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 October 31, 1998.

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

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

                                      None

          Securities registered pursuant to section 12(g) of the Act:
                          Common Stock, Par Value $.01

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

                                      None

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

    Title of each class                              Amount Outstanding
    -------------------                              ------------------
Common Stock, Par Value $.01                             18,864,294

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

     Yes X     No
        ---      --- 

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

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

<PAGE>

                                     PART 1

ITEM 1.  DESCRIPTION OF BUSINESS

         Radica Games Limited ("the Company")  designs,  develops,  manufactures
and distributes a variety of electronic handheld and mechanical games.

         The  Company is a leading  seller of handheld  electronic  games in the
United  States and  several  other  worldwide  markets.  The  Company  began its
business with Casino  handheld and table top game products and then  diversified
its business to other handheld  electronic  game  categories  including  sports,
heritage and action games. In 1998 the Company's  largest  category in sales was
fishing games in which, according to the NPD group, the Company was the dominant
seller in 1998 as was also the case with Casino games.

         The  Company's  principal  products  include a range of Fishing  games,
Combat games, Sports games, Casino games,  Heritage games and Extreme games. The
Company  expects  to  produce  new  electronic  handheld  games in 1999 (see New
Product  Introduction).  The Company's  products are based on familiar  games or
sports that have been played for  generations and are designed to be played with
little or no  instruction.  The  Company  currently  offers  over 50 models with
retail prices ranging from $5 to $50.

         In April  1998,  the  Company  acquired  the  business  and  assets  of
KidActive, LLC, dba Girl Tech(TM), of San Rafael, California.  Girl Tech(TM) has
created a line of personal electronic products for girls that were introduced at
the New York Toy Fair in February 1998. The acquisition is intended to allow the
Company to expand into the girls  electronics  market, a rapidly growing segment
of the toy industry.

         The Company also undertakes Original Design  Manufacturing  ("ODM") for
the Hasbro Games Group,  producing well-known  electronic versions of games such
as Yahtzee(TM), Trivial Pursuit(TM) and Monopoly(TM).

         THE   INFORMATION   IN  THIS  ANNUAL   REPORT  ON  FORM  20-F  CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES THAT COULD CAUSE
ACTUAL  RESULTS  TO DIFFER  MATERIALLY  FROM  PROJECTED  RESULTS  AS A RESULT OF
VARIOUS FACTORS. FORWARD-LOOKING STATEMENTS INCLUDE ESTIMATES OF NEW PRODUCTS TO
BE  INTRODUCED  BY THE COMPANY IN THE  FUTURE,  STATEMENTS  ABOUT THE  COMPANY'S
BUSINESS  STRATEGY AND PLANS,  STATEMENTS  ABOUT THE  ADEQUACY OF THE  COMPANY'S
WORKING CAPITAL AND OTHER CAPITAL  RESOURCES,  AND IN GENERAL  STATEMENTS HEREIN
THAT ARE NOT OF A HISTORICAL NATURE. THE FACTORS THAT COULD CAUSE ACTUAL RESULTS
TO DIFFER  MATERIALLY FROM PROJECTED  RESULTS INCLUDE THE RISKS OF MANUFACTURING
IN  CHINA   (INCLUDING   THE  STATUS  OF  HONG  KONG  WHICH   BECAME  A  SPECIAL
ADMINISTRATIVE  REGION OF CHINA IN 1997),  DEPENDENCE ON PRODUCT  APPEAL AND NEW
PRODUCT INTRODUCTIONS,  DEPENDENCE ON MAJOR CUSTOMERS, COMPETITION AND THE OTHER
RISK FACTORS WHICH ARE DESCRIBED  HEREIN UNDER "ITEM 1.  DESCRIPTION OF BUSINESS
-- RISK FACTORS".


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<PAGE>


Background

         The Company  completed an Initial  Public  Offering (IPO) in May, 1994.
Prior to the IPO,  the  principal  shareholders  of the  Company  conducted  the
Company's  business  through  two  separate,  jointly  owned  companies  (Radica
Limited,  which  manufactured  the  Company's  products,  and Radica USA,  which
distributed and currently distributes products in the United States) and through
a third  company,  Disc Inc.,  that was solely owned by Robert E. Davids,  Chief
Executive Officer of the Company,  which provided certain design and engineering
services to Radica Limited  ("Radica HK"), and now provides  similar services to
Radica China Limited ("Radica China") and Radica Games Limited ("Radica Games").

         Radica HK was  established  in Hong Kong in  December  1985 by James J.
Sutter  and John N.  Hansen and  originally  sold two  models of  souvenir  slot
machine banks.  In 1988,  Robert E. Davids joined the Company as General Manager
and  led the  Company's  development  of one of the  first  souvenir  electronic
tabletop  poker games.  In 1989,  Mr. Davids became an equal  shareholder in the
Company with Mr. Sutter and Mr. Hansen.  In 1991, the Company  introduced one of
the first handheld electronic poker games.

         Radica   initially   had  its  products   assembled  in  Hong  Kong  by
subcontractors and sold through distributors in the United States.  Between 1988
and 1990, the Company brought certain of its production  activities in house. At
the beginning of 1992, the Company opened a factory in Tai Ping,  China,  moving
its production  activities  from Hong Kong to southern China. In April 1992, Mr.
Sutter, Mr. Hansen and Mr. Davids established Radica USA to take greater control
of the distribution of the Company's  products in the United States. The Company
made over 90% of its sales  through  Radica USA in fiscal  1998  (excluding  ODM
sales).

         In December 1993,  Radica Games was established as a holding company of
Radica HK.  Prior to the closing of the IPO,  Radica  Games  acquired all of the
outstanding  common  stock of Radica  USA from Mr.  Davids,  Mr.  Sutter and Mr.
Hansen in exchange  for  additional  shares of the  Company's  common  stock and
acquired all of the  outstanding  common stock of Disc from Mr.  Davids.  In May
1995 the Company  opened its purpose built  factory in Tai Ping,  China on a 3.7
acre site under the terms of a  cooperative  joint  venture  agreement  with the
local government.

         In April 1998 the  Company  acquired  the assets and  business  of Girl
Tech(TM)  from  KidActive,  LLC. A Girl  Tech(TM)  line of  electronic  toys and
gadgets for girls is planned for release in 1999.

         In August  1998 the Company  completed  its  expansion  of the Tai Ping
factory (see Manufacturing Facilities).

BUSINESS STRATEGY

         The Company  intends to provide a broad line of handheld  and table top
electronic  and  mechanical  games  covering  a variety of game  categories  and
markets.  In order to provide  innovative,  high  quality  games at low  prices,
Radica  employs a strategy  of  product  design in the  United  States,  where a
substantial   majority  of  the  Company's  products  are  sold,  combined  with
engineering   and  low  cost   materials   procurement  in  Asia  and  low  cost
manufacturing in China,  where the Company  operates its Factory.  The Company's
current  products and planned products are intended to reach retail price points
covering  the range of large  volume gift  products.  The  Company  historically
focused primarily on products that


                                       3


<PAGE>


combine  knowledge of the casino gaming  industry with experience in new product
introduction,  electronic game design and low cost manufacturing. Since 1996 the
Company has placed more emphasis on non-casino games.

         To  provide  differentiation  between  high-end  and  low-end  markets,
products are packaged under the name  'RADICA:(R)'  for the low-end mass markets
and under the name 'Monte Carlo' for the more exclusive  high-end markets.  Girl
Tech products are packaged under the name of "Girl Tech(TM)".

         Radica  believes  its  ability  to  develop  and  introduce  innovative
products  is  enhanced  by  its  established   innovative   product  design  and
engineering  in  the  United  States  and  its  multiple  channel   distribution
capabilities,  which  allow  for close  customer  contact.  Large  manufacturing
volumes and low cost production  activities in China have allowed the Company to
keep its prices competitive. In addition, electronic parts and subassemblies can
be purchased efficiently and at low cost in Asia.

         The Company has expanded and  continues to expand  distribution  of its
existing  products,  both inside and outside the United States.  As part of this
goal,  Radica  Canada  and  Radica  UK were  established  in 1995 to  distribute
products  in these  markets.  The  Company  intends to pursue  related  business
opportunities that leverage off the Company's product  development  expertise to
access  new  markets.  Related  business  opportunities  include  ODM for  other
companies, of which the manufacturing for the Hasbro Games Group is an example.

PRODUCTS

         At the end of fiscal year 1998,  Radica's principal products included 4
models of Fishing games (Deep Sea  Fishin'(TM),  Bass  Fishin'(TM),  Lunker Bass
Fishin'(TM))  and  Jr.  Bass   Fishin'(TM);   4  models  of  Combat  games  (Sub
Assault(TM), Tank Assault(TM),  Tracer Ace(TM) and Stealth Assault(TM); 8 models
of Sports games (World Class Golf,  King Pin Bowling,  NASCAR(TM)  Racer,  Monte
Carlo NASCAR(TM) Racer, FIFA World Cup 98, Soccer  Striker(TM),  Pro World Class
Golf(TM)  and Grand  Prix  2000(TM);  8 models  of  Heritage  games  (Solitaire,
Checkers, Touch Screen Checkers,  Dominoes, Bingo Box, Solitaire Lite(TM), Touch
Screen Solitaire and Tic Tac Toe); 3 models of Extreme games (Trail  Burner(TM),
Enduro  Racer(TM)  and Inline  Alley(TM));  18 models of handheld  and  tabletop
Casino games (including  electronic  poker,  blackjack,  slot games and tabletop
mechanical slot machine banks);  and 18 models of ODM games  (including  Connect
Four(TM), Battleship(TM),  Yahtzee(TM),  Hangman(TM), Sorry(TM), Perfection(TM),
Trivial  Pursuit(TM)  and  Monopoly(TM),  the first three of which are also sold
under the  Company's  Monte Carlo  trade  name).  In addition  the Company has a
number of discontinued lines, which, unless the market warrants  reintroduction,
the Company only intends to continue  selling so long as inventories  exist. The
Company  intends to  introduce  approximately  25 new models in 1999.  In fiscal
1998,  Fishing games accounted for approximately 44% of net sales,  Combat games
accounted  for  approximately  4.6% of net sales,  Sports  games  accounted  for
approximately 10% of net sales,  Heritage games accounted for approximately 7.4%
of net sales,  Extreme  games  accounted  for  approximately  4.5% of net sales,
Casino games  accounted  for  approximately  8.5% of net sales and ODM products,
including those sold under the Company's  Monte Carlo trade name,  accounted for
approximately  21% of net sales.  In fiscal  1998,  the  Company's  products had
retail prices ranging from $5 to $50.


                                       4

<PAGE>


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

<TABLE>
<CAPTION>
                                                             YEAR ENDED OCTOBER 31,
                              --------------------------------------------------------------------------------------- 
                                                1995                                            1996
                              -----------------------------------------    ------------------------------------------
                                             % OF        UNITS   NO.OF                    % OF        UNITS    NO.OF
UNITS                         NET SALES    NET SALES     SOLD    MODELS    NET SALES    NET SALES     SOLD     MODELS
-----                         ---------    ---------     -----   ------    ---------    ---------     -----    ------
<S>                           <C>             <C>      <C>          <C>   <C>             <C>      <C>          <C>

Fishing games                 $     -           0.0%        -        -    $  5,363,082     11.3%     465,271      1

Sports games                        -           0.0%        -        -       3,245,068      6.8%     269,107      6

Casino games
--Handheld                     41,929,528      79.6%   7,457,696     73     15,901,992     33.5%   5,037,180     85
--Tabletop                      7,863,600      14.9%     704,354     26      3,335,684      7.0%     357,425     32

Heritage games                  1,521,825       2.9%     116,995      3      8,218,728     17.3%     659,755      8

ODM products                    1,335,355       2.6%     282,681      2     11,471,024     24.1%   2,192,099      7
(including those sold under
 Monte Carlo trade name)      -----------     ------   ---------    ---   ------------    ------   ---------    ---

Total                         $52,650,308     100.0%   8,561,726    104   $ 47,535,578    100.0%   8,980,837    139
                              ===========     ======   =========    ===   ============    ======   =========    ===
</TABLE>

<TABLE>
<CAPTION>
                                                             YEAR ENDED OCTOBER 31,
                              --------------------------------------------------------------------------------------- 
                                                1997                                            1998
                              -----------------------------------------    ------------------------------------------
                                             % OF        UNITS   NO.OF                    % OF        UNITS    NO.OF
UNITS                         NET SALES    NET SALES     SOLD    MODELS    NET SALES    NET SALES     SOLD     MODELS
-----                         ---------    ---------     -----   ------    ---------    ---------     -----    ------
<S>                           <C>             <C>     <C>           <C>   <C>             <C>      <C>           <C>

Fishing games                 $35,692,328      40.7%   3,261,086      3   $ 68,484,062     44.0%    5,598,897      5

Combat games                    2,350,350       2.7%     208,649      2      7,184,035      4.6%      548,632      4

Sports games                    8,198,529       9.3%     726,478      7     15,583,238     10.0%    1,145,824     12

Casino games
--Handheld                     11,611,350      13.2%   3,416,426     84     11,722,194      7.6%    3,035,888     54
--Tabletop                      2,068,168       2.4%     238,310     32      1,430,686      0.9%      172,956     11

Heritage games                 10,765,909      12.3%     985,163     16     11,567,117      7.4%    1,037,105     16

Extreme games                        -          0.0%        -         -      7,037,236      4.5%      466,921      3

ODM products                   17,073,657      19.4%   3,519,665     12     32,609,761     21.0%    5,663,867     20
(including those sold under
 Monte Carlo trade name)      -----------     ------  ----------    ---   ------------    ------   ----------    ---

Total                         $87,760,291     100.0%  12,355,777    156   $155,618,329    100.0%   17,670,090    125
                              ===========     ======  ==========    ===   ============    ======   ==========    ===
</TABLE>


         The Company's Fishing games are electronic handheld versions of popular
fishing  activities  such as Bass Fishin' (TM) and Deep Sea  Fishin'(TM).  These
games provide significant additional stimulus when


                                       5


<PAGE>




compared to traditional handheld electronics games as they must be physically
cast and then vibrate when a fish is on the line. More fishing games are planned
for introduction in 1999.

         The Company's Combat games such as Stealth Assault(TM), Tracer Ace(TM),
Night Vision Tank  Assault(TM)  and Night Vision Sub  Assault(TM) are electronic
games  which  are held up to the eyes like  binoculars  and  create a  'virtual'
experience  for the user  similar to  looking  through a gun site in a tank or a
periscope  in a  submarine.  Stealth  Assault  has  proprietary  Virtual  Motion
Sensor(TM)  ("VMS")  technology  allowing the user to virtually  fly the game by
tilting it left or right or up or down.

         The Company's Sports games are electronic  handheld versions of popular
sports activities such as Bowling and Golf.  Company designers have incorporated
the  interesting  aspects of sports  activities into these  electronic  handheld
games. More Sports games are planned for introduction in 1999.

         The  Company's  current  Casino  games are  designed  to  simulate  the
commercial  gaming machines such as Video Poker,  Video Blackjack and Slot found
in casinos but without any monetary risk or reward.  The electronic  games allow
players to bet points with  automatic  scorekeeping.  The  Company's  games also
offer a variety  of  different  features  intended  to further  simulate  casino
playing, such as variable betting, music melody on winners, a jackpot bell (slot
games),  a flashing  win light and reel spin sound  (slot  games).  The sound of
games can be turned off to permit silent play. Two  additional  Casino games are
being introduced in 1999 (see New Product Introduction).  The Company's tabletop
models are designed to be attractive  souvenirs and gifts.  The tabletop  models
have a coin slot and jackpot  bell like  commercial  casino  machines and can be
used as savings banks.  The electronic  tabletop models have features similar to
those of the Company's handheld games. Certain of the tabletop mechanical models
have a simulated pewter finish to give them an antique appearance.

         The Company's  Heritage games such as Checkers,  Tic Tac Toe,  Dominoes
and Solitaire are electronic  handheld versions of classic card and other games.
The Company  believes that its versions of classic games are designed to provide
the highest play value to customers as a result of their accuracy. More Heritage
games are planned for introduction in 1999.

         The  Company's  Extreme  games  such as  Trail  Burner(TM)  and  Inline
Alley(TM)  also  incorporate  VMS(TM)  technology  to allow  the user a  virtual
reality experience in mountain biking or inline skating.

         The   Company's    electronic   games   incorporate   a   semiconductor
microcontroller chip into which the Company's proprietary game software has been
masked. The electronic games use LCDs for their display and are battery powered.

         The Company  sells its low-end,  mass  merchandise  products  under the
RADICA:(R)  trade name and its  high-end  products  under the Monte  Carlo trade
name.

NEW PRODUCT INTRODUCTION

         In  fiscal  1999,  Radica  intends  to  expand  its  line of  games  by
introducing  approximately  25 new  games in the  following  categories:  Radica
Fishing (3 games);  Radica Sports (5 games);  Radica Heritage (4 games);  Radica
Extreme (1 game);  Radica  Combat (1 game);  Radica  Hunting  (2 games);  Radica
Casino (2 games);  and Girl  Tech(TM) (7 games).  The Company  believes that its
strategy of offering  various game models with differing  features enables it to
market its games to a wide age range of consumers with


                                       6

<PAGE>


different  tastes and financial means. The Company will also continue to provide
its Monte Carlo brand products to higher end retailers.

         In addition,  following the acquisition of the assets of KidActive, LLC
(dba Girl  Tech(TM))  in April 1998,  the Company is bringing  out a new line of
electronic games and gadgets under the Girl Tech(TM) brand name for girls.  This
category is expected to introduce 7 games during fiscal 1999.

         In fiscal 1998, the Company introduced 2 new Fishing games (Junior Bass
Fishin'(TM) and Lunker Bass  Fishin'(TM));  6 new Sports games (NASCAR(R) Racer,
Monte Carlo NASCAR(R) Racer,  FIFA World Cup 98, Soccer  Striker(TM),  Pro World
Class  Golf(TM)  and Grand  Prix  2000(TM));  2 new  Heritage  games  (Solitaire
Lite(TM) and Touch Screen  Solitaire);  2 new Combat games  (Tracer  Ace(TM) and
Stealth  Assault(TM));  3 new Extreme games (Trail Burner(TM),  Inline Alley(TM)
and Enduro Racer(TM)) and 5 new Casino handheld games (Pocket Draw Deuces Poker,
Pocket  Blackjack 21,  Pocket Slot,  Player's  Choice Poker and Player's  Choice
Blackjack).

         The Company  anticipates that new product  introductions in fiscal 1999
will be  concentrated  in the second and third quarters of that year. By the end
of fiscal 1999, the Company expects its product line to include approximately 58
models.  However,  it is possible that the Company will determine not to proceed
with any given product or that one or more aspects necessary for introduction of
the  products  in fiscal  1999 will be  delayed,  which  could  delay or prevent
certain anticipated product introductions.

MANUFACTURING

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

         In 1998  the  Company  assembled  all of its own  products  in order to
control its costs, quality, production and delivery schedules.

         The Company's products are not required to obtain any quality approvals
prior to sales in the United States. The Company,  however,  is required to have
and has obtained CE approval,  Europe's  toy safety  standard,  for its products
sold in Europe.  The Company has been granted a Chinese toy quality license from
the Chinese Import and Export Commodity  Inspection Bureau, which is required of
toy and game  manufacturers  in China to export toys or games. In addition,  the
Company voluntarily complies with ASTM 963, a U.S. toy safety standard.

         The  Company   received  the  ISO  9001  quality   certification   from
Underwriters  Laboratory  on January  17,  1997.  The scope of the  registration
covers the design,  sales and distribution of electronic and  electro-mechanical
games and related gift products.

MANUFACTURING FACILITIES

         Radica currently manufactures its products at its Tai Ping factory (the
"Factory") in Dongguan,  Southern China approximately 40 miles northwest of Hong
Kong. The Factory was constructed  with the cooperation of the local  government
according to the  Company's  design  specifications  on a 3.7 acre site.  It was
scheduled to be  constructed  in two phases.  The first phase was  completed and
opened in May 1995


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<PAGE>


and  commenced  operations  in June 1995.  The first  phase of the  Factory  has
approximately  241,000 sq. ft. of factory space and dormitory  facilities for up
to 3,000  workers as well as apartments  for managers and  visitors.  The second
phase of the Factory was completed in August 1998 and has approximately  223,000
sq.  ft. of  additional  factory  space and  dormitory  facilities  for up to an
additional  2,200  workers.  The  cost  of  the  rights  to  use  the  site  and
construction of the first phase was approximately  $6.0 million,  and the second
phase approximately $3.0 million, exclusive of manufacturing equipment. The unit
capacity  of the  Factory  depends on the  product  mix  produced.  The  Company
believes  that at peak it can  produce  in excess of 800,000  units of  handheld
games per week. However, there can be no assurance that the Company will be able
to operate at full capacity or have sufficient sales to warrant doing so.

         In June,  1994  the  Company  entered  into a joint  venture  agreement
("Joint Venture  Agreement")  with the local  government to operate the Factory.
The Company funded the construction  costs. Such amounts will be applied as a 30
year prepaid  leasehold on the Factory.  Upon  commencement  of production,  the
local government  received a fixed annual fee as the joint venture partner.  The
annual fee is subject to increases every three years.

         The Company also manufactures under a processing agreement ("Processing
Agreement") with the local government.  The Processing Agreement provides by its
terms that the local government will provide manufacturing facilities and supply
workers  to the  Company  and that the  Company  will pay a  management  fee and
processing  fee and certain other  charges.  The  management  fee is paid to the
local government and is based on a negotiated sum per worker at the Factory. The
processing  fee is based on the value of raw materials  shipped into the Factory
and the  value of  products  shipped  from the  Factory  and is  established  in
semi-annual  production  agreements agreed upon with local government officials.
The Company pays the processing  fees through the Bank of China in Hong Kong and
the funds are then placed in an operating  account including other Company funds
in China,  all of which are used to pay the costs of the  Factory.  In practice,
the Company operates all aspects of the Factory,  including  hiring,  paying and
terminating workers.  Most of the Company's factory workers are hourly employees
and are  provided  room and board in addition to their wages.  In addition,  the
Company bears all other costs of operating the Factory,  including utilities and
certain  employee  social welfare charges  established by the local  government.
Many  aspects of the  Processing  Agreement  and  operation  of the  Factory are
dependent on the Company's  relationship  with the local government and existing
trade  practices  in  addition  to the terms of the  Processing  Agreement.  The
Company believes that its relationship with the local government is good.

MATERIALS

         Major  components  used in the  Company's  products are liquid  crystal
displays  ("LCDs"),  semiconductor  chips,  printed  circuit boards ("PCBs") and
molded plastic parts. The Company purchases LCDs, PCBs, and semiconductor  chips
from several suppliers,  although specific LCDs, PCBs or semiconductor chips for
any particular model are generally purchased from a single supplier. The Company
generally  provides six to nine months order  indications  to its  semiconductor
chip  suppliers and must place firm orders a minimum of four weeks in advance of
delivery.  The Company tries to maintain only two months supply of semiconductor
chips, which may constrain increased production of its products on short notice.
The Company pays for most of its materials in U.S. dollars.

         The Company's  major  suppliers in fiscal 1998 included Epson Hong Kong
Limited  (semiconductor  chips),  Gillette  Hong Kong Limited  (batteries),  GPI
International Limited (batteries), Just Technology Co. Limited (keypads), Leader
Printed Circuit Boards Limited (PCBs), Lik Sun Printing Co. Limited


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<PAGE>


(printing), Meise Label Printing Fty (printing),  Onpress Printed Circuit Boards
Limited  (PCBs),  Picvue  Electronics  Limited (LCDs),  Sunplus  Technology Co.,
Limited (semiconductor chips) and United Radiant Technology (HK) Limited (LCDs).

SALES AND DISTRIBUTION

         Radica's products are sold in over 30 countries, with the United States
accounting  for over 90% of net  sales in fiscal  1998.  The  Company  sells its
products  directly to over 1,300 active  retailers  in the United  States and to
approximately  13  distributors  worldwide.  The  Company  participates  in  the
electronic data interchange ("EDI") program maintained by 30 customers including
J.C. Penney's,  Sears, Target,  Wal-Mart,  Walgreens and K-Mart. In fiscal 1998,
the largest customer of the Company, Wal-Mart, accounted for 25.4% of net sales;
in  addition  ODM work for the Hasbro  Games  Group  accounted  for 20.7% of net
sales. Our top five customers (excluding ODM business) were as follows:


                                       % OF SALES
CUSTOMER NAME                      FOR THE FISCAL YEAR
-------------                      -------------------
                                   1998           1997
                                   ----           ----

1. Wal-Mart (USA)                  25.4%         20.9%
2. Target (USA)                    10.7%         10.9%
3. Toys 'R' Us (worldwide)          6.9%          3.4%
4. K-Mart (USA)                     3.9%          3.0%
5. Kohl's (USA)                     3.4%          4.3%

         The following table sets forth certain of the Company's major customers
in 1998, including distributors (alphabetical order).

<TABLE>
<CAPTION>
DEPARTMENT STORES        DRUG STORES              INTERNATIONAL DISTRIBUTORS                   MASS MERCHANDISERS
-----------------        -----------              --------------------------                   ----------------- 
<S>                      <C>                      <C>                                          <C>

Dayton Hudson            Arbor Drugs Inc.         Agerex (Finland)                             Ames
Dillards                 Eckerd Corporation       Alec Cooper (South Africa)                   Army Airforce Exch.
Foley's                  Genovese Drugs           Ban Kee Trading (Philippines)                Bradlees
Gottschalk               London Drugs             Darmon (France)                              Hills
J.C. Penney's            Long's Drugs             Estona Incorporated (Japan)                  K-Mart
Kohl's                   Osco Drug                Hasbro Australia (Australia & New Zealand)   Meijer
Macy's                   Thrifty Payless Drug     Income Express (Hong Kong)                   Mervyns
Marshall Fields          Walgreens                L.E. Int'l Corp. (Taiwan)                    QVC
Robinson's-May                                    Mastarting A.B. (Sweden)                     Target
                                                  Popular de Juguetes (Spain)                  Bust
                                                  Sheng Tai Toys (Singapore)                   Wal-Mart
                                                  The Oriental Trading Co. (Hong Kong)         Woolworths
                                                  Universal Electronics (Lebanon)
</TABLE>

<TABLE>
<CAPTION>
                                                                                               CONSUMER
CATALOG SHOWROOMS        MAIL ORDER RETAILERS     SPECIALTY GIFT SHOP OPERATORS                ELECTRONICS STORES
-----------------        --------------------     -----------------------------                ------------------
<S>                      <C>                      <C>                                          <C>

Service Merchandise      Fingerhut                Caesar's World                               Best Buy
Sharper Image            Home Shopping Network    Circus Circus                                Radio Shack
Argos                    H. Schneider (Germany)   Host Marriott
Index                    Wish Book                Spencer Gifts
                         Innovations              Dufferen Game Room Stores

</TABLE>

                                       9

<PAGE>


GROCERY &
CONVENIENCE STORES       TOY RETAILERS            SPORTING GOODS STORES
------------------       -------------            ---------------------

Albertsons               Kay Bee                  Sports Authority
Emro Marketing           Toys'R'Us                Bass Pro Shops
Kroger
L&L Jiroch
M.W. Kasch
W.H. Smith
Westfair Super Stores


         Since 1990, the Company has expanded its distribution channels from Las
Vegas  souvenir  and  other  specialty  shops  to  general  retailers,  and from
Christmas and other gift season display to year round display.  Previously,  the
Company moved United States distribution of its products in-house through Radica
USA. In fiscal 1995, the Company took control of its marketing in Canada and the
United  Kingdom by  establishing  distribution  operations  in those  countries.
Radica's  distribution  operations use regional  sales managers  working for the
Company  to  manage  manufacturers  representatives  and  brokers  that sell its
products.  These manufacturers  representatives are not employees of the Company
and work on a commission basis.

         The Company is  attempting  to improve the quality of its  distribution
network and expects to add new  distributors  in fiscal 1999, in Australia,  New
Zealand, Japan, France, U.K. and Scandinavia.

         The Company's customers normally provide indications of interest, which
may be  canceled  at any  time,  from  three to six  months  prior to  scheduled
delivery,   but  only  confirm  orders  eight  weeks  in  advance  of  delivery.
Accordingly  the Company  generally  operates  without a significant  backlog of
regular  orders,  however,  ODM  orders  tend to be  placed 3 months  or more in
advance.  The  Company's  backlog  orders  as of the  end of  fiscal  1998  were
approximately  $19 million,  of which  approximately  $13 million related to ODM
business.  This  compares to  approximately  $16.5  million at the end of fiscal
1997.

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

         The Company's products generally carry a 90 days consumer warranty from
the date of sale, and the Company  generally  honors  warranty claims even after
that period.  In each of the last two years,  warranty  costs incurred have been
less than 2% of net sales.

PRODUCT DEVELOPMENT

         Radica's  engineering and development  department has approximately 100
staff worldwide.  The Company's product  development  starts with teams in Reno,
Nevada;  Dallas,  Texas and San Rafael and  Torrance,  California  and continues
through to the engineering  teams in Hong Kong and in the Tai Ping Factory.  The
Company has a formalized product  development  process that includes  semiannual
meetings of its worldwide product  development and sales departments.  In fiscal
1996, 1997 and 1998, the


                                       10

<PAGE>



Company spent approximately $1,699,000, $2,099,000 and $3,710,000, respectively,
on research and development.  The Company's  research and development is heavily
oriented  toward market  demand.  Based on its ongoing  contact with  consumers,
retailers  and  distributors  worldwide,   the  Company's  sales  and  marketing
departments  seek to  understand  and assist the  product  development  teams in
responding  to consumer  and retailer  preferences.  The sales  department  also
targets  certain  retail price points for new products which drive the Company's
product  development,  with  designs,  features,  materials,  manufacturing  and
distribution all developed within the parameters of the target retail price.

ORIGINAL DESIGN MANUFACTURING

         In 1995, the Company was successful in establishing a relationship with
the Hasbro Games Group to design and  manufacture  product for them. The Company
intends to pursue  other ODM  business  in the future.  However it is  uncertain
whether  the  Company  can retain its  current  business on a long term basis or
successfully attract additional original design  manufacturing  business or that
it will be profitable.

INTELLECTUAL PROPERTY

         The Company  currently owns 18 design  patents,  2 utility  patents,  7
trademarks and has certain  copyrights  over its artwork.  It also has 54 design
patents,  4 utility  patents and 145 trademark  applications in process and will
continue to obtain  copyrights,  trademarks,  design and utility patents for new
products.  In  April  1998 at the  Port of Los  Angeles,  U.S.  Marshals  seized
quantities of Bass Fishin'(TM)  knockoffs  imported by Exactly for Smart People,
Inc. of Culver City, CA from Techno Power Technology  Limited,  of Hong Kong. In
August 1998, the Company  successfully  obtained a final settlement from a large
Australian toy and games retailer in the form of cash,  receipt of all stocks of
infringing  product  and  written  undertakings  from  the  retailer  confirming
Radica's  exclusive  rights in Bass  Fishin'(TM)  and  agreeing  not to sell any
further copies of counterfeit Bass  Fishin'(TM)  games. The Company has a number
of ongoing  negotiations  with companies in the U.K.,  Australia,  China and the
U.S.A. with regards infringement of its intellectual property rights.

         The Company anticipates that patents, trademarks,  copyrights and other
intellectual   property  rights  will  become  increasingly   important  in  the
electronic handheld and mechanical games industry in which the Company operates,
particularly  since the Company is  introducing  a wider range of products  with
themes and  features  that do not  duplicate  casino or heritage  games.  As the
industry focuses on intellectual  property matters,  there will be opportunities
for the Company to protect its products  through  patents,  trademarks and other
formalized  filings,  although the efficacy of these  protections is variable at
best. By the same token,  the Company will be exposed to risks that its products
will be found to infringe the intellectual  property rights of others. See "Risk
Factors - Intellectual Property Risks".

COMPETITION

         The games business is highly competitive. Radica believes that it has a
dominant  market share of the U.S. market for  non-gambling  Casino games and is
one of the dominant  sellers of other handheld  electronic  games. The Company's
primary competitor is Tiger  Electronics,  Inc. ("Tiger") which was purchased by
the  Hasbro  Games  Group  during  1998.   Tiger   procures  its  products  from
manufacturers  in China.  The barriers for new  producers to enter the Company's
markets are relatively  low and the Company  expects that it will face increased
competition.  The Company competes for consumer purchases on the basis of price,
quality  and game  features  and for  retail  shelf  space  also on the basis of
service,  including


                                      11

<PAGE>



reliability of delivery,  and breadth of product line.  Some  competitors  offer
products at lower prices than the Company, are better established in the toy and
games  industry and are larger than the Company.  The  Company's  products  also
compete with other gifts and games for  consumer  purchases.  In addition,  with
respect  to  ODM  activities,   the  Company  will  compete  with  a  number  of
substantially larger and more experienced  manufacturers.  As the Company enters
other markets and businesses, it expects to face new competition.

TAXATION OF THE COMPANY AND ITS SUBSIDIARIES

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

         The Hong Kong profits tax rate currently  applying to  corporations  is
16%. Currently, Radica HK and one other Hong Kong-based subsidiary pay Hong Kong
profits tax on service and sales income.

         On July 1, 1994 the Company's manufacturing operations were transferred
to Radica  China.  Because  the Company  operates in China only  pursuant to the
Processing Agreement and the Joint Venture Agreement, it is not subject to China
tax. With effect from the first profitable year of the joint venture (1997), the
Company has operated  under a two year tax holiday in China.  This  commenced on
January 1, 1997 and ends on  December  31,  1998 and will be followed by a three
year period of reduced tax, 12%, half the regular rate of 24%.

         Radica USA and Disc are fully subject to U.S. 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%.  In
addition,  dividends  paid by Radica USA and Disc to the 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%.

EMPLOYEES

         As of October 31, 1998 the Company had 4,378 full-time employees (71 in
North  America,  2 in  Europe  and  4,305 in  Asia),  of whom  4,012  worked  in
production processes including manufacturing,  purchasing,  materials,  shipping
and stores  (including  those  employed  under the Joint Venture and  Processing
Agreements  in  China);  31  worked  in  sales  and  marketing;  108  worked  in
engineering   and   development;   30  worked  in  finance  and  197  worked  in
administration,   including   employees   in  security,   kitchens,   management
information  systems and document control.  The Company believes that its future
success will depend,  in part,  on its ability to continue to attract and retain
highly skilled technical, marketing, support and management personnel.

         None of the Company's employees are subject to a collective  bargaining
agreement  and the Company has never  experienced  a work  stoppage.  Management
believes that its employee relations are good.


                                       12

<PAGE>


RISK FACTORS

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

RISKS OF MANUFACTURING IN CHINA

         Risk of China Losing Most Favored Nation Status or of Changes in Tariff
or Trade Policies.  The Company manufactures in China and exports from Hong Kong
and China to the United  States and  worldwide.  Its products sold in the United
States are currently not subject to U.S. import duties.  China currently  enjoys
most favored nation ("MFN") trade status under U.S. tariff laws,  which provides
a favorable category of U.S. import duties. As a result of opposition to certain
policies of the Chinese  government and China's growing trade surpluses with the
United  States,  there has been,  and in the  future may be,  opposition  to the
extension of MFN status for China. The loss of MFN status for China,  changes in
current  tariff  structures  or  adoption  in the United  States of other  trade
policies  adverse  to  China  could  have an  adverse  effect  on the  Company's
business.

         Chinese  Political,  Economic  and  Legal  Risks.  The  success  of the
Company's  current and future  operations in China and Hong Kong (which became a
Special  Administrative  Region of China on July 1, 1997) is highly dependent on
the Chinese  government's  continued  support of economic  reform  programs that
encourage  private  investment,  and  particularly  foreign private  investment.
Although the Chinese  government  has adopted an "open door" policy with respect
to foreign investment, there can be no assurance that such policy will continue.
A change in  policies  by the  Chinese  government  could  adversely  affect the
Company by, among other  things,  imposing  confiscatory  taxation,  restricting
currency conversion,  imports and sources of supplies,  or expropriating private
enterprises.  Although the Chinese  government has been pursuing economic reform
policies  for the past 15 years,  no  assurance  can be given  that the  Chinese
government  will  continue to pursue such policies or that such policies may not
be significantly  altered,  especially in the event of a change in leadership or
other social or political disruption.

         China  does not have a  comprehensive  system of laws.  Enforcement  of
existing  laws may be sporadic and  implementation  and  interpretation  thereof
inconsistent. The Chinese judiciary is relatively inexperienced in enforcing the
laws that exist,  leading to a higher than usual degree of uncertainty as to the
outcome of any  litigation.  Even where adequate law exists in China,  it may be
impossible to obtain swift and equitable  enforcement  of such law, or to obtain
enforcement of a judgment by a court of another jurisdiction.

         Dependence  on Local  Government.  The Company  operates its factory in
China  under  agreements  with  the  local  government.  Many  aspects  of  such
agreements  and  operation  of  the  Factory  are  dependent  on  the  Company's
relationship  with the  local  government  and  existing  trade  practices.  The
relationship  of the  Company  with the local  government  could be  subject  to
adverse change in the future,  especially in the event of a change in leadership
or other social or political disruption.

         Chinese  Taxation.  The  Company  has not paid any  Chinese  taxes  and
believes that,  under current Chinese tax rules and practice,  its activities in
China have not  subjected  it to Chinese  taxes to date as it is eligible for an
exemption from income tax for two years starting from the first  profitable year
of  operations  and  thereafter  a 50  percent  relief  from  income tax for the
following  three  years  under  the  Income  Tax Law of the PRC.  The  Company's
subsidiary  in China  had its  first  profitable  year in 1997  and will  become
taxable on January 1, 1999 at 12% (half of the current rate) until  December 31,
2001.  After


                                       13

<PAGE>


this it will be taxed at the full rate of income  tax.  In  addition,  under the
existing  processing   arrangement  and  in  accordance  with  the  current  tax
regulations in the PRC, manufacturing income generated in the PRC is not subject
to  PRC  income  taxes.  The  Chinese  tax  system  is  subject  to  substantial
uncertainties   and  has  been  subject  to  recently   enacted   changes,   the
interpretation  and  enforcement  of which are also  uncertain.  There can be no
assurance  that  changes in Chinese  tax laws or their  interpretation  or their
application  will not subject the Company to  substantial  Chinese  taxes in the
future.

         Limited Infrastructure. Electricity, water, sewage, telephone and other
infrastructure  are limited in the  locality of the  Factory.  In the past,  the
Company has experienced temporary shortages of electricity and water supply. The
Company has installed  five back-up  electrical  generators in the Factory which
can support it in the event of a power shortage.  There can be no assurance that
the infrastructure on which the Factory is dependent will be adequate to operate
the Factory successfully.

         Hong  Kong  Political,  Economic  and Legal  Risks.  The  Company  also
operates in Hong Kong,  which until recently was a colony of the United Kingdom.
Sovereignty over Hong Kong was transferred from the United Kingdom Government to
the Chinese Government on July 1, 1997, at which time Hong Kong became a Special
Administrative  Region ("SAR") of China. Under the agreements providing for such
transfer (known as the "Joint  Declaration"),  and the Chinese law  implementing
its commitments  thereunder  (the "Basic Law"),  the current social and economic
systems in Hong Kong are to remain  unchanged for 50 years,  and Hong Kong is to
enjoy a high degree of autonomy but the courts of the Hong Kong SAR will have no
jurisdiction  over acts of state  such as  foreign  and  defense  affairs.  Laws
currently in force, as they may be amended by the Hong Kong SAR legislature, are
to remain in force except to the extent that they  contravene the Basic Law . It
is not clear how  future  developments  in Hong  Kong and China may  affect  the
implementation  of the Basic Law.  There can be no  assurance  that the  general
political  and  economic  position of Hong Kong,  and  therefore  the  Company's
results of operations and financial condition, will not be adversely affected as
a  consequence  of the  exercise  of  Chinese  sovereignty  over Hong  Kong.  In
addition,  political  and  social  developments  in China have from time to time
adversely affected the economy of Hong Kong.

DEPENDENCE  ON PRODUCT  APPEAL AND NEW PRODUCT  INTRODUCTIONS;  LIMITED RANGE OF
PRODUCTS

         The Company's  operating  results depend largely upon the appeal of its
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, notwithstanding the Company's recent
emphasis on  non-casino  games,  the  Company  continues  to offer a  relatively
limited range of products. This exposes the Company to the risks of any narrowly
focused  business.  Changes  in  consumer  preferences  away  from the  kinds of
products offered by the Company could have an adverse effect on the Company.

         Some of the Company's  products have been only recently  introduced and
although they may  experience  good initial sales growth,  there is no assurance
that such initial  success is  indicative  of  significant  future  sales.  As a
general  matter,  the  Company  expects  that the sales of these  products  will
eventually  decline.  The Company cannot predict how long the product cycle will
last for any  product.  In order to control  costs,  and take  advantage  of the
finite  shelf  space  available  to the  Company,  it will  also  need to delete
products from its line periodically.  The Company's  long-term operating results
will therefore  depend largely upon its continued  ability to conceive,  develop
and introduce new appealing products at competitive prices.


                                       14

<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 no
assurances can be given that products will be introduced in a timely fashion.

         Future  products  may  utilize   different   technologies  and  require
knowledge  of  markets  in which the  Company  does 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 the  Company's
operating results.

NO ASSURANCE OF CONTINUED GROWTH

         There can be no assurance  that the Company will achieve  future growth
in net sales  and net  income or that it will be able to  maintain  its  present
levels of net sales and net income.  The  Company's  current  business  strategy
emphasizes  the sale of a controlled  number of products,  while  representing a
more diverse range of products,  e.g.,  Sports games,  Heritage card games,  the
Girl Tech(TM) line and ODM games, in addition to Casino games.

DEPENDENCE ON MAJOR CUSTOMERS

         Historically,  a significant  portion of the  Company's  sales has been
concentrated  in a  few  large  retail  customers.  See  Note  14  of  Notes  to
Consolidated  Financial Statements included herein. 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 management  considers the
Company's  relationships with its major retail customers to be good, the loss of
one or more of its major retail  customers  would have an adverse  effect on the
Company's results of operations.

DEPENDENCE ON SUPPLIERS AND SUBCONTRACTORS

         The Company is dependent on suppliers for the components and parts that
it  assembles  to produce its  products.  The Company  generally  purchases  the
specific LCDs or  semiconductor  chips for any  particular  product model from a
single supplier.  While the Company believes that there are alternative  sources
for all of its supplies,  an interruption  of the supply of LCDs,  semiconductor
chips or other supplies from a supplier  could result in significant  production
delays.

CONCENTRATED MANUFACTURING FACILITIES

         A disruption of operations at the Factory due to fire,  labor  dispute,
dispute with the local government or otherwise,  would have an adverse effect on
the Company's results of operations. In such event, the Company believes that it
could  partially  mitigate the effect of a disruption by  increasing  the use


                                       15

<PAGE>


of subcontractors  to assemble its products,  but there can be no assurance that
it would be able to do so. In addition, the Company's  manufacturing  facilities
are dependent on the Company's relationship with the local government.

NO ASSURANCE OF SUCCESS IN NEW BUSINESS

         In order to  sustain  growth,  Radica  intends to expand  into  related
businesses,  including  original  design  manufacturing  of  products  for third
parties.  To date these  efforts  have only been  successful  in the case of the
manufacturing  for the  Hasbro  Games  Group.  While  several  of the  Company's
executive officers have extensive  experience in manufacturing other products in
the United  States,  including Mr.  Davids,  there can be no assurance  that the
Company  will  be  able  to  perform   additional  ODM  manufacturing  in  China
successfully.

NO ASSURANCE OF CONTINUED ODM BUSINESS

         The Company's  contract with the Hasbro Games Group can be ended on 180
days  notice.  There can be no  guarantee  then such  business  can be  retained
indefinitely.  Loss of such  business  would  materially  affect  the  Company's
revenues.

DEPENDENCE ON KEY PERSONNEL

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

SEASONALITY

         The Company experiences a significant seasonal pattern in its operating
results and working capital  requirements.  The Company typically generates most
of its sales in the third and fourth  quarters of its fiscal year,  prior to the
traditional  gift season.  The Company expects this seasonal pattern to continue
for  the  foreseeable   future  but  to  become  less  pronounced  as  retailers
increasingly sell its products year round and ODM orders increase. The Company's
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 the
Common  Stock  may  be  subject  to  significant  fluctuations  in  response  to
variations  in quarterly  operating  results and other  factors.  See Note 21 of
Notes to Consolidated Financial Statements included herein.

COMPETITION

         The  gifts and  games  business  is  highly  competitive.  The  Company
currently faces direct  competition from a number of other producers of handheld
electronic  games,  the barriers for new  producers to enter into the  Company's
markets are relatively  low and the Company  expects that it will face increased
competition in the future.  Some competitors offer products at lower prices, are
better  established  in the toy and  games  industry  and are  larger  than  the
Company.  In  addition,  with  respect to ODM  manufacturing,  the Company  will
compete   with  a  number  of   substantially   larger   and  more   experienced
manufacturers. As the Company enters other markets and businesses, it expects to
face new competition.


                                       16

<PAGE>

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 the  electronic  handheld  and
mechanical games industry generally or to the Company's  business  specifically.
The  Company  will  evaluate  each  claim  relating  to  its  products  and,  if
appropriate,  will seek a license to use the protected technology.  There can be
no assurance  that the Company will be able to obtain  licenses to  intellectual
property  of third  parties on  commercially  reasonable  terms,  if at all.  In
addition,  the Company  could be at a  disadvantage  if its  competitors  obtain
licenses  for  protected  technologies  on more  favorable  terms  than does the
Company.  If the  Company  or its  suppliers  are  unable to  license  protected
technology used in the Company's products,  the Company could be prohibited from
marketing  those  products  or may have to  market  products  without  desirable
features.  The  Company  could  also incur  substantial  costs to  redesign  its
products  or to defend  any legal  action  taken  against  the  Company.  If the
Company's products should be found to infringe protected technology, the Company
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 the
results of operations and financial position of the Company.

CHANGING CONSUMER PREFERENCES

         The toy market is  characterized by changing  consumer  preferences and
frequent  new  product  introductions  which  reduce the length of product  life
cycles.  There can be no assurance that any of the Company's current products or
product  lines  will  be  popular  with   consumers  for  any  period  of  time.
Furthermore,  sales of the Company's  existing  products are expected to decline
over time and may decline at rates faster than expected.  The Company's  success
is dependent upon the Company's  ability to enhance  existing  product lines and
develop new products and product lines.  Historically,  a significant portion of
the  gross  sales  each  year was  derived  from new  products.  Failure  of the
Company's  existing and new  products  and product  lines to achieve and sustain
market acceptance and to produce acceptable margins could have an adverse effect
on the Company's financial condition and results of operations.

TAXATION

         The Company cannot predict  whether its tax rates will remain as low as
they  have  been  in  the  past  as  tax  regulations  and  the  application  or
interpretation  thereof in the various  jurisdictions  within  which the Company
operates are always subject to change.  The Company  anticipates that taxes paid
in China will increase after December 31, 1998. See "Taxation of the Company and
its Subsidiaries".

COPY PRODUCT

         Occasionally in the toy industry  successful products are "knocked-off"
or copied. While the Company strives to protect its intellectual  property there
can be no  guarantee  that  knock-offs  will not have a  significant  effect  on
business.

BAD DEBTS AND RETURNS

         While the Company  does full credit  checks on all of its  customers it
cannot guarantee that any customer will not default on a payment of debt. Such a
default could have a significant effect on the Company's results. It is industry
practice for  retailers to hold back payments on slow moving stock or to request
markdowns or returns on such stock. It is the Company's policy to only take back
defective product and while the Company believes it will be able to enforce this
policy under normal industry 


                                       17

<PAGE>


conditions,  it may not be possible to enforce this policy in all cases,  as was
experienced with the downturn of the casino games market.

CONTROL BY EXISTING SHAREHOLDERS

         The   Company's   largest   shareholders   (see  "Item  4.  Control  of
Registrant")  including Mr. Robert E. Davids,  Vice Chairman and Chief Executive
Officer of the Company, and a group that consists of Dito Devcar Corporation and
certain related persons, and the Hansen Trust, own beneficially in the aggregate
a  majority  of the  outstanding  Common  Stock.  Assuming  that  they  were  in
agreement,  such persons would have the power to elect the  Company's  directors
and to approve or disapprove all other matters requiring  shareholders' approval
regardless of the vote of any other shareholders.

ENFORCEABILITY OF CIVIL LIABILITIES

         The Company is a Bermuda holding company,  and a substantial portion of
its assets are located  outside the United States.  In addition,  certain of the
Company's  directors  and officers  and certain of the experts  named herein are
resident  outside the United  States  (principally  in Hong Kong),  and all or a
substantial  portion of the assets of such persons 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 such  persons,  or to enforce
against  them or the  Company  judgments  obtained in the United  States  courts
predicated upon the civil liability  provisions of the United States  securities
laws. Among other things, the Company  understands that there is doubt as to the
enforceability in Bermuda and Hong Kong, respectively, 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 October 31, 1998, the Company had 18,864,294  shares of Common Stock
outstanding.  The Company estimates that  approximately half of such shares were
sold in a registered  offering or in a transaction under Rule 144, and therefore
such shares (other than any shares purchased by "affiliates" of the Company) are
tradable   without   restriction.   The  remaining   shares  owned  by  existing
shareholders  are  restricted  securities  under the  Securities Act of 1933, as
amended (the  "Securities  Act") and may be sold only pursuant to a registration
statement  under  the  Securities  Act  or  an  applicable  exemption  from  the
registration  requirements of the Securities Act, including Rule 144 thereunder.
Most of these restricted shares are currently eligible for sale pursuant to Rule
144,  subject to the  limitations  of such rule.  In  addition,  the Company has
granted to Mr.  Davids and the Hansen  Trust  certain  registration  rights with
respect to their shares. (See "Interest of Management in Certain  Transactions")
No predictions can be made as to the effect, if any, that market sales of shares
by existing shareholders or the availability of such shares for future sale will
have on the  market  price of Common  Stock  prevailing  from time to time.  The
prevailing  market price of Common  Stock could be adversely  affected by future
sales of Common Stock by existing shareholders.

YEAR 2000 COMPLIANCE RISKS

         The Year 2000 compliance  issue arises from the fact that a significant
percentage of the software utilized by businesses relies on two-digit date codes
to perform computations and decision-making functions.  Commencing on January 1,
2000, these computer programs may fail from an inability to interpret date codes
properly,  misinterpreting  "00" as the year 1900 rather than 2000.  The Company
has


                                       18

<PAGE>


completed  an  evaluation  of both its  information  technology  systems and its
non-technology  systems,  such  as  equipment  containing  microprocessors.  The
Company believes that all information  technology and non-technology  systems in
its corporate head office in Hong Kong and in its subsidiary  offices have been,
or by March 31,  1999 will have been,  modified  to address the Year 2000 issue.
Such major  systems  include  the BPCS  manufacturing  software in Hong Kong and
China, and the Solomon software used to run the U.S.  distribution  operation in
Radica  USA.  To assist  with this  process  the  Company  has  contracted  with
Commercial Software Services Ltd in Hong Kong to assist in upgrading and testing
of systems and Spectrum Solutions in the U.S. to test all software and hardware,
including  simulation of Year 2000.  The Company does not believe that the costs
associated  with  implementing  its Year 2000  compliance plan for its corporate
offices are material to the Company's financial condition or operations.

         It is estimated that such costs will be as follows:

                                                        Actual Expenditure
                                                       through October 31, 1998
a) New software/upgrades                 $46,000               $36,129
b) Consultants for testing/review         76,400                26,467
c) Interest lost on funds used to
     purchase raw materials early         20,000
d) Contingency                            50,000
                                         -------               -------
          TOTAL                         $192,400               $62,596

         The Company is in the process of compiling  information  concerning the
Year 2000  compliance of its key suppliers and customers  through the process of
issuing  questionnaires and monitoring  responses.  In the event that any of the
Company's key suppliers or customers do not successfully and timely achieve Year
2000  compliance,  the  Company's  business  or  operations  could be  adversely
affected.  The Company's Year 2000 compliance plan includes  encouraging  and/or
requiring Year 2000 compliance by all key suppliers.

         While the  Company is using its best  efforts to ensure  that it has no
business  interruptions as a result of the Year 2000 computer problem, there can
be no assurances  that the Company will not suffer some  disruption  either as a
result of its own systems or those of its suppliers or customers.

ITEM 2.  DESCRIPTION OF PROPERTIES

         See Item 1 "Manufacturing  Facilities." The Company completed the first
phase of construction  of its Factory  (241,000 sq. ft.) on a 3.7 acre parcel of
land in May 1995 and the second  phase  (223,000  sq. ft.) in August  1998.  The
Company owns a long-term leasehold on its executive offices (13,500 sq. ft.) and
warehouse  space (7,900 sq. ft.) in Fo Tan,  Hong Kong as well as two houses for
employees  in Hong Kong (2,100 sq. ft.  each),  which are made  available to Mr.
Davids and to Mr. Howell,  officers of the Company.  Radica operates its Factory
under the terms of the Joint Venture  Agreement and  Processing  Agreement.  The
Company leases  additional  storage and office space in Cambridge,  UK; Toronto,
Canada and office space in Dallas, Texas; Reno, Nevada and Las Vegas, Nevada.


                                       19

<PAGE>

ITEM 3.  LEGAL PROCEEDINGS

         Ten purported  class actions  filed in various  United States  District
Courts  against the  Company,  various of its officers  and  directors,  and the
managing underwriters of the Company's initial public offering were consolidated
in the United States District Court for the District of Nevada under the caption
In  re  Radica   Games   Limited   Securities   Litigation,   Master   File  No.
CV-S-94-00653-DAE  (LRL).  Plaintiffs filed a consolidated complaint on November
4, 1994 that superseded all the complaints in the individual actions.

         The named plaintiffs  originally sought to represent a class consisting
of purchasers of the Company's common stock in the initial public offering or in
the open  market  from May 13  through  July 22,  1994 and  sought  unquantified
monetary damages and other relief against the defendants for alleged  violations
of Sections 11, 12(2),  and 15 of the Securities Act of 1933,  Sections 10b (and
Rule 10b-5  thereunder),  20(a),  and 20A(a) of the  Securities  Exchange Act of
1934, Sections 90.570,  90.660 and 90.660.4 of the Nevada Revised Statutes,  and
the common law of Nevada  relating to the Company's  registration  statement and
other public disclosures.  As a consequence of an Order of the Court granting in
part  defendants'  motion to dismiss  the  complaint  and a  stipulation  of the
parties, all of plaintiffs' claims other than those arising under the Securities
Act of 1993,  and  limited  to certain  specified  statements  in the  Company's
registration  statement,  were  dismissed  without  prejudice.   Pursuant  to  a
stipulation  of the  parties,  the  Court  provisionally  agreed  to  treat  the
remaining claims as class claims.

         After the close of discovery, plaintiffs moved for leave to amend their
complaint to add allegations  with respect to an additional  claimed omission in
the registration  statement.  Shortly thereafter,  the Company moved for summary
judgment  seeking  dismissal of the  complaint.  Following a hearing on July 31,
1996,  the District  Court  entered an Order (i) denying  plaintiffs'  motion to
amend the complaint and (ii) granting the Company's (and the other  defendants')
motion for summary judgment,  and on August 9, 1996 the District Court entered a
judgment   dismissing   the   action.    Plaintiffs   subsequently   moved   for
reconsideration  of the grant of summary  judgment  against them,  and the court
denied their motion.

         Plaintiffs  filed a timely appeal to the United States Court of Appeals
for the Ninth Circuit,  and oral argument of such appeal was held on November 5,
1997. On November 14, 1997, the Court of Appeals  entered an Order affirming the
judgment of the District  Court.  Plaintiffs  sought no further  review and such
judgment is now final.

ITEM 4.  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  ten  percent  (10%) of the
         registrant's  common  stock and the amount of common stock owned by the
         officers and directors as a group, as of December 1, 1998:

                 Identity of
Title of Class   Person or Group                 Amount Owned   Percent of Class
--------------   ---------------                 ------------   ----------------
Common stock     Robert E. Davids                  3,265,800        17.3%
Common stock     Dito Devcar Corporation et al     6,062,218        32.1%
Common stock     Officers & Directors as a Group   3,716,350        19.7%

         In  addition  to the  foregoing,  the  Company  is aware  of one  other
         significant  shareholder who is believed to own approximately 5% of the
         Company's  common  stock.  This is The John and Mary  Hansen 1989 Trust
         (the "Hansen  Trust")  (including  shares owned by other Hansen  family
         trusts or


                                       20

<PAGE>


         individuals).  The Company  expects to update this  information  in its
         Proxy Statement for its 1999 Annual Shareholders' Meeting.

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

                                    PART II

ITEM 5. NATURE OF TRADING MARKET

         The  Company's  common  stock is traded on the NASDAQ  National  Market
under the symbol RADAF.  The Company's common stock is not traded on any foreign
trading  market.  The following table lists the high and low closing stock price
for each quarter of fiscal 1998, fiscal 1997 and fiscal 1996.

<TABLE>
<CAPTION>
                                        Fiscal year 1998               Fiscal year 1997           Fiscal year 1996
                                     --------------------------  --------------------------  ------------------------
                                      High             Low         High            Low        High           Low
                                      ----             ---         ----            ---        ----           ---
<S>                                  <C>               <C>        <C>            <C>          <C>            <C>

                                        $               $           $               $           $             $

        First Quarter ........         19              12  7/8     3  1/4        1  1/16       2  1/2        1   1/8

        Second Quarter .......         20  5/8         14  3/4     4  1/8        2  3/8        2             1   1/4

        Third Quarter ........         22  1/4         16  1/8     7  7/8        2  7/8        1 15/16          15/16

        Fourth Quarter .......         16  5/8          9  3/4    15  3/8        7  1/2        1  3/4            3/4
</TABLE>


         Radica  Games  Limited was formed in 1994 as a holding  company and has
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.  The  payment of any future  dividends  will be at the
discretion of the Board of Directors and will depend upon,  among other factors,
the Company's earnings,  financial  condition,  capital requirements and general
business  outlook at the time the payment is considered.  The Company intends to
make cash  distributions at the end of its taxable year at least equal to 50% of
its  foreign  personal  holding  company  income  for any  year in which it is a
personal foreign holding company. (See Item 7. Taxation.)

         As of October  31,  1998,  the  Company  had  approximately  130 record
holders of its Common  Stock,  and  approximately  80% of such stock was held by
U.S. holders.

ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS

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

         The  transfer  of shares of the  Company  between  persons  regarded as
non-resident of Bermuda for exchange control purposes and the issue of shares 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 or
other  appointed  stock  exchange  (as  defined  in the  Companies  Act  1981 of
Bermuda). Issues and transfers of shares


                                       21

<PAGE>






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.

         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-Bermudans, but as an exempted company the Company may not, unless authorised
by its  memorandum  of  association  and with the  consent  of the  Minister  of
Finance,  participate  in  certain  business  transactions,  including:  (1) the
acquisition  and  holding  of land in  Bermuda  (except  that  required  for its
business and held by way of lease or tenancy for terms of not more than 50 years
or with the Minister's consent,  land by way of lease or tenancy agreement for a
term not exceeding 21 years in order to provide  accommodation  or  recreational
facilities for its officers and employees);  (2) the taking of mortgages on land
in Bermuda to secure an amount in excess of $50,000;  (3) the acquisition of any
bonds or  debentures  secured on any land in Bermuda  except bonds or debentures
issued by the Bermuda  Government or a public authority;  or (4) the carrying on
of business of any kind in Bermuda, except in furtherance of the business of the
Company carried on outside Bermuda or under a license granted by the Minister of
Finance of Bermuda.

ITEM 7.  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 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 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


                                       22

<PAGE>





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, as currently in effect, a holder of Common
Stock is not  subject to Hong Kong tax on  dividends  paid with  respect to such
shares  and no  holder  of  Common  Stock is  liable  for Hong Kong tax on gains
realized on sale or other disposition of such Common Stock except that Hong Kong
profits tax may be chargeable on revenue profits,  to the extent that they arise
in or derive from Hong Kong, arising on the sale or disposal of the Common Stock
where such  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.

         No Hong Kong stamp duty will be chargeable  upon the transfer of Common
Stock so long as the  shareholders'  register is kept  outside  Hong Kong at the
time of  transfer.  No Hong Kong  estate duty will be  chargeable  in respect of
Common Stock so long as the shareholders'  register is kept outside Hong Kong at
the time of death of the relevant holder of Common Stock.

UNITED STATES FEDERAL INCOME TAXATION

         General.  The following is a general  discussion of the principal  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 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 in respect of the Common Stock, 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.  Subject  to  the  FPHC  discussion  below,  a  U.S.  Holder
receiving  a  distribution  on Common  Stock will be  required  to include  such
distribution  in gross income as a dividend to the extent such  distribution  is
paid from  current  or  accumulated  earnings  and  profits  of the  Company  as
determined  under U.S.  federal income tax law.  Distributions  in excess of the
earnings  and profits of the Company  will first be  treated,  for U.S.  federal
income tax purposes, as a nontaxable return on 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. Dividend income with respect to the Common Stock generally will
constitute foreign source "passive"


                                      23

<PAGE>




income or in the case of certain U.S.  Holders  "financial  services" income for
purposes of the foreign tax credit limitation.  A corporate shareholder will not
be eligible for the dividends received deduction.

         Sale or Exchange of Common Stock.  Gain or loss on the sale or exchange
of the Common Stock by a U.S.  Holder  generally will be treated as capital gain
or loss and will be long-term  capital gain or loss if the U.S.  Holder has held
the  Common  Stock for more  than one year at the time of the sale or  exchange.
Gain,  if any,  realized by a U.S.  Holder will  generally be U.S.  source gain.
Long-term capital gain of a non-corporate  U.S. Holder is generally subject to a
maximum tax rate of 20% in respect of property held for more than one year.

         FPHC  Rules.  A foreign  corporation  will be  classified  as a foreign
personal holding company ("FPHC") if (i) five or fewer  individuals who are U.S.
citizens  or  residents  directly  or  indirectly  own  more  than  50%  of  the
corporation's stock (measured either by voting power or value) (the "shareholder
test") and (ii) more than 50% (or 60%, in certain years) of its gross income, as
specially adjusted, consists of foreign personal holding company income (defined
generally to include dividends,  interest, royalties, rents, gains from the sale
of stock or securities  and certain other types of passive  income) (the "income
test"). U.S. citizens or residents, domestic corporations, domestic partnerships
and estates or trusts other than foreign estates or trusts who are  shareholders
of  FPHCs  ("U.S.   shareholders")   are  required  to  include  in  income  the
undistributed income of a FPHC.

         The Company is not a FPHC  because the income test was not met in 1998.
The Company intends to manage its business such that it will not meet the income
test until such time that it begins to receive  significant  dividends  from its
subsidiaries,  which is not  expected to occur in the  foreseeable  future.  The
Company  would then be a FPHC only if, in the same taxable year, it also met the
shareholder test.

         If the Company is a FPHC for any year, each U.S.  shareholder who holds
Common Stock on the last day of the Company's  taxable year (currently,  October
31) or, if earlier, on the last day on which the ownership test is met, would be
required to include in income as a dividend its pro rata share of the  Company's
undistributed  foreign personal holding company income.  The  shareholder's  tax
basis in the Common Stock would be  increased by the amount  included in income.
Such income would be taxable to any such U.S.  shareholder as a dividend whether
or not  distributed in cash. For any year in which the Company is a FPHC, any 5%
or greater  U.S.  shareholder  would be  required to report on its tax return in
complete detail the gross income,  deductions and credits,  taxable income, FPHC
income and  undistributed  FPHC income of a FPHC.  The Company  will furnish any
shareholder  required so to report the information  required to be reported.  In
addition,  any holder who acquires  Common Stock from a decedent would be denied
the date of death value as the tax basis for such Common Stock (which would have
a basis equal to the lower of fair market value or the decedent's  basis) if the
Company was a FPHC with respect to its taxable year next  preceding  the date of
the decedent's death.

         For any year in which it is a FPHC,  the  Company  intends to make cash
distributions  to  shareholders of record on the last day of its taxable year in
an amount at least equal to 50% of its foreign  personal  holding company income
(which amount  should be sufficient  for  shareholders  to pay U.S.  federal and
state income taxes on such distributions and any undistributed  foreign personal
holding company income taxable as a dividend).

         PHC Rules. A corporation (including a foreign corporation that is not a
FPHC) will be classified as a personal  holding  company  ("PHC") if (i) five or
fewer individuals (without regard to their citizenship or residence) directly or
indirectly  own  more  than  50%  in  value  of  the  corporation's  stock  (the
"shareholder  test")  and (ii) at least 60% of its  ordinary  gross  income,  as
specially  adjusted,  consists  of  personal  holding  company  income  (defined
generally to include dividends, interest, royalties, rents and


                                      24

<PAGE>




certain other types of passive income) (the "income test").  A PHC is subject to
a U.S. federal income tax of 39.6% on its undistributed personal holding company
income (generally limited, in the case of a foreign corporation,  to U.S. source
income).

         The  Company is not a PHC as the income  test was not met in 1998.  The
Company intends to cause any subsidiary that is a PHC to make distributions on a
basis such that it will not have undistributed personal holding company income.

         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.

         PFIC Rules.  The Company  believes  that the Common Stock should not be
treated as stock of a passive foreign  investment  company (a "PFIC") for United
States  federal  income  tax  purposes,   but  this   conclusion  is  a  factual
determination  made  annually and thus may be subject to change.  If the Company
were to be treated as a PFIC, a gain  realized on the sale or other  disposition
of Common  Stock would in general not be treated as a capital  gain,  and a U.S.
Holder would be treated as if such holder had  realized  such a gain and certain
"excess  distributions"  ratably over the holder's holding period for the Common
Stock and would be taxed at the highest tax rate in effect for each such year to
which the gain was allocated, together with an interest charge in respect of the
tax attributable to each such year.

         In general,  the Company will be a PFIC with  respect to a U.S.  Holder
if, for any  taxable  year in which the U.S.  Holder held the  Company's  Common
Stock,  either  (i) at least 75% of the  gross  income  of the  Company  for the
taxable year is passive income or (ii) at least 50% of the value  (determined on
the basis of a quarterly  average) of the Company's  assets is  attributable  to
assets that produce or are held for the production of passive  income.  For this
purpose,  passive income generally  includes  dividends,  interests,  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.


                                      25

<PAGE>






ITEM 8.  SELECTED FINANCIAL DATA

         Set forth below is the selected income statement and balance sheet data
for each of the five years in the period ended  October 31,  1998.  This summary
should be read in  conjunction  with  "Management's  Discussion  and Analysis of
Financial  Condition  and  Results  of  Operation"  and the  combined  financial
statements and note thereto included elsewhere in this document.

<TABLE>
<CAPTION>
                                                                                YEAR ENDED OCTOBER 31,
                                                                 1994      1995      1996      1997      1998
                                                                 ----      ----      ----      ----      ----
                                                               (IN THOUSANDS, EXCEPT PER SHARE DATA AND MARGINS)
<S>                                                              <C>      <C>       <C>        <C>       <C>    

Income Statement Data:
Net sales                                                        $72,092   $52,650   $47,535   $87,760   $155,618
Cost of sales                                                     37,823    34,640    30,696    40,888     70,576
Gross profit                                                      34,269    18,010    16,839    46,872     85,042
Operating expenses:
  Selling, general and administrative                             13,657    21,105    11,752    14,403     27,788
  Research and development                                         1,577     2,084     1,699     2,099      3,710
  Write down of assets                                                 -    15,318         -         -          -
  Acquired research and development                                    -         -         -         -      1,500
  Depreciation and amortization                                        -     1,591     1,594     2,278      3,423
  Total operating expenses                                       $15,234  $ 40,098   $15,045   $18,780    $36,421
Operating income (loss) from continuing operations                19,035   (22,088)    1,794    28,092     48,621
Other income                                                           -       329       748       915        807
Share of loss of affiliated company                                    -         -         -      (141)      (334)
Net interest income (expenses)                                        95      (628)     (165)      913      1,896
Income (Loss) from continuing operations before income taxes
  and unusual item                                                19,130   (22,387)    2,377    29,779     50,990
Unusual item                                                           -         -       709         -          -
Income (Loss) from continuing operations before income taxes      19,130   (22,387)    3,086    29,779     50,990
Credit (Provision) for income taxes                               (1,950)      897       120      (193)       226
Income (Loss) from continuing operations after income taxes      $17,180  $(21,490)   $3,206   $29,586    $51,256
Discontinued Operations:
  Loss from operation of pub poker business                          (20)     (233)   (1,712)        -          -
Net income (loss)                                                $17,160  $(21,723) $  1,494   $29,586    $51,256
Net earnings (loss) per share from continuing operations         $  0.81  $  (0.94) $   0.15   $  1.43    $  2.53
Effect of discontinued operations                                      -     (0.01)    (0.08)        -          -
Net earnings (loss) per share                                    $  0.81  $  (0.95) $   0.07   $  1.43    $  2.53
Average number of shares outstanding                              21,308    22,780    21,439    20,761     20,240

</TABLE>


                                (continued)


                                       26

<PAGE>





<TABLE>
<CAPTION>
                                                                                YEAR ENDED OCTOBER 31,
                                                                 1994      1995      1996      1997      1998
                                                                 ----      ----      ----      ----      ----
                                                               (IN THOUSANDS, EXCEPT PER SHARE DATA AND MARGINS)
<S>                                                            <C>      <C>       <C>       <C>       <C>

Statistical data:
Gross margin                                                     47.5%     34.2%     35.4%     53.4%     54.6%
Operating margin                                                 26.4%      N/A       3.8%     32.0%     31.2%
Dividends per share (1)                                         $ 0.17        -         -         -         -
Balance Sheet Data:
Working capital                                                $39,733  $15,878   $18,847   $48,860   $59,913
Total assets                                                    87,326   54,054    42,725    79,449   113,521
Long-term debt                                                      73       99         -         -         -
Total debt                                                      18,673   14,440        99         -         -
Shareholders' equity                                            51,821   30,297    31,813    61,593    79,839

<FN>
(1)  During the periods presented the only dividends paid were cash dividends of
     $3,704  paid in respect of fiscal 1994 to the then  shareholders  of Radica
     USA  following   termination  of  the  S  Corporation  status  (amounts  in
     thousands).
</FN>
</TABLE>



                                       27

<PAGE>




ITEM 9.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

FISCAL 1998 COMPARED TO FISCAL 1997

         The following  table sets forth items from the  Company's  Consolidated
Statements of Income as a percentage of net revenues:


                                                    Year ended October 31,
                                                ------------------------------
                                                 1996        1997        1998
                                                ------      ------      ------
     Net revenues                               100.0%      100.0%      100.0%
     Cost of sales                               64.6%       46.6%       45.4%

     Gross margin                                35.4%       53.4%       54.6%
     Selling, general and administrative         24.7%       16.4%       17.8%
     Research and development                     3.6%        2.4%        2.4%
     Acquired research and development             -           -          1.0%
     Depreciation and amortization                3.3%        2.6%        2.2%

     Operating income (loss)                      3.8%       32.0%       31.2%
     Other income                                 1.6%        1.0%        0.5%
     Share of loss of affiliated company           -         (0.1%)      (0.2%)
     Interest income (expense), net              (0.4%)       1.0%        1.2%
     Unusual item                                 1.5%         -           -

     Income before income taxes                   6.5%       33.9%       32.7%
     Credit (provision) for income taxes          0.3%       (0.2%)       0.2%
     Discontinued operation                      (3.7%)        -           -

     Net income (loss)                            3.1%       33.7%       32.9%

         Net sales for the year ended  October  31,  1998 were  $155.6  million,
increasing 77.2% from $87.8 million for the prior year.


                                       28

<PAGE>



         The following  table sets out the  percentages  of sales  achieved from
each category of products:


<TABLE>
<CAPTION>
                                                     YEAR ENDED OCTOBER 31,
                                   ------------------------------------------------------------- 
                                              1997                               1998
                                   ----------------------------    -----------------------------
                                     % OF        UNITS   NO.OF       % OF        UNITS    NO.OF
     PRODUCT LINES                 NET SALES     SOLD    MODELS    NET SALES     SOLD     MODELS
     -----------------             ---------     -----   ------    ---------     -----    ------
     <S>                              <C>      <C>          <C>      <C>      <C>           <C>

     Fishing games                     40.7%   3,261,086      3       44.0%    5,598,897      5

     Combat games                       2.7%     208,649      2        4.6%      548,632      4

     Sports games                       9.3%     726,478      7       10.0%    1,145,824     12

     Casino games
     --Handheld                        13.2%   3,416,426     84        7.6%    3,035,888     54
     --Tabletop                         2.4%     238,310     32        0.9%      172,956     11

     Heritage games                    12.3%     985,163     16        7.4%    1,037,105     16

     Extreme games                      0.0%        -         -        4.5%      466,921      3

     ODM products                      19.4%   3,519,665     12       21.0%    5,663,867     20
                                      ------  ----------    ---      ------   ----------    ---
     Total                            100.0%  12,355,777    156      100.0%   17,670,090    125
                                      ======  ==========    ===      ======   ==========    ===
</TABLE>



         During 1998, the Company sold 125 different  models of games,  totaling
17.7 million units,  compared to 156 models totaling 12.4 million units in 1997,
an  increase  of 42.7%.  Of the 125 models of Radica and Monte  Carlo games sold
during the period a number of models are  discontinued  lines,  which unless the
market warrants reintroduction,  the Company only intends to continue selling so
long as  inventories  exist.  Twenty new models  were sold during 1998 (See "New
Products  Introduction").  The Company intends to introduce approximately 25 new
models in 1999.

         The gross  profit for fiscal  year 1998 was $85.0  million  compared to
$46.9  million for fiscal 1997,  an increase of 81.2%.  The gross margin for the
year was 54.6%  compared  to 53.4% for fiscal  year 1997.

         Operating profit for fiscal year 1998 was $48.6 million, an increase of
$20.5 million from $28.1 million in fiscal 1997. Operating expenses increased to
$36.4 million from $18.8 million in 1997.

         The following table lays out the changes in operating  expenses for the
major expense categories.

                                                 October 31,
                                                 -----------
                                               1997       1998
                                               ----       ----
                                            (dollars in millions)
Commissions                                  $ 2.45     $ 4.73
Indirect salaries and wages                    4.72       6.36
Advertising and promotion expenses             0.80       9.20
Research and development expenses              2.10       3.71

                                       29

<PAGE>

         The effective  blended tax rate for the year ended October 31, 1998 was
a credit of 0.5% on  continuing  operations  compared to a provision of 0.6% for
fiscal  1997.  The tax credit for the year was  comprised  of an expense of $4.0
million  representing 7.8% of pre-tax income,  offset by a one time deferred tax
credit of $4.6  million.  This  compared to a charge of $0.2 million in 1997, or
0.6% of pre-tax income. The increase in tax expense for the year was as a result
of the brought forward losses in the U.S.  subsidiary being used up resulting in
the U.S. profits of the distribution operation becoming fully taxable.

         Net  profit for  fiscal  year 1998 of $51.3  million or $2.53 per share
compared to $29.6 million or $1.43 per share in fiscal 1997.

CAPITAL RESOURCES AND LIQUIDITY

         Cash and cash equivalents  totaled $33.1 million at October 31, 1998, a
drop of $0.4 million from October 31, 1997.  Working capital at October 31, 1998
was $59.9  million,  an $11.0  million  increase  from working  capital of $48.9
million at October 31, 1997. The increase in working capital is due primarily to
an increase in net income offset by the purchase of 2,610,400  Company shares at
average price of $14.36 during the fiscal year.  The ratio of current  assets to
current liabilities decreased to 2.8 at October 31, 1998 from 3.7 at October 31,
1997.  This  decrease in the current  ratio is due mainly to the purchase of the
Company's  shares.  There were no short-term  borrowings at October 31, 1998 and
1997.

         The Company  believes that its existing cash and cash  equivalents  and
cash generated from operations are sufficient to satisfy the current anticipated
working capital needs of its core business.

FISCAL 1997 COMPARED TO FISCAL 1996

         Net sales for the year  ended  October  31,  1997 were  $87.8  million,
increasing 84.8% from $47.5 million for the prior year.  Approximately  50.6% of
sales related to Sports games,  12.4% to Heritage  games,  2.7% to Action games,
15.7% to Casino games and 18.6% to Original Design  Manufacturing "ODM" sales in
fiscal 1997 in comparison to 18.1 %, 17.3%,  0%, 40.5% and 24.1% in fiscal 1996.
During  1997,  the Company sold 156  different  models of games,  totaling  12.4
million  units,  compared to 139 models  totaling 9.0 million  units in 1996, an
increase of 37.8%. Of the 147 models of Radica and Monte Carlo games sold during
the period 122 models were discontinued lines, which unless the market warranted
reintroduction,  the  Company  only  intended  to  continue  selling  so long as
inventories exist. 10 new models were sold during 1997.

         The gross  profit for fiscal  year 1997 was $46.9  million  compared to
$16.8 million for fiscal 1996,  an increase of 179.2%.  The gross margin for the
year was 53.4%  compared  to 35.4% for fiscal year 1996.  The  increase in gross
margin was due to higher  sales  volume of current  and new  product at historic
margin  levels  relative  to sales of low  margin  promotional  product  and ODM
production.  In  addition,  approximately  3.6% of the year end  margin  or $3.2
million was as a result of sales of product  which had  previously  been written
off.

         Operating  profit for fiscal year 1997 was $28.1  million,  an increase
from $1.8 million from fiscal 1996.  Operating expenses increased 25.3% to $18.8
million from $15 million in 1996.  Commissions  increased  113% to $2.45 million
from $1.15 million in fiscal 1996;  indirect  salaries and wages increased 36.8%
to $4.72  million from $3.45 million in fiscal 1996;  advertising  and promotion
expenses increased


                                       30

<PAGE>


11.1% to $0.8  million  from $0.72  million in fiscal  1996;  and  research  and
development  expenses  increased  23.5% to $2.10  million from $1.70  million in
fiscal 1996.

         The effective blended tax rate for the year ended October 1997 was 0.6%
on continuing  operations compared to a credit of 3.9% for fiscal 1996. This was
due to the effective  USA tax rate of 34% combined with the 16.5%  effective tax
rate  of  the  operations  in  Hong  Kong  and  0%  effective  tax  rate  of the
manufacturing   operation  in  China  conducted  by  a  British  Virgin  Islands
subsidiary. It should be noted that the U.S. subsidiary had significant releases
of inventory provisions which were not taxable during the year, so that although
it was profitable there was no tax charge.

         Net  profit for  fiscal  year 1997 of $29.6  million or $1.43 per share
compared to $1.5 million or $.07 per share in fiscal 1996.

FISCAL 1996 COMPARED TO FISCAL 1995

         Net sales for the year  ended  October  31,  1996 were  $47.5  million,
decreasing  9.9% from $52.7 million for the prior year.  Approximately  40.5% of
sales related to Casino games,  17.3% to Heritage  games,  18.1% to Sports games
and 24.1% to ODM sales in fiscal 1996 in comparison to 94.5%,  2.9%, 0% and 2.6%
in fiscal 1995.  During 1996,  the Company sold 139  different  models of games,
totaling 9.0 million units, compared to 104 models totaling 8.6 million units in
1995,  an  increase  of 4.7%.  Of the 139 models of Radica and Monte Carlo games
sold  during the period 87 models  were  discontinued  lines,  which  unless the
market warrants reintroduction, the Company only intended to continue selling so
long as inventories  exist.  Twelve new models were sold during 1996 including a
Sports line of Casino games, Tournament Golf, Golf Range, World Class Golf, Bass
Fishin'(TM), King Pin Bowling, 9 Ball Pool, Pinball Rider, Talking Bingo, Hearts
and Gin Rummy.

         The gross profit for fiscal year 1996 was $16.8 million compared to $18
million for fiscal 1995,  a decrease of 6.7%.  The gross margin for the year was
35.4%  compared to 34.2% for fiscal year 1995.  The increase in gross margin was
due to the sale of new Sports and Heritage  product at higher  margins offset by
continued  sales of  promotional  Casino product at low margins and lower margin
ODM production for the Hasbro Games Group.

         Operating  profit for fiscal year 1996 before  accounting for cessation
of Pub Poker business was $1.8 million, an increase from operating loss of $22.1
million for fiscal 1995.  Operating  expenses  decreased  62.6% to $15.0 million
from $40.1 million in 1995. These decreases were primarily due to the effects of
the Company's cost cutting program together with lower  commissions due to lower
sales  and a new  commission  structure  and the  write  down of assets of $15.3
million in fiscal 1995.  Commissions decreased 62.2% to $1.15 million from $3.04
million in fiscal 1995;  indirect  salaries and wages  decreased  45.4% to $3.45
million from $6.32 million in fiscal 1995;  advertising  and promotion  expenses
decreased 76.8% to $0.72 million from $3.10 million in fiscal 1995; and research
and development  expenses decreased 19.0% to $1.70 million from $2.10 million in
fiscal 1995.

         The  effective  blended tax rate for the year ended  October 1996 was a
credit of 3.9% on continuing  operations compared to a credit of 4.0% for fiscal
1995.  This was due to the effective USA tax rate of 34% combined with the 16.5%
effective  tax rate of the  operations in Hong Kong and 0% effective tax rate of
the  manufacturing  operation  in China  conducted by a British  Virgin  Islands
subsidiary.

         After tax profit from continuing operations of $3.2 million or $.15 per
share for fiscal year 1996  compared to a net loss of $21.5  million or $.94 per
share in the prior year.


                                       31

<PAGE>


         Net profit after  discontinued  operations for fiscal year 1996 of $1.5
million  or $.07 per  share  compared  to a net loss  for  fiscal  1995 of $21.7
million or $.95 per share.

ITEM 9A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The Company does not engage in  transactions  in the ordinary course of
its business to hedge itself against exposure to currency risks.

ITEM 10.  DIRECTORS AND OFFICERS OF REGISTRANT

         The following table sets forth the directors and executive  officers of
the Company in fiscal 1998.

<TABLE>
<CAPTION>
                                Term
Name                          Expires    Residency       Position
----                          -------    ---------       --------
<S>                        <C>           <C>             <C>

Robert E. Davids              1999       Hong Kong       Vice-Chairman, Chief Executive Officer
                                                         and Director

Jon N. Bengtson               1999       USA             Chairman of the Board and Director

Patrick S. Feely              1999       USA             President, Chief Operating Officer and Director

David C.W. Howell             1999       Hong Kong       Executive Vice President, Chief Financial Officer,
                                                         Chief Accounting Officer and Director

Lam Siu Wing                  1999       USA             Vice President, Engineering and Director

Robert Townsend (1)         Deceased     USA             Director

James O'Toole (2)(3)          1999       USA             Director

Millens W. Taft (2)(3)        1999       USA             Director

Peter Thigpen (2)(3)(4)       1999       USA             Director

Henry Hai-Lin Hu (2)(3)(5)    1999       Australia       Director

Gene Murtha                   N/A        USA             President, Radica USA

Wong Kam Cheong               N/A        Hong Kong       Vice President of China Operations

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

Samuel Kwok                   N/A        Hong Kong       Plant Administration Director

Ben Hui                       N/A        Hong Kong       Materials Director

Y.L. Wang                     N/A        China           Quality Director

Rick C.K. Chu                 N/A        Hong Kong       International Sales Director

</TABLE>



                                       32

<PAGE>

<TABLE>
<S>                           <C>        <C>             <C>
Christopher Dingley           N/A        UK              General Manager, Radica UK Ltd

Michael L. Pikett             N/A        Canada          President, Radica Canada Ltd

<FN>
(1)  Mr.  Townsend  served as a director of the Company from June 1994 until his
     death in January 1998.

(2)  Member of the Audit Committee.

(3)  Member of the Compensation, Organization and Nominating Committee.

(4)  Mr. Thigpen was appointed as an outside director on June 16, 1998.

(5)  Mr. Hu was appointed as an outside director on December 14, 1998
</FN>
</TABLE>

         Robert E.  Davids has been the Chief  Executive  Officer of the Company
since January 1994 and a director  since  December 1993. He was President of the
Company from December 1993 to July 1997.  Prior to 1993, Mr. Davids had been the
Co-Chief Executive Officer and director of Radica HK since he joined the Company
in 1988. Mr. Davids has over 30 years experience in the development,  design and
engineering  of  non-gambling   casino  gifts,   commercial   gaming   machines,
automobiles  and other products.  From 1984 until he joined the Company,  he was
the General  Manager of Prospector  Gaming  Enterprises  Inc., a casino in Reno,
Nevada.  From 1978  through  1984,  Mr.  Davids  served in various  positions at
International  Game Technology  ("IGT"),  including Director of Special Projects
and Director of Engineering.

         Jon N.  Bengtson,  formerly  the  Executive  Vice  President  and Chief
Financial  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 is currently the President and Chief Operating Officer of U-Tel,  Inc.,
a  telecommunications  company.  Mr.  Bengtson was  formerly an  Executive  Vice
President  and Chief  Operating  Officer of the Company from  September  1995 to
January 1996. 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 Regency 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 IGT, including Treasurer and Vice President
of Finance and Administration  and Vice President of Marketing.  Mr. Bengtson is
currently a director of The Sands Regency and its subsidiary, Patrician, Inc.

         Patrick S. Feely has been Chief Operating  Officer and President of the
Company  since  July  1997  and a  director  of the  Company  since  July  1996.
Previously,  he was  President of Fun Source,  a Strottman  International,  Inc.
company;  President  and CEO of  Spectrum  HoloByte,  Inc.  from  1993 to  1995;
President of Bandai  America,  Inc. from 1991 to 1992;  founder and President of
Toy Soldiers,  Inc.  (which merged with Bandai  America) from 1988 to 1991;  and
President of the Tonka Products  Division of Tonka,  Inc. from 1986 to 1988. Mr.
Feely was also Director of the Toy Manufacturers  Association from 1992 to 1995.
He has a BA from Duke University and an MBA from the University of Michigan.


                                       33

<PAGE>


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

         Lam Siu Wing has been Vice President, Engineering and a director of the
Company  since  January  1994.  Prior to that,  he was the head of the Radica HK
Engineering  department  for eight years since joining the company in 1985.  Mr.
Lam has  over 18  years of  experience  in  manufacturing,  product  design  and
engineering  management.  He has an  Associateship  in Production and Industrial
Engineering from Hong Kong  Polytechnic,  a post graduate diploma in Engineering
Management from City Polytechnic of Hong Kong, and is an associate member of the
Institute of  Electrical  Engineers of UK.

         James O'Toole has been a director of the Company since June 1994. He is
currently  Managing  Director  of Booz Allen  Hamilton  Leadership  Center.  Mr.
O'Toole  retired in 1994 from the faculty of the Graduate  School of Business at
the University of Southern  California after a career of more than twenty years,
where he held the University Associates' Chair of Management.

         Millens W. Taft has been a director of the Company since April 1997. He
brings with him five decades of toy and games  experience and currently  advises
companies in the toy industry on marketing, product development and licensing in
both the domestic and international  markets. He retired from the Milton Bradley
Company in 1984,  where he was Corporate  Senior Vice  President of Research and
Development  and was also a Director of the firm.  Mr. Taft had been with Milton
Bradley since  graduating from Harvard  Business School in June of 1949 with the
degree  of Master of  Business  Administration.  From 1942 to 1945 he was in the
military service with the 8th Air Force as First Lieutenant and Pilot.  Upon his
early  retirement  from Milton Bradley,  he started his own company,  Mel Taft &
Associates in 1984,  which helps  companies in the USA and around the world with
marketing,  product  development  and licensing  projects  primarily in the Toy,
Games, Craft, Specialty and International Markets.

         Peter  Thigpen has been a director of the Company  since June 1998.  He
owns  Executive  Reserves,  a  consulting  company that  specializes  in quality
processes,  ethics and marketing strategy. Prior to starting Executive Reserves,
Mr.  Thigpen was Senior Vice  President  - U.S.  Operations  and a member of the
Executive  Management  Committee  at Levi Strauss & Company,  retiring  after 23
years with the San  Francisco-based  apparel company.  During his tenure at Levi
Strauss,  Mr.  Thigpen  held  positions  of  President  of European  Operations,
President - Levi Strauss USA,  President - The Jeans Company and was a member of
the Board of  Directors.  Mr.  Thigpen is a Senior Fellow and a Moderator at the
Aspen  Institute,  member of the Board of the San Francisco  School  Volunteers,
member of the  Board of  Governors  of the  Josephson  Institute  of  Ethics,  a
lecturer on ethics at the Haas Graduate  School of Business at the University of
California,  Berkeley, Member of the Board of Directors of Designs, Inc. and the
Gymboree Corporation.

         Henry  Hai-Lin Hu has been a director  of the  Company  since  December
1998.  He is  currently  the  Principal  of Business  Plus  Consultants  Limited
providing services to Hong Kong toy companies on business development. From 1993
through 1996, he was Chairman and Chief Executive Officer of Zindart  Industrial
Co.  Ltd.,  a NASDAQ  listed  manufacturer  of die cast car replicas and premium
giftwares.  He co-founded Wah Shing Toy Group since 1982, a Singapore listed toy
company, and retired


                                       34

<PAGE>


from Wah Shing in 1991.  Mr. Hu has served in director and senior  officer roles
in several toy  companies in Hong Kong since 1967.  He has a B.Sc in  Mechanical
Engineering from Hong Kong University,  is a Registered  Professional  Engineer,
and a member of the Institution of Electrical Engineers, Hong Kong.

         Gene Murtha has been the President of Radica USA since December 1998. A
20-year  veteran of the Toy and Game  Industry,  Mr. Murtha  recently  served as
Mattel's Vice  President of Marketing with  worldwide  responsibilities  for the
Matchbox line of products.  He has previously held senior marketing and R&D jobs
with  game  companies   such  as  Milton  Bradley  and  Coleco,   where  he  had
responsibility  for  such  classic  brands  as  Scrabble,  Trivial  Pursuit  and
Parcheesi.

         Wong Kam Cheong has been the Vice President of China Operations for the
Company since May 1998. Prior to that, he was the Director of Manufacturing  for
the Company from June 1994 to May 1998. Mr. Wong has over 19 years of experience
in product design, R&D,  production and sales in toys, consumer  electronics and
the electrical appliance industry.  Mr. Wong has a BSc in Mechanical Engineering
from Taiwan University, a post graduate diploma in Manufacturing Technology from
City University, London and is a member of the Institute of Management, UK.

         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
17 years experience in Information  Technology and particular  experience in IBM
mid-range  computer  systems and solutions.  He has a Higher Diploma in Computer
Studies  from the  National  Computing  Center  UK and a Diploma  in  Management
Studies from the Hong Kong Polytechnic and Hong Kong Management Association.

         Samuel Kwok has been the Plant  Administration  Director since February
1998.   Mr.  Kwok  has  over  10  years   working   experience  in  Finance  and
Administration  in  multinational  companies and is responsible  for the general
administration  in  the  China  factory.  He  has  an  MBA  and  is a  certified
accountant.

         Ben Hui has been the Materials  Director since May 1998. Prior to that,
he has previously  held materials and purchasing  management jobs with companies
such as Sunciti Manufacturers Limited, HK Air Cargo Terminals Limited,  Computer
Products  and  Saitek  Ltd.  Mr.  Hui  has  20  years  extensive  experience  in
manufacturing management with responsibility for purchasing, shipping, inventory
and  warehousing.  He has been a full member of the Institute of Purchasing  and
Supply of Hong Kong since 1990.

         Y.L. Wang has been the Quality  Director of the Company since  December
1993. Prior to that, he was Head of the Quality Assurance Section of Foxboro Co.
Ltd in Shanghai  from 1986 to 1993 and a Quality  Control  Engineer from 1982 to
1986.

         Rick C.K. Chu has been the International  Sales Director of the Company
since April 1996. Prior to that, Mr. Chu was International Sales  Administrative
Manager of the Company from April 1994 to April 1996.  He has more than 16 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.

         Christopher  Dingley has been the European  Marketing Manager of Radica
UK since  January  1998.  Prior to that,  Mr.  Dingley was  General  Manager and
Company  Secretary of Radica UK from January 1995 to December 1997. From January
1991 to December 1994 he acted for Radica as Manager of European


                                       35

<PAGE>



Operations. From 1987 to 1991 he was the Sales Manager for Export Military Sales
in the UK. Prior to that he worked for Chrysler Military Sales in Germany, Italy
and the UK from 1982 to 1986.

         Michael L. Pikett has been President of Radica Canada Ltd since October
1994. From 1993 to 1994 Mr. Pikett was employed as a Commercial  Attache for the
Government  of Quebec in Toronto.  From 1986 to 1993 Mr.  Pikett was employed as
Vice President-General  Manager Melitta Canada Inc. He was the Director of Sales
for J.M.  Schneider  Inc. from 1980 to 1985. Mr. Pikett has over 30 years senior
management  experience in the Canadian  market.  He was born and educated in the
UK, moving to Canada in 1968.

ITEM 11.  COMPENSATION OF OFFICERS AND DIRECTORS

COMPENSATION

         In  fiscal  1998,  the  aggregate  amount of  compensation  paid to all
executive  officers and directors as a group for services in all  capacities was
approximately $1.39 million.

         Commencing  in  April  1997,  each  outside  (i.e.,   non-employee  and
non-affiliated) director of the Company received a fee of $600 for attendance at
each meeting of the Board of Directors and a fee of $600 for  attendance at each
Committee meeting. Directors who are employees or affiliates of the Company will
not be paid any fees or  additional  remuneration  for service as members of the
Board of Directors or its Committees.

         Prior  to  April  1997,  each  outside  director  of the  Company  also
received,  in  addition  to the above,  a $10,000  annual fee paid in  quarterly
installments.

         Prior to fiscal year 1996, each outside director received non-qualified
stock  options to purchase  30,000  shares of Common  Stock of the Company  upon
initial  election to the Board of  Directors  at an exercise  price equal to the
public  offering  price  ($11.00 per share) of the  Company's  Common  Stock and
exercisable after one year from the date of grant. In January 1997, the board of
directors  resolved to reprice  30,000 stock options  ($11.00 per share) each of
two outside  directors to market price as of the date of such meeting ($1.75 per
share) and the change was ratified in the board meeting on April 9, 1997. In the
same  board   meeting,   one  outside   director  was   appointed  and  received
non-qualified  stock  options to purchase  30,000  shares of Common Stock of the
Company at an exercise price equal to the average of bid and asked closing price
($3.125) on such date. Upon each  re-election to the Board of Directors in 1995,
1996, 1997 and 1998, each outside director received  non-qualified stock options
to purchase 5,000 shares (15,000 shares in 1997 and 1998, to reflect elimination
of the  $10,000  annual  fee) of Common  Stock of the  Company at $3.66,  $1.50,
$3.125  and $18.75 per share,  respectively.  Upon  re-election  to the Board of
Directors  in  1999  and   thereafter,   each  outside   director  will  receive
non-qualified  stock  options to purchase  15,000  shares of Common Stock of the
Company at an  exercise  price  equal to the then  current  market  price of the
Company's  Common  Stock.  In fiscal  year 1998,  an outside  director  received
non-qualified  stock  options to purchase  30,000  shares of Common Stock of the
Company upon initial  election at an exercise  price of $17.25 per share.  These
subsequent options are also exercisable after one year from the date of grant.


                                       36

<PAGE>



EMPLOYMENT AGREEMENTS

         Messrs.  Davids,  Feely,  Murtha and  Bengtson  have each  entered into
individual employment agreements with the Company. The employment agreements are
for periods of two years  each,  from  December  1997 for Mr.  Bengtson  and Mr.
Davids, and from November 30, 1998 for Mr. Murtha. In the case of Mr. Feely, his
employment agreement is also for a period of two years but it will be renewed in
December 1998 due to a change of renewal date of his agreement in December 1997.
Each  employment  agreement  is  terminable  by the Company  for cause.  Messrs.
Davids,  Feely,  Murtha and  Bengtson  shall each  receive  minimum  annual base
salaries  of  $182,000,  $185,000,  $200,000  and  $43,200,   respectively.  The
agreement  with Mr.  Bengtson,  as amended in December  1995,  is for  part-time
services.  The employment  agreements  for Mr. Davids,  Mr. Feely and Mr. Murtha
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
agreement  for Mr.  Davids also  requires  that the  Company  provide him with a
residence in Hong Kong. In the agreement for Mr. Feely,  he was granted  300,000
stock  options of the Company  common  stock at $3.625 per share  subject to the
terms  and  conditions  of  the  agreement  and  the  1994  Stock  Option  Plan.
Additionally,  after the end of each of the Company's 1998, 1999 and 2000 fiscal
years,  Mr. Feely will be granted  60,000 stock options (up to 180,000 shares in
the aggregate) at market price provided he achieves certain conditions as stated
in the agreement.  In the agreement for Mr. Murtha, he was granted 300,000 stock
options of the Company common stock at $11.00 per share subject to the terms and
conditions of the agreement and the 1994 Stock Option Plan. Additionally,  after
the end of each of the Company's  2000,  2001 and 2002 fiscal years,  Mr. Murtha
will be granted  25,000 stock options (up to 75,000 shares in the  aggregate) at
market price provided he achieves certain conditions as stated in the agreement.

CONSULTING AGREEMENT

         The  Company,  acting  through its  subsidiary  Radica  China  Limited,
entered into a one-year Consulting  Agreement,  dated November 1, 1997, with Mr.
Millens W. Taft, one of the Company's outside  directors.  Under such agreement,
Mr.  Taft  acted as an  independent  contractor  and  assisted  in  identifying,
contacting and developing relationships with inventors and other product concept
sources in the toy and game  industry in order to develop new  products  for the
Radica line of games.  After giving effect to certain changes to this agreement,
Mr.  Taft was paid an  aggregate  consulting  fee of $80,000 in fiscal  1998 and
certain travel,  lodging,  entertainment and similar expenses were reimbursed by
the Company. The agreement has not been renewed.

ITEM 12.  OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES

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

         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 2.8 million shares. The option


                                       37

<PAGE>


price per share with  respect to each such  option  shall be  determined  by the
Compensation,  Organization and Nominating  Committee but shall be not less than
100% of the fair market  value of the  Company's  Common  Stock on the date such
option is granted as determined by the Compensation, Organization and Nominating
Committee.  Ordinarily,  twenty  percent  of the stock  options  vest and become
exercisable on each of the first five  anniversaries  of the date of grant,  and
all of the options expire in ten years. The Stock Option Plan terminates in 2004
unless terminated earlier.

         In fiscal  years  1994 and 1995,  an  aggregate  of  1,181,000  options
(exclusive of the outside directors' options referred to above, and net of stock
options  that were both  issued and  canceled  in such  years)  were  granted to
directors,  officers and other employees under the Stock Option Plan to purchase
the Company's  shares at exercise  prices ranging from $8.50 to $8.53 per share.
In addition, Mr. Bengtson was granted options under his employment agreement, as
amended,  to purchase 75,200 shares of the Company's Common Stock at an exercise
price of $0.57 per share, which options are now fully vested.

         On January 4, 1996,  the Company's  Board of Directors  authorized  the
officers of the Company to make offers to holders of options under the Company's
Stock  Option  Plan  (excluding  the  option  plan  for  the  Company's  outside
directors),  in which each holder was offered  the right to  surrender  existing
options for  cancellation,  and receive new stock options for the same number of
shares at a new exercise  price  (equal to $1.38 per share,  the market price on
January 4, 1996), and subject to the  commencement of a new vesting period.  The
term of the new  options  will not  extend  beyond  the  ten-year  period of the
original options surrendered.  The effect of this authorization was that holders
of options who elected to surrender their previous  options received new options
at a lower exercise price subject to starting a new vesting period.  The holders
of 916,000  options  previously  granted  accepted  such offers.  As referred to
above,  in January 1997 the Board of Directors  approved a similar  repricing of
certain outside directors' options.

         In fiscal year 1996, an aggregate of 30,000  options  (exclusive of the
outside directors' options and the options issued in exchange for prior options,
as  referred  to above,  and net of stock  options  that were  both  issued  and
canceled in the year) were granted to  directors,  officers and other  employees
under the Stock  Option Plan to  purchase  the  Company's  shares at an exercise
price of $1.38 per share.

         In fiscal year 1997, an aggregate of 779,000 options  (exclusive of the
outside  directors'  options and net of stock  options that were both issued and
canceled in the year) were granted to  directors,  officers and other  employees
under the Stock Option Plan to purchase the Company's  shares at exercise prices
ranging from $1.09 to $12.25 per share.

         In fiscal year 1998, an aggregate of 549,000 options  (exclusive of the
outside  directors'  options and net of stock  options that were both issued and
canceled 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 $10.875 to $19.75 per share.

         As a result of the  foregoing,  at the end of fiscal  year 1998,  after
giving effect to all prior exercises and cancellations of options,  an aggregate
of  1,822,600  options  (exclusive  of  the  outside  directors'  options)  were
outstanding at exercise  prices  ranging from $0.57 to $19.75 per share,  and of
such amount a total of 1,235,600  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 $1.50 to
$18.75 per share. By the end of fiscal year 1998, a total of 604,600 shares have
been issued upon the exercise of options,  at exercise prices ranging from $0.57
to $11 per share.


                                       38

<PAGE>


         Additional  information  with respect to stock  options is contained in
Note 13 of the  Notes to  Consolidated  Financial  Statements  included  in this
filing.

ITEM 13.  INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS

         Messrs.  Davids  and  Sutter,  the  Hansen  Trust,  International  Game
Technology ("IGT") and the Company were parties to a shareholders agreement (the
"Shareholders  Agreement")  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 remain
operative.

         Pursuant to the Shareholders Agreement,  the Company has 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  sales  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
1997, the Company  effected a demand  registration  at the request of Mr. Davids
and also  included  certain  shares at the  request  of the Hansen  Trust.  Such
registration covered an aggregate of 1,855,000 million shares.

         Additional  information on management  transactions  is contained under
Items 11 and 12 above.

ITEM 14.  DESCRIPTION OF SECURITIES TO BE REGISTERED

         Not Applicable

                                    PART III

ITEM 15.  DEFAULTS UPON SENIOR SECURITIES

         None

ITEM 16.  CHANGES IN SECURITIES, CHANGES IN SECURITY FOR REGISTERED
          SECURITIES AND USE OF PROCEEDS

         None or Not Applicable

                                    PART IV

ITEM 17.  FINANCIAL STATEMENTS

         Not Applicable


                                       39

<PAGE>


ITEM 18.  FINANCIAL STATEMENTS

INDEX TO FINANCIAL STATEMENTS                                            PAGE

        Independent Auditors' Report                                     F-1

        Consolidated Balance Sheets                                      F-2

        Consolidated Statements of Operations                            F-3

        Consolidated Statements of Shareholders' Equity                  F-4

        Consolidated Statements of Cash Flows                            F-5

        Notes to Consolidated Financial Statements                       F-7

ITEM 19.  FINANCIAL STATEMENTS AND EXHIBITS

(a)  Financial Statements
                                                                         Page
             Independent Auditors' Report                                F-1

             Consolidated Balance Sheets                                 F-2

             Consolidated Statements of Operations                       F-3

             Consolidated Statements of Shareholders' Equity             F-4

             Consolidated Statements of Cash Flows                       F-5

             Notes to Consolidated Financial Statements                  F-7

(b)  Exhibits

             *3.1      Memorandum of Association

             *3.2      Bye-Laws

             *3.3      Certificate of Incorporation on Change of Name

             *4.1      Specimen Certificate for the Shares of Common Stock

             *10.1     Processing  Agreement,  dated  December 4, 1991,  between
                       Radica HK and foreign  Economic  Development Co. of Humen
                       Town, Dongguan, relating to the Tai Ping Factory

             *10.2     Processing  Agreement,  dated December 27, 1993,  between
                       Radica HK and Foreign  Economic  Development Co. of Humen
                       Town, Dongguan


                                       40

<PAGE>



              10.3     [Reserved]

             *10.4     Shareholders Agreement, dated January 12, 1994, among the
                       Company and the shareholders parties thereto

             *10.5     Amendment to Shareholders Agreement, dated as of February
                       16, 1994,  among the Company and the  shareholders  party
                       thereto.

              10.5(a)  Amendment  to   Shareholders   Agreement,   dated  as  of
                       September 5, 1997, among the Company and the shareholders
                       party thereto.

             *10.6     Form  of  Employment  Agreement,   between  Radica  Games
                       Limited and Robert E. Davids

             #10.6(a)  April 1996 Amendment to such Employment Agreement.

             ~10.6(b)  December 1997 Amendment to such Employment Agreement.

              10.7     Employment Agreement, dated as of October 23, 1998, among
                       Radica USA, Radica Games and Eugene A. Murtha

             *10.8     Employment  Agreement,  dated as of  November  28,  1993,
                       among Radica HK, Radica USA and Jon N. Bengtson

             *10.8(a)  Form of Amendment to  Employment  Agreement  among Radica
                       Games Limited, Radica HK, Radica USA and Jon N. Bengtson.

             #10.8(b)  December 1995 Amendment to such Employment Agreement.

             ~10.8(c)  December 1997 Amendment to such Employment Agreement.

             *10.9     1994 Stock Option Plan

             ~10.10    1994  Stock  Option  Plan,  as  amended  in April 1997 to
                       increase options

              10.10(a) 1994  Stock  Option  Plan,  as  amended  in April 1998 to
                       increase options

             ~10.11    Employment  Agreement,  dated as of May 16,  1997,  among
                       Radica USA, Radica Games Limited and Patrick Feely

             ~10.11(a) December 1997 Amendment to such Employment Agreement.

             ~10.12    Consulting  Agreement,  dated  November  1, 1997  between
                       Radica China Limited and Millens W. Taft

              10.13    [Reserved]


                                       41

<PAGE>


             *10.14    Form of Common Stock Purchase Agreement,  for Radica USA,
                       between  Radica  Games  Limited  and  the  Sellers  named
                       therein

             *10.15    Form of Common Stock Purchase Agreement,  for Disc, Inc.,
                       between  Radica  Games  Limited  and  the  Sellers  named
                       therein

             @10.16    Cooperative  Joint Venture  Contract of D.G. Radica Games
                       Manufacturing Co., Ltd., dated June 24, 1994

              11.1     Statement re Computation of Per Share Earnings

              21.1     List of subsidiaries

              23.1     Consent of Deloitte Touche Tohmatsu

             +23.2     Consent  of  Deloitte   Touche   Tohmatsu  of  change  in
                       accounting policy

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

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

+    Incorporated by reference to Form 20-F for the year ended October 31, 1995.

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

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


                                       42

<PAGE>

                              RADICA GAMES LIMITED

                       CONSOLIDATED FINANCIAL STATEMENTS






                                                                            Page
                                                                            ----

Independent Auditors' Report ................................................F-1

Consolidated Balance Sheets .................................................F-2

Consolidated Statements of Operations .......................................F-3

Consolidated Statements  of Shareholders' Equity  ...........................F-4

Consolidated Statements of Cash Flows .......................................F-5

Notes to the Consolidated Financial Statements ..............................F-7




                                       43

<PAGE>








                          INDEPENDENT AUDITORS' REPORT



To the Shareholders and Directors of Radica Games Limited


         We have audited the accompanying  consolidated balance sheets of Radica
Games Limited and  subsidiaries as of October 31, 1998 and 1997, and the related
consolidated  statements of operations,  shareholders' equity and cash flows for
each of the three years in the period ended  October 31, 1998.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

         In our  opinion,  such  financial  statements  present  fairly,  in all
material   respects,   the  financial  position  of  Radica  Games  Limited  and
subsidiaries  as of  October  31,  1998  and  1997,  and the  results  of  their
operations  and their cash flows for each of the three years in the period ended
October 31, 1998, in conformity with accounting principles generally accepted in
the United States of America.




/S/ Deloitte Touche Tohmatsu

HONG KONG
December 15, 1998



                                      F-1
<PAGE>

                              RADICA GAMES LIMITED

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                     ASSETS
                                                                        OCTOBER 31,
                                                               ----------------------------
(US Dollars in thousands, except share data)                       1998           1997*
                                                               -------------  -------------
<S>                                                            <C>            <C>

Current Assets:
Cash and cash equivalents                                         $  33,141       $ 33,504
Short-term investments (Note 3)                                           -          2,050
Accounts receivable, net of allowances for doubtful
  accounts of $466 in 1998 and $908 in 1997 and estimated
  customer returns of $1,375 in 1998 and $2,327 in 1997              33,249         18,740
Inventories, net of provision of $2,414 in 1998 and
  $3,479 in 1997 (Note 4)                                            21,534         11,741
Prepaid expenses and other current assets                             1,126            681
Deferred income taxes (Note 9)                                        4,545              -
                                                               -------------  -------------

        Total current assets                                         93,595         66,716
                                                               -------------  -------------

Investment in affiliated company (Note 5)                               823            194
                                                               -------------  -------------

Property, plant and equipment, net (Note 6)                          16,093         12,539
                                                               -------------  -------------

Intangible assets, net (Note 7)                                       3,000              -
                                                               -------------  -------------

Deferred income taxes, noncurrent (Note 9)                               10              -
                                                               -------------  -------------

        Total assets                                              $ 113,521       $ 79,449
                                                               =============  =============


                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
Accounts payable                                                  $  11,694       $  8,209
Accrued warranty expenses                                             2,470          2,161
Accrued payroll and employee benefits                                 3,510          1,249
Accrued advertising expenses                                          6,178            718
Accrued sales expenses                                                3,316          1,254
Commissions payable                                                   1,444            915
Accrued other expenses                                                3,005          3,058
Income taxes payable                                                  2,065            213
Deferred income taxes (Note 9)                                            -             79
                                                               -------------  -------------

        Total current liabilities                                    33,682         17,856
                                                               -------------  -------------

Shareholders' equity:
Common stock
  par value $0.01 each, 100,000,000 shares authorized,
  18,864,294 shares outstanding (20,860,200 at Oct. 31, 1997)
    (Note 11)                                                           189            209
Additional paid-in capital                                            9,298         28,589
Retained earnings                                                    70,396         32,800
Cumulative translation adjustment                                       (44)            (5)
                                                               -------------  -------------

       Total shareholders' equity                                    79,839         61,593
                                                               -------------  -------------

       Total liabilities and shareholders' equity                   113,521         79,449
                                                               =============  =============

* Restated to conform with 1998 presentation.

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


                                      F-2

<PAGE>

                              RADICA GAMES LIMITED

                     CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>

(US Dollars in thousands, except per share data)                               Year ended October 31,
                                                                  ---------------------------------------------
                                                                      1998           1997*           1996*
                                                                  -------------- --------------  --------------
<S>                                                               <C>            <C>             <C>
REVENUES:
Net sales                                                             $ 155,618       $ 87,760        $ 47,535
Cost of sales                                                           (70,576)       (40,888)        (30,696)
                                                                  -------------- --------------  --------------
Gross profit                                                             85,042         46,872          16,839
                                                                  -------------- --------------  --------------

OPERATING EXPENSES:
Selling, general and administrative expenses                            (27,788)       (14,403)        (11,752)
Research and development                                                 (3,710)        (2,099)         (1,699)
Acquired research & development                                          (1,500)             -               -
Depreciation and amortization                                            (3,423)        (2,278)         (1,594)
                                                                  -------------- --------------  --------------
Total operating expenses                                                (36,421)       (18,780)        (15,045)
                                                                  -------------- --------------  --------------

OPERATING INCOME FROM CONTINUING OPERATIONS                              48,621         28,092           1,794

OTHER INCOME                                                                807            915             748

SHARE OF LOSS OF AFFILIATED COMPANY                                        (334)          (141)              -

NET INTEREST                                                              1,896            913            (165)
                                                                  -------------- --------------  --------------

INCOME FROM CONTINUING OPERATIONS
  BEFORE INCOME TAXES AND UNUSUAL ITEM                                   50,990         29,779           2,377

UNUSUAL ITEM (Note 8)                                                         -              -             709
                                                                  -------------- --------------  --------------

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES                    50,990         29,779           3,086

CREDIT (PROVISION) FOR INCOME TAXES (Note 9)                                266           (193)            120
                                                                  -------------- --------------  --------------

INCOME FROM CONTINUING OPERATIONS AFTER INCOME TAXES                     51,256         29,586           3,206

DISCONTINUED OPERATION: (Note 10)
  Loss from operation of Pub Poker business                                   -              -          (1,712)
                                                                  -------------- --------------  --------------

NET INCOME                                                             $ 51,256       $ 29,586         $ 1,494
                                                                  ============== ==============  ==============

EARNINGS PER SHARE - BASIC: (Note 12)
Income from continuing operations                                        $ 2.53         $ 1.43          $ 0.15
Effect of discontinued operation                                           -              -              (0.08)
                                                                  -------------- --------------  --------------

Net earnings per share                                                   $ 2.53         $ 1.43          $ 0.07
                                                                  ============== ==============  ==============

Average number of shares outstanding                                 20,239,790     20,761,020      21,439,452
                                                                  ============== ==============  ==============

EARNINGS PER SHARE - ASSUMING DILUTION: (Note 12)
Income from continuing operations                                        $ 2.39         $ 1.37          $ 0.15
Effect of discontinued operation                                           -              -              (0.08)
                                                                  -------------- --------------  --------------

Net earnings per share and dilutive potential common stock               $ 2.39         $ 1.37          $ 0.07
                                                                  ============== ==============  ==============

Average number of shares and
  dilutive potential common stock outstanding                        21,488,364     21,635,926      21,439,452
                                                                  ============== ==============  ==============
<FN>
* Restated to conform with 1998 presentation.
</FN>

</TABLE>

        See accompanying notes to the consolidated financial statements.

                                      F-3

<PAGE>
                              RADICA GAMES LIMITED

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                               Common stock
                                               ------------          Additional                   Cumulative      Total
                                           Number                      paid-in       Retained     translation   shareholders'
                                         of shares       Amount        capital       earnings      adjustment      equity
                                        ------------- -------------  ------------- -------------  ------------- -------------

<S>                                     <C>           <C>            <C>           <C>            <C>            <C>
Balance at October 31, 1995               22,780,000         $ 228       $ 28,328       $ 1,720           $ 21      $ 30,297
Cancellation of stock                     (2,100,000)          (21)            21             -              -             -
Grant of stock options                             -             -             22             -              -            22
Net income                                         -             -              -         1,494              -         1,494
                                        ------------- -------------  ------------- -------------  ------------- -------------

Balance at October 31, 1996               20,680,000         $ 207       $ 28,371       $ 3,214           $ 21      $ 31,813
Stock options exercised                      180,200             2            218             -              -           220
Net income                                         -             -              -        29,586              -        29,586
Foreign currency translation                       -             -              -             -            (26)          (26)
                                        ------------- -------------  ------------- -------------  ------------- -------------

Balance at October 31, 1997               20,860,200         $ 209       $ 28,589      $ 32,800           $ (5)     $ 61,593
Issuance of stock                            190,094             2          3,598             -              -         3,600
Cancellation of repurchased
  stock (Note 11)                         (2,610,400)          (26)       (23,901)      (13,660)             -       (37,587)
Stock options exercised                      424,400             4          1,012             -              -         1,016
Net income                                         -             -              -        51,256              -        51,256
Foreign currency translation                       -             -              -             -            (39)          (39)
                                        ------------- -------------  ------------- -------------  ------------- -------------
Balance at October 31, 1998               18,864,294         $ 189        $ 9,298      $ 70,396          $ (44)     $ 79,839
                                        ============= =============  ============= =============  ============= =============
</TABLE>

          See accompanying notes to consolidated financial statements.


                                      F-4
<PAGE>


                              RADICA GAMES LIMITED

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                           (US dollars in thousands)

<TABLE>
<CAPTION>
                                                                                      Year ended October 31,
                                                                   ------------------------------------------------------
                                                                         1998               1997              1996
                                                                   -----------------  ----------------   ----------------
<S>                                                                <C>                <C>                <C>
Cash flow from operating activities:
Net income                                                                 $ 51,256          $ 29,586            $ 1,494
Adjustments to reconcile net income to net cash
  provided by operating activities:
   Deferred income taxes                                                     (4,634)              108                  -
   Depreciation                                                               1,923             1,613              1,594
   Amortization                                                               1,500               665                  -
   Share of loss of affiliated company                                          334               141                  -
   Acquired research and development                                          1,500                 -                  -
   Loss (gain) on disposal and write off of
      property, plant and equipment                                              22               (21)               (97)
   Provision for compensation expense related to
     stock options                                                                -                 -                 22
   Changes in assets and liabilities:
     Accounts receivable                                                    (14,548)           (9,142)               618
     Inventories                                                             (9,793)             (757)             5,488
     Prepaid expenses and other current assets                                 (445)             (134)               (16)
     Accounts payable                                                         3,485             2,674              2,529
     Accrued payroll and employee benefits                                    2,261               563                445
     Commissions payable                                                        529               439               (527)
     Accrued promotion expenses                                               5,460               461                (79)
     Accrued sales expenses                                                   2,062              (573)              (277)
     Accrued warranty expenses                                                  309               607              1,101
     Accrued other expenses                                                     (53)            2,625             (1,741)
     Income taxes payable                                                     1,852               168              1,351
                                                                   -----------------  ----------------   ----------------

Net cash provided by operating activities                                    43,020            29,023             11,905
                                                                   -----------------  ----------------   ----------------

Cash flow from investing activities:
Decrease (Increase) in short-term investments                                 2,050            (1,973)                 -
Proceeds from sale of property, plant and equipment                              33                61                929
Purchase of property, plant and equipment                                    (5,532)           (1,255)              (874)
Purchase of Girl Tech assets                                                 (2,400)                -                  -
Investment in an affiliate company                                             (963)           (1,000)                 -
Proceeds from the sales of money market funds                                     -                 -              3,151
                                                                   -----------------  ----------------   ----------------

Net cash (used in) provided by investing activities                          (6,812)           (4,167)             3,206
                                                                   -----------------  ----------------   ----------------
</TABLE>

                                      F-5
<PAGE>



                              RADICA GAMES LIMITED

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                           (US dollars in thousands)

<TABLE>
<CAPTION>
                                                                                      Year ended October 31,
                                                                   ------------------------------------------------------
                                                                         1998               1997              1996
                                                                   -----------------  ----------------   ----------------
<S>                                                                <C>                <C>                <C>
Cash flow from financing activities:
Repurchase of common stock                                                  (37,587)                -                  -
Funds from stock options exercised                                            1,016               220                  -
Decrease in short-term borrowings                                                 -                 -            (13,970)
Repayment of long-term debt                                                       -               (99)              (371)
                                                                   -----------------  ----------------   ----------------

Net cash (used in) provided by financing activities                         (36,571)              121            (14,341)
                                                                   -----------------  ----------------   ----------------

Net (decrease) increase in cash and cash equivalents                         $ (363)         $ 24,977              $ 770

Cash and cash equivalents:
   Beginning of year                                                         33,504             8,527              7,757
                                                                   -----------------  ----------------   ----------------

   End of year                                                             $ 33,141          $ 33,504            $ 8,527
                                                                   =================  ================   ================

Supplementary disclosures of cash flow information:
Cash paid during the year:
   Interest                                                                    $ 61              $ 12              $ 413
   Income taxes                                                               2,381                 -                  -

<FN>
* Restated to conform with 1998 presentation.
</FN>
</TABLE>

        See accompanying notes to the consolidated financial statements.









                                      F-6

<PAGE>


                              RADICA GAMES LIMITED
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                            (US dollars in thousands)

1.   ORGANIZATION AND BASIS OF FINANCIAL STATEMENTS

     The consolidated  financial  statements include the accounts of the Company
     and all subsidiaries. Investments in affiliates, owned more than 20 percent
     but not in excess of 50 percent,  are recorded using the equity method. All
     significant  intra-group  transactions and balances have been eliminated on
     consolidation.

     The Company  designs,  develops,  manufactures and distributes a variety of
     electronic handheld and mechanical games.

     The accompanying financial statements have been prepared in accordance with
     accounting  principles  generally  accepted in the United States of America
     and are  presented in US dollars as the Company's  sales are  predominantly
     denominated in US dollars.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Cash and cash equivalents - Cash and cash equivalents include cash on hand,
     cash accounts,  interest-bearing savings accounts, and time certificates of
     deposit with a maturity at purchase date of three months or less.

     Inventories  - Inventories  are stated at the lower of cost,  determined by
     the weighted average method, or market.  Provision for potentially obsolete
     or  slow-moving  inventory  is  made  based  on  management's  analysis  of
     inventory levels and future expected sales.

     Depreciation   and   amortization  of  property,   plant  and  equipment  -
     Depreciation  is provided on the  straight  line method at rates based upon
     the estimated  useful lives of the property,  generally not more than seven
     years except for leasehold land and buildings  which are 50 years or, where
     shorter,  the remaining term of the lease. Costs of leasehold  improvements
     and leased assets are  amortized  over the life of the related asset or the
     term of the lease, whichever is shorter. Upon sale or retirement, the costs
     and related  accumulated  depreciation or amortization  are eliminated from
     the  respective  accounts  and any  resulting  gain or loss is  included in
     income.

     Intangible assets - Intangible assets primarily represent the excess of the
     purchase  price of acquisition of a business over the fair value of the net
     assets acquired.  Intangible  assets also represent cost allocated to brand
     names.  Such assets are amortized on a straight-line  basis over the period
     estimated to be benefited,  but not to exceed 40 years.  The carrying value
     of  intangible   assets  is  periodically   reviewed  by  the  Company  and
     impairments are recognized  when there is a permanent  diminution in value.
     The Company policy is to charge a full year of  amortization in the year of
     acquisition.

     Mold costs - 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)
                           (US dollars in thousands)

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     Revenue  recognition - Revenues are recognized as sales when merchandise is
     shipped.  The Company  permits the return of damaged or defective  products
     and accepts limited amounts of product returns in certain other  instances.
     Accordingly,  the Company provides  allowances for the estimated amounts of
     these  returns  at the time of  revenue  recognition,  based on  historical
     experience adjusted for known trends.

     Investments  - Debt and equity  securities  which the  Company has both the
     positive  intent  and  ability  to  hold  to  maturity  are  classified  as
     held-to-maturity  and carried at amortized cost. Debt and equity securities
     which might be sold prior to maturity are classified as  available-for-sale
     and carried at approximate  fair value.  Any material  unrealized gains and
     losses related to available-for-sale  investments, net of applicable taxes,
     are reported in other  comprehensive  income.  The Company  determines  the
     appropriate  classification  of  securities  at the  time of  purchase  and
     evaluates such classification as of each balance sheet date.

     Income taxes - Income taxes are  provided  based on an asset and  liability
     approach for financial  accounting and reporting of income taxes.  Deferred
     income  tax  liabilities  or  benefits  are  recorded  to  reflect  the tax
     consequences in future years of differences between the tax basis of assets
     and  liabilities  and the financial  reporting  amounts at each year end. A
     valuation  allowance is  recognized if it is more likely than not that some
     portion of, or all of, a deferred tax asset will not be realized.

     Advertising  - The  production  costs of  advertising  are  expensed by the
     Company  the first time the  advertising  takes  place.  Advertising  costs
     associated  with  customer  benefit  programs  are  accrued as the  related
     revenues are recognized.  Advertising  expense was $9,121, $735 and $569 in
     1998, 1997 and 1996, respectively.

     Foreign currency translation - Assets and liabilities of foreign operations
     are translated  using  year-end  exchange  rates.  Revenues and expenses of
     foreign operations are translated using average monthly exchange rates. The
     impact  of  exchange  rate  changes  is  shown as  "Cumulative  Translation
     Adjustment"  in  shareholders'  equity.  Net losses from  foreign  exchange
     transactions of $281,  $122 and $102 in 1998,  1997 and 1996  respectively,
     are included in selling, general and administrative expenses.

     Post-retirement and post-employment benefits - The Company does not provide
     post-retirement   benefits   other   than   pensions   to   employees   and
     post-employment benefits are immaterial.

     Warranty - Future  warranty  costs are  provided for at the time of revenue
     recognition  based on  management's  estimate by  reference  to  historical
     experience adjusted for known trends.




                                      F-8
<PAGE>

                              RADICA GAMES LIMITED

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                           (US dollars in thousands)

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     Stock options - The Company continues to follow Accounting Principles Board
     Opinion No. 25,  "Accounting for Stock Issued to Employees",  in accounting
     for its  stock  options.  As a result,  no  compensation  expense  has been
     recognized as the exercise  price of the Company's  employee  stock options
     equals the market price of the underlying  stock at the date of grant.  Pro
     forma  disclosures  of the effect on net income (loss) and earnings  (loss)
     per share as if the Company had  accounted  for its employee  stock options
     under the fair value method prescribed by Statement of Financial Accounting
     Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation",  are
     shown in note 13.

     Earnings per share - Earnings  per share is based on the  weighted  average
     number of  shares of common  stock  and  dilutive  potential  common  stock
     outstanding.  Dilutive  potential  common stock results from dilutive stock
     options.  The effect of such dilutive  potential common stock on net income
     per share is computed using the treasury stock method.

     Use of estimates - The  preparation  of financial  statements in conformity
     with  generally  accepted   accounting   principles  requires  the  use  of
     estimates. Actual results could differ from those estimates.

     Comprehensive   income  and  segment  information  -  Comprehensive  income
     includes   both  net  income   and  other   comprehensive   income.   Other
     comprehensive loss for the year ended October 31, 1998 and October 31, 1997
     of $39 and $26,  respectively,  represented  foreign  currency  translation
     adjustments.  Accumulated other comprehensive loss/(income) included in the
     accompanying  condensed  consolidated balance sheet as of October 31, 1998,
     October 31, 1997 and October 31, 1996 was $44, $5 and $(21),  respectively,
     consisting of the  accumulated  foreign  currency  translation  adjustment.
     Further,  as the Company has only one  operating  segment,  the adoption of
     SFAS No.  131,  "Disclosure  about  Segments of an  Enterprise  and Related
     Information", did not result in any restatement of comparative information.

     New accounting  standards  adopted - In June 1998, the FASB issued SFAS No.
     133, "Accounting for Derivative Instruments and Hedging Activities",  which
     establishes  accounting and reporting standards for derivative  instruments
     and hedging  activities.  Generally,  it requires that an entity recognizes
     all  derivatives  as  either  an  asset or  liability  and  measures  those
     instruments at fair value,  as well as identifying the conditions for which
     a  derivative  may be specially  designed as a hedge.  The Company does not
     have any derivative instruments.

     Reclassifications  -  Certain  reclassifications  have  been  made to prior
     periods  amounts to conform with the 1998  presentation  and to comply with
     new SFAS's.




                                      F-9
<PAGE>

                              RADICA GAMES LIMITED

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                           (US dollars in thousands)

3.   SHORT-TERM INVESTMENTS

     The  Company's  short-term  investments,  all of which were  classified  as
     available-for-sale  as defined by SFAS No.  115,  "Accounting  for  Certain
     Investments in Debt and Equity  Securities",  consisted primarily of United
     States  government and Federal agency  securities and were stated at market
     value.

4.   INVENTORIES

     Inventories by major categories are summarized as follows:

                                             October 31,
                                         -----------------------
                                             1998         1997
                                         ----------    ---------

          Raw materials                   $   4,650    $   2,786
          Work in progress                    5,733        2,889
          Finished goods                     11,151        6,066
                                          ---------    ---------
                                          $  21,534    $  11,741
                                          =========    =========


5.   INVESTMENT IN AFFILIATED COMPANY

     In May 1997, the Company acquired approximately 35% of the capital stock of
     U-Tel,  Inc., a private company  incorporated  in Nevada,  United States of
     America,  which is engaged in research and development of telecommunication
     equipment,  for $1,000 in cash.  U-Tel,  Inc. is in the early stages of its
     product  development  cycle and  accordingly the excess purchase price over
     fair value of the net assets  acquired of $665,  was charged to  operations
     for the year ended October 31, 1997.

     In July 1998, following a refinancing of U-Tel, Inc., the Company purchased
     additional  shares for $963 in cash.  This  allowed the Company to maintain
     its percentage interest in U-Tel, Inc.




                                      F-10
<PAGE>

                              RADICA GAMES LIMITED

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                           (US dollars in thousands)

6.   PROPERTY, PLANT AND EQUIPMENT

     Property, plant and equipment consists of the following:


                                                         October 31,
                                          ------------------------------------
                                               1998                  1997
                                          --------------         -------------

Land and buildings                             $ 11,950               $ 9,882
Plant and machinery                               5,549                 3,633
Furniture and equipment                           4,003                 3,184
Leasehold improvements                            1,866                 1,318
                                          --------------         -------------
     Total                                     $ 23,368              $ 18,017
Less: Accumulated depreciation and
          amortization                           (7,275)               (5,478)
                                          --------------         -------------
     Total                                     $ 16,093              $ 12,539
                                          ==============         =============


7.   INTANGIBLE ASSETS

     The  intangible  asset of $3,000 on the  balance  sheet at October 31, 1998
     represents a portion of the  acquisition  price allocated to brand name and
     goodwill with regards the assets and business of  KidActive,  LLC, dba Girl
     Tech(TM) acquired during the quarter ended April 30, 1998. KidActive,  LLC,
     dba Girl Tech(TM) was a  development  stage  enterprise  and had not traded
     prior to the Company's  acquisition of its asset. The Company purchased the
     assets and business of KidActive, LLC, dba Girl Tech(TM) for $2,400 in cash
     plus 190,094 shares,  a total of $6,000.  Of this $4,500 was capitalised as
     goodwill and brand name and $1,500 was written off immediately as purchased
     research  and  development.  It is  management's  opinion  that the amounts
     capitalized  of $4,500  represent the fair value assigned to the intangible
     assets  acquired.  This cost is being  amortized  over a three year  fiscal
     period on a straight  line basis.  Accumulated  amortization  was $1,500 at
     October 31, 1998.

Intangible assets are as follows:

                                                          October 31,
                                                              1998
                                                         ------------
     At cost:
     Brand name                                              $ 1,000
     Goodwill                                                  3,500
                                                         ------------
         Total                                                 4,500
     Less: Accumulated amortization                           (1,500)
                                                         ------------
          Total                                              $ 3,000
                                                         ============

                                      F-11
<PAGE>

                              RADICA GAMES LIMITED

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                           (US dollars in thousands)

8.   UNUSUAL ITEM

     During the second quarter of 1996, a gain of $709 was made from the sale of
     a property in Hong Kong.

9.   INCOME TAXES

     The components of income from continuing operations before income taxes are
     as follows:

                                                    Year ended October 31,
                                           -------------------------------------
                                              1998          1997         1996
                                           ----------   -----------  -----------

United States                               $ 11,579     $  2,167     $   910
Foreign subsidiaries operating in:
     People's Republic of China               39,274       27,544       1,348
     Hong Kong                                   137           68         828
                                           ----------   -----------  -----------
                                            $ 50,990     $ 29,779     $ 3,086
                                           ==========   ===========  ===========


     As the Company's  subsidiary in the People's Republic of China ("PRC") is a
     sino-foreign joint venture enterprise, it is eligible for an exemption from
     income  tax for two  years  starting  from  the  first  profitable  year of
     operations  and  thereafter  a 50 percent  relief  from  income tax for the
     following  three years under the Income Tax Law of the PRC. That subsidiary
     had its first  profitable year of operations in the year ended December 31,
     1997 and is  expected  to be taxed at a 12% rate from  January 1, 1999.  In
     addition,  under the existing processing arrangement and in accordance with
     the current tax regulations in the PRC,  manufacturing  income generated in
     the PRC is not subject to PRC income taxes.




                                      F-12
<PAGE>

                              RADICA GAMES LIMITED

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                           (US dollars in thousands)

9.   INCOME TAXES (Continued)

     The credit (provision) for income taxes consists of the following:

                                                    Year ended October 31,
                                               -------------------------------
                                                  1998        1997       1996
                                               -----------  --------   -------

Hong Kong
     Current income tax                          $    (61)   $ (123)     $ 45

United States
     State tax (expense) benefit, net of
         federal tax (expense) benefit           $ (4,307)   $   38      $ 75
     Change in deferred tax                         4,634      (108)        -
                                               -----------  --------   -------
                                                 $    327    $  (70)     $ 75
                                               -----------  --------   -------

                                                 $    266    $ (193)    $ 120
                                               ===========  ========   =======


     A reconciliation  between the credit  (provision) for income taxes computed
     by applying the statutory tax rates in the United States for 1998, 1997 and
     1996 to income before income taxes and the actual  credit  (provision)  for
     income taxes is as follows:


<TABLE>
<CAPTION>
                                                                   Year ended October 31,
                                                        -----------------------------------
                                                           1998         1997         1996
                                                        ----------   ----------   ---------
<S>                                                     <C>          <C>          <C>     

US statutory rate                                              34%          34%         34%
                                                        ----------   ----------   ---------

Provision for income taxes at
  statutory rate on income for the year                 $ (17,337)   $ (10,125)   $ (1,049)
State income taxes                                           (133)          (7)         95
International rate differences                             15,369        9,807         365
Accounting (losses) gains for which deferred
  income tax cannot be recognized                          (1,991)        (430)        302
Decrease in valuation allowance                             4,406          854         293
Other                                                         (48)        (292)        114
                                                        ----------   ----------   ---------
Income tax credit (provision)                           $     266    $    (193)   $    120
                                                        ==========   ==========   =========
</TABLE>




                                      F-13
<PAGE>

                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
           (US dollars in thousands, except share and per share data)

9.   INCOME TAXES (Continued)

     Deferred  income taxes reflect the net tax effect of temporary  differences
     between  the  amounts of assets  and  liabilities  for income tax  purposes
     compared with the respective amounts for financial statement  purposes.  At
     October 31, 1998 and 1997 deferred income taxes comprised:

                                                            October 31,
                                                    -----------------------
                                                      1998           1997
                                                    ---------     ---------
     Deferred tax assets (liabilities):
     Excess of tax over financial
          reporting depreciation                     $   (79)      $   (79)
     Tax losses                                            -         1,173
     Bad debt allowance                                  158           309
     Advertising allowances                            2,100           244
     Inventory obsolescence reserve                      749           643
     Accrued sales adjustments and returns             1,583         1,321
     Other                                                44           716
                                                    ---------     ---------
                                                       4,555         4,327
     Valuation allowance                                   -        (4,406)
                                                    ---------     ---------
                                                     $ 4,555       $   (79)
                                                    =========     =========

10.  DISCONTINUED OPERATION

     On July 31, 1996 the Company  adopted a plan to  discontinue  its Pub Poker
     operations.  All  products  and raw  materials  relating  to Pub Poker were
     disposed  of by  October  31,  1996  either by means of sale at  discounted
     prices  or by  scrapping.  The loss  from  Pub  Poker  operations  has been
     accounted for as a discontinued operation.

11.  COMMON STOCK

     On December 22, 1997, the Board adopted a plan  authorizing  the Company to
     repurchase up to one million shares of its common stock.  On June 16, 1998,
     the Board adopted another plan  authorizing the Company to repurchase up to
     one million  additional  shares of its common stock. On September 18, 1998,
     the Board adopted a further plan  authorizing  the Company to repurchase up
     to another one million additional shares of its common stock.

     During the year ended October 31, 1998, the Company  repurchased  2,610,400
     shares at an average  price of $14.36 per share under these  programs.  All
     repurchased shares are cancelled.

     During the quarter ended April 30, 1998,  the Company issued 190,094 shares
     of newly  issued  Common  Stock at  $18.938  per share as a portion  of the
     acquisition  price for the assets and business of KidActive,  LLC, dba Girl
     Tech(TM).




                                      F-14
<PAGE>

                              RADICA GAMES LIMITED

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
           (US dollars in thousands, except share and per share data)

12.  EARNINGS PER SHARE

     The following  information shows the numbers used in computing earnings per
     share and the effect on income and the weighted average number of shares of
     dilutive potential common stock:

                                                 Year ended October 31, 1998
                                        ----------------------------------------
                                                                       Earnings
                                         Numerator    Denominator     per share
                                        -----------  -------------  ------------
     Basic earnings per share:
     Net income                           $ 51,256    20,239,790      $ 2.53
                                                                    ============
     Effective of dilutive options                     1,248,574
                                        -----------  -------------
     
     Diluted earnings per share:
     Net income, assuming                 $ 51,256    21,488,364      $ 2.39
       all dilutive options exercised   ===========  =============  ============

     Options on 197,000  shares of common  stock were not  included in computing
     diluted earnings per share since their effects were antidilutive.

13.  STOCK OPTIONS

     The Company's 1994 Stock Option Plan (the "Stock Option Plan") provided for
     options to be granted for the purchase of an aggregate of 1,600,000  shares
     of common  stock at per share  prices not less than 100% of the fair market
     value at the date of grant as determined by the  Compensation  Committee of
     the Board of  Directors.  Following  approval  at the  annual  shareholders
     meetings in April 1997 and 1998, the Stock Option Plan's  aggregated common
     stock increased by 400,000 and 800,000, respectively. As a whole, the Stock
     Option  Plan's   aggregate  common  stock  increased  to  2,800,000  shares
     available for options.  Options  under this plan are generally  exercisable
     ratably over five years from the date of grant unless otherwise provided.

     In January  1996,  due to the reduced  market  price of Radica Games common
     stock, the Company offered active employees holding outstanding options the
     opportunity  to exchange them for stock options at an exercise  price equal
     to the fair market value at that time. As a result of the offer, holders of
     916,000  options at an exercise  price of $8.50  returned their options for
     cancellation  and  916,000  options  at an  exercise  price of $1.375  were
     granted in exchange.




                                      F-15
<PAGE>

                              RADICA GAMES LIMITED

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                (US dollars in thousands, except per share data)

13.  STOCK OPTIONS (Continued)

     In January  1997,  60,000  stock  options  held by outside  directors at an
     exercise  price of $11.00 per share were  repriced to $1.72 per share,  the
     market  price on  January 3, 1997.  Upon each  re-election  to the Board of
     Directors in 1995 and 1996, each outside  director  received  non-qualified
     stock  options to purchase  5,000  shares of Common Stock of the Company at
     $3.66 per share and $1.50 per share, respectively (the closing market price
     on those  dates).  Upon  re-election  to the Board of Directors in 1997 and
     thereafter,  each outside director  received or will receive  non-qualified
     stock  options to purchase  15,000 shares of Common Stock of the Company at
     an exercise price equal to the closing market price on such date.

     Option  activity for each of the three fiscal years ended October 31, 1996,
     1997 and 1998:-

                                                               Weighted average
                                             Number             exercise price
                                           of shares              per share
                                           ---------              ---------
                                         (in thousands)

Outstanding at October 31, 1995                  1,269               $ 7.44
Options granted                                  1,091                 1.37
Options cancelled                               (1,194)                7.12
                                         --------------
Outstanding at October 31, 1996                  1,166               $ 2.09
Options granted                                    856                 2.98
Options cancelled                                  (86)                8.22
Options exercised                                 (180)                1.22
                                         --------------
Outstanding at October 31, 1997                  1,756               $ 2.31
Options granted                                    649                13.97
Options cancelled                                  (43)               14.63
Options exercised                                 (424)                2.39
                                         --------------
Outstanding at October 31, 1998                  1,938               $ 5.92
                                         ==============

Exercisable at October 31, 1998                    215               $ 2.59



                                      F-16
<PAGE>

                              RADICA GAMES LIMITED

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                (US dollars in thousands, except per share data)

13.  STOCK OPTIONS (Continued)

     The following is additional  information relating to options outstanding as
     of October 31, 1998:

<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
     -----------             ---------          ---------          ------------         ---------       ---------
                          (in thousands)                                             (in thousands)
<S>                      <C>                             <C>               <C>        <C>                 <C>
   $ 0.567 to 2.000                   862                $ 1.33            7.40            115            $ 1.46
   $ 2.001 to 4.000                   394                  3.51            8.49             90              3.49
   $ 4.001 to 6.000                     8                  5.00            8.63            -                 -
   $ 6.001 to 8.000                    55                  6.76            8.75              8              6.63
   $ 8.001 to 10.000                    5                  8.60            8.80              1              9.00
   $ 10.001 to 12.000                 321                 10.99            9.98            -                 -
   $ 12.001 to 14.000                  45                 12.87            9.18              1             12.00
   $ 14.001 to 16.000                  26                 15.54            9.12            -                 -
   $ 16.001 to 18.000                 121                 17.02            9.46            -                 -
   $ 18.001 to 20.000                 101                 19.10            9.47            -                 -
                         =================                                            ============
                                    1,938                $ 5.92            8.40            215            $ 2.59
                         =================                                            ============
</TABLE>

     Pro forma  information  regarding net income (loss) and earnings (loss) 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 of  $7.23,  $1.59 and $0.71  per  option  for the year  ended
     October 31, 1998,  1997 and 1996,  respectively,  were estimated  using the
     Black-Scholes  option  pricing  model with the following  weighted  average
     assumptions:

                                                  Year ended October 31,
                                            ---------------------------------
                                              1998         1997        1996
                                            --------    ---------   ---------

Expected life of options                     5 years     5 years      5 years
Risk-free interest rate                       6.50%       6.50%        6.50%
Expected volatility of underlying stock        50%         50%          50%
Dividends                                       0%          0%           0%


     The  Black-Scholes  option  pricing  models  require  the  input of  highly
     subjective  assumptions,  including the expected volatility of stock price.
     Because changes in subjective input  assumptions can materially  affect the
     fair value estimate,  in management's  opinion, the existing model does not
     necessarily  provide a  reliable  single  measure  of the fair value of the
     stock options.




                                      F-17
<PAGE>

                              RADICA GAMES LIMITED

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                (US dollars in thousands, except per share data)

13.  STOCK OPTIONS (Continued)

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

                                                Year ended October 31,
                                      ---------------------------------------
                                        1998           1997           1996
                                      ---------    -----------    -----------

     Pro forma net income             $ 50,548       $ 29,154       $ 1,202
     Pro forma earnings per share     $   2.50       $   1.40       $  0.06


14.  CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS

     Accounts receivable of the Company are subject to a concentration of credit
     risk with customers in the retail  sector.  This risk is limited due to the
     large number of customers  composing the Company's  customer base and their
     geographic  dispersion,  though  the  Company  has  three  customers  which
     accounted for more than  twenty-five  percent,  twenty-one  percent and ten
     percent of net sales in fiscal 1998,  three  customers  which accounted for
     more than twenty percent,  eighteen percent and ten percent of net sales in
     fiscal year 1997 and had two customers which accounted for more than twenty
     and sixteen percent of net sales in fiscal year 1996. The Company  performs
     ongoing  credit  evaluations  of its  customers'  financial  condition and,
     generally, requires no collateral from its customers.

15.  ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

     The  following   disclosure  of  the  estimated  fair  value  of  financial
     instruments is made in accordance  with the  requirements  of SFAS No. 107,
     "Disclosures about Fair Value of Financial Instruments." The estimated fair
     value amounts have been determined by the Company,  using available  market
     information  and  appropriate   valuation   methodologies.   The  estimates
     presented  herein are not  necessarily  indicative  of the amounts that the
     Company could realize in a current market exchange.

     The  carrying  amounts  of  cash  and  short-term   investments,   accounts
     receivable  and  accounts  payable are  reasonable  estimates of their fair
     value.




                                      F-18
<PAGE>

                              RADICA GAMES LIMITED

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                           (US dollars in thousands)

16.  COMMITMENTS AND CONTINGENCIES

     The Company leases certain warehouses and equipment under operating leases.
     Total  expense for the  operating  leases was $401,  $358 and $411 in 1998,
     1997 and 1996, respectively.

     At October 31,  1998,  the Company was  obligated  under  operating  leases
     requiring future minimum lease payments as follows:

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

          1999                                          $   260
          2000                                              267
          2001                                              134
          2002                                              108
          2003                                              106
          Thereafter                                        586
                                                   ----------------
          Total minimum lease payments                  $ 1,461
                                                   ================

     At October 31, 1998,  certain  leasehold land and buildings with a net book
     value of $4,887 and bank balances of $3,871 were pledged to secure  general
     banking facilities  including overdraft and trade facilities granted to the
     Company.

17.  RETIREMENT PLAN

     The  Company   has   defined   contribution   retirement   plans   covering
     substantially  all  employees  in Hong Kong.  Under these  plans,  eligible
     employees may contribute amounts through payroll deductions which are 5% or
     more of individual salary,  supplemented by employer  contributions ranging
     from 5% to 10% of individual salary depending on the years of service.  The
     expenses  related to these plans were $125,  $94 and $55 for the year ended
     October 31, 1998, 1997 and 1996, respectively.




                                      F-19
<PAGE>

                              RADICA GAMES LIMITED

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                           (US dollars in thousands)

18.  LITIGATION

     Ten purported  class actions filed in various United States District Courts
     against  the  Company,  various  of its  officers  and  directors,  and the
     managing  underwriters  of  the  Company's  initial  public  offering  were
     consolidated in the United States District Court for the District of Nevada
     under the caption In re Radica Games Limited Securities Litigation,  Master
     File No. CV-S-94-00653-DAE (LRL). Plaintiffs filed a consolidated complaint
     on November 4, 1994 that  superseded  all the  complaints in the individual
     actions.

     The named plaintiffs  originally  sought to represent a class consisting of
     purchasers of the Company's  common stock in the initial public offering or
     in  the  open  market  from  May  13  through  July  22,  1994  and  sought
     unquantified  monetary  damages and other relief against the defendants for
     alleged  violations of Sections 11, 12(2),  and 15 of the Securities Act of
     1933,  Sections 10b (and Rule 10b-5  thereunder),  20(a), and 20A(a) of the
     Securities  Exchange Act of 1934,  Sections 90.570,  90.660 and 90.660.4 of
     the Nevada Revised  Statutes,  and the common law of Nevada relating to the
     Company's  registration  statement  and  other  public  disclosures.  As  a
     consequence of an Order of the Court granting in part defendants' motion to
     dismiss the complaint and a stipulation of the parties,  all of plaintiffs'
     claims  other than those  arising  under the  Securities  Act of 1993,  and
     limited to  certain  specified  statements  in the  Company's  registration
     statement,  were dismissed without prejudice.  Pursuant to a stipulation of
     the parties,  the Court provisionally  agreed to treat the remaining claims
     as class claims.

     After the close of  discovery,  plaintiffs  moved for leave to amend  their
     complaint to add allegations with respect to an additional claimed omission
     in the registration  statement.  Shortly thereafter,  the Company moved for
     summary judgment seeking dismissal of the complaint. Following a hearing on
     July 31, 1996, the District Court entered an Order (i) denying  plaintiffs'
     motion to amend the  complaint  and (ii)  granting the  Company's  (and the
     other defendants')  motion for summary judgment,  and on August 9, 1996 the
     District  Court  entered  a  judgment  dismissing  the  action.  Plaintiffs
     subsequently  moved for  reconsideration  of the grant of summary  judgment
     against them, and the court denied their motion.

     Plaintiffs  filed a timely appeal to the United States Court of Appeals for
     the Ninth Circuit, and oral argument of such appeal was held on November 5,
     1997. On November 14, 1997, the Court of Appeals entered an Order affirming
     the judgment of the District Court. Plaintiffs sought no further review and
     such judgment is now final.



                                      F-20
<PAGE>

                              RADICA GAMES LIMITED

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                           (US dollars in thousands)

19.  SEGMENT INFORMATION

     The  Company  operates  in one  principal  industry  segment:  the  design,
     development,  manufacture  and  distribution of a variety of electronic and
     mechanical handheld and tabletop games. Geographic financial information is
     as follows:

                                              Year ended October 31,
                                  -------------------------------------------
                                     1998             1997            1996
                                  -----------      ----------      ----------

     Net sales:
          United States            $ 114,688        $ 57,478        $ 33,036
          PRC and Hong Kong           38,029          28,537          13,456
          Other                        2,901          1,745           1,043
                                  -----------      ----------      ----------
                                   $ 155,618        $ 87,760        $ 47,535
                                  ===========      ==========      ==========
     Operating income (loss):
          United States            $   9,347        $  2,269        $    973
          PRC and Hong Kong           39,053          25,990             906
          Other                          221           (167)             (85)
                                  -----------      ----------      ----------
                                   $  48,621        $ 28,092        $  1,794
                                  ===========      ==========      ==========
     Identifiable assets:
          United States            $  45,296        $ 24,745        $ 16,011
          PRC and Hong Kong           66,660          53,639          25,313
          Other                        1,565          1,065           1,401
                                  -----------      ----------      ----------
                                   $ 113,521        $ 79,449        $ 42,725
                                  ===========      ==========      ==========

     A  significant  portion of PRC and Hong Kong net sales were export sales to
     the United States.



                                      F-21
<PAGE>

                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                           (US dollars in thousands)

20.  VALUATION AND QUALIFYING ACCOUNTS

                                                   Year ended October 31,
                                           ----------------------------------
                                             1998        1997         1996
                                           ---------   ---------    ---------

   Beginning of year:
     Allowances for doubtful accounts      $    908     $   234     $  1,572
     Estimated customer returns               2,327         817        1,790
     Provision for inventories                3,479       8,419       11,873
                                           ---------   ---------    ---------
                                           $  6,714     $ 9,470     $ 15,235
                                           =========   =========    =========
   Charged for the year:
     Allowances for doubtful accounts      $    213     $   818     $     70
     Estimated customer returns                 456       1,995        1,250
     Provision for inventories                1,105           -            -
                                           ---------   ---------    ---------
                                           $  1,774     $ 2,813     $  1,320
                                           =========   =========    =========
   Release of provision:
     Allowances for doubtful accounts      $   (655)    $  (144)    $ (1,408)
     Estimated customer returns              (1,408)       (485)      (2,223)
     Provision for inventories               (2,170)     (4,940)      (3,454)
                                           ---------   ---------    ---------
                                           $ (4,233)    $(5,569)    $ (7,085)
                                           =========   =========    =========

   End of year:
     Allowances for doubtful accounts      $    466     $   908     $    234
     Estimated customer returns               1,375       2,327          817
     Provision for inventories                2,414       3,479        8,419
                                           ---------   ---------    ---------
                                           $  4,255     $ 6,714     $  9,470
                                           =========   =========    =========







                                      F-22
<PAGE>

                              RADICA GAMES LIMITED
         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                (US dollars in thousands, except per share data)

21.  SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

                                                   Quarter ended
                                  ----------------------------------------------
                                   Jan. 31      Apr. 30      Jul. 31     Oct. 31
                                  -----------  ---------    ---------   --------
Fiscal 1998
-----------
   Net sales                      $ 26,473     $ 31,750     $ 34,829    $ 62,566
   Gross profit                     14,674       17,984       19,481      32,903
   Net income                        9,009        9,046       11,184      22,017
   Basic earnings per share           0.43         0.45         0.55        1.13

Fiscal 1997
-----------
   Net sales                      $ 12,668     $ 12,175     $ 22,532    $ 40,385
   Gross profit                      5,476        5,422       11,671      24,303
   Net income                        2,522        2,317        7,147      17,600
   Basic earnings per share           0.12         0.11         0.34        0.84



Common Share Price
                                                        High             Low
1998 Quarter
------------
   Fourth.........................................   $  16  5/8      $   9  3/4
   Third..........................................      22  1/4         16  1/8
   Second.........................................      20  5/8         14  3/4
   First..........................................      19              12  7/8

1997 Quarter
------------
   Fourth.........................................   $  15  3/8      $   7  1/2
   Third..........................................       7  7/8          2  7/8
   Second.........................................       4  1/8          2  3/8
   First..........................................       3  1/4          1  1/16

1996 Quarter
------------
   Fourth.........................................   $   1  3/4      $      3/4
   Third..........................................       1 15/16           15/16
   Second.........................................       2               1  1/4
   First..........................................       2  1/2          1  1/8






                                      F-23
<PAGE>

         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: December 17, 1998                         /S/ David C.W. Howell
      ---------------------                     -------------------------------
                                                David C.W. Howell
                                                Executive Vice President
                                                Chief Financial Officer



                                       I-1
<PAGE>

EXHIBIT INDEX


     *3.1     Memorandum of Association

     *3.2     Bye-Laws

     *3.3     Certificate of Incorporation on Change of Name

     *4.1     Specimen Certificate for the Shares of Common Stock

     *10.1    Processing  Agreement,  dated December 4, 1991,  between Radica HK
              and foreign  Economic  Development  Co. of Humen  Town,  Dongguan,
              relating to the Tai Ping Factory

     *10.2    Processing  Agreement,  dated December 27, 1993, between Radica HK
              and Foreign Economic Development Co. of Humen Town, Dongguan

      10.3    [Reserved]

     *10.4    Shareholders Agreement,  dated January 12, 1994, among the Company
              and the shareholders parties thereto

     *10.5    Amendment  to  Shareholders  Agreement,  dated as of February  16,
              1994, among the Company and the shareholders party thereto.

      10.5(a) Amendment  to  Shareholders  Agreement,  dated as of  September 5,
              1997, among the Company and the shareholders party thereto.

     *10.6    Form of  Employment  Agreement,  between  Radica Games Limited and
              Robert E. Davids

     #10.6(a) April 1996 Amendment to such Employment Agreement.

     ~10.6(b) December 1997 Amendment to such Employment Agreement.

      10.7    Employment  Agreement,  dated as of October 23, 1998, among Radica
              USA, Radica Games and Eugene A. Murtha

     *10.8    Employment Agreement,  dated as of November 28, 1993, among Radica
              HK, Radica USA and Jon N. Bengtson

     *10.8(a) Form of  Amendment  to  Employment  Agreement  among  Radica Games
              Limited, Radica HK, Radica USA and Jon N. Bengtson.

     #10.8(b) December 1995 Amendment to such Employment Agreement.



                                       I-2
<PAGE>

     ~10.8(c) December 1997 Amendment to such Employment Agreement.

     *10.9    1994 Stock Option Plan

     ~10.10   1994 Stock  Option  Plan,  as  amended  in April 1997 to  increase
              options

     10.10(a) 1994 Stock  Option  Plan,  as  amended  in April 1998 to  increase
              options

     ~10.11   Employment Agreement,  dated as of May 16, 1997, among Radica USA,
              Radica Games Limited and Patrick Feely

     ~10.11(a) December 1997 Amendment to such Employment Agreement.

     ~10.12   Consulting Agreement,  dated November 1, 1997 between Radica China
              Limited and Millens W. Taft

     10.13    [Reserved]

     *10.14   Form of Common Stock Purchase  Agreement,  for Radica USA, between
              Radica Games Limited and the Sellers named therein

     *10.15   Form of Common Stock Purchase  Agreement,  for Disc, Inc., between
              Radica Games Limited and the Sellers named therein

     @10.16   Cooperative   Joint   Venture   Contract  of  D.G.   Radica  Games
              Manufacturing Co., Ltd., dated June 24, 1994

     11.1     Statement re Computation of Per Share Earnings

     21.1     List of subsidiaries

     23.1     Consent of Deloitte Touche Tohmatsu

     +23.2    Consent of Deloitte Touche Tohmatsu of change in accounting policy

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

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

+    Incorporated by reference to Form 20-F for the year ended October 31, 1995.

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

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




                                       I-3