contrary.  Evidence  considered in this assessment includes
     the cause of the decline, the severity and duration of the decline, changes
     in  value  subsequent  to  year-end  and  forecasted   performance  of  the
     investment.

     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.

                                     F - 6
<PAGE>

                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003)
                (US dollars in thousands, except per share data)

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     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 exceeding 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.

     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  and  inventory  for which  estimated  net
     realizable value is below its carrying value based on management's analysis
     of inventory levels and future expected sales.

     Property, Plant and Equipment
     Property, plant and equipment are stated at cost. Depreciation of plant and
     equipment  is  provided  on the  straight-line  method  over the  following
     estimated useful lives of the assets:

     Plant, equipment and machinery                     4 to 5 years
     Furniture and equipment                            3 to 7 years

     In June 1994 the Company  entered into a joint venture  agreement  with the
     local  government  to operate a factory.  The joint  venture  agreement was
     established for the construction and operation of the factory.  The Company
     contributed  the  cost of the  construction  of the  factory  to the  joint
     venture while the local  government  contributed  the land use rights of 50
     years.  The joint venture  agreement term is 30 years after which it may be
     extended  by 20 years to match the land use  rights of 50 years.  The joint
     venture  partner has agreed to extend the joint  venture  agreement  for 20
     years when it expires without compensation and the Company intends to renew
     it. The payment for construction of the building is being  depreciated over
     its estimated useful life of 50 years which  corresponds to the term of the
     land use right. As the Company is depreciating  the building over a 50-year
     period,  the  assets  will have been fully  depreciated  at the end of such
     time.  Costs of leasehold  improvements  are  amortized  over the estimated
     useful  life of the  asset  (ranging  from 2 to 5 years) or the term of the
     lease, whichever is shorter. Upon sale or retirement of property, plant and
     equipment,  the costs and related accumulated  depreciation or amortization
     are  eliminated and any resulting gain or loss is included in the statement
     of income.

     The Company's real property in Hong Kong consists of purchased office space
     in an office building that was built on land that is owned by the Hong Kong
     government.  When the  Company  purchased  the office  space,  there was no
     separate  amount  paid to the  government  for the land use right.  In Hong
     Kong,  substantially all properties or buildings are built on land owned by
     the Hong Kong  government for which a developer or owner is required to pay
     a land premium fee to the  government  for the land use right.  This fee is
     paid by the developer at the time the developer  commences the construction
     of the  building.  The  developer  is solely  responsible  for the payment.
     Properties,  including office space, in Hong Kong are purchased and sold at
     their current market value with no additional  lease payment required to be
     made.  The  Company  depreciates  its  property in Hong Kong over 50 years,
     which is the shorter of the  estimated  useful life of the  property or the
     term of the land use right lease.

     The  Company  expenses  all  mold  costs in the year of  purchase  or,  for
     internally produced molds, in the year of construction.

                                     F - 7
<PAGE>

                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003)
                (US dollars in thousands, except per share data)

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     Goodwill
     Goodwill  represents  the  excess  of costs  over  fair  value of assets of
     businesses  acquired.  The Company  follows the  provisions of Statement of
     Financial   Accounting   Standards  (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 or if
     certain  circumstances   indicate  a  possible  impairment  may  exist,  in
     accordance  with the provisions of SFAS No. 142. The Company  evaluates the
     recoverability  of goodwill and indefinite lived intangible  assets using a
     two-step impairment test approach at the reporting unit level. In the first
     step,  the fair value of the  reporting  unit is compared  to its  carrying
     value  including  goodwill.  The  fair  value  of  the  reporting  unit  is
     determined  based upon a  combination  of multiple of earnings,  discounted
     future cash flows and the projected profitability of the market in which it
     operates.  In the case that the fair  value of the  reporting  unit is less
     than the  carrying  value,  a second step is performed  which  compares the
     implied fair value of the  reporting  unit's  goodwill to the book value of
     the goodwill.  In determining  the implied fair value of the reporting unit
     goodwill,  the fair values of the  tangible net assets and  recognized  and
     unrecognized  intangible  assets  are  deducted  from the fair value of the
     reporting  unit.  If the implied fair value of reporting  unit  goodwill is
     lower than its carrying amount, goodwill is impaired and is written down to
     its implied fair value.

     Impairment of Long-lived Assets
     The Company evaluates the recoverability of long-lived assets 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,  be
     reviewed  for  impairment  whenever  events  or  changes  in  circumstances
     indicate  that the  carrying  amount  of an asset  may not be  recoverable.
     Recoverability of assets to be held and used is measured by a comparison of
     the carrying amount of an asset to estimated undiscounted future cash flows
     expected to be generated by the asset.  If the carrying  amount of an asset
     exceeds its estimated  undiscounted 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  which is the amount the asset can be
     bought and sold in a current transaction between willing parties.

     Revenue Recognition
     Revenue  from  product  sales is  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.

     The Company  records  reductions  to gross  revenue for customer  incentive
     programs,  such as discounts and  allowances to retailers and  volume-based
     cash incentives. These customer incentives are determined based on the sale
     agreement  with each  individual  customer  and are  provided  for when the
     related revenue is recorded.  The Company also records  provisions  against
     the gross  revenue  for  estimated  product  returns in the period when the
     related  revenue is recorded.  In  circumstances  where the Company accepts
     return as a matter of  contract  or as a matter of  practice,  the  Company
     recognizes  revenue only if the following criteria are met at time of sale:
     (a) the Company's price to the buyer is substantially fixed or determinable
     at the date of sale;  (b) the buyer has paid the  Company,  or the buyer is
     obligated to pay the Company and the obligation is not contingent on resale
     of the  product;  (c) the buyer's  obligation  to the Company  would not be
     changed  in the  event of theft or  physical  destruction  or damage of the
     product;  (d) the buyer  acquiring  the  product  for resale  has  economic
     substance apart from that provided by the Company; (e) the Company does not
     have significant obligations for future performance to directly bring about
     resale of the  product by the buyer and;  (f) the amount of future  returns
     can be  reasonably  estimated.  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.

                                     F - 8
<PAGE>

                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003)
                (US dollars in thousands, except per share data)

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     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 statements of income.

     Warranty
     The Company  accrues 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
     The cost of media related advertising is expensed as incurred. In addition,
     the Company  offers  discounts to customers who advertise  Radica  products
     through cooperative advertising programs. The cooperative advertising costs
     associated  with  customer  benefit  programs  are  accrued as the  related
     revenues   are   recognized.   The   cooperative   advertising   costs  are
     characterized  as a cost  rather  than as a  reduction  of  revenue  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
     cooperative  advertising  benefit is determinable and greater than or equal
     to  the  cooperative   advertising  allowance  provided  to  the  retailer.
     Cooperative  advertising  costs not meeting these  criteria are recorded as
     reductions in revenue. Advertising and cooperative advertising expenses are
     recorded  as  selling,   general   and   administrative   expenses  in  the
     consolidated  statements of income and amounted to  approximately  $12,335,
     $10,620 and $7,614 for the years ended  December 31,  2005,  2004 and 2003,
     respectively.

     Research and Development
     Research  and  development  costs are  expensed as  incurred.  Research and
     development costs amounted to $4,908, $4,164 and $3,895 for the years ended
     December 31, 2005, 2004 and 2003, respectively.

     Foreign Currency Translation
     Assets and liabilities of foreign subsidiaries whose functional currency is
     not the US dollar are translated into US dollars using the exchange rate on
     the balance  sheet date.  Revenues and expenses are  translated  at average
     rates  prevailing  during  the year.  The gains and losses  resulting  from
     translation of financial statements of foreign subsidiaries are recorded as
     a separate  component of  accumulated  other  comprehensive  income  (loss)
     within shareholders' equity.

     Post-retirement and Post-employment Benefits
     The Company does not have any  post-retirement,  post-employment or defined
     benefit  plans.  The  Company's   contributions  to  defined   contribution
     retirement plans are expensed as incurred.

                                     F - 9
<PAGE>

                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003)
                (US dollars in thousands, except per share data)

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     Income Taxes
     Deferred  income  taxes are  accounted  for  under the asset and  liability
     method.  Under this method,  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 and operating loss
     carryforwards  using  enacted  tax  rates  expected  to  apply  in the year
     temporary  differences are expected to be recovered or settled. A valuation
     allowance is recognized for any portion of the deferred tax asset for which
     realization  is not  considered  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.

     Accounting for 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
     Financial  Accounting   Standards  Board  (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  then  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. The following  table  illustrates  the effect on net income if the
     fair value based  method had been applied to all  outstanding  and unvested
     awards in the period:

<TABLE>
<CAPTION>
                                                          2005           2004            2003
                                                        --------       --------        --------
<S>                                                     <C>             <C>            <C>
Net income as reported                                  $ 10,532        $ 3,456        $ 12,491
Add stock-based employee compensation expense                105              -               -
  determined under intrinsic-value-based
  method
Deduct total stock-based employee
  compensation expense determined under
  fair-value-based method for all rewards,
  net of tax                                               (576)          (551)           (496)
                                                        --------       --------        --------
Pro forma net income                                    $ 10,061        $ 2,905        $ 11,995
                                                        ========       ========        ========
Reported earnings per share
Basic                                                     $ 0.55         $ 0.19          $ 0.69
Diluted                                                   $ 0.54         $ 0.18          $ 0.66

Pro forma earnings per share
Basic                                                     $ 0.53         $ 0.16          $ 0.67
Diluted                                                   $ 0.51         $ 0.15          $ 0.63
</TABLE>

                                     F - 10
<PAGE>

                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003)
                (US dollars in thousands, except per share data)

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     In December 2004,  the FASB issued FASB  Statement No. 123 (revised  2004),
     Share-Based  Payment ("SFAS No. 123R"),  which addresses the accounting for
     transactions in which an entity exchanges its equity  instruments for goods
     or  services,  with a  primary  focus on  transactions  in which an  entity
     obtains  employee  services  in  share-based  payment  transactions.   This
     Statement is a revision to Statement 123 and supersedes APB Opinion No. 25,
     Accounting  for Stock Issued to Employees,  and its related  implementation
     guidance.  This Statement will require  measurement of the cost of employee
     services  received  in  exchange  for  stock   compensation  based  on  the
     grant-date   fair  value  of  the  employee  stock   options.   Incremental
     compensation  costs arising from subsequent  modifications  of awards after
     the grant date must be recognized.  Registrants  are required to adopt SFAS
     No. 123R at the  beginning  of the next fiscal year that begins  after June
     15, 2005.  The Company  will adopt this  Statement on January 1, 2006 under
     the modified  prospective  method of  application.  Under that method,  the
     Company will  recognize  compensation  costs for new grants of  share-based
     awards, awards modified after the effective date, and the remaining portion
     of the fair value of the unvested awards at the adoption date.

     Earnings Per Share
     Basic earnings per share is based on the weighted  average number of shares
     of common  stock,  and with  respect to diluted  earnings  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 earnings
     per share is computed using the treasury stock method.  Dilutive  potential
     common  stock has no effect  on net loss per share as the  effect  would be
     anti-dilutive.

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

     Use of Estimates
     The  preparation of  consolidated  financial  statements in conformity with
     United States generally accepted accounting  principles requires management
     of the Company 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 and inventories, allowances for doubtful receivables and deferred
     tax assets and reserves for warranties,  product returns and customer sales
     incentives.  Actual results could 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.

                                     F - 11
<PAGE>

                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003)
                (US dollars in thousands, except per share data)

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     Recently Issued Accounting Pronouncements
     In December 2004, the Financial  Accounting  Standards  Board (FASB) issued
     Statement of Financial Accounting Standards (SFAS) No. 151, Inventory Costs
     -- An  Amendment  of ARB No.  43,  Chapter  4 ("SFAS  No.  151").  SFAS 151
     clarifies that abnormal amounts of idle facility expense, freight, handling
     costs and  spoilage  should be  expensed as  incurred  and not  included in
     inventory cost as a component of overhead.  Further,  SFAS No. 151 requires
     that allocation of fixed and production  facilities  overhead to conversion
     costs should be based on normal capacity of the production facilities.  The
     provisions  in SFAS No. 151 are  effective  for  inventory  costs  incurred
     during  fiscal years  beginning  after June 15, 2005.  SFAS No. 151 becomes
     effective  for the Company on January 1, 2006.  The Company does not expect
     that the  adoption  of SFAS No. 151 will have a  significant  effect on its
     consolidated financial statements.

     In May 2005,  the FASB issued  SFAS  No.154,  Accounting  Changes and Error
     Corrections. SFAS No. 154 establishes, unless impracticable,  retrospective
     application  as the required  method for  reporting a change in  accounting
     principle in the absence of explicit transition  requirements specific to a
     newly adopted  accounting  principle.  This statement will be effective for
     the Company for all accounting changes and any error corrections  occurring
     after January 1, 2006. The impact on the Company's  consolidated  financial
     statements will depend on new pronouncements that are subsequently issued.

     In September  2005, the FASB Emerging  Issues Task Force (EITF) issued EITF
     Issue No. 04-13,  Accounting  for Purchases and Sales of Inventory with the
     Same  Counterparty.  EITF 04-13 provides  guidance as to when purchases and
     sales of inventory with the same counterparty  should be accounted for as a
     single exchange transaction. EITF 04-13 also provides guidance as to when a
     nonmonetary  exchange of inventory  should be accounted  for at fair value.
     EITF  04-13  will  be  applied  to  new  arrangements   entered  into,  and
     modifications or renewals of existing arrangements  occurring after January
     1,  2007.  The  application  of  EITF  04-13  is  not  expected  to  have a
     significant impact on the Company's consolidated financial statements as it
     is now constituted.

                                     F - 12
<PAGE>

                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003)
                (US dollars in thousands, except per share data)

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     In March 2004,  the EITF reached a consensus  on EITF Issue No.  03-1,  The
     Meaning of  Other-Than-Temporary  Impairment and Its Application to Certain
     Investments.  The guidance  prescribes a three-step  model for  determining
     whether an  investment  is  other-than-temporarily  impaired  and  requires
     disclosures about unrealized losses on investments. The accounting guidance
     became effective for reporting periods beginning after June 15, 2004, while
     the disclosure  requirements  became effective for annual reporting periods
     ending after June 15, 2004. In September  2004,  the FASB issued FASB Staff
     Position  (FSP) EITF 03-1-1,  Effective  Date of  Paragraphs  10-20 of EITF
     Issue No.  03-1 The  Meaning  of  Other-Than-Temporary  Impairment  and Its
     Application  to Certain  Investments  (FSP EITF  03-1-1).  FSP EITF  03-1-1
     delayed the effective date for the  measurement  and  recognition  guidance
     contained in  paragraphs  10-20 of EITF Issue 03-1. In November  2005,  the
     FASB   issued   FSP   FAS   115-1   and   FAS   124-1,   The   Meaning   of
     Other-Than-Temporary    Impairment   and   its   Application   to   Certain
     other-than-temporary  Investments.  This FSP addresses the determination as
     to when an  investment is considered  impaired,  whether the  impairment is
     other-than-temporary  and  the  measurement  of an  impairment  loss.  This
     statement  specifically  nullifies the  requirements  of paragraph 10-18 of
     EITF 03-1 and references existing other-than-temporary impairment guidance.
     The guidance  under this FSP is effective for reporting  periods  beginning
     after  December  15,  2005.   The  Company   continued  to  apply  relevant
     "other-than-temporary"  guidance as provided for in FSP EITF 03-1-1  during
     fiscal  2005.  The Company  does not expect the  implementation  of FSP FAS
     115-1 and FAS 124-1 will have a material impact on the Company's  financial
     position or results of operations.

     Reclassifications
     Certain  reclassifications have been made to prior year cash flows provided
     by  (used  in)  operating  activities  to  conform  to the  current  year's
     presentation.  The effect of currency  exchange rate change on non-cash and
     cash equivalents  items in 2004 and 2003 were reclassified to relevant line
     items in the cash flow  statements.  The  reclassification  resulted  in an
     increase of $341 in the amount of net cash provided by operating activities
     in 2004 to $16,702 and a decrease of $563 in the amount of net cash used in
     operating activities to $7,537 in 2003. A similar reclassification was also
     made to cash flow from investing  activities  which resulted in an increase
     of $13 and $11 in the amounts of net cash used in investing  activities  in
     2004 and 2003 respectively.

3.   INVESTMENT SECURITIES

     At December 31, 2005 and 2004,  investment  securities  represent municipal
     fixed income and money market funds with readily  determinable  fair market
     values and  certificates  of deposit with original  maturities in excess of
     three months.  Investments classified as available for sale with maturities
     beyond one year have been  classified as  short-term  based on their highly
     liquid nature and because the  investments  can be sold at any time and the
     Company intends to liquidate the investments within a year from the balance
     sheet date.  As at December 31, 2005,  the  investment in  certificates  of
     deposit has a maturity  within one year from the balance sheet date and has
     been classified as short-term investments.

     Management  classifies  investments  securities at the time of purchase and
     reevaluates such classification at each balance sheet date. At December 31,
     2005 and 2004, investments in certificates of deposit of $9,909 and $9,864,
     respectively  were classified as  "available-for-sale"  and accordingly are
     reported at fair value with unrealized losses of approximately $91 and $136
     reported as a component of accumulated other comprehensive income (loss) in
     shareholders' equity, respectively.  The Company also maintains investments
     of $6,019 and $2,592  classified  as trading  securities as of December 31,
     2005  and  2004,   respectively.   These  investments  represent  primarily
     municipal  fixed income and money market funds subject to price  volatility
     associated with any interest-bearing instrument.

                                     F - 13
<PAGE>

                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003)
                (US dollars in thousands, except per share data)

3.   INVESTMENT SECURITIES (Continued)

     The amortized  cost,  gross  unrealized  holding  gains,  gross  unrealized
     holding losses, and fair value of available-for-sale securities at December
     31, 2005 and 2004 were as follows:

<TABLE>
<CAPTION>
                                                            Gross              Gross
                                        Amortized         unrealized         unrealized
                                           cost          holding gains      holding losses       Fair value
                                     ---------------    ---------------    ---------------    ---------------
     <S>                                  <C>               <C>                 <C>               <C>
     At December 31, 2005
     Available for sale:
     Certificates of deposit              $ 10,000          $ -                 $  (91)           $ 9,909

     At December 31, 2004
     Available for sale:
     Certificates of deposit              $ 10,000          $ -                 $ (136)           $ 9,864
</TABLE>

     The following table shows the gross unrealized losses and fair value of the
     Company's  available for sale investments  with unrealized  losses that are
     not deemed to be other-than-temporarily  impaired, aggregated by investment
     category  and  length of time  that  individual  securities  have been in a
     continuous unrealized loss position, at December 31, 2005:
<TABLE>
<CAPTION>
                                    Less than 12 months     12 months or greater            Total
                                 ------------------------  -----------------------  ------------------------
                                              Unrealized                Unrealized               Unrealized
                                 Fair value     losses     Fair value     losses    Fair value     losses
                                 ----------   ----------   ----------   ----------  ----------   ----------
<S>                                 <C>          <C>           <C>          <C>        <C>         <C>
     Certificates of deposit        $9,909       $ (91)        $ -          $ -        $9,909      $ (91)
</TABLE>

     The unrealized  losses on the  investments in  certificates of deposit 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
     was 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 maturity, these securities are
     not considered other-than-temporarily impaired.

                                     F - 14
<PAGE>

                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003)
                (US dollars in thousands, except per share data)

3.   INVESTMENT SECURITIES (Continued)

     Net realized  investment gains and net changes in unrealized gains (losses)
     on  investments  for the years ended  December 31, 2005,  2004 and 2003 are
     summarized as follows:

<TABLE>
<CAPTION>
                                                                    2005               2004               2003
                                                               ---------------    ---------------    ---------------
<S>                                                                 <C>                <C>                <C>
Net realized gains on investments
Available-for-sale                                                  $   -              $   -              $   -
Trading                                                                24                108                  -
                                                               ---------------    ---------------    ---------------
                                                                    $  24              $ 108              $   -
Net changes in unrealized gains (losses) on investments
Available-for-sale                                                  $  45              $ (90)             $ (46)
Trading                                                                19                  1                 55
                                                               ---------------    ---------------    ---------------
                                                                    $  64              $ (89)               $ 9
Net realized gains and changes
in unrealized gains (losses) on investments                         $  88              $  19                $ 9
                                                               ===============    ===============    ===============
</TABLE>

     Following  is a summary of the  disposition  and  purchases  of  investment
     securities for the years ended December 31, 2005, 2004 and 2003:

<TABLE>
<CAPTION>
                                                                Gross realized                Net realized
                                                      ----------------------------------    ---------------
                                       Amount             Gains              Losses              Gain
                                   ---------------    ---------------    ---------------    ---------------
<S>                                   <C>                   <C>                <C>                <C>
Sales:
2005 -   Available-for-sale              $ -                $ -                $ -                $ -
         Trading                       2,616                 24                  -                 24

2004 -   Available-for-sale              $ -                $ -                $ -                $ -
         Trading                      15,572                108                  -                108

2003 -   Available-for-sale              $ -                $ -                $ -                $ -
         Trading                           -                  -                  -                  -

Purchases:
2005 -   Available-for-sale              $ -                $ -                $ -                $ -
         Trading                       6,000                  -                  -                  -

2004 -   Available-for-sale              $ -                $ -                $ -                $ -
         Trading                           -                  -                  -                  -

2003 -   Available-for-sale          $ 10,000               $ -                $ -                $ -
         Trading                       18,000                 -                  -                  -
</TABLE>


                                      F - 15
<PAGE>


                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003)
                (US dollars in thousands, except per share data)

4.   INVENTORIES

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

                                           2005               2004
                                     ---------------    ---------------

     Raw materials                        $   2,085            $ 4,017
     Work in progress                         6,982              6,830
     Finished goods                          12,353             15,971
                                     ---------------    ---------------
                                           $ 21,420           $ 26,818
                                     ===============    ===============

5.   PROPERTY, PLANT AND EQUIPMENT

     Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
                                                                    2005               2004
                                                               ---------------    ---------------
     <S>                                                             <C>                 <C>
     Land and buildings                                              $ 10,251            $ 9,431
     Plant and machinery                                               10,767              8,142
     Furniture and equipment                                            8,064              8,196
     Leasehold improvements                                             3,307              3,067
     Construction-in-progress                                              -                265
                                                               ---------------    ---------------
                                                                     $ 32,389           $ 29,101
     Less: Accumulated depreciation and amortization                  (17,847)           (17,621)
                                                               ---------------    ---------------
     Total                                                           $ 14,542           $ 11,480
                                                               ===============    ===============
</TABLE>

     In November 2002, the AICPA  International  Practices Task Force (the "Task
     Force")  discussed an issue  relating to accounting  for land use rights in
     China.  The Task Force  view is that  China land use rights are  considered
     operating  leases,  as they are  long-term  leases of  lands,  which do not
     transfer title. As of December 31, 2005 and 2004,  other assets of $833 and
     $854  respectively,  comprise prepaid land use rights. The prepaid land use
     rights have a term of 50 years.

                                      F - 16
<PAGE>

                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003)
                (US dollars in thousands, except per share data)

6.   GOODWILL

     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. As a result, the Company recorded the
     excess  of  net  assets  purchased  (goodwill)  of  approximately   $12,069
     resulting from the adjusted purchase price.  Goodwill having a net carrying
     value of $9,551 at January 1, 2002,  the date of  adoption of SFAS No. 142,
     was allocated to the Video Games Accessories ("VGA") reporting unit.

     The methods used in the  Company's  testing of goodwill  impairment  are as
     follows:  1) The  Company  determines  the  fair  market  value  of the VGA
     reporting unit by estimating the expected  discounted  future cash flows of
     the VGA reporting unit. In estimating the discounted future cash flows, the
     Company follows FASB Concepts  Statement No. 7, Using Cash Flow Information
     and Present  Value in Accounting  Measurements,  by taking into account the
     Company's expectations about possible variations in the amount or timing of
     those  cash  flows,  the  risk-free  rate of  interest  and the  discounted
     interest rate. 2) The Company then compares the estimated fair value of the
     VGA  reporting  unit with the  carrying  value of the VGA  reporting  unit,
     including  goodwill.  3) To the extent the fair value of the VGA  reporting
     unit is less than the carrying  value,  the second step is performed  which
     compares the implied fair value of the VGA reporting unit's goodwill to the
     book value of the goodwill.

     In performing the goodwill  impairment test for the year ended December 31,
     2004, the Company recognized a goodwill impairment of $3,536 as the implied
     fair value of the VGA reporting unit was determined to be $6,015. The facts
     and  circumstances  leading to the goodwill  impairment charge in 2004 were
     primarily  the result of lower  forecasted  sales and cash flows which were
     largely  predicated by the Company's new adopted  strategy of concentrating
     on the innovative,  higher margin sector of the VGA market. At December 31,
     2004  the  Company's  carrying  value of  goodwill  was  $6,015  net of the
     impairment charge of $3,536.

     In performing the goodwill impairment test for the year ended December 31,
     2005, the Company recognized a goodwill impairment of $6,015 as the implied
     fair value of the VGA goodwill was determined to be nil. The facts and
     circumstances leading to the goodwill impairment charge in 2005 were the
     result of a significant reduction in forecasted sales and cash flows which
     were a result of the platform transition of the Xbox to the Xbox 360, the
     expected transition in 2006 of Sony Playstation 2 to Playstation 3, as well
     as lower forecasted sales and cash flows for VGA products due to decrease
     in market demands. Prior to the introduction of the Xbox 360 platform, the
     Company attempted to negotiate a licensing agreement to manufacture and
     distribute Xbox 360 video games accessories but was unable to reach an
     agreement with Microsoft. Accordingly, sales of VGA are expected to be
     significantly lower as compared to previous years. After this impairment
     charge, the carrying value of goodwill as of December 31, 2005 was nil.

                                     F - 17
<PAGE>

                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003)
                (US dollars in thousands, except per share data)

7.   OTHER ACCRUED LIABILITIES

     Other accrued liabilities consist of the following:

                                                   2005               2004
                                              ---------------    ---------------

     Accrued advertising expenses                 $   1,761           $    910
     Accrued license and royalty fees                 1,796              1,963
     Commissions payable                                 68                 93
     Other accrued liabilities                        2,362              2,285
                                              ---------------    ---------------
        Total                                     $   5,987          $   5,251
                                              ===============    ===============

8. INCOME TAXES

     The Company is  incorporated  in Bermuda where there is no income or profit
     tax. The Company's  subsidiaries  in Hong Kong,  Macau,  China,  the United
     Kingdom and the United  States are subject to applicable  corporate  income
     tax rates of 17.5%, 0%, 27%, 30% and 34% respectively.

     The components of income before income taxes are as follows:
<TABLE>
<CAPTION>
                                    2005               2004               2003
                               ---------------    ---------------    ---------------
<S>                               <C>                <C>                <C>
     United States                $     794          $   3,472          $   9,964
     Other countries                 10,382                823               (339)
                               ---------------    ---------------    ---------------
                                  $  11,176          $   4,295          $   9,625
                               ===============    ===============    ===============
</TABLE>

     The provisions (credits) for income taxes consist of the following:
<TABLE>
<CAPTION>
                                                       2005               2004               2003
                                                  ---------------    ---------------    ---------------
<S>                                                   <C>                <C>               <C>
Current:
US Federal                                            $   1,174          $     147         $       38
US State                                                    171                127                  1
Other countries                                             305                456                 42
                                                  ---------------    ---------------    ---------------
Total current income tax provision                    $   1,650          $     730         $       81
                                                  ---------------    ---------------    ---------------
Deferred:
US Federal and State                                  $    (826)         $     900         $   (2,857)
Other countries                                            (180)              (791)               (90)
                                                  ---------------    ---------------    ---------------
Total deferred income tax (credit) provision          $  (1,006)         $     109         $   (2,947)
                                                  ---------------    ---------------    ---------------
Total income taxes provision (credit)                 $     644          $     839         $   (2,866)
                                                  ===============    ===============    ===============
</TABLE>

                                     F - 18
<PAGE>

                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003)
                (US dollars in thousands, except per share data)

8.   INCOME TAXES (Continued)

     Income tax expense  (benefit) for the years ended  December 31, 2005,  2004
     and 2003 were allocated as follows:
<TABLE>
<CAPTION>
                                                               2005               2004               2003
                                                          ---------------    ---------------    ---------------
     <S>                                                      <C>                <C>             <C>
     Income from continuing operations                        $    644           $    839        $   (2,866)
     Shareholders' equity - compensation expense for
       tax purposes in excess of amounts recognized                (93)                 -               (44)
       for financial reporting purposes
</TABLE>

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

<TABLE>
<CAPTION>
                                                                    2005               2004               2003
                                                               ---------------    ---------------    ---------------
<S>                                                                 <C>                <C>                <C>
The US statutory rate                                               35%                35%                35%
Computed "expected" tax expense
at the US statutory rate                                            $   3,911          $   1,503          $   3,369
State tax, net of federal tax benefit                                     171                127                  1
Foreign tax rate differential                                         (4,534)            (1,028)              (807)
Expenses not deductible for taxation purposes                           1,070                 45                  -
Effect of change in effective rate on deferred tax                         88                  -                  -
Effect on opening deferred tax balances resulting
  from an increase in tax rate during the year                              -                  -              (478)
Change in valuation allowance                                             205                380            (4,476)
China tax rebates                                                       (340)              (212)              (472)
Other, net                                                                 73                 24                (3)
                                                               ---------------    ---------------    ---------------
Income tax provision (credit)                                        $    644           $    839        $   (2,866)
                                                               ===============    ===============    ===============
</TABLE>

     The US statutory  rate has been used because the majority of the  Company's
     taxable  income  arises in the US. The  Company's  subsidiary in China is a
     Sino-foreign  joint venture  enterprise and subject to a statutory tax rate
     of  27%.  The  joint  venture  enterprise   successfully  applied  for  the
     designation  as an "Export  Oriented  Enterprise",  which  resulted  in the
     receipt of tax rebates,  which  effectively  reduced the tax rate to 12% in
     2005, 2004 and 2003.

                                     F - 19
<PAGE>

                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003)
                (US dollars in thousands, except per share data)

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 at December 31:

<TABLE>
<CAPTION>
                                                                    2005               2004
                                                               ---------------    ---------------
<S>                                                               <C>                <C>
Deferred tax assets:
Property, plant and equipment                                     $       697        $       479
Net operating loss carryforwards                                        3,941              4,441
Accounts receivable                                                        45                 43
Accrued payroll and employee benefits                                     409                  -
Accrued sales allowance and warranty                                    1,361                580
Advertising allowances                                                    541                322
Alternative minimum tax credit                                              -                519
Inventories                                                               537                416
Other                                                                     184                 10
                                                               ---------------    ---------------
Total gross deferred tax assets                                         7,715              6,810
Valuation allowance                                                    (4,224)            (4,510)
                                                               ---------------    ---------------
Net deferred tax assets                                           $     3,491        $     2,300

Deferred tax liabilities:
Other                                                             $      (128)       $       (17)
                                                               ---------------    ---------------
Net deferred tax assets                                           $     3,363        $      2,283
Deferred tax charge on unrealized profits
 on intercompany sales                                                    446                520
                                                               ---------------    ---------------
Total deferred income taxes                                           $ 3,809            $ 2,803
                                                               ===============    ===============
</TABLE>

     The  valuation  allowance  was  $8,159 at January  1,  2003.  The  increase
     (decrease) in the valuation  allowance  during the years ended December 31,
     2003,  2004 and 2005  were  $(4,476),  $827 and  $(286),  respectively.  No
     valuation  allowance has been provided  against the deferred tax charges on
     unrealized profits on intercompany sales.

                                     F - 20
<PAGE>

                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003)
                (US dollars in thousands, except per share data)

8.   INCOME TAXES (Continued)

     The following table represents the classification of the Company's deferred
     income taxes at December 31:

                                                  2005               2004
                                             ---------------    ---------------
                                                                 (unaudited)

     Current deferred tax assets                  $   2,791          $   1,330
     Non-current deferred tax assets                    572                953
     Deferred tax charges                               446                520
                                             ---------------    ---------------
     Total net deferred income taxes              $   3,809          $   2,803
                                             ===============    ===============

     As of December 31, 2005, the Company's  United Kingdom (UK)  subsidiary had
     approximately   $13,000  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 and
     the consideration of any available tax strategies.  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 to be realizable. The change in the valuation allowance during the
     years ended December 31, 2005,  2004 and 2003  primarily  reflected the net
     effect of the  change in  deferred  tax  assets in  respect  of tax  losses
     carried forward of the Company's UK subsidiary.

     The Company's operations involve a significant volume 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 of the Company's transfer
     pricing by one of the many tax authorities in  international  jurisdictions
     where  the  Company  and  its  subsidiaries  operate  the  Company's  claim
     regarding lack of permanent  establishment  in China, or other matters that
     may exist such as China's  value  added  taxes,  the  Company is exposed to
     possible  additional  taxation  that  has  not  been  accrued  as it is not
     probable and reasonably  estimable.  Management believes that the potential
     tax  contingencies  for these  items are not  expected  to have a  material
     adverse effect on the financial statements.

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.  During the year ended December 31,
     2003, the Company completed the process of closing the UK R&D office and as
     of December 31, 2003, no restructuring  reserve remained.  During the years
     ended December 31, 2005 and 2004, no restructuring charges were incurred.

                                     F - 21
<PAGE>

                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003)
                (US dollars in thousands, except per share data)

10.  EARNINGS PER SHARE

     The following table sets forth the computation of basic and diluted
earnings per share as of December 31:
<TABLE>
<CAPTION>
                                                               2005               2004               2003
                                                          ---------------    ---------------    ---------------
<S>                                                           <C>                 <C>               <C>
Numerator for basic and diluted earnings per share:
Net income                                                    $   10,532          $   3,456         $   12,491
                                                          ===============    ===============    ===============
Denominator:
Basic weighted average shares                                 18,993,263         18,653,471         18,016,789
Effect of dilutive options                                       669,974            872,286          1,043,185
                                                          ---------------    ---------------    ---------------
Diluted weighted average shares                               19,663,237         19,525,757         19,059,974
                                                          ===============    ===============    ===============
Basic earnings per share:                                      $    0.55          $    0.19          $    0.69
                                                          ===============    ===============    ===============
Diluted earnings per share:                                    $    0.54          $    0.18          $    0.66
                                                          ===============    ===============    ===============
</TABLE>

     Options on 101,500, 54,000 and 136,500 shares of common stock for the years
     ended December 31, 2005, 2004 and 2003, respectively,  were not included in
     computing diluted earnings per share since their effects were antidilutive.

11.  STOCK-BASED COMPENSATION

     Stock Options

     The Company's 1994 Stock Option Plan and 2004 Omnibus Equity Incentive Plan
     for employees and directors  (together,  the "Stock Option Plan")  provides
     for options to be granted for the  purchase of an  aggregate  of  4,200,000
     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.  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.

     In 2001, the Company issued 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
     vest in five years  regardless of the achievement of the performance  goals
     and therefore the  acceleration  did not result in a new measurement of the
     stock options.

                                     F - 22
<PAGE>

                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003)
                (US dollars in thousands, except per share data)

11.  STOCK-BASED COMPENSATION (Continued)

     A summary of option activity is as follows:-
<TABLE>
<CAPTION>
                                            2005                       2004                       2003
                                   -------------------------  -------------------------  -------------------------
                                                 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                      1,583      $  4.39       1,947        $  3.41       2,313        $  4.05
Options granted                          112         8.27         187           8.36         370           5.10
Options exercised                      (306)         3.62       (510)           2.11       (426)           2.67
Options forfeited                       (36)         7.82        (41)           4.19       (310)          11.24
                                   ----------               ----------                 ----------
Outstanding at end of year            1,353       $  4.78      1,583         $  4.39      1,947         $  3.41
                                   ==========               ==========                 ==========

Options exercisable
at year end                           1,125       $  4.39      1,091         $  3.80      1,232         $  2.88
                                   ==========               ==========                 ==========
</TABLE>

     The following is additional  information relating to options outstanding as
     of December 31, 2005:
<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                 52             $ 1.73               3.63                   52           $  1.73
    $ 2.001 to 4.000                642               3.22               4.49                  637              3.23
    $ 4.001 to 6.000                278               4.37               6.97                  196              4.37
    $ 6.001 to 8.000                158               7.09               7.82                  136              7.11
    $ 8.001 to 10.000               206               8.60               8.62                   87              8.69
    $ 12.001 to 14.000               16              12.63               3.25                   16             12.63
    $ 18.001 to 20.000                1              20.00               2.00                    1             20.00
                               --------                                                   --------
                                  1,353             $ 4.80               5.97                1,125           $ 4.40
                               ========                                                   ========
</TABLE>

     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 $2.78,  $2.70 and $1.47 per option for the years ended  December
     31, 2005, 2004 and 2003, respectively.  The values were estimated using the
     Black-Scholes  option  pricing  model with the following  weighted  average
     assumptions:

                                     F - 23
<PAGE>

                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003)
                (US dollars in thousands, except per share data)

11.  STOCK-BASED COMPENSATION (Continued)
<TABLE>
<CAPTION>
                                                       2005               2004               2003
                                                  ---------------    ---------------    ---------------
     <S>                                               <C>                <C>                <C>
     Expected life of options                          3.2 years          3.5 years          3.6 years
     Risk-free interest rate                             4.0%               3.6%               2.8%
     Expected volatility of underlying stock              50%                45%                33%
     Dividends                                           2.2%               1.9%                 -
</TABLE>


     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.

     Had  the  Company  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 and
     earnings  per share  would  have  been  adjusted  to the pro forma  amounts
     disclosed in Note 2 to the consolidated financial statements.

     Common Stock

     The Company issued 1,492, 2,272 and 3,073 shares of common stock during the
     years ended December 31, 2005,  2004 and 2003,  respectively,  to directors
     who elected to receive  some or all of their  directors'  fees in shares of
     the Company in lieu of cash.  Shares issued,  which were valued at the then
     current market price are recorded as an expense in the income statement and
     amounted to $8, $21 and $20 for the years ended December 31, 2005, 2004 and
     2003, respectively.

                                     F - 24
<PAGE>

                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003)
                (US dollars in thousands, except per share data)

11.  STOCK-BASED COMPENSATION (Continued)

     Restricted Common Stock

     Commencing  in May  2005,  upon  each  annual  re-election  to the Board of
     Directors,  each outside director and the Chairman of the Board is entitled
     to receive 600 shares of  restricted  common  stock per quarter  commencing
     upon such  re-election  date  (i.e.  2,400  shares  per  annum) at the then
     current market price. The weighted  average price of the restricted  common
     stock granted during 2005 was $8.75 per share.  These shares become free of
     any restrictions,  in equal  installments,  over two years from the date of
     grant.

     In  addition,  upon the initial  election or  appointment  of a new outside
     director to the Board of  Directors,  such  director is entitled to receive
     5,000 shares of restricted  common stock at the then-current  market price.
     These shares become free of any restrictions,  in equal installments,  over
     two years from the date of grant.

     The Company  issued 35,200,  nil and nil shares of restricted  common stock
     during the years ended December 31, 2005, 2004 and 2003,  respectively,  to
     members of the Board of Directors as compensation  for their services.  The
     Company  records  deferred  stock  compensation  related to the  restricted
     shares of common stock which was measured based on the fair market value on
     the date of grant and is being  amortized  over the  vesting  period of two
     years.  As of December  31,  2005,  the Company had  approximately  $203 of
     unamortized  deferred stock  compensation  related to restricted  shares of
     common stock. Amortization of deferred stock compensation expense was $105,
     nil,  and nil for the  years  ended  December  31,  2005,  2004  and  2003,
     respectively. Future amortization of deferred stock compensation relates to
     restricted shares of common stock is estimated to be as follows:

                                             Amortization of
                                              deferred stock
                                               compensation
                                             -----------------
     2006                                            134
     2007                                             69
                                             -----------------
                                                 $   203
                                             =================

12. RETIREMENT PLANS

     In Hong Kong, the Company  contributes to a mandatory  provident fund and a
     defined contribution  retirement plan covering substantially all employees.
     Under these plans,  eligible  employees  contribute amounts through payroll
     deductions up to a certain percentage of the employee salary,  supplemented
     by  employer  contributions  ranging  from 5% to 10% of  individual  salary
     depending  on the years of service.  The expense  related to the  Company's
     contributions  was $237,  $198 and $253 for the years  ended  December  31,
     2005, 2004 and 2003, respectively.

     Radica's US and UK employees are eligible to  participate  in savings plans
     administered by independent trustees, all of which are defined contribution
     plans.  The expense related to the Company's  contributions  was $121, $118
     and $74 for the years ended December 31, 2005, 2004 and 2003, respectively.

                                     F - 25
<PAGE>

                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003)
                (US dollars in thousands, except per share data)

13. FAIR VALUE OF FINANCIAL INSTRUMENTS

     The  amounts  reported  for  cash  and  cash  equivalents,  trade  accounts
     receivable  and trade accounts  payable 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.

14. PLEDGE OF ASSETS

     At December 31, 2005, the Company has general banking facilities  including
     overdraft  and trade  facilities  totaling  $5,050  available for immediate
     borrowing.   The  facilities  are  collateralized  by  leasehold  land  and
     buildings with an aggregate net book value of $1,969.

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  $849,  $761 and $589 for the years ended  December  31,
     2005, 2004 and 2003, respectively. In the normal course of business, leases
     that expire are renewed or  replaced by leases on other  properties.  As of
     December 31, 2005, the Company was obligated under non-cancelable operating
     leases  requiring  future  minimum  rental  payments  as  follows:

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

     2006                                           738
     2007                                           432
     2008                                           319
     2009                                           199
     2010                                           127
     Thereafter                                     666
                                            ---------------
     Total minimum lease payments             $   2,481
                                            ===============

     Joint Venture Agreement

     As of December 31, 2005,  the Company is committed to pay a total of $3,263
     in varying  amounts over the  remaining  initial term of the joint  venture
     agreement  of 30 years  until  2024  under the  terms of the joint  venture
     agreement  with the local  government in Dongguan,  China (see note 2). The
     joint venture  agreement term is 30 years after which it may be extended by
     20 years to match  the land use  rights  of 50  years.  The  joint  venture
     partner has agreed to extend the joint venture  agreement for 20 years when
     it expires without  compensation  and the Company intends to renew it. Upon
     expiration,  the joint  venture  agreement  may be  extended by 20 years to
     match the land use right of 50 years. Payments to the joint venture partner
     over the renewal period will be subject to negotiation  between the Company
     and the joint venture partner at that time.

                                     F - 26
<PAGE>

                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003)
                (US dollars in thousands, except per share data)

15.  COMMITMENTS AND CONTINGENCIES (Continued)

     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  video  game
     accessories  products.  Details of the movement in the  warranty  provision
     during the years are presented 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 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
                                             ----------------

     2006                                           30
     2007                                          220
     Thereafter                                      -
                                             ----------------
                                                 $  250
                                             ================

     For the years  ended  December  31,  2005,  2004 and 2003,  actual  royalty
     payments made under contracts with minimum royalty provisions  exceeded the
     minimum royalty amounts.

     Capital Commitments

     The Company has capital commitments of $207 at December 31, 2005 in respect
     of the  construction  and  expansion  of its  manufacturing  facilities  in
     Dongguan, China.

                                     F - 27
<PAGE>

                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003)
                (US dollars in thousands, except per share data)

15.  COMMITMENTS AND CONTINGENCIES (Continued)

     Litigation

     On  April  4,  2000  a  lawsuit  was  filed  by  the  Lemelson   Foundation
     ("Lemelson")  against the Company in Arizona Court for patent infringement.
     Lemelson  claims to be owner of nearly  800  issued  and  pending  patents,
     including  the  patent  on  Machine  Vision  and  Automatic  Identification
     (AutoID)  operations.  The Auto ID operation  is used in machines  that are
     part of the Company's  bonding and  heat-sealing  manufacturing  processes.
     Lemelson was  contesting  that the use of machines  that  incorporate  this
     patented technology infringes on their intellectual  property ("IP") rights
     and therefore the Company is obligated to pay a royalty based on the use of
     this  technology.  The suit by Lemelson  was stayed  pending the outcome of
     Lemelson vs. Cognex, a similar suit filed by Lemelson, which had bearing on
     the Radica case with Lemelson.  On January 23, 2004 a declaratory  judgment
     was given in the Cognex case that Lemelson's patent claims are invalid.  On
     September  9,  2005,  Lemelson's  appeal  to the Court of  Appeals  for the
     Federal  Circuit  was denied and the  judgment  of the  District  Court was
     affirmed.  Subsequently,  Lemelson filed a Petition for Panel Rehearing and
     Rehearing  En Banc to review the Court of Appeals'  September 9, 2005 Order
     that affirmed the judgment of the District  Court. On November 16, 2005 the
     Court of Appeals for the Federal  Circuit  affirmed  its  September 9, 2005
     ruling and denied the Petition for  Rehearing  En Banc.  The prior  pending
     claim or litigation, specifically, Lemelson Medical Education Foundation v.
     ESCO  Electronics,  et al.;  CIV-00-0660 PHX HRH in the U.S. District Court
     for the District of Arizona was dismissed with prejudice and final judgment
     was entered in favor of Radica on February 3, 2006.

     In 2005, the Company and its subsidiary Radica (Macao Commercial  Offshore)
     Limited (the "Radica  parties")  were involved in  litigation  initiated by
     AtGames  Holdings  Limited which  challenged  the  exclusivity  of Radica's
     rights  to the Play TV Sega  Genesis  games.  In late  December  2005,  the
     arbitrator  issued an interim  decision in favor of Sega Corporation in its
     arbitration  against  AtGames.   Subsequently,  in  January  2006,  AtGames
     voluntarily  dismissed (without prejudice) its complaint against Radica and
     Radica Macao.  At present,  there is no pending  litigation or  arbitration
     against  Radica  arising  out of  this  matter.  However,  the  Company  is
     considering  whether  to take  legal  action  against  the other  companies
     involved in this  matter  with  respect to  infringement  of the  Company's
     intellectual  property  rights and, if such action is taken,  counterclaims
     may be made against the Radica parties.

16.  CONCENTRATIONS OF RISK

     Dependence on Major Customers

     Historically,  a  significant  portion  of the  Company's  sales  have been
     concentrated  with a few  large  retail  customers.  Most of the  Company's
     retail customers operate on a purchase order basis and the Company does not
     have  long-term  contracts  with its retail  customers.  While the  Company
     believes it has good  relationships  with its major retail  customers,  the
     loss of one or more of these retail  customers would have an adverse effect
     on its operating results.

                                     F - 28
<PAGE>

                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003)
                (US dollars in thousands, except per share data)

16.  CONCENTRATIONS OF RISK (Continued)

     The top six customers for each of the three years ended  December 31, 2005,
     2004 and 2003 were as follows:

                                                      % OF SALES
       CUSTOMER NAME                              FOR THE FISCAL YEAR
                                            2005          2004          2003
                                            ----          ----          ----
       1.  Wal-Mart (USA)                  30.8%         24.5%         31.9%
       2.  Target (USA)                    11.9%          9.6%          5.5%
       3.  Toys`R'Us (USA)                  8.9%         10.0%          8.9%
       4.  Kohl's (USA)                     5.5%          2.6%          2.5%
       5.  Argos (U.K.)                     4.6%          6.7%          8.0%
       6.  Hasbro (USA)                     3.3%          4.5%          8.2%

     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. The Company
     performs ongoing credit evaluations of its customers'  financial  condition
     and generally requires no collateral from its customers.

     Dependence on Suppliers and Subcontractors

     The Company is dependent on suppliers for the  components and parts that it
     assembles to produce its products.  An  interruption of the supply of LCDs,
     semiconductor  chips or other  supplies  from a  supplier  could  result in
     significant production delays. Additionally, recent increases in oil prices
     have resulted in  significant  price  increases from suppliers of plastics.
     Most of the Company's  products are primarily made from plastic.  While the
     Company's products also contain significant  electronic  components and the
     cost of the plastic may not be the most significant  material costs, if oil
     prices  continue to rise,  it could result in  additional  increases in the
     price of plastic,  which would increase its product costs and  subsequently
     reduce the Company's profits. The Company is also encountering increases in
     the costs of other  materials such as copper,  which is used in a number of
     its  electronic  components,  that could also  potentially  impact  product
     costs.

     The Company also relies on outside  manufacturers for production of some of
     its electronic games and video game accessories.  While the majority of the
     Company's  production  occurs in its own  factory,  manufacturer  delays or
     shutdowns  could  have a  significant  impact  on future  sales of  certain
     products.

     Licenses and Royalties

     The Company has entered  into  various  license and royalty  agreements  in
     which it pays fees in  exchange  for rights to use  product  inventions  or
     trademarked  names,  shapes and  likenesses  for use in  development of its
     product lines.  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.  See note 15 for further information.
     The  Company's  license  and  royalty  agreements  are  based  on  a  fixed
     percentage  of sales made  during the period in order to maintain or extend
     the rights to its  existing  licenses.  Several of the  Company's  licenses
     apply to products that  generate a large volume of sales.  Were the Company
     unable to maintain these licenses or renew them upon  expiration,  the lost
     sales could have a significant impact on future earnings.

                                     F - 29
<PAGE>

                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                 (YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003)
                (US dollars in thousands, except per share data)

17.  SEGMENT INFORMATION

     The Company's chief operating  decision-maker (or "CODM") is comprised of a
     group of executive management. The Company's CODM reviews operating results
     and  operating  plans  and  makes  resource   allocation   decisions  on  a
     company-wide  or aggregate  basis.  The Company has one reportable  segment
     which is the Games and Youth Electronic  business.  This business develops,
     manufactures   and  markets  a  diverse   line  of  games  and   electronic
     entertainment products. In prior years, the Company had disclosed the Video
     Game Accessories ("VGA") business as a reportable segment.  However, VGA is
     no longer a reportable  segment in 2005. The Company's CODM no longer views
     the VGA business as a separate segment for either reporting purposes or for
     making  decisions  about  resource   allocation  as  the  VGA  business  is
     immaterial (VGA business  represented 4.5% of the consolidated  revenue for
     2005).  Accordingly,  as of and for the year ended  December 31, 2005,  the
     Company has only one reportable segment.

     Revenues  from external  customers by product  category  including  revenue
     derived from manufacturing services are summarized as follows:
<TABLE>
<CAPTION>
                                             2005               2004               2003
                                       ---------------    ---------------    ---------------
     <S>                                   <C>                <C>                <C>
     Electronic Games                      $  125,965         $   80,640         $   62,374
     Youth Electronics                         17,868             17,038             15,227
     Other Toys                                 2,839              3,490                  -
     Video Games Accessories                    7,266             12,840             14,294
     Manufacturing Services                     8,841              9,391             13,305
                                       ---------------    ---------------    ---------------
     Total net revenues                    $  162,779         $  123,399         $  105,200
                                       ===============    ===============    ===============
</TABLE>

     Manufacturing  services is not considered an operating  segment because the
     CODM has not analyzed or assessed the performance of manufacturing services
     as a separate  line of business or an  operating  segment,  but rather as a
     type of service that  generates  auxiliary  income to the Company and helps
     fill excessive production capacity during non-peak production seasons.

                                     F - 30
<PAGE>

                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                 (YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003)
                (US dollars in thousands, except per share data)

17.  SEGMENT INFORMATION (Continued)

     Information about the Company's operations in different geographic areas is
     set forth in the table below.  Net sales are attributed to countries  based
     on the location of customers, while long-lived assets are reported based on
     their location.  Long-lived assets principally include property,  plant and
     equipment and other long-lived assets:
<TABLE>
<CAPTION>
                                                2005               2004               2003
                                           ---------------    ---------------    ---------------
     <S>                                       <C>                <C>                <C>
     Net sales:
       United States                           $  109,979         $   81,542         $   72,520
       United Kingdom                              18,773             18,156             13,189
       New Zealand                                  1,292              1,094                152
       Japan                                        2,713              1,591                930
       Europe                                      10,851              3,744              3,292
       Canada                                       4,045              3,471              2,191
       Australia                                    5,547              4,387              1,970
       Other countries                              9,579              9,414             10,956
                                           ---------------    ---------------    ---------------
                                               $  162,779         $  123,399         $  105,200
                                           ===============    ===============    ===============
     Long-lived assets:
       United States                           $      450          $   6,534          $   9,937
       United Kingdom                                 102                147                114
       China and Hong Kong                         14,823             11,668             12,283
                                           ---------------    ---------------    ---------------
                                               $   15,375         $   18,349         $   22,334
                                           ===============    ===============    ===============
</TABLE>

     Included in the long-lived  assets was goodwill of $nil,  $6,015 and $9,551
     as of December 31, 2005, 2004 and 2003, respectively.

                                     F - 31
<PAGE>

                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                 (YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003)
                (US dollars in thousands, except per share data)

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>

2005
Allowance for doubtful accounts                           $     148         $       34        $      (17)          $     165
Allowance for estimated sales returns                           924                401              (840)                485
Accrued warranty expenses                                     1,070              3,386            (2,400)              2,056
Allowance for sales programs                                  1,911              3,991            (3,320)              2,582
Allowance for co-operative
  marketing and advertising expenses                          1,196              2,573            (2,008)              1,761
                                                    ----------------   ----------------   ----------------   ----------------
                                                          $   5,249         $   10,385        $   (8,585)          $   7,049
                                                    ================   ================   ================   ================

2004
  Allowance for doubtful accounts                         $     251         $        6        $     (109)          $     148
  Allowance for estimated sales returns                       1,390              1,145            (1,611)                924
  Accrued warranty expenses                                   1,040              1,903            (1,873)              1,070
  Allowance for sales programs                                2,893              2,834            (3,816)              1,911
  Allowance for co-operative
    marketing and advertising expenses                        1,091              1,883            (1,778)              1,196
                                                    ----------------   ----------------   ----------------   ----------------
                                                          $   6,665         $    7,771        $   (9,187)          $   5,249
                                                    ================   ================   ================   ================

2003
  Allowance for doubtful accounts                          $    315         $      114        $     (178)          $     251
  Allowance for estimated sales returns                       1,247              1,079              (936)              1,390
  Accrued warranty expenses                                   1,040              2,495            (2,495)              1,040
  Allowance for sales programs                                3,591              2,809            (3,507)              2,893
  Allowance for co-operative
    marketing and advertising expenses                        1,242              1,480            (1,631)              1,091
                                                    ----------------   ----------------   ----------------   ----------------
                                                          $   7,435          $   7,977        $   (8,747)          $   6,665
                                                    ================   ================   ================   ================
</TABLE>

                                     F - 32
<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 30, 2006                   /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  (incorporated  by  reference to
          exhibit 4.6 to the filing of the  registrant  identified in footnote 8
          below).

4.6(a)    Amendment No. 2 to Employment Agreement, dated as of February 1, 2005,
          between  Radica USA and Jeanne  Olson  (incorporated  by  reference to
          exhibit 4.6(a) to the filing of the registrant  identified in footnote
          9 below).

*4.7      Change in Control Bonus Agreement,  dated as of March 1, 2006, between
          Radica USA and Jeanne Olson.

4.8       [Reserved]

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).

                                      I-2
<PAGE>

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  (incorporated  by reference to
          exhibit 4.14 to the filing of the registrant  identified in footnote 8
          below).

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 (incorporated
          by  reference  to  exhibit  4.16  to  the  filing  of  the  registrant
          identified in footnote 8 below).

4.16(a)   Agreement No. 2 to Employment  Agreement  dated as of January 31, 2005
          among Radica USA, Radica Games Limited and Patrick Feely (incorporated
          by  reference  to  exhibit  4.16(a)  to the  filing of the  registrant
          identified in footnote 9 below).

*4.17     Change in Control Bonus  Agreement,  dated as of March 1, 2006,  among
          Radica USA, Radica Games Limited and Patrick Feely.

*4.18     Agreement (in connection with Executive's sale of shares), dated as of
          March 1, 2006,  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  (incorporated  by
          reference to exhibit 4.20 to the filing of the  registrant  identified
          in footnote 8 below).

4.20(a)   Amendment  No. 2 to  Employment  Agreement,  dated as of February  18,
          2005, between Radica Games Limited and David C.W. Howell (incorporated
          by  reference  to  exhibit  4.20(a)  to the  filing of the  registrant
          identified in footnote 9 below).

*4.21     Change in Control Bonus Agreement,  dated as of March 1, 2006, between
          Radica Games Limited and David C.W. Howell.

*4.21(a)  Agreement (in connection with Executive's sale of shares), dated as of
          March 1, 2006, between Radica Games Limited and David C.W. Howell.

4.22      Employment  Agreement,  dated as of April 7,  2003,  among  Radica  UK
          Limited,  Radica  Games  Limited  and Denis  Horton  (incorporated  by
          reference to exhibit 4.22 to the filing of the  registrant  identified
          in footnote 8 below).

*4.23     Change in Control Bonus  Agreement,  dated as of March 1, 2006,  among
          Radica UK Limited, Radica Games Limited and Denis Horton.


                                      I-3
<PAGE>

*4.24     Agreement (in connection with Executive's sale of shares), dated as of
          March 1, 2006, among Radica UK Limited, Radica Games Limited and Denis
          Horton.

*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

*15.1     Statement re Selected Quarterly Financial Data

*15.2     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.

(8)  Incorporated  by  reference  to Form 20-F for the year ended  December  31,
     2003.

(9)  Incorporated  by  reference  to Form 20-F for the year ended  December  31,
     2004.


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.

The  registrant is not required to file  blackout  trading  restriction  notices
under part 10 of Item 19 of Form 20-F,  because the registrant does not maintain
any  individual  account  plans that permit  participants  or  beneficiaries  to
acquire or hold equity securities of the registrant.


                                      I-4
<PAGE>

EXHIBIT 4.7


                        CHANGE IN CONTROL BONUS AGREEMENT
                             Effective March 1, 2006


          THIS CHANGE IN CONTROL BONUS  AGREEMENT is entered into as of March 1,
2006 by and between  Radica Games Limited  ("Radica"),  Radica  Enterprises  Ltd
("Radica USA") and Jeanne Olson ("Employee").

          WHEREAS, Employee has substantial executive management experience;

          WHEREAS,  Radica and  Radica  USA would  like to secure the  continued
services of Employee and to ensure her continued dedication to her duties in the
event of the occurrence of a Change in Control;

          WHEREAS,  Radica and  Radica  USA would  like to enhance  the value of
Radica  and  Radica  USA by  motivating  superior  performance  by  means  of an
incentive that is directly related to value received by Radica in a sale;

SECTION 1      CHANGE IN CONTROL

     1.1. In the case of the following events (each a "Change in Control"),  and
subject to the other  terms of this  Agreement,  Employee  will be  eligible  to
receive the Bonus described in Section 2:

          (a) the  consummation  of a  merger,  consolidation,  statutory  share
exchange,  short form merger or similar form of corporate  transaction involving
Radica or any member of the Radica  Group  including  by way of  acquisition  of
shares (a "Business  Combination"),  unless immediately  following such Business
Combination:  (A) more than 50% of the total voting power of (x) the corporation
resulting from such Business Combination (the "Surviving  Corporation"),  or (y)
if applicable,  the ultimate parent  corporation that directly or indirectly has
beneficial  ownership of at least 95% of the voting securities eligible to elect
directors  of  the  Surviving   Corporation  (the  "Parent   Corporation"),   is
represented by Radica Voting Securities that were outstanding  immediately prior
to such Business  Combination (or, if applicable,  is represented by shares into
which such Radica Voting  Securities  were  converted  pursuant to such Business
Combination),   and  such  voting   power  among  the  holders   thereof  is  in
substantially  the same  proportion  as the voting  power of such Radica  Voting
Securities  among  the  holders  thereof   immediately  prior  to  the  Business
Combination,  (B) no person  (other than any  employee  benefit plan (or related
trust)  sponsored  or  maintained  by the  Surviving  Corporation  or the Parent
Corporation or an existing Radica shareholder,  with greater than 50% beneficial
ownership of the Radica  Voting  Securities  prior to the Business  Combination,
whose percentage  beneficial ownership compared to the other Radica shareholders
in existence  immediately  prior to the Business  Combination does not change on
consummation of the Business  Transaction),  is or becomes the beneficial owner,
directly  or  indirectly,  of 50% or  more  of the  total  voting  power  of the
outstanding  voting  securities  eligible  to  elect  directors  of  the  Parent
Corporation (or, if there is no Parent Corporation,  the Surviving  Corporation)
and (C) at least a  majority  of the  members of the board of  directors  of the
Parent
<PAGE>

Corporation (or, if there is no Parent Corporation,  the Surviving  Corporation)
following the consummation of the Business  Combination were Incumbent Directors
at the time of the Board's  approval of the  execution of the initial  agreement
providing  for  such  Business   Combination  (any  Business  Combination  which
satisfies  all of the  criteria  specified  in (A),  (B) and (C) above  shall be
deemed to be a "Non-Qualifying Transaction"); or

          (b) the consummation of a sale of all or substantially all of Radica's
assets (a "Sale") in one or a series of related  transactions.  For  purposes of
this  Agreement,  a sale of assets  representing  50% or more of the book value,
revenues or net income of Radica shall be deemed to be a sale of "substantially"
all of the assets of Radica.

SECTION 2      BONUS AND PAYMENT

     2.1. Bonus Amount.  In case of a Change in Control that occurs on or before
March 1, 2007,  or a Change in Control  that occurs as a result of a  definitive
agreement  that is signed on or before  March 1,  2007,  the amount of the Bonus
will be $100,000.00.

In each case the Bonus amount is subject to the adjustments described in Section
2.3 and the conditions described in Section 3.

     2.2.  Payment.  Provided  that the  conditions  specified  in Section 3 are
satisfied  and  subject  to  Section  4,  within 10 days  following  a Change in
Control,  Radica will pay to  Employee an amount in cash equal to the Bonus,  as
stated in Section 2.1.

SECTION 3      CONDITIONS TO RECEIVE BONUS

     3.1.  Employee will not be entitled to receive a Bonus and will forfeit all
rights with  respect to the Bonus if for any reason  Employee is not an employee
of any member of the Radica Group on the date of the Change in Control.

     3.2.  Notwithstanding the foregoing, if Employee is terminated prior to the
Transaction  Date by  Radica or  Radica  USA  without  Cause,  Employee  will be
entitled  to receive  the Bonus that would have  become due and  payable had she
remained an employee through such date.

SECTION 4      TERM, EXPIRATION AND AMENDMENT

     4.1.  This  Agreement  is  effective as of March 1, 2006 and will expire as
follows:  If a Change in Control has not  occurred  prior to March 1, 2007,  all
Bonuses will be forfeited  and will be of no further  force or effect;  provided
however that if a definitive agreement has been executed on or prior to March 1,
2007 that  would  result in a Change in  Control  upon  consummation,  then this
Agreement  will  expire on the  earlier  of (i)  December  31,  2007 or (ii) the
termination of such  definitive  agreement.  If a Change in Control occurs after
the expiration of this Agreement, Employee will not be entitled to any Bonus.

     4.2.  This  Agreement  may be amended or  terminated  only with the written
consent of all parties hereto.

                                       2
<PAGE>

SECTION 5      MISCELLANEOUS

     5.1.  This  Agreement is not in any way  intended to create any  guaranteed
period  of  continued  employment;  Employee's  employment  shall  at all  times
continue to be governed by the terms of her Employment Agreement.  Participation
in this Agreement will not constitute or imply any employment rights.

     5.2. No Bonus will be assignable or  transferable  other than by will or by
the laws of  descent  and  distribution,  nor will  such  Bonus  be  subject  to
alienation, assignment, garnishment, execution or levy of any kind.

     5.3.  Radica  will have the right to withhold  from any payment  made under
this Agreement any Federal,  State or local taxes required by law to be withheld
with respect to the payment of the Bonus.

     5.4. Any Bonus under this  Agreement  will  constitute a special  incentive
payment to Employee and will not be taken into  account in computing  the amount
of salary or  compensation  of  Employee  for the  purpose  of  determining  any
benefits under any pension,  retirement,  profit sharing, bonus, life insurance,
severance or other compensation or benefit plan of the Radica Group or under any
agreement with the Employee, unless such plan or agreement specifically provides
otherwise.

     5.5. All rights and obligations  under this Agreement will be construed and
interpreted  in accordance  with the laws of the State of Nevada,  applicable to
agreements made and wholly to be performed in the State of Nevada.

     5.6. If any contest or dispute shall arise under this Agreement,  Radica or
Radica USA shall reimburse Employee,  within 10 days following the resolution of
such contest or dispute,  for all  reasonable  legal fees and expenses,  if any,
incurred by Employee in connection  with such contest or dispute  (regardless of
the result thereof);  provided, however, Employee shall be required to repay any
such  amounts to Radica or Radica USA to the extent that a court  issues a final
and non-appealable order setting forth the determination that the position taken
by Employee was frivolous or advanced by Employee in bad faith.

     5.7. It is Radica Group's and the Employee's  intention that this Agreement
comply with Section 409A of the U.S.  Internal Revenue Code of 1986, as amended.
If either party  believes,  at any time, that this Agreement as amended does not
so comply,  it will promptly advise the other and will negotiate  reasonably and
in good  faith to amend the terms of this  Agreement  such that they  comply and
that amendment  will have the most limited  possible  economic  effect on Radica
Group and the Employee.

     5.8 For the  avoidance  of doubt,  it is agreed  that the  non-competition,
non-solicitation  and  confidentiality  agreement  dated March 31,  2003,  among
executive, Radica and Radica USA has been terminated.

                                       3
<PAGE>

SECTION 6      DEFINITIONS

     6.1. Bonus has the meaning set forth in Section 2.1.

     6.2. Business Combination has the meaning set forth in Section 1.1(a).

     6.3.  Cause has the  meaning  set forth in Section  1(a) of the  Employment
Agreement.

     6.4. Employee means Jeanne Olson.

     6.5.  Employment  Agreement  means  the  Employment  Agreement  dated as of
December 15, 2001, Amendment No. 1 dated as of March 31, 2003, and Amendment No.
2 dated as of February 1, 2005 between Radica, Radica USA and Employee

     6.6.  Incumbent  Directors  means  individuals  who,  on  January  1, 2005,
constitute the Board of Directors of Radica, provided that any person becoming a
director  subsequent  to January 1,  2005,  whose  election  or  nomination  for
election  was  approved  by a vote  of at  least  two-thirds  of  the  Incumbent
Directors  then on the Board  (either by a specific  vote or by  approval of the
proxy  statement  of Radica  in which  such  person  is named as a  nominee  for
director,  without  written  objection  to such  nomination),  shall  also be an
Incumbent Director.

     6.7. Radica means Radica Games Limited.

     6.8.  Radica Group means Radica,  Radica USA and any other  corporation  or
other entity which at the relevant times is more than fifty percent (50%) owned,
directly or indirectly, by Radica.

     6.9. Radica Voting  Securities means securities of Radica  representing 50%
or more of the combined  voting power of Radica's  then  outstanding  securities
eligible to vote for the election of the Board of Directors.

     6.10. Radica USA means Radica Enterprises Ltd.

     6.11. Sale has the meaning set forth in Section 1.1(b).

     6.12.  Transaction  Date  means  the  date  on  which  a Sale  or  Business
Combination is consummated.

     6.13. Transaction Price means the total amount of consideration received by
the shareholders of Radica or, in the event of a Change in Control  described in
1.1(b),   the  aggregate   consideration   received  by  Radica   (allocable  to
shareholders  on an  after-tax  basis  assuming a dividend  of such  proceeds as
determined by the  Compensation  Committee).  For purposes of this Section,  any
notes or  deferred  payment  received  in  connection  with the Sale or Business
Combination  (that are not  contingent  on the future  performance  of Radica or
other  factor)  shall  be  treated  as  cash  consideration  and  valued  at its
face-value  or  principal  amount.   The  fair  market  value  of  any  non-cash
consideration will be determined in good faith by the Compensation  Committee of

                                       4
<PAGE>

the Board;  provided  that the fair market value of any security for which there
is an  established  public  market  will be equal to the  average of the closing
market  prices  for  such  security  over  the ten  trading  days  prior  to the
Transaction  Date and  provided  further  that in their  evaluation  of any such
non-cash  consideration for which there is not an established public market, the
Compensation  Committee  will  seek and rely  upon the  advice  of a an  outside
valuation consultant or investment banking firm.

The parties acknowledge that the provisions described above in this Section 6.13
reflect their  intention to calculate the  Transaction  Price.  In the event any
definitive  agreement for the sale of Radica  approaches  this issue in a manner
not  addressed in this  Agreement,  the parties will  negotiate in good faith to
make any adjustments to the methodology for calculating the Transaction Price as
may be  necessary  and  appropriate  to fairly  implement  the  intention of the
parties as reflected in this Agreement.

          IN WITNESS  WHEREOF,  the parties have duly executed this Agreement as
of the day and year first above written.



RADICA GAMES LIMITED                                 JEANNE OLSON



By:      /s/ Patrick S. Feely                        By:      /s/ Jeanne Olson
      ---------------------------------                 ----------------------



RADICA ENTERPRISES



By:      /s/ Patrick S. Feely
         --------------------

<PAGE>

EXHIBIT 4.17



                        CHANGE IN CONTROL BONUS AGREEMENT
                             Effective March 1, 2006


          THIS CHANGE IN CONTROL BONUS  AGREEMENT is entered into as of March 1,
2006 by and between  Radica Games Limited  ("Radica"),  Radica  Enterprises  Ltd
("Radica USA") and Patrick Feely ("Employee").

          WHEREAS, Employee has substantial executive management experience;

          WHEREAS,  Radica and  Radica  USA would  like to secure the  continued
services of Employee and to ensure his continued dedication to his duties in the
event of the occurrence of a Change in Control;

          WHEREAS,  Radica and  Radica  USA would  like to enhance  the value of
Radica  and  Radica  USA by  motivating  superior  performance  by  means  of an
incentive that is directly related to value received by Radica in a sale;

SECTION 1      CHANGE IN CONTROL

     1.1. In the case of the following events (each a "Change in Control"),  and
subject to the other  terms of this  Agreement,  Employee  will be  eligible  to
receive the Bonus described in Section 2:

          (a) the  consummation  of a  merger,  consolidation,  statutory  share
exchange,  short form merger or similar form of corporate  transaction involving
Radica or any member of the Radica  Group  including  by way of  acquisition  of
shares (a "Business  Combination"),  unless immediately  following such Business
Combination:  (A) more than 50% of the total voting power of (x) the corporation
resulting from such Business Combination (the "Surviving  Corporation"),  or (y)
if applicable,  the ultimate parent  corporation that directly or indirectly has
beneficial  ownership of at least 95% of the voting securities eligible to elect
directors  of  the  Surviving   Corporation  (the  "Parent   Corporation"),   is
represented by Radica Voting Securities that were outstanding  immediately prior
to such Business  Combination (or, if applicable,  is represented by shares into
which such Radica Voting  Securities  were  converted  pursuant to such Business
Combination),   and  such  voting   power  among  the  holders   thereof  is  in
substantially  the same  proportion  as the voting  power of such Radica  Voting
Securities  among  the  holders  thereof   immediately  prior  to  the  Business
Combination,  (B) no person  (other than any  employee  benefit plan (or related
trust)  sponsored  or  maintained  by the  Surviving  Corporation  or the Parent
Corporation or an existing Radica shareholder,  with greater than 50% beneficial
ownership of the Radica  Voting  Securities  prior to the Business  Combination,
whose percentage  beneficial ownership compared to the other Radica shareholders
in existence  immediately  prior to the Business  Combination does not change on
consummation of the Business  Transaction),  is or becomes the beneficial owner,
directly  or  indirectly,  of 50% or  more  of the  total  voting  power  of the
outstanding  voting  securities  eligible  to  elect  directors  of  the  Parent
Corporation (or, if there is no Parent Corporation,  the Surviving  Corporation)
and (C) at least a  majority  of the  members of the board of  directors  of the
Parent

<PAGE>

Corporation (or, if there is no Parent Corporation,  the Surviving  Corporation)
following the consummation of the Business  Combination were Incumbent Directors
at the time of the Board's  approval of the  execution of the initial  agreement
providing  for  such  Business   Combination  (any  Business  Combination  which
satisfies  all of the  criteria  specified  in (A),  (B) and (C) above  shall be
deemed to be a "Non-Qualifying Transaction"); or

          (b) the consummation of a sale of all or substantially all of Radica's
assets (a "Sale") in one or a series of related  transactions.  For  purposes of
this  Agreement,  a sale of assets  representing  50% or more of the book value,
revenues or net income of Radica shall be deemed to be a sale of "substantially"
all of the assets of Radica.

SECTION 2      BONUS AND PAYMENT

     2.1. Bonus Amount.  In case of a Change in Control that occurs on or before
March 1, 2007,  or a Change in Control  that occurs as a result of a  definitive
agreement  that is signed on or before  March 1,  2007,  the amount of the Bonus
will be calculated as set forth below;  provided that for any Transaction  Price
between a  Transaction  Price  listed below  (above  $197,000,000)  and the next
higher  price,  the  amount of the Bonus  will be  calculated  by  interpolating
between the relevant Bonus and the next higher Bonus amount:

------------------------------------- -----------------------------------
         Transaction Price                          Bonus
 (aggregate consideration received
             by Radica)
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
Less than $197,000,000                $0
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
$197,000,000                          $330,000
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
$216,700,000                          $390,000
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
$236,400,000                          $450,000
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
$256,100,000                          $510,000
------------------------------------- -----------------------------------

In each case the Bonus amount is subject to the adjustments described in Section
2.3 and the conditions described in Section 3.

     2.2.  Payment.  Provided  that the  conditions  specified  in Section 3 are
satisfied  and  subject  to  Section  4,  within 10 days  following  a Change in
Control,  Radica will pay to  Employee an amount in cash equal to the Bonus,  as
calculated in Section 2.1.

     2.3. Special Payment Provisions.  In the case of a Business  Combination or
Sale,  if the terms of the  definitive  agreement  that results in the Change in
Control involve any provisions:

                                       2
<PAGE>

          (a) pursuant to which a part of the Transaction  Price will be paid to
     Radica or the Radica  shareholders  in one or more  installments  after the
     Business  Combination  or Sale or any other  deferral of the payment of the
     Sale Price, then payment of the Bonus will be pro-rated so that:

          (i) a portion of the Bonus,  based on the  portion of the  Transaction
     Price paid to Radica or the Radica  shareholders at the  Transaction  Date,
     will be paid to the Employee in accordance with Section 2.2 above and

          (ii) an  additional  portion  of the  Bonus  will be paid to  Employee
     within 10 days following the date any additional portion of the Transaction
     Price is paid to Radica or the Radica shareholders.

          (b) that would  require the buyer to pay or cause to be paid to Radica
     an amount which would result in an increased  Transaction  Price (after the
     Transaction  Date), such as pursuant to an earn-out provision or otherwise,
     then at the time such additional amount is paid to Radica,  the Transaction
     Price will be  recalculated  to include such  additional  amount and Radica
     will pay to Employee the resulting  Bonus within 10 days following the date
     such  additional  amount is paid to Radica,  less any  portion of the Bonus
     already paid.

SECTION 3      CONDITIONS TO RECEIVE BONUS

     3.1.  Employee will not be entitled to receive a Bonus and will forfeit all
rights with  respect to the Bonus if for any reason  Employee is not an employee
of any member of the Radica Group on the date of the Change in Control.

     3.2.  Notwithstanding the foregoing, if Employee is terminated prior to the
Transaction  Date by  Radica or  Radica  USA  without  Cause,  Employee  will be
entitled  to receive  the Bonus that would have  become due and  payable  had he
remained an employee through such date.

SECTION 4      TERM, EXPIRATION AND AMENDMENT

     4.1.  This  Agreement  is  effective as of March 1, 2006 and will expire as
follows:  If a Change in Control has not  occurred  prior to March 1, 2007,  all
Bonuses will be forfeited  and will be of no further  force or effect;  provided
however that if a definitive agreement has been executed on or prior to March 1,
2007 that  would  result in a Change in  Control  upon  consummation,  then this
Agreement  will  expire on the  earlier  of (i)  December  31,  2007 or (ii) the
termination of such  definitive  agreement.  If a Change in Control occurs after
the expiration of this Agreement, Employee will not be entitled to any Bonus.

     4.2.  This  Agreement  may be amended or  terminated  only with the written
consent of all parties hereto.

                                       3
<PAGE>

SECTION 5      MISCELLANEOUS

     5.1.  This  Agreement is not in any way  intended to create any  guaranteed
period  of  continued  employment;  Employee's  employment  shall  at all  times
continue to be governed by the terms of his Employment Agreement.  Participation
in this Agreement will not constitute or imply any employment rights.

     5.2. No Bonus will be assignable or  transferable  other than by will or by
the laws of  descent  and  distribution,  nor will  such  Bonus  be  subject  to
alienation, assignment, garnishment, execution or levy of any kind.

     5.3.  Radica  will have the right to withhold  from any payment  made under
this Agreement any Federal,  State or local taxes required by law to be withheld
with respect to the payment of the Bonus.

     5.4. Any Bonus under this  Agreement  will  constitute a special  incentive
payment to Employee and will not be taken into  account in computing  the amount
of salary or  compensation  of  Employee  for the  purpose  of  determining  any
benefits under any pension,  retirement,  profit sharing, bonus, life insurance,
severance or other compensation or benefit plan of the Radica Group or under any
agreement with the Employee, unless such plan or agreement specifically provides
otherwise.

     5.5. All rights and obligations  under this Agreement will be construed and
interpreted  in accordance  with the laws of the State of Nevada,  applicable to
agreements made and wholly to be performed in the State of Nevada.

     5.6. If any contest or dispute shall arise under this Agreement,  Radica or
Radica USA shall reimburse Employee,  within 10 days following the resolution of
such contest or dispute,  for all  reasonable  legal fees and expenses,  if any,
incurred by Employee in connection  with such contest or dispute  (regardless of
the result thereof);  provided, however, Employee shall be required to repay any
such  amounts to Radica or Radica USA to the extent that a court  issues a final
and non-appealable order setting forth the determination that the position taken
by Employee was frivolous or advanced by Employee in bad faith.

     5.7. It is Radica Group's and the Employee's  intention that this Agreement
comply with Section 409A of the U.S.  Internal Revenue Code of 1986, as amended.
If either party  believes,  at any time, that this Agreement as amended does not
so comply,  it will promptly advise the other and will negotiate  reasonably and
in good  faith to amend the terms of this  Agreement  such that they  comply and
that amendment  will have the most limited  possible  economic  effect on Radica
Group and the Employee.

SECTION 6      DEFINITIONS

     6.1. Bonus has the meaning set forth in Section 2.1.

     6.2. Business Combination has the meaning set forth in Section 1.1(a).

                                       4
<PAGE>

     6.3.  Cause has the  meaning  set forth in Section  1(a) of the  Employment
Agreement.

     6.4. Employee means Patrick Feely.

     6.5. Employment Agreement means the Amendment and Restatement of Employment
Agreement  dated as of September  27, 2000,  Amendment No. dated as of March 31,
2003, and Amendment No. 2 dated as of January 31, 2005,  between Radica,  Radica
USA and Employee

     6.6.  Incumbent  Directors  means  individuals  who,  on  January  1, 2005,
constitute the Board of Directors of Radica, provided that any person becoming a
director  subsequent  to January 1,  2005,  whose  election  or  nomination  for
election  was  approved  by a vote  of at  least  two-thirds  of  the  Incumbent
Directors  then on the Board  (either by a specific  vote or by  approval of the
proxy  statement  of Radica  in which  such  person  is named as a  nominee  for
director,  without  written  objection  to such  nomination),  shall  also be an
Incumbent Director.

     6.7. Radica means Radica Games Limited.

     6.8.  Radica Group means Radica,  Radica USA and any other  corporation  or
other entity which at the relevant times is more than fifty percent (50%) owned,
directly or indirectly, by Radica.

     6.9. Radica Voting  Securities means securities of Radica  representing 50%
or more of the combined  voting power of Radica's  then  outstanding  securities
eligible to vote for the election of the Board of Directors.

     6.10. Radica USA means Radica Enterprises Ltd.

     6.11. Sale has the meaning set forth in Section 1.1(b).

     6.12.  Transaction  Date  means  the  date  on  which  a Sale  or  Business
Combination is consummated.

     6.13. Transaction Price means the total amount of consideration received by
the shareholders of Radica or, in the event of a Change in Control  described in
1.1(b),   the  aggregate   consideration   received  by  Radica   (allocable  to
shareholders  on an  after-tax  basis  assuming a dividend  of such  proceeds as
determined by the  Compensation  Committee).  For purposes of this Section,  any
notes or  deferred  payment  received  in  connection  with the Sale or Business
Combination  (that are not  contingent  on the future  performance  of Radica or
other  factor)  shall  be  treated  as  cash  consideration  and  valued  at its
face-value  or  principal  amount.   The  fair  market  value  of  any  non-cash
consideration will be determined in good faith by the Compensation  Committee of
the Board;  provided  that the fair market value of any security for which there
is an  established  public  market  will be equal to the  average of the closing
market  prices  for  such  security  over  the ten  trading  days  prior  to the
Transaction  Date and  provided  further  that in their  evaluation  of any such
non-cash  consideration for which there is not an established public market, the
Compensation  Committee  will  seek and rely  upon the  advice  of a an  outside
valuation consultant or investment banking firm.

                                       5
<PAGE>

The parties acknowledge that the provisions described above in this Section 6.13
reflect their  intention to calculate the  Transaction  Price.  In the event any
definitive  agreement for the sale of Radica  approaches  this issue in a manner
not  addressed in this  Agreement,  the parties will  negotiate in good faith to
make any adjustments to the methodology for calculating the Transaction Price as
may be  necessary  and  appropriate  to fairly  implement  the  intention of the
parties as reflected in this Agreement.

          IN WITNESS  WHEREOF,  the parties have duly executed this Agreement as
of the day and year first above written.



RADICA GAMES LIMITED                              PATRICK S. FEELY



By:      /s/ Jon N. Bengtson                      By:      /s/ Patrick S. Feely
      --------------------------                      --------------------------



RADICA ENTERPRISES



By:      /s/ Jon N. Bengtson
      -------------------------


                                       6
<PAGE>

EXHIBIT 4.18


                                    AGREEMENT


          This Agreement  dated as of this 1st day of March,  2006 (the "Signing
Date"), between Radica Enterprises,  Ltd, a corporation organized under the laws
of Nevada ("Radica USA") and a wholly owned subsidiary of, Radica Games Limited,
a corporation  organized  under the laws of Bermuda  ("Radica"),  and Patrick S.
Feely (the "Executive").

          WHEREAS,  Executive  is  currently  employed  as the  Chief  Executive
Officer of Radica and desires to remain so employed;

          WHEREAS, this Agreement is entered into in connection with Executive's
sale of his shares of Radica,  in  consideration  for the payment  described  in
Section 2 hereof, and in consideration of the confidential  information that has
been provided by Radica and Radica USA to Executive;

          NOW,  THEREFORE,  in  consideration  of the  foregoing  and the mutual
commitments contained in this Agreement, the parties hereto agree as follows:

     1.   Effectiveness.
          -------------

          (a) This Agreement shall become  effective upon a Change in Control of
Radica  that  occurs on or before  March 1,  2007 or such  later  date as may be
applicable  under  Section  1(b)  (the  "Applicable  Date")  or as a result of a
definitive  agreement  for a Change in Control that is signed on or before March
1, 2007 or such later date as may be the  Applicable  Date. For purposes of this
Agreement,  a "Change in  Control"  shall be defined as in the Change in Control
Bonus Agreement, dated March 1, 2006, between Radica, Radica USA and Executive.

          (b) The  foregoing  period  within  which  this  Agreement  may become
effective shall be automatically  renewed annually at each March 1st anniversary
date  (commencing  March 1, 2007) for an additional  one year period so that the
term hereof at each renewal date shall be a one-year  period,  unless a party to
this Agreement gives notice at least ninety (90) days prior to such renewal date
that this Agreement shall not be renewed.

     2.   Consideration.
          -------------

     Upon the  occurrence  of a Change in Control,  Radica will pay to Executive
the  amount  of  $730,000  and  provide  certain  Confidential   Information  in
consideration for his complying with the covenants in Sections 3, below.

     3.   Covenant not to Compete; Nonsolicitation; Confidential Information.
          -------------------------------------------------------------------

          (a)  Non-Compete.  During the two year  period  following  a Change in
Control  (the  "Restrictive  Period"),  the  Executive  shall  not  directly  or
indirectly (without the prior written consent of Radica):

<PAGE>

          (i) hold a 5% or greater equity  (including  stock options  whether or
     not exercisable),  voting or profit participation interest in a Competitive
     Enterprise, or

          (ii) associate (including as a director,  officer, employee,  partner,
     consultant,  agent  or  advisor)  with  a  Competitive  Enterprise  and  in
     connection  with  the  Executive's   association  engage,  or  directly  or
     indirectly manage or supervise personnel engaged, in any activity:

                    (A) that is  substantially  related to any activity that the
          Executive was engaged in with Radica or Radica USA or their affiliates
          during the 12 months prior to the Change in Control,

                    (B) that is substantially  related to any activity for which
          the  Executive  had  direct  or  indirect  managerial  or  supervisory
          responsibility  with Radica or Radica USA or their  affiliates  during
          the 12 months prior to the Change in Control, or

                    (C) that calls for the application of specialized  knowledge
          or skills substantially  related to those used by the Executive in his
          activities with Radica or Radica USA or their affiliates during the 12
          months prior to the Change in Control.

For  purposes of this  Agreement,  "Competitive  Enterprise"  means any business
enterprise that either (A) engages in, designs, develops, manufactures,  markets
or sells  products in any of the  following  lines of business as defined by The
NPD  Group,  Inc.:  (i)  electronic  handheld  and  tabletop  games,  (ii) youth
electronics,  or (iii)  video  game  accessories,  or (B) holds a 5% or  greater
equity,  voting or profit participation  interest in any enterprise that engages
in such a competitive activity.

          (b) Non-Solicit.  During the Restrictive  Period,  the Executive shall
not, in any manner, directly or indirectly (without the prior written consent of
Radica):  (i) Solicit  any  Customer to  transact  business  with a  Competitive
Enterprise or to reduce or refrain from doing any business with Radica or Radica
USA, (ii) transact  business with any Customer that would cause the Executive to
be a Competitive  Enterprise,  (iii)  interfere with or damage any  relationship
between  Radica or Radica USA and a Customer or (iv) Solicit  anyone who is then
an  employee of Radica or Radica USA (or who was an employee of Radica or Radica
USA within the prior 12 months) to resign  from Radica or Radica USA or to apply
for or accept employment with any other business or enterprise.

For purposes of this Agreement,  a "Customer"  means any customer or prospective
customer  of  Radica,  Radica  USA or their  affiliates  to whom  the  Executive
provided  services,  or for whom the  Executive  transacted  business,  or whose
identity became known to the Executive in connection with his relationship  with
or  employment  by Radica or  Radica  USA,  and  "Solicit"  means any  direct or
indirect  communication of any kind, regardless of who initiates it, that in any
way invites, advises,  encourages or requests any person to take or refrain from
taking any action.

          (c) Confidential Information.  The Executive hereby acknowledges that,
as an employee of Radica and Radica USA,  Radica and Radica USA has provided him
and is

                                       2
<PAGE>

continuing  to  provide  him and he is making  use of,  acquiring  and adding to
confidential  information  of a special and unique nature and value  relating to
Radica and Radica USA and their  strategic  plan and financial  operations.  The
Executive further recognizes and acknowledges that all confidential  information
is  the   exclusive   property  of  Radica  and  Radica  USA,  is  material  and
confidential,  and is  critical  to the  successful  conduct of the  business of
Radica and Radica USA and to the  Executive's  performance  of his duties  while
employed.  Accordingly,  the Executive  hereby covenants and agrees that he will
use  confidential  information for the benefit of Radica and Radica USA only and
shall not at any time, directly or indirectly, during the Restrictive Period and
thereafter  divulge,  reveal or communicate any confidential  information to any
person,  firm,  corporation  or  entity  whatsoever,  or  use  any  confidential
information for his own benefit or for the benefit of others.

     4.   Notice to New Employers.
          ------------------------

     Before the  Executive  either  applies for or accepts  employment  with any
other person or entity during the Restrictive Period, the Executive will provide
the  prospective  employer with written notice of the provisions of Section 3 of
this Agreement and will deliver a copy of the notice to Radica.

     5.   Entire Agreement; Modification.
          -------------------------------

     This Agreement contains the entire agreement between Executive,  Radica and
Radica  USA,  and it is the  complete,  final and  exclusive  embodiment  of our
agreement  with regard to this subject  matter.  This  Agreement  supersedes the
non-competition, non-solicitation and confidentiality agreement, dated March 31,
2003,  among  Executive,  Radica and Radica  USA.  It is  entered  into  without
reliance on any promise or representation  other than those expressly  contained
herein, and it cannot be amended except in writing signed by both parties.

     The terms and  provisions of this Agreement are intended to be separate and
divisible  provisions and if, for any reason, any one or more of them is held to
be invalid or unenforceable,  neither the validity nor the enforceability of any
other provision of this Agreement shall thereby be affected.  The parties hereto
acknowledge and agree that the potential  restrictions on the Executive's future
employment  imposed  by  Section  3 of this  Agreement  are  reasonable  in both
duration and geographic  scope and in all other respects.  If for any reason any
court of competent  jurisdiction  shall find any provisions of Section 3 of this
Agreement  unreasonable  in  duration  or  geographic  scope or  otherwise,  the
Executive,  Radica and Radica USA agree that the  restrictions  and prohibitions
contained therein shall be automatically  reformed to the fullest extent allowed
under applicable law in such jurisdiction.

     In the event  that the  Executive  challenges  the  enforceability  of this
Agreement and a court finds that this Agreement is unenforceable,  the Executive
shall  repay to Radica  an amount  equal to the  Consideration  provided  for in
Section 2 within 10 business days following such determination.

                                       3
<PAGE>

     6.   Disputes; Governing Law
          -----------------------

          (a) The  Executive,  Radica and Radica USA  irrevocably  submit to the
exclusive  jurisdiction  of any state or federal  court  located in the State of
Nevada over any controversy or claim between the Executive and Radica and Radica
USA  arising  out of or relating to or  concerning  this  Agreement.  Executive,
Radica and Radica USA (i) acknowledge that the forum stated in this Section 6(a)
has a reasonable relation to this Agreement and to the relationship  between the
Executive, Radica and Radica USA and that the submission to the forum will apply
even if the forum  chooses to apply  non-forum  law,  (ii) waive,  to the extent
permitted by law, any  objection  to personal  jurisdiction  or to the laying of
venue of any action or  proceeding  in the forum  stated in this  Section  6(a),
(iii) agree not to commence  any such  action or  proceeding  in any forum other
than the one  stated in this  Section  6(a) and (iv) agree  that,  to the extent
permitted  by law, a final and  non-appealable  judgment  in any such  action or
proceeding  in any such court will be conclusive  and binding on the  Executive,
Radica  and  Radica  USA.  However,  nothing  in this  Agreement  precludes  the
Executive or Radica or Radica USA from  bringing any action or proceeding in any
court for the purposes of enforcing the provisions of this Section 6(a).

          (b) TO THE EXTENT  PERMITTED BY LAW, THE EXECUTIVE,  RADICA AND RADICA
USA WAIVE ANY AND ALL RIGHTS TO A JURY TRIAL.

          (c) Executive  acknowledges that Radica and Radica USA would be harmed
by a breach of  Section 3 hereof  and that,  in  addition  to any other  remedy,
Radica shall be entitled to injunctive relief.

          (d) THIS  AGREEMENT  SHALL  BE  GOVERNED  BY THE LAWS OF THE  STATE OF
NEVADA.

     7.   Survival.
          ---------

     Any  termination of the  Executive's  employment  after the Applicable Date
shall have no effect on the continuing operation of this Agreement.

     8.   Notices.
          --------

     For  purposes  of this  Agreement,  all  notices  and other  communications
required or permitted  hereunder shall be in writing and shall be deemed to have
been duly given  when  delivered  or five (5) days  after  deposit in the United
States mail,  certified and return receipt requested,  postage prepaid,  to such
address as either party may have furnished to the other in writing in accordance
herewith,  except that notices of change of address shall be effective only upon
receipt.

                                       4
<PAGE>

     9.   Waiver.
          -------

     If  either  party  should  waive  any  breach  of any  provisions  of  this
Agreement,  he or it shall not thereby be deemed to have waived any preceding or
succeeding breach of the same or any other provision of this Agreement.

     10.  Assignment.
          -----------

     This Agreement and any rights or  obligations  hereunder may be assigned by
Radica and Radica USA to any  successor in interest to Radica's and Radica USA's
business. This Agreement may not be assigned by Executive.

     11.  Headings.
          ---------

     The headings of the sections hereof are inserted for  convenience  only and
shall  not be deemed to  constitute  a part  hereof  nor to affect  the  meaning
thereof.

     IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.






RADICA                                             Executive



By:      /s/ Jon N. Bengtson                       By:    /s/ Patrick S. Feely
      --------------------------------------          --------------------------



RADICA USA



By:      /s/ Jon N. Bengtson
       --------------------------------------

<PAGE>

EXHIBIT 4.21


                        CHANGE IN CONTROL BONUS AGREEMENT
                             Effective March 1, 2006


          THIS CHANGE IN CONTROL BONUS  AGREEMENT is entered into as of March 1,
2006 by and  between  Radica  Games  Limited  ("Radica")  and David C.W.  Howell
("Employee").

          WHEREAS, Employee has substantial executive management experience;

          WHEREAS,  Radica  would  like to  secure  the  continued  services  of
Employee and to ensure his  continued  dedication  to his duties in the event of
the occurrence of a Change in Control;

          WHEREAS,  Radica  would  like  to  enhance  the  value  of  Radica  by
motivating  superior  performance  by means  of an  incentive  that is  directly
related to value received by Radica in a sale;

SECTION 1      CHANGE IN CONTROL
               -----------------

     1.1. In the case of the following events (each a "Change in Control"),  and
subject to the other  terms of this  Agreement,  Employee  will be  eligible  to
receive the Bonus described in Section 2:

          (a) the  consummation  of a  merger,  consolidation,  statutory  share
exchange,  short form merger or similar form of corporate  transaction involving
Radica or any member of the Radica  Group  including  by way of  acquisition  of
shares (a "Business  Combination"),  unless immediately  following such Business
Combination:  (A) more than 50% of the total voting power of (x) the corporation
resulting from such Business Combination (the "Surviving  Corporation"),  or (y)
if applicable,  the ultimate parent  corporation that directly or indirectly has
beneficial  ownership of at least 95% of the voting securities eligible to elect
directors  of  the  Surviving   Corporation  (the  "Parent   Corporation"),   is
represented by Radica Voting Securities that were outstanding  immediately prior
to such Business  Combination (or, if applicable,  is represented by shares into
which such Radica Voting  Securities  were  converted  pursuant to such Business
Combination),   and  such  voting   power  among  the  holders   thereof  is  in
substantially  the same  proportion  as the voting  power of such Radica  Voting
Securities  among  the  holders  thereof   immediately  prior  to  the  Business
Combination,  (B) no person  (other than any  employee  benefit plan (or related
trust)  sponsored  or  maintained  by the  Surviving  Corporation  or the Parent
Corporation or an existing Radica shareholder,  with greater than 50% beneficial
ownership of the Radica  Voting  Securities  prior to the Business  Combination,
whose percentage  beneficial ownership compared to the other Radica shareholders
in existence  immediately  prior to the Business  Combination does not change on
consummation of the Business  Transaction),  is or becomes the beneficial owner,
directly  or  indirectly,  of 50% or  more  of the  total  voting  power  of the
outstanding  voting  securities  eligible  to  elect  directors  of  the  Parent
Corporation (or, if there is no Parent Corporation,  the Surviving  Corporation)
and (C) at least a  majority  of the  members

<PAGE>

of the board of directors of the Parent  Corporation  (or, if there is no Parent
Corporation,  the  Surviving  Corporation)  following  the  consummation  of the
Business  Combination  were  Incumbent  Directors  at the  time  of the  Board's
approval of the execution of the initial  agreement  providing for such Business
Combination  (any  Business  Combination  which  satisfies  all of the  criteria
specified  in (A),  (B) and (C) above  shall be  deemed to be a  "Non-Qualifying
Transaction"); or

          (b) the consummation of a sale of all or substantially all of Radica's
assets (a "Sale") in one or a series of related  transactions.  For  purposes of
this  Agreement,  a sale of assets  representing  50% or more of the book value,
revenues or net income of Radica shall be deemed to be a sale of "substantially"
all of the assets of Radica.

SECTION 2      BONUS AND PAYMENT
               -----------------

     2.1. Bonus Amount.  In case of a Change in Control that occurs on or before
March 1, 2007,  or a Change in Control  that occurs as a result of a  definitive
agreement  that is signed on or before  March 1,  2007,  the amount of the Bonus
will be calculated as set forth below;  provided that for any Transaction  Price
between a  Transaction  Price  listed below  (above  $197,000,000)  and the next
higher  price,  the  amount of the Bonus  will be  calculated  by  interpolating
between the relevant Bonus and the next higher Bonus amount:

------------------------------------- -----------------------------------
         Transaction Price                          Bonus
 (aggregate consideration received
             by Radica)
------------------------------------- -----------------------------------
Less than $197,000,000                $0
------------------------------------- -----------------------------------
$197,000,000                          $127,000
------------------------------------- -----------------------------------
$216,700,000                          $187,000
------------------------------------- -----------------------------------
$236,400,000                          $248,000
------------------------------------- -----------------------------------
$256,100,000                          $319,000
------------------------------------- -----------------------------------

In each case the Bonus amount is subject to the adjustments described in Section
2.3 and the conditions described in Section 3.

     2.2.  Payment.  Provided  that the  conditions  specified  in Section 3 are
satisfied  and  subject  to  Section  4,  within 10 days  following  a Change in
Control,  Radica will pay to  Employee an amount in cash equal to the Bonus,  as
calculated in Section 2.1.

     2.3. Special Payment Provisions.  In the case of a Business  Combination or
Sale,  if the terms of the  definitive  agreement  that results in the Change in
Control involve any provisions:

                                       2
<PAGE>

          (a) pursuant to which a part of the Transaction  Price will be paid to
     Radica or the Radica  shareholders  in one or more  installments  after the
     Business  Combination  or Sale or any other  deferral of the payment of the
     Sale Price, then payment of the Bonus will be pro-rated so that:

          (i) a portion of the Bonus,  based on the  portion of the  Transaction
     Price paid to Radica or the Radica  shareholders at the  Transaction  Date,
     will be paid to the Employee in accordance with Section 2.2 above and

          (ii) an  additional  portion  of the  Bonus  will be paid to  Employee
     within 10 days following the date any additional portion of the Transaction
     Price is paid to Radica or the Radica shareholders.

          (b) that would  require the buyer to pay or cause to be paid to Radica
     an amount which would result in an increased  Transaction  Price (after the
     Transaction  Date), such as pursuant to an earn-out provision or otherwise,
     then at the time such additional amount is paid to Radica,  the Transaction
     Price will be  recalculated  to include such  additional  amount and Radica
     will pay to Employee the resulting  Bonus within 10 days following the date
     such  additional  amount is paid to Radica,  less any  portion of the Bonus
     already paid.

SECTION 3      CONDITIONS TO RECEIVE BONUS
               ---------------------------

     3.1.  Employee will not be entitled to receive a Bonus and will forfeit all
rights with  respect to the Bonus if for any reason  Employee is not an employee
of any member of the Radica Group on the date of the Change in Control.

     3.2.  Notwithstanding the foregoing, if Employee is terminated prior to the
Transaction  Date by Radica without Cause,  Employee will be entitled to receive
the Bonus that would have  become due and  payable  had he  remained an employee
through such date.

SECTION 4      TERM, EXPIRATION AND AMENDMENT

     4.1.  This  Agreement  is  effective as of March 1, 2006 and will expire as
follows:  If a Change in Control has not  occurred  prior to March 1, 2007,  all
Bonuses will be forfeited  and will be of no further  force or effect;  provided
however that if a definitive agreement has been executed on or prior to March 1,
2007 that  would  result in a Change in  Control  upon  consummation,  then this
Agreement  will  expire on the  earlier  of (i)  December  31,  2007 or (ii) the
termination of such  definitive  agreement.  If a Change in Control occurs after
the expiration of this Agreement, Employee will not be entitled to any Bonus.

     4.2.  This  Agreement  may be amended or  terminated  only with the written
consent of all parties hereto.

                                       3
<PAGE>

SECTION 5                  MISCELLANEOUS

     5.1.  This  Agreement is not in any way  intended to create any  guaranteed
period  of  continued  employment;  Employee's  employment  shall  at all  times
continue to be governed by the terms of his Employment Agreement.  Participation
in this Agreement will not constitute or imply any employment rights.

     5.2. No Bonus will be assignable or  transferable  other than by will or by
the laws of  descent  and  distribution,  nor will  such  Bonus  be  subject  to
alienation, assignment, garnishment, execution or levy of any kind.

     5.3.  Radica  will have the right to withhold  from any payment  made under
this Agreement any Federal,  State or local taxes required by law to be withheld
with respect to the payment of the Bonus.

     5.4. Any Bonus under this  Agreement  will  constitute a special  incentive
payment to Employee and will not be taken into  account in computing  the amount
of salary or  compensation  of  Employee  for the  purpose  of  determining  any
benefits under any pension,  retirement,  profit sharing, bonus, life insurance,
severance or other compensation or benefit plan of the Radica Group or under any
agreement with the Employee, unless such plan or agreement specifically provides
otherwise.

     5.5. All rights and obligations  under this Agreement will be construed and
interpreted  in accordance  with the laws of the State of Nevada,  applicable to
agreements made and wholly to be performed in the State of Nevada.

     5.6. If any contest or dispute  shall  arise under this  Agreement,  Radica
shall  reimburse  Employee,  within 10 days  following  the  resolution  of such
contest or dispute, for all reasonable legal fees and expenses, if any, incurred
by Employee in connection with such contest or dispute (regardless of the result
thereof);  provided,  however,  Employee  shall be  required  to repay  any such
amounts to Radica to the extent that a court  issues a final and  non-appealable
order setting forth the  determination  that the position  taken by Employee was
frivolous or advanced by Employee in bad faith.

SECTION 6      DEFINITIONS
               -----------

     6.1. Bonus has the meaning set forth in Section 2.1.

     6.2. Business Combination has the meaning set forth in Section 1.1(a).

     6.3.  Cause has the  meaning  set forth in Section  1(a) of the  Employment
Agreement.

     6.4. Employee means David C.W. Howell.

                                       4
<PAGE>

     6.5. Employment Agreement means the Amendment and Restatement of Employment
Agreement dated as of September 29, 2000,  Amendment No. 1 dated as of March 31,
2003,  and  Amendment  No. 2 dated as of February 18, 2005,  between  Radica and
Employee

     6.6.  Incumbent  Directors  means  individuals  who,  on  January  1, 2005,
constitute the Board of Directors of Radica, provided that any person becoming a
director  subsequent  to January 1,  2005,  whose  election  or  nomination  for
election  was  approved  by a vote  of at  least  two-thirds  of  the  Incumbent
Directors  then on the Board  (either by a specific  vote or by  approval of the
proxy  statement  of Radica  in which  such  person  is named as a  nominee  for
director,  without  written  objection  to such  nomination),  shall  also be an
Incumbent Director.

     6.7. Radica means Radica Games Limited.

     6.8.  Radica Group means Radica and any other  corporation  or other entity
which at the relevant times is more than fifty percent (50%) owned,  directly or
indirectly, by Radica.

     6.9. Radica Voting  Securities means securities of Radica  representing 50%
or more of the combined  voting power of Radica's  then  outstanding  securities
eligible to vote for the election of the Board of Directors.

     6.10. Sale has the meaning set forth in Section 1.1(b).

     6.11.  Transaction  Date  means  the  date  on  which  a Sale  or  Business
Combination is consummated.

     6.12. Transaction Price means the total amount of consideration received by
the shareholders of Radica or, in the event of a Change in Control  described in
1.1(b),   the  aggregate   consideration   received  by  Radica   (allocable  to
shareholders  on an  after-tax  basis  assuming a dividend  of such  proceeds as
determined by the  Compensation  Committee).  For purposes of this Section,  any
notes or  deferred  payment  received  in  connection  with the Sale or Business
Combination  (that are not  contingent  on the future  performance  of Radica or
other  factor)  shall  be  treated  as  cash  consideration  and  valued  at its
face-value  or  principal  amount.   The  fair  market  value  of  any  non-cash
consideration will be determined in good faith by the Compensation  Committee of
the Board;  provided  that the fair market value of any security for which there
is an  established  public  market  will be equal to the  average of the closing
market  prices  for  such  security  over  the ten  trading  days  prior  to the
Transaction  Date and  provided  further  that in their  evaluation  of any such
non-cash  consideration for which there is not an established public market, the
Compensation  Committee  will  seek and rely  upon the  advice  of a an  outside
valuation consultant or investment banking firm.

The parties acknowledge that the provisions described above in this Section 6.13
reflect their  intention to calculate the  Transaction  Price.  In the event any
definitive  agreement for the sale of Radica  approaches  this issue in a manner
not  addressed in this  Agreement,  the parties will  negotiate in good faith to
make any adjustments to the methodology for calculating the Transaction Price as
may be  necessary  and  appropriate  to fairly  implement  the  intention of the
parties as reflected in this Agreement.

                                       5
<PAGE>

          IN WITNESS  WHEREOF,  the parties have duly executed this Agreement as
of the day and year first above written.



RADICA GAMES LIMITED                              DAVID C. W. HOWELL



By:      /s/ Patrick S. Feely                     By:      /s/ David C.W. Howell
      --------------------------------------         ---------------------------

<PAGE>

EXHIBIT 4.21(A)


                                    AGREEMENT


     This  Agreement  dated  as of this 1st day of  March,  2006  (the  "Signing
Date"),  between Radica Games Limited, a corporation organized under the laws of
Bermuda ("Radica"), and David C.W. Howell (the "Executive").

     WHEREAS,  Executive is currently employed as the Chief Financial Officer of
Radica and desires to remain so employed;

     WHEREAS, this Agreement is entered into in connection with Executive's sale
of his shares of Radica, in consideration for the payment described in Section 2
hereof,  and in  consideration  of the  confidential  information  that has been
provided by Radica to Executive;

     NOW,   THEREFORE,   in  consideration  of  the  foregoing  and  the  mutual
commitments contained in this Agreement, the parties hereto agree as follows:

     1.   Effectiveness.
          --------------

          (a) This Agreement shall become  effective upon a Change in Control of
Radica  that  occurs on or before  March 1,  2007 or such  later  date as may be
applicable  under  Section  1(b)  (the  "Applicable  Date")  or as a result of a
definitive  agreement  for a Change in Control that is signed on or before March
1, 2007 or such later date as may be the  Applicable  Date. For purposes of this
Agreement,  a "Change in  Control"  shall be defined as in the Change in Control
Bonus Agreement, dated March 1, 2006, between Radica and Executive.

          (b) The  foregoing  period  within  which  this  Agreement  may become
effective shall be automatically  renewed annually at each March 1st anniversary
date  (commencing  March 1, 2007) for an additional  one year period so that the
term hereof at each renewal date shall be a one-year  period,  unless a party to
this Agreement gives notice at least ninety (90) days prior to such renewal date
that this Agreement shall not be renewed.

     2.   Consideration.
          --------------

     Upon the  occurrence  of a Change in Control,  Radica will pay to Executive
the  amount  of  $250,000  and  provide  certain  Confidential   Information  in
consideration for his complying with the covenants in Sections 3, below.

     3. Covenant not to Compete; Nonsolicitation; Confidential Information.

          (a)  Non-Compete.  During the one year  period  following  a Change in
Control  (the  "Restrictive  Period"),  the  Executive  shall  not  directly  or
indirectly (without the prior written consent of Radica):

          (i) hold a 5% or greater equity  (including  stock options  whether or
     not exercisable),  voting or profit participation interest in a Competitive
     Enterprise, or

<PAGE>

          (ii) associate (including as a director,  officer, employee,  partner,
     consultant,  agent  or  advisor)  with  a  Competitive  Enterprise  and  in
     connection  with  the  Executive's   association  engage,  or  directly  or
     indirectly manage or supervise personnel engaged, in any activity:

               (A)  that is  substantially  related  to any  activity  that  the
          Executive was engaged in with Radica or its  affiliates  during the 12
          months prior to the Change in Control,

               (B) that is  substantially  related to any activity for which the
          Executive   had  direct  or   indirect   managerial   or   supervisory
          responsibility  with  Radica or its  affiliates  during  the 12 months
          prior to the Change in Control, or

               (C) that calls for the  application of  specialized  knowledge or
          skills  substantially  related to those used by the  Executive  in his
          activities with Radica or its affiliates during the 12 months prior to
          the Change in Control.

For  purposes of this  Agreement,  "Competitive  Enterprise"  means any business
enterprise that either (A) engages in, designs, develops, manufactures,  markets
or sells  products in any of the  following  lines of business as defined by The
NPD  Group,  Inc.:  (i)  electronic  handheld  and  tabletop  games,  (ii) youth
electronics,  or (iii)  video  game  accessories,  or (B) holds a 5% or  greater
equity,  voting or profit participation  interest in any enterprise that engages
in such a competitive activity.

          (b) Non-Solicit.  During the Restrictive  Period,  the Executive shall
not, in any manner, directly or indirectly (without the prior written consent of
Radica):  (i) Solicit  any  Customer to  transact  business  with a  Competitive
Enterprise  or to reduce or refrain  from doing any business  with Radica,  (ii)
transact  business  with any  Customer  that would cause the  Executive  to be a
Competitive Enterprise,  (iii) interfere with or damage any relationship between
Radica and a Customer or (iv)  Solicit  anyone who is then an employee of Radica
(or who was an  employee  of Radica  within the prior 12 months) to resign  from
Radica  or to  apply  for or  accept  employment  with  any  other  business  or
enterprise.

For purposes of this Agreement,  a "Customer"  means any customer or prospective
customer of Radica or its affiliates to whom the Executive provided services, or
for whom the Executive  transacted  business,  or whose identity became known to
the Executive in connection with his relationship  with or employment by Radica,
and "Solicit" means any direct or indirect communication of any kind, regardless
of who  initiates it, that in any way invites,  advises,  encourages or requests
any person to take or refrain from taking any action.

          (c) Confidential Information.  The Executive hereby acknowledges that,
as an employee of Radica,  Radica has provided him and is  continuing to provide
him and he is making use of, acquiring and adding to confidential information of
a special and unique nature and value  relating to Radica and its strategic plan
and financial operations. The Executive further recognizes and acknowledges that
all confidential  information is the exclusive  property of Radica,  is material
and confidential,  and is critical to the successful  conduct of the business of

                                      - 2 -
<PAGE>

Radica  and  to  the  Executive's  performance  of his  duties  while  employed.
Accordingly,  the  Executive  hereby  covenants  and  agrees  that he  will  use
confidential  information  for the  benefit of Radica  only and shall not at any
time,  directly or  indirectly,  during the  Restrictive  Period and  thereafter
divulge, reveal or communicate any confidential information to any person, firm,
corporation or entity  whatsoever,  or use any confidential  information for his
own benefit or for the benefit of others.

     4.   Notice to New Employers.
          ------------------------

     Before the  Executive  either  applies for or accepts  employment  with any
other person or entity during the Restrictive Period, the Executive will provide
the  prospective  employer with written notice of the provisions of Section 3 of
this Agreement and will deliver a copy of the notice to Radica.

     5.   Entire Agreement; Modification.
          -------------------------------

     This Agreement  contains the entire agreement between Executive and Radica,
and it is the  complete,  final and exclusive  embodiment of our agreement  with
regard to this  subject  matter.  It is entered  into  without  reliance  on any
promise or representation  other than those expressly  contained herein,  and it
cannot be amended except in writing signed by both parties.

     The terms and  provisions of this Agreement are intended to be separate and
divisible  provisions and if, for any reason, any one or more of them is held to
be invalid or unenforceable,  neither the validity nor the enforceability of any
other provision of this Agreement shall thereby be affected.  The parties hereto
acknowledge and agree that the potential  restrictions on the Executive's future
employment  imposed  by  Section  3 of this  Agreement  are  reasonable  in both
duration and geographic  scope and in all other respects.  If for any reason any
court of competent  jurisdiction  shall find any provisions of Section 3 of this
Agreement  unreasonable  in  duration  or  geographic  scope or  otherwise,  the
Executive  and Radica agree that the  restrictions  and  prohibitions  contained
therein  shall be  automatically  reformed to the fullest  extent  allowed under
applicable law in such jurisdiction.

     In the event  that the  Executive  challenges  the  enforceability  of this
Agreement and a court finds that this Agreement is unenforceable,  the Executive
shall  repay to Radica  an amount  equal to the  Consideration  provided  for in
Section 2 within 10 business days following such determination.

     6.   Disputes; Governing Law
          -----------------------

          (a) The  Executive  and  Radica  irrevocably  submit to the  exclusive
jurisdiction  of any state or federal  court located in the State of Nevada over
any  controversy  or claim between the  Executive  and Radica  arising out of or
relating to or concerning this  Agreement.  Executive and Radica (i) acknowledge
that the forum stated in this  Section  6(a) has a  reasonable  relation to this
Agreement and to the relationship  between the Executive and Radica and that the
submission to the forum will apply even if the forum chooses to apply  non-forum
law,  (ii) waive,  to the extent  permitted  by law,  any  objection to personal
jurisdiction  or to the laying of venue of

                                      - 3 -
<PAGE>

any action or proceeding  in the forum stated in this Section 6(a),  (iii) agree
not to commence  any such action or  proceeding  in any forum other than the one
stated in this Section 6(a) and (iv) agree that, to the extent permitted by law,
a final and non-appealable judgment in any such action or proceeding in any such
court will be  conclusive  and binding on the  Executive  and  Radica.  However,
nothing in this  Agreement  precludes  the Executive or Radica from bringing any
action or proceeding  in any court for the purposes of enforcing the  provisions
of this Section 6(a).

          (b) TO THE EXTENT PERMITTED BY LAW, THE EXECUTIVE AND RADICA WAIVE ANY
AND ALL RIGHTS TO A JURY TRIAL.

          (c) Executive  acknowledges that Radica would be harmed by a breach of
Section 3 hereof and that,  in addition  to any other  remedy,  Radica  shall be
entitled to injunctive relief.

          (d) THIS  AGREEMENT  SHALL  BE  GOVERNED  BY THE LAWS OF THE  STATE OF
NEVADA.

     7.   Survival.
          ---------

     Any  termination of the  Executive's  employment  after the Applicable Date
shall have no effect on the continuing operation of this Agreement.

     8.   Notices.
          --------

     For  purposes  of this  Agreement,  all  notices  and other  communications
required or permitted  hereunder shall be in writing and shall be deemed to have
been duly given  when  delivered  or five (5) days  after  deposit in the United
States mail,  certified and return receipt requested,  postage prepaid,  to such
address as either party may have furnished to the other in writing in accordance
herewith,  except that notices of change of address shall be effective only upon
receipt.

     9.   Waiver.
          -------

     If  either  party  should  waive  any  breach  of any  provisions  of  this
Agreement,  he or it shall not thereby be deemed to have waived any preceding or
succeeding breach of the same or any other provision of this Agreement.

     10.  Assignment.
          -----------

     This Agreement and any rights or  obligations  hereunder may be assigned by
Radica to any successor in interest to Radica's business. This Agreement may not
be assigned by Executive.

                                      - 4 -
<PAGE>

     11.  Headings.
          ---------

     The headings of the sections hereof are inserted for  convenience  only and
shall  not be deemed to  constitute  a part  hereof  nor to affect  the  meaning
thereof.

     IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.






RADICA GAMES LIMITED                              Executive



By:      /s/ Patrick S. Feely                     By:      /s/ David C.W. Howell
      --------------------------------------         ---------------------------

<PAGE>

EXHIBIT 4.23


                        CHANGE IN CONTROL BONUS AGREEMENT
                             Effective March 1, 2006


          THIS CHANGE IN CONTROL BONUS  AGREEMENT is entered into as of March 1,
2006 by and between Radica Games Limited  ("Radica),  Radica UK Limited ("Radica
UK") and Denis Horton ("Employee").

          WHEREAS, Employee has substantial executive management experience;

          WHEREAS,  Radica  and  Radica UK would  like to secure  the  continued
services of Employee and to ensure his continued dedication to his duties in the
event of the occurrence of a Change in Control;

          WHEREAS,  Radica  and  Radica UK would  like to  enhance  the value of
Radica by  motivating  superior  performance  by means of an  incentive  that is
directly related to value received by Radica in a sale;

SECTION 1      CHANGE IN CONTROL

     1.1. In the case of the following events (each a "Change in Control"),  and
subject to the other  terms of this  Agreement,  Employee  will be  eligible  to
receive the Bonus described in Section 2:

          (a) the  consummation  of a  merger,  consolidation,  statutory  share
exchange,  short form merger or similar form of corporate  transaction involving
Radica or any member of the Radica  Group  including  by way of  acquisition  of
shares (a "Business  Combination"),  unless immediately  following such Business
Combination:  (A) more than 50% of the total voting power of (x) the corporation
resulting from such Business Combination (the "Surviving  Corporation"),  or (y)
if applicable,  the ultimate parent  corporation that directly or indirectly has
beneficial  ownership of at least 95% of the voting securities eligible to elect
directors  of  the  Surviving   Corporation  (the  "Parent   Corporation"),   is
represented by Radica Voting Securities that were outstanding  immediately prior
to such Business  Combination (or, if applicable,  is represented by shares into
which such Radica Voting  Securities  were  converted  pursuant to such Business
Combination),   and  such  voting   power  among  the  holders   thereof  is  in
substantially  the same  proportion  as the voting  power of such Radica  Voting
Securities  among  the  holders  thereof   immediately  prior  to  the  Business
Combination,  (B) no person  (other than any  employee  benefit plan (or related
trust)  sponsored  or  maintained  by the  Surviving  Corporation  or the Parent
Corporation or an existing Radica shareholder,  with greater than 50% beneficial
ownership of the Radica  Voting  Securities  prior to the Business  Combination,
whose percentage  beneficial ownership compared to the other Radica shareholders
in existence  immediately  prior to the Business  Combination does not change on
consummation of the Business  Transaction),  is or becomes the beneficial owner,
directly  or  indirectly,  of 50% or  more  of the  total  voting  power  of the
outstanding  voting  securities  eligible  to  elect  directors  of  the  Parent
Corporation (or, if there is no Parent Corporation,  the Surviving  Corporation)
and (C) at least a  majority  of the  members

<PAGE>

of the board of directors of the Parent  Corporation  (or, if there is no Parent
Corporation,  the  Surviving  Corporation)  following  the  consummation  of the
Business  Combination  were  Incumbent  Directors  at the  time  of the  Board's
approval of the execution of the initial  agreement  providing for such Business
Combination  (any  Business  Combination  which  satisfies  all of the  criteria
specified  in (A),  (B) and (C) above  shall be  deemed to be a  "Non-Qualifying
Transaction"); or

          (b) the consummation of a sale of all or substantially all of Radica's
assets (a "Sale") in one or a series of related  transactions.  For  purposes of
this  Agreement,  a sale of assets  representing  50% or more of the book value,
revenues or net income of Radica shall be deemed to be a sale of "substantially"
all of the assets of Radica.

SECTION 2      BONUS AND PAYMENT

     2.1. Bonus Amount.  In case of a Change in Control that occurs on or before
March 1, 2007,  or a Change in Control  that occurs as a result of a  definitive
agreement  that is signed on or before  March 1,  2007,  the amount of the Bonus
will be calculated as set forth below;  provided that for any Transaction  Price
between a  Transaction  Price  listed below  (above  $197,000,000)  and the next
higher  price,  the  amount of the Bonus  will be  calculated  by  interpolating
between the relevant Bonus and the next higher Bonus amount:

------------------------------------- -----------------------------------
         Transaction Price                          Bonus
 (aggregate consideration received
             by Radica)
------------------------------------- -----------------------------------
Less than $197,000,000                $0
------------------------------------- -----------------------------------
$197,000,000                          $198,000
------------------------------------- -----------------------------------
$216,700,000                          $253,000
------------------------------------- -----------------------------------
$236,400,000                          $314,000
------------------------------------- -----------------------------------
$256,100,000                          $385,000
------------------------------------- -----------------------------------


In each case the Bonus amount is subject to the adjustments described in Section
2.3 and the conditions described in Section 3.

     2.2.  Payment.  Provided  that the  conditions  specified  in Section 3 are
satisfied  and  subject  to  Section  4,  within 10 days  following  a Change in
Control,  Radica will pay to  Employee an amount in cash equal to the Bonus,  as
calculated in Section 2.1.

     2.3. Special Payment Provisions.  In the case of a Business  Combination or
Sale,  if the terms of the  definitive  agreement  that results in the Change in
Control involve any provisions:

                                       2
<PAGE>

               (a)  pursuant  to which a part of the  Transaction  Price will be
          paid to Radica or the Radica  shareholders in one or more installments
          after the Business  Combination  or Sale or any other  deferral of the
          payment of the Sale Price, then payment of the Bonus will be pro-rated
          so that:

               (i) a  portion  of  the  Bonus,  based  on  the  portion  of  the
          Transaction  Price  paid to Radica or the Radica  shareholders  at the
          Transaction  Date,  will be paid to the  Employee in  accordance  with
          Section 2.2 above and

               (ii) an additional  portion of the Bonus will be paid to Employee
          within  10 days  following  the date  any  additional  portion  of the
          Transaction Price is paid to Radica or the Radica shareholders.

               (b) that  would  require  the buyer to pay or cause to be paid to
          Radica an amount which would result in an increased  Transaction Price
          (after  the  Transaction  Date),  such  as  pursuant  to  an  earn-out
          provision or  otherwise,  then at the time such  additional  amount is
          paid to Radica,  the Transaction Price will be recalculated to include
          such  additional  amount and Radica will pay to Employee the resulting
          Bonus within 10 days following the date such additional amount is paid
          to Radica, less any portion of the Bonus already paid.

SECTION 3      CONDITIONS TO RECEIVE BONUS

     3.1.  Employee will not be entitled to receive a Bonus and will forfeit all
rights with  respect to the Bonus if for any reason  Employee is not an employee
of any member of the Radica Group on the date of the Change in Control.

     3.2.  Notwithstanding the foregoing, if Employee is terminated prior to the
Transaction Date by Radica or Radica UK without Cause, Employee will be entitled
to receive  the Bonus that would have  become due and payable had he remained an
employee through such date.

SECTION 4      TERM, EXPIRATION AND AMENDMENT

     4.1.  This  Agreement  is  effective as of March 1, 2006 and will expire as
follows:  If a Change in Control has not  occurred  prior to March 1, 2007,  all
Bonuses will be forfeited  and will be of no further  force or effect;  provided
however that if a definitive agreement has been executed on or prior to March 1,
2007 that  would  result in a Change in  Control  upon  consummation,  then this
Agreement  will  expire on the  earlier  of (i)  December  31,  2007 or (ii) the
termination of such  definitive  agreement.  If a Change in Control occurs after
the expiration of this Agreement, Employee will not be entitled to any Bonus.

     4.2.  This  Agreement  may be amended or  terminated  only with the written
consent of all parties hereto.

                                       3

<PAGE>

SECTION 5      MISCELLANEOUS

     5.1.  This  Agreement is not in any way  intended to create any  guaranteed
period  of  continued  employment;  Employee's  employment  shall  at all  times
continue to be governed by the terms of his Employment Agreement.  Participation
in this Agreement will not constitute or imply any employment rights.

     5.2. No Bonus will be assignable or  transferable  other than by will or by
the laws of  descent  and  distribution,  nor will  such  Bonus  be  subject  to
alienation, assignment, garnishment, execution or levy of any kind.

     5.3.  Radica  will have the right to withhold  from any payment  made under
this Agreement any Federal,  State or local taxes required by law to be withheld
with respect to the payment of the Bonus.

     5.4. Any Bonus under this  Agreement  will  constitute a special  incentive
payment to Employee and will not be taken into  account in computing  the amount
of salary or  compensation  of  Employee  for the  purpose  of  determining  any
benefits under any pension,  retirement,  profit sharing, bonus, life insurance,
severance or other compensation or benefit plan of the Radica Group or under any
agreement with the Employee, unless such plan or agreement specifically provides
otherwise.

     5.5. All rights and obligations  under this Agreement will be construed and
interpreted  in  accordance  with the laws of England and Wales,  applicable  to
agreements made and wholly to be performed in England and Wales.

     5.6. If any contest or dispute shall arise under this Agreement,  Radica or
Radica UK shall reimburse  Employee,  within 10 days following the resolution of
such contest or dispute,  for all  reasonable  legal fees and expenses,  if any,
incurred by Employee in connection  with such contest or dispute  (regardless of
the result thereof);  provided, however, Employee shall be required to repay any
such  amounts to Radica or Radica UK to the extent  that a court  issues a final
and non-appealable order setting forth the determination that the position taken
by Employee was frivolous or advanced by Employee in bad faith.

SECTION 6      DEFINITIONS

     6.1. Bonus has the meaning set forth in Section 2.1.

     6.2. Business Combination has the meaning set forth in Section 1.1(a).

     6.3.  Cause has the  meaning  set forth in Section  1(a) of the  Employment
Agreement.

     6.4. Employee means Denis Horton.

     6.5.  Employment  Agreement  means the Employment  Agreement dated as of 03
April 2003 between Radica, Radica UK and Employee


                                       4


<PAGE>



     6.6.  Incumbent  Directors  means  individuals  who,  on  January  1, 2005,
constitute the Board of Directors of Radica, provided that any person becoming a
director  subsequent  to January 1,  2005,  whose  election  or  nomination  for
election  was  approved  by a vote  of at  least  two-thirds  of  the  Incumbent
Directors  then on the Board  (either by a specific  vote or by  approval of the
proxy  statement  of Radica  in which  such  person  is named as a  nominee  for
director,  without  written  objection  to such  nomination),  shall  also be an
Incumbent Director.

     6.7. Radica means Radica Games Limited.

     6.8.  Radica Group means  Radica,  Radica UK and any other  corporation  or
other entity which at the relevant times is more than fifty percent (50%) owned,
directly or indirectly, by Radica.

     6.9. Radica Voting  Securities means securities of Radica  representing 50%
or more of the combined  voting power of Radica's  then  outstanding  securities
eligible to vote for the election of the Board of Directors.

     6.10. Radica UK means Radica UK Limited.

     6.11. Sale has the meaning set forth in Section 1.1(b).

     6.12.  Transaction  Date  means  the  date  on  which  a Sale  or  Business
Combination is consummated.

     6.13. Transaction Price means the total amount of consideration received by
the shareholders of Radica or, in the event of a Change in Control  described in
1.1(b),   the  aggregate   consideration   received  by  Radica   (allocable  to
shareholders  on an  after-tax  basis  assuming a dividend  of such  proceeds as
determined by the  Compensation  Committee).  For purposes of this Section,  any
notes or  deferred  payment  received  in  connection  with the Sale or Business
Combination  (that are not  contingent  on the future  performance  of Radica or
other  factor)  shall  be  treated  as  cash  consideration  and  valued  at its
face-value  or  principal  amount.   The  fair  market  value  of  any  non-cash
consideration will be determined in good faith by the Compensation  Committee of
the Board;  provided  that the fair market value of any security for which there
is an  established  public  market  will be equal to the  average of the closing
market  prices  for  such  security  over  the ten  trading  days  prior  to the
Transaction  Date and  provided  further  that in their  evaluation  of any such
non-cash  consideration for which there is not an established public market, the
Compensation  Committee  will  seek and rely  upon the  advice  of a an  outside
valuation consultant or investment banking firm.

The parties acknowledge that the provisions described above in this Section 6.13
reflect their  intention to calculate the  Transaction  Price.  In the event any
definitive  agreement for the sale of Radica  approaches  this issue in a manner
not  addressed in this  Agreement,  the parties will  negotiate in good faith to
make any adjustments to the methodology for calculating the Transaction Price as
may be  necessary  and  appropriate  to fairly  implement  the  intention of the
parties as reflected in this Agreement.


                                       5


<PAGE>


          IN WITNESS  WHEREOF,  the parties have duly executed this Agreement as
of the day and year first above written.



RADICA GAMES LIMITED                                  DENIS HORTON



By:      /s/ Patrick S. Feely                         By:      /s/ Denis Horton
      --------------------------------------             ----------------------



RADICA UK LIMITED



By:      /s/ Patrick S. Feely
      ---------------------------------------




                                       6

<PAGE>


EXHIBIT 4.24


                                    AGREEMENT


     This  Agreement  dated  as of this 1st day of  March,  2006  (the  "Signing
Date"),  between Radica UK Limited,  a corporation  organized  under the laws of
England and Wales  ("Radica UK") and a wholly owned  subsidiary of, Radica Games
Limited, a corporation organized under the laws of Bermuda ("Radica"), and Denis
Horton (the "Executive").

     WHEREAS, Executive is currently employed as the Managing Director of Radica
UK and  President,  International  Sales of  Radica  and  desires  to  remain so
employed;

     WHEREAS, this Agreement is entered into in connection with Executive's sale
of his shares of Radica, in consideration for the payment described in Section 2
hereof,  and in  consideration  of the  confidential  information  that has been
provided by Radica and Radica UK to Executive;

     NOW,   THEREFORE,   in  consideration  of  the  foregoing  and  the  mutual
commitments contained in this Agreement, the parties hereto agree as follows:

     1.   Effectiveness.
          --------------

          (a) This Agreement shall become  effective upon a Change in Control of
Radica  that  occurs on or before  March 1,  2007 or such  later  date as may be
applicable  under  Section  1(b)  (the  "Applicable  Date")  or as a result of a
definitive  agreement  for a Change in Control that is signed on or before March
1, 2007 or such later date as may be the  Applicable  Date. For purposes of this
Agreement,  a "Change in  Control"  shall be defined as in the Change in Control
Bonus Agreement, dated March 1, 2006, between Radica, Radica UK and Executive.

          (b) The  foregoing  period  within  which  this  Agreement  may become
effective shall be automatically  renewed annually at each March 1st anniversary
date  (commencing  March 1, 2007) for an additional  one year period so that the
term hereof at each renewal date shall be a one-year  period,  unless a party to
this Agreement gives notice at least ninety (90) days prior to such renewal date
that this Agreement shall not be renewed.

     2.   Consideration.
          --------------

     Upon the  occurrence  of a Change in Control,  Radica will pay to Executive
the  amount of  GBP152,500  and  provide  certain  Confidential  Information  in
consideration for his complying with the covenants in Sections 3, below.

     3.   Covenant not to Compete; Nonsolicitation; Confidential Information.
          -------------------------------------------------------------------

          (a)  Non-Compete.  During the one year  period  following  a Change in
Control  (the  "Restrictive  Period"),  the  Executive  shall  not  directly  or
indirectly (without the prior written consent of Radica):


<PAGE>



          (i) hold a 5% or greater equity  (including  stock options  whether or
     not exercisable),  voting or profit participation interest in a Competitive
     Enterprise, or

          (ii) associate (including as a director,  officer, employee,  partner,
     consultant,  agent  or  advisor)  with  a  Competitive  Enterprise  and  in
     connection  with  the  Executive's   association  engage,  or  directly  or
     indirectly manage or supervise personnel engaged, in any activity:

          (A) that is  substantially  related to any activity that the Executive
     was engaged in with Radica or Radica UK or their  affiliates  during the 12
     months prior to the Change in Control,

          (B) that is  substantially  related  to any  activity  for  which  the
     Executive had direct or indirect  managerial or supervisory  responsibility
     with Radica or Radica UK or their affiliates  during the 12 months prior to
     the Change in Control, or

          (C) that calls for the application of specialized  knowledge or skills
     substantially related to those used by the Executive in his activities with
     Radica or Radica UK or their  affiliates  during the 12 months prior to the
     Change in Control.

For  purposes of this  Agreement,  "Competitive  Enterprise"  means any business
enterprise that either (A) engages in, designs, develops, manufactures,  markets
or sells  products in any of the  following  lines of business as defined by The
NPD  Group,  Inc.:  (i)  electronic  handheld  and  tabletop  games,  (ii) youth
electronics,  or (iii)  video  game  accessories,  or (B) holds a 5% or  greater
equity,  voting or profit participation  interest in any enterprise that engages
in such a competitive activity.

          (b) Non-Solicit.  During the Restrictive  Period,  the Executive shall
not, in any manner, directly or indirectly (without the prior written consent of
Radica):  (i) Solicit  any  Customer to  transact  business  with a  Competitive
Enterprise or to reduce or refrain from doing any business with Radica or Radica
UK, (ii)  transact  business with any Customer that would cause the Executive to
be a Competitive  Enterprise,  (iii)  interfere with or damage any  relationship
between Radica or Radica UK and a Customer or (iv) Solicit anyone who is then an
employee  of Radica or Radica UK (or who was an  employee of Radica or Radica UK
within the prior 12 months) to resign  from  Radica or Radica UK or to apply for
or accept employment with any other business or enterprise.

For purposes of this Agreement,  a "Customer"  means any customer or prospective
customer of Radica, Radica UK or their affiliates to whom the Executive provided
services,  or for whom the  Executive  transacted  business,  or whose  identity
became  known to the  Executive  in  connection  with his  relationship  with or
employment  by Radica or Radica UK, and  "Solicit"  means any direct or indirect
communication  of any kind,  regardless  of who  initiates  it,  that in any way
invites,  advises,  encourages  or requests  any person to take or refrain  from
taking any action.

          (c) Confidential Information.  The Executive hereby acknowledges that,
as an employee of Radica and Radica UK,  Radica and Radica UK has  provided  him
and is continuing


                                     - 2 -



<PAGE>



to provide  him and he is making use of,  acquiring  and adding to  confidential
information  of a special  and unique  nature and value  relating  to Radica and
Radica UK and their  strategic  plan and  financial  operations.  The  Executive
further  recognizes and acknowledges  that all  confidential  information is the
exclusive property of Radica and Radica UK, is material and confidential, and is
critical to the  successful  conduct of the business of Radica and Radica UK and
to the Executive's  performance of his duties while employed.  Accordingly,  the
Executive hereby covenants and agrees that he will use confidential  information
for the benefit of Radica and Radica UK only and shall not at any time, directly
or indirectly,  during the Restrictive Period and thereafter divulge,  reveal or
communicate any  confidential  information to any person,  firm,  corporation or
entity  whatsoever,  or use any confidential  information for his own benefit or
for the benefit of others.

     4.   Notice to New Employers.
          ------------------------

     Before the  Executive  either  applies for or accepts  employment  with any
other person or entity during the Restrictive Period, the Executive will provide
the  prospective  employer with written notice of the provisions of Section 3 of
this Agreement and will deliver a copy of the notice to Radica.

     5.   Entire Agreement; Modification.
          -------------------------------

     This Agreement contains the entire agreement between Executive,  Radica and
Radica  UK,  and it is the  complete,  final  and  exclusive  embodiment  of our
agreement  with  regard to this  subject  matter.  It is  entered  into  without
reliance on any promise or representation  other than those expressly  contained
herein, and it cannot be amended except in writing signed by both parties.

     The terms and  provisions of this Agreement are intended to be separate and
divisible  provisions and if, for any reason, any one or more of them is held to
be invalid or unenforceable,  neither the validity nor the enforceability of any
other provision of this Agreement shall thereby be affected.  The parties hereto
acknowledge and agree that the potential  restrictions on the Executive's future
employment  imposed  by  Section  3 of this  Agreement  are  reasonable  in both
duration and geographic  scope and in all other respects.  If for any reason any
court of competent  jurisdiction  shall find any provisions of Section 3 of this
Agreement  unreasonable  in  duration  or  geographic  scope or  otherwise,  the
Executive,  Radica and Radica UK agree that the  restrictions  and  prohibitions
contained therein shall be automatically  reformed to the fullest extent allowed
under applicable law in such jurisdiction.

     In the event  that the  Executive  challenges  the  enforceability  of this
Agreement and a court finds that this Agreement is unenforceable,  the Executive
shall  repay to Radica  an amount  equal to the  Consideration  provided  for in
Section 2 within 10 business days following such determination.


                                     - 3 -


<PAGE>



     6.   Disputes; Governing Law
          -----------------------

          (a) The  Executive,  Radica  and Radica UK  irrevocably  submit to the
non-exclusive  jurisdiction  of any court  located  in England or Wales over any
controversy  or claim between the Executive and Radica and Radica UK arising out
of or relating to or concerning this Agreement.  Executive, Radica and Radica UK
(i)  acknowledge  that the forum  stated in this  Section  6(a) has a reasonable
relation to this Agreement and to the relationship between the Executive, Radica
and Radica UK and that the  submission to the forum will apply even if the forum
chooses to apply non-forum law, (ii) waive, to the extent  permitted by law, any
objection  to personal  jurisdiction  or to the laying of venue of any action or
proceeding in the forum stated in this Section 6(a), (iii) agree not to commence
any such  action or  proceeding  in any forum  other than the one stated in this
Section  6(a) and (iv) agree that,  to the extent  permitted by law, a final and
non-appealable  judgment in any such action or proceeding in any such court will
be  conclusive  and  binding on the  Executive,  Radica and Radica UK.  However,
nothing in this  Agreement  precludes  the Executive or Radica or Radica UK from
bringing any action or proceeding in any court for the purposes of enforcing the
provisions of this Section 6(a).

          (b) TO THE EXTENT  PERMITTED BY LAW, THE EXECUTIVE,  RADICA AND RADICA
UK WAIVE ANY AND ALL RIGHTS TO A JURY TRIAL.

          (c) Executive  acknowledges  that Radica and Radica UK would be harmed
by a breach of  Section 3 hereof  and that,  in  addition  to any other  remedy,
Radica shall be entitled to injunctive relief.

          (d) THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF ENGLAND AND WALES.

     7.   Survival.
          ---------

     Any  termination of the  Executive's  employment  after the Applicable Date
shall have no effect on the continuing operation of this Agreement.

     8.   Notices.
          --------

     For  purposes  of this  Agreement,  all  notices  and other  communications
required or permitted  hereunder shall be in writing and shall be deemed to have
been duly given  when  delivered  or five (5) days  after  deposit in the United
States mail,  certified and return receipt requested,  postage prepaid,  to such
address as either party may have furnished to the other in writing in accordance
herewith,  except that notices of change of address shall be effective only upon
receipt.


                                     - 4 -


<PAGE>



     9.   Waiver.
          -------

     If  either  party  should  waive  any  breach  of any  provisions  of  this
Agreement,  he or it shall not thereby be deemed to have waived any preceding or
succeeding breach of the same or any other provision of this Agreement.

     10.  Assignment.
          -----------

     This Agreement and any rights or  obligations  hereunder may be assigned by
Radica and Radica UK to any  successor  in interest to Radica's  and Radica UK's
business. This Agreement may not be assigned by Executive.

     11.  Headings.
          ---------

     The headings of the sections hereof are inserted for  convenience  only and
shall  not be deemed to  constitute  a part  hereof  nor to affect  the  meaning
thereof.

     IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.






RADICA                                                Executive



By:      /s/ Patrick S. Feely                         By:      /s/ Denis Horton
      --------------------------------------             ----------------------



RADICA UK



By:      /s/ Patrick S. Feely
      --------------------------------------


                                      -5-

<PAGE>



Exhibit 6.1
                         COMPUTATION OF PER SHARE INCOME
                (US dollars in thousands, except per share data)

<TABLE>
<CAPTION>
                                               December 31,       December 31,       December 31,
                                                   2005               2004               2003
                                              ----------------   ----------------   ----------------
<S>                                           <C>               <C>                  <C>
Basic income per share:
Net income                                           $ 10,532            $ 3,456           $ 12,491
                                              ================   ================   ================

Weighted average number of shares                  18,993,263         18,653,471         18,016,789
                                              ----------------   ----------------   ----------------

Basic earnings per share                               $ 0.55             $ 0.19             $ 0.69
                                              ================   ================   ================


Diluted income per share:

Net income                                           $ 10,532            $ 3,456           $ 12,491
                                              ================   ================   ================

Weighted average number of shares                  18,993,263         18,653,471         18,016,789
                                              ----------------   ----------------   ----------------

Assuming conversion of stock options                  669,974            872,286          1,043,185
                                              ----------------   ----------------   ----------------

Adjusted weighted average number of shares         19,663,237         19,525,757         19,059,974
                                              ----------------   ----------------   ----------------

Diluted earnings per share                             $ 0.54             $ 0.18             $ 0.66
                                              ================   ================   ================
</TABLE>




<PAGE>


 Exhibit 8.1

 SUBSIDIARIES OF RADICA GAMES LIMITED




                                                   State or Country
Name of Subsidiary                                 in Which Organized
------------------                                 ------------------

UNITED STATES

Radica Enterprises Ltd                             Nevada
(Operates as Radica USA Ltd)
  - Leda Media Products Ltd (dormant)              UK
  - Radica Canada Ltd                              Canada

Disc, Inc.                                         Nevada
(Operates as Radica Innovations)


 INTERNATIONAL

 Radica Limited                                     Hong Kong
   - RadMex S.A. de C.V. (dormant)                  Mexico
   - Radica Technology (Shenzhen) Co. Ltd.          People's Republic of China

 Radica China Ltd                                   British Virgin Islands
   - Dongguan Radica Games Manufactory Co. Ltd      People's Republic of China

 Radica (Macao Commercial Offshore) Limited         Macao

 Radica Innovations (UK) Ltd  (dormant)             UK

 Radica Europe Ltd                                  UK
   -  Radica UK Ltd                                 UK








<PAGE>


Exhibit 12.1


CERTIFICATION


I, Patrick S. Feely, certify that:

1.   I have reviewed this annual report on Form 20-F of Radica Games Limited;

2.   Based on my knowledge, this report does not contain any untrue statement of
     a material  fact or omit to state a  material  fact  necessary  to make the
     statements made, in light of the circumstances  under which such statements
     were made,  not  misleading  with  respect  to the  period  covered by this
     report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in  this  report,  fairly  present  in all  material
     respects the financial  condition,  results of operations and cash flows of
     the company as of, and for, the periods presented in this report;

4.   The  company's  other   certifying   officer  and  I  are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have:

     a)   designed  such  disclosure  controls  and  procedures,  or caused such
          disclosure   controls  and   procedures  to  be  designed   under  our
          supervision,  to ensure  that  material  information  relating  to the
          company, including its consolidated subsidiaries,  is made known to us
          by others  within those  entities,  particularly  during the period in
          which this report is being prepared;

     b)   evaluated the effectiveness of the company's  disclosure  controls and
          procedures  and  presented  in this report our  conclusions  about the
          effectiveness of the disclosure controls and procedures, as of the end
          of the period covered by this report based on such evaluation; and

     c)   disclosed in this report any change in the company's  internal control
          over financial  reporting  that occurred  during the period covered by
          this report that has materially  affected,  or is reasonably likely to
          materially  affect,  the  company's  internal  control over  financial
          reporting; and

5.   The company's other certifying  officer and I have disclosed,  based on our
     most recent evaluation of internal control over financial reporting, to the
     company's  auditors and the audit committee of company's board of directors
     (or persons performing the equivalent function):

     a)   all significant  deficiencies and material weaknesses in the design or
          operation  of internal  control  over  financial  reporting  which are
          reasonably likely to adversely affect the company's ability to record,
          process, summarize and report financial information; and

     b)   any fraud, whether or not material,  that involves management or other
          employees  who  have a  significant  role  in the  company's  internal
          control over financial reporting.


Date:   March 30, 2006
      ....................................

                                                     /s/ Patrick S. Feely
                                                     -----------------------
                                                     Patrick S. Feely
                                                     Chief Executive Officer


<PAGE>


Exhibit 12.2


CERTIFICATION


I, David C.W. Howell, certify that:

1.   I have reviewed this annual report on Form 20-F of Radica Games Limited;

2.   Based on my knowledge, this report does not contain any untrue statement of
     a material  fact or omit to state a  material  fact  necessary  to make the
     statements made, in light of the circumstances  under which such statements
     were made,  not  misleading  with  respect  to the  period  covered by this
     report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in  this  report,  fairly  present  in all  material
     respects the financial  condition,  results of operations and cash flows of
     the company as of, and for, the periods presented in this report;

4.   The  company's  other   certifying   officer  and  I  are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have:

     a)   designed  such  disclosure  controls  and  procedures,  or caused such
          disclosure   controls  and   procedures  to  be  designed   under  our
          supervision,  to ensure  that  material  information  relating  to the
          company, including its consolidated subsidiaries,  is made known to us
          by others  within those  entities,  particularly  during the period in
          which this report is being prepared;

     b)   evaluated the effectiveness of the company's  disclosure  controls and
          procedures  and  presented  in this report our  conclusions  about the
          effectiveness of the disclosure controls and procedures, as of the end
          of the period covered by this report based on such evaluation; and

     c)   disclosed in this report any change in the company's  internal control
          over financial  reporting  that occurred  during the period covered by
          this report that has materially  affected,  or is reasonably likely to
          materially  affect,  the  company's  internal  control over  financial
          reporting; and

5.   The company's other certifying  officer and I have disclosed,  based on our
     most recent evaluation of internal control over financial reporting, to the
     company's  auditors and the audit committee of company's board of directors
     (or persons performing the equivalent function):

a)   all  significant  deficiencies  and  material  weaknesses  in the design or
     operation of internal control over financial reporting which are reasonably
     likely to  adversely  affect the  company's  ability  to  record,  process,
     summarize and report financial information; and

b)   any fraud,  whether or not  material,  that  involves  management  or other
     employees who have a significant  role in the  company's  internal  control
     over financial reporting.


Date:   March 30, 2006
      ....................................
                                                     /s/ David C.W. Howell
                                                     -----------------------
                                                     David C.W. Howell
                                                     Chief Financial Officer






<PAGE>


Exhibit 13.1


CERTIFICATION


     Pursuant to 18 U.S.C. Section 1350, the undersigned officer of Radica Games
Limited (the  "Company"),  hereby  certifies that the Company's Annual Report on
Form 20-F for the fiscal  year ended  December  31,  2005 (the  "Report")  fully
complies with the requirements of Section 13(a) or 15(d), as applicable,  of the
Securities Exchange Act of 1934 and that the information contained in the Report
fairly presents,  in all material respects,  the financial condition and results
of operations of the Company.



Dated:  March 30, 2006

                                   /s/ Patrick S. Feely
                                   -----------------------------
                                   Name: Patrick S. Feely
                                   Title: Chief Executive Officer


The foregoing  certification  is being  furnished  solely  pursuant to 18 U.S.C.
Section  1350 and is not  being  filed as part of the  Report  or as a  separate
disclosure document.


<PAGE>


Exhibit 13.2


CERTIFICATION


     Pursuant to 18 U.S.C. Section 1350, the undersigned officer of Radica Games
Limited (the  "Company"),  hereby  certifies that the Company's Annual Report on
Form 20-F for the fiscal  year ended  December  31,  2005 (the  "Report")  fully
complies with the requirements of Section 13(a) or 15(d), as applicable,  of the
Securities Exchange Act of 1934 and that the information contained in the Report
fairly presents,  in all material respects,  the financial condition and results
of operations of the Company.



Dated:  March 30, 2006

                             /s/ David C.W. Howell
                             ------------------------------
                             Name: David C.W. Howell
                             Title: Chief Financial Officer



The foregoing  certification  is being  furnished  solely  pursuant to 18 U.S.C.
Section  1350 and is not  being  filed as part of the  Report  or as a  separate
disclosure document.


<PAGE>


 Exhibit 15.1
                 SELECTED QUARTERLY FINANCIAL DATA - (UNAUDITED)
                (US dollars in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                          Quarter ended
                                            ---------------------------------------------------------------
                                              Mar. 31         Jun. 30          Sep. 30          Dec. 31
                                            -------------   -------------    -------------    -------------
<S>                                             <C>             <C>              <C>              <C>
Year ended December 31, 2005
----------------------------
   Net sales                                    $ 22,474        $ 31,131         $ 63,437         $ 45,737
   Gross profit                                    8,716           9,472           23,687           18,977
   Net income (loss)                                 495          (3,437)           9,987            3,487
   Basic income (loss) per share                    0.03           (0.18)            0.53             0.18
   Diluted income (loss) per share                  0.03           (0.18)            0.51             0.18

Year ended December 31, 2004
----------------------------
   Net sales                                    $ 12,125        $ 18,799         $ 48,972         $ 43,503
   Gross profit                                    5,140           6,152           15,269           15,262
   Net income (loss)                              (1,112)            171            5,990           (1,593)
   Basic income (loss) per share                   (0.06)           0.01             0.32            (0.09)
   Diluted income (loss) per share                 (0.06)           0.01             0.31            (0.09)
</TABLE>

<TABLE>

<CAPTION>
Common Share Price                                                               High             Low

<S>                                                                             <C>             <C>
2005 Quarter
------------
   Fourth.......................................................................$ 10.210          8.680
   Third .......................................................................   9.160          8.484
   Second ......................................................................   9.300          8.170
   First .......................................................................   9.510          7.610

2004 Quarter
------------
   Fourth.......................................................................$ 10.920          7.520
   Third .......................................................................  10.350          8.240
   Second ......................................................................  9.860           8.000
   First ....................................................................... 11.640           6.880

2003 Quarter
------------
   Fourth.......................................................................$ 7.950         $ 6.300
   Third .......................................................................  8.170           6.880
   Second ......................................................................  8.000           5.540
   First .......................................................................  6.540           4.200
</TABLE>





<PAGE>


Exhibit 15.2

            CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM






Board of Directors
Radica Games Limited


We consent to the  incorporation  by reference in  Registration  Statement  Nos.
33-86960,  333-07000,  333-59737,  333-61260  and  333-122248  on Form S-8,  and
Registration  Statement Nos. 333-07526 and 333-79005 on Form F-3 of Radica Games
Limited  of our report  dated  March 6, 2006 with  respect  to the  consolidated
balance sheets of Radica Games Limited and its  subsidiaries  as of December 31,
2005, and 2004 and the related consolidated statements of income,  shareholders'
equity  and  comprehensive  income,  and cash flows for each of the years in the
three-year  period ended December 31, 2005, which report appears in the December
31, 2005 Annual Report on Form 20-F of Radica Games Limited.




/s/ KPMG

Hong Kong, China
March 30, 2006