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

                                    FORM 20-F

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

                                       OR

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

For the Fiscal Year Ended December 31, 2004.

                                       OR

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


For the Transition period from  _____________  to ______________
Commission File Number:    0-23696


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

                                     BERMUDA
                 (Jurisdiction of incorporation or organization)

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

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

                                      None

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

                          Common Stock, Par Value $.01

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

                                      None

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

         Title of each class                     Amount Outstanding
         -------------------                     ------------------
    Common Stock, Par Value $.01                     18,738,112

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>

                              RADICA GAMES LIMITED

                       INDEX TO ANNUAL REPORT ON FORM 20-F
                          YEAR ENDED DECEMBER 31, 2004


                               ITEMS IN FORM 20-F

<TABLE>
<CAPTION>
                                                                                                        Page
                                                                                                        ----
<S>                                                                                                     <C>
PART I                                                                                                     4

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

         ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE                                                  4

         ITEM 3.  KEY INFORMATION                                                                          4

         ITEM 4.  INFORMATION ON THE COMPANY                                                              13

         ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                            23

         ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                              33

         ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                                       39

         ITEM 8.  FINANCIAL INFORMATION                                                                   40

         ITEM 9.  THE OFFER AND LISTING                                                                   40

         ITEM 10.  ADDITIONAL INFORMATION                                                                 41

         ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
                   MARKET RISK                                                                            45

         ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                                 46

PART II                                                                                                   46

         ITEM 13.  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                                        46

         ITEM 14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
                   AND USE OF PROCEEDS                                                                    46

         ITEM 15.  CONTROLS AND PROCEDURES                                                                46

         ITEM 16A.  AUDIT COMMITTEE FINANCIAL EXPERT                                                      46

         ITEM 16B.  CODE OF ETHICS                                                                        47

         ITEM 16C.  PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                47

         ITEM 16D.  EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                            47

         ITEM 16E.  PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND
                    AFFILIATED PURCHASERS                                                                 47

PART III                                                                                                  47

         ITEM 17.  FINANCIAL STATEMENTS                                                                   47

         ITEM 18.  FINANCIAL STATEMENTS                                                                   47

         ITEM 19.  EXHIBITS                                                                               48

</TABLE>

                                       2
<PAGE>


DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

         This report includes "forward-looking statements" within the meaning of
Section 27A of the  Securities  Act of 1933 and  Section  21E of the  Securities
Exchange Act of 1934. For example,  statements included in this report regarding
our financial  position,  business  strategy and other plans and  objectives for
future operations,  and assumptions and predictions about future product demand,
supply,   manufacturing,   costs,   marketing   and  pricing   factors  are  all
forward-looking  statements.  We believe that the assumptions  and  expectations
reflected  in  such   forward-looking   statements  are  reasonable,   based  on
information  available to us on the date hereof,  but we cannot  assure you that
these  assumptions and  expectations  will prove to have been correct or that we
will  take  any  action  that  we may  presently  be  planning.  Forward-looking
statements  involve risks and  uncertainties  that could cause actual results to
differ  materially from projected  results.  These risks include those set forth
elsewhere in this Annual Report on Form 20-F for the fiscal year ended  December
31, 2004.  See "Item 3. Key  Information -- Risk Factors" in this report on Form
20-F. We are not  undertaking to publicly  update or revise any  forward-looking
statement if we obtain new  information  or upon the occurrence of future events
or otherwise.












                                       3
<PAGE>


                                     PART I

ITEM 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

         Not Applicable

ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE

         Not Applicable

ITEM 3.  KEY INFORMATION

SELECTED FINANCIAL DATA

         Set forth below is the selected income statement and balance sheet data
as of and for each of the years in the five-year period ended December 31, 2004.
This data is derived from the consolidated  financial statements included herein
and from those previously  reported for earlier periods.  This summary should be
read in conjunction  with "Operating and Financial Review and Prospects" and the
consolidated  financial  statements and notes thereto included elsewhere in this
document.

<TABLE>
<CAPTION>
                                                                                         YEAR ENDED DECEMBER 31,
(in thousands, except per share data and margins)       2004           2003           2002           2001           2000
                                                        ----           ----           ----           ----           ----
<S>                                                    <C>            <C>            <C>             <C>           <C>
INCOME STATEMENT DATA:
Net sales                                              $123,399       $105,200       $124,646        $98,554       $106,696
Cost of sales                                            81,576         65,350         78,138         65,332         83,674
                                                       --------       --------       --------        -------       --------
Gross profit                                             41,823         39,850         46,508         33,222         23,022
                                                       --------       --------       --------        -------       --------
Operating expenses:
  Selling, general and administrative                    30,071         25,000         27,038         25,645         31,689
  Research and development                                4,164          3,895          4,094          5,775          5,210
  Depreciation and amortization of goodwill and           1,693          2,033          2,858          4,013          5,427
     intangible assets
  Impairment of goodwill                                  3,536              -              -              -              -
  Restructuring charge                                        -             87              -          1,551          1,190
                                                       --------       --------       --------        -------       --------
Total operating expenses                                 39,464         31,015         33,990         36,984         43,516
                                                       --------       --------       --------        -------       --------
Operating income (loss)                                   2,359          8,835         12,518         (3,762)       (20,494)
Other income                                                754            317            306             24            781
Foreign currency gain (loss), net                           417            178          1,744           (219)            49
Net interest income                                         765            295             35            136            664
                                                       --------       --------       --------        -------       --------
Income (loss) before income taxes                         4,295          9,625         14,603         (3,821)       (19,000)
(Provision) credit for income taxes                        (839)         2,866         (2,669)          (553)           901
                                                       --------       --------       --------        -------       --------
Net income (loss)                                      $  3,456       $ 12,491       $ 11,934        $(4,374)      $(18,099)
                                                       ========       ========       ========        =======       ========
Net income (loss) per share - basic                    $   0.19       $   0.69       $   0.67        $ (0.25)      $  (1.03)
                                                       ========       ========       ========        =======       ========
Weighted average number of common shares                 18,653         18,017         17,726         17,612         17,608
                                                       ========       ========       ========        =======       ========
Net income (loss) per share - diluted                  $   0.18       $   0.66       $   0.65        $ (0.25)      $  (1.03)

Weighted average number of common shares
  and common equivalent shares                           19,526         19,060         18,336         17,612         17,608

                                                                                                                 (continued)
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
                                                                                         YEAR ENDED DECEMBER 31,
(in thousands, except per share data and margins)       2004           2003           2002           2001           2000
                                                        ----           ----           ----           ----           ----
STATISTICAL DATA:
<S>                                                     <C>            <C>            <C>            <C>            <C>
Gross margin                                              33.9%          37.9%          37.3%          33.7%          21.6%
Operating margin                                           1.9%           8.4%          10.0%          (3.8%)        (19.2%)

BALANCE SHEET DATA (AT PERIOD END):
Working capital                                         $71,775        $65,616        $50,155        $36,709        $42,619
Total assets                                            109,941        102,214         95,302         88,407         99,315
Long-term debt                                                -              -              -          1,825          5,473
Total debt                                                    -              -          2,671          6,319         12,901
Common stock                                                187            182            178            176            176
Shareholders' equity                                     91,077         89,516         74,636         63,052         67,388
</TABLE>


RISK FACTORS

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

RISK OF MANUFACTURING IN CHINA

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

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

         As a result of opposition to certain policies of the Chinese government
and China's growing trade surpluses with the United States,  there has been, and
in the future may be, opposition to the extension of Normal Trade Relations,  or
NTR,  status  for China.  The loss of NTR  status for China,  changes in current
tariff  structures  or  adoption in the United  States of other  trade  policies
adverse to China could have an adverse effect on our business.

         Chinese  Political,  Economic and Legal  Risks.  Our current and future
operations  in  China  and  Hong  Kong  are  highly  dependent  on  the  Chinese
government's  continued  support of  economic  reform  programs  that  encourage
private investment,  and particularly  foreign private investment.  Although the
Chinese  government  has adopted an "open door"  policy with  respect to foreign
investment,  we cannot  assure you that this policy will  continue.  A change in
policies by the Chinese government could adversely affect our business by, among
other things,  imposing confiscatory taxation,  restricting currency conversion,
imports and sources of supplies, or expropriating private enterprises.  Although
the Chinese  government  has been  pursuing  economic  reform  policies for many
years, we cannot assure you that the Chinese  government will continue to pursue
these  policies  or  that  these  policies  may  not be  significantly  altered,
especially  in the event of a change in  leadership or other social or political
disruption.

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

         China Does Not Have a Comprehensive System of Laws. Enforcement of
existing laws in China may be sporadic and implementation and interpretation of
laws may be inconsistent. The Chinese judiciary is relatively inexperienced in
enforcing the


                                       5
<PAGE>

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

         Dependence on Local  Government.  We operate our factory in China under
agreements  with  the  local  government.   These  agreements  and  our  factory
operations  are  dependent on our  relationship  with the local  government  and
existing trade practices.  This relationship  could be subject to adverse change
in the future, especially in the event of a change in leadership or other social
or political disruption.

         Chinese  Taxation.  We paid $596,000 in foreign  enterprise  tax on our
joint  venture  in China in 2004.  This is the sixth  year we have paid  foreign
enterprise tax in China. We were granted 50% relief from foreign  enterprise tax
through  December  31, 2001 under the Foreign  Enterprise  Income Tax Law of The
People's Republic of China, or PRC, and were therefore taxed at 12%. In 2002 and
2003,  we were taxed at the full rate of tax of 27%;  however,  we  successfully
applied to be designated as an "Export Oriented Enterprise", which resulted in a
tax rebate  which was  received in 2003 and 2004 that reduced our China tax rate
applicable  to 2002 and 2003 to 12% which does not  include the local tax of 3%.
The application to be designated as an "Export Oriented  Enterprise" is required
to be made on a yearly basis.  We applied for the same  designation for 2004 and
if our application is successful,  it will result in the receipt of a tax rebate
in 2005.

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

         The Chinese tax system is subject to substantial  uncertainties and has
been subject to recently enacted changes,  the interpretation and enforcement of
which are also uncertain. We cannot assure you that changes in Chinese tax laws,
their  interpretation  or their  application  will not subject us to substantial
Chinese taxes in the future. In addition,  the negotiation and settlement of tax
obligations with the local tax authorities are a normal occurrence.

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

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

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

         Limited Infrastructure. Electricity, water, sewage, telephone and other
infrastructure are limited in the locality of our factory.  In the past, we have
experienced  temporary  shortages  of  electricity  and  water  supply.  We have
installed eight back-up  electrical  generators in our factory which can support
it in the event of a power  shortage  and are in the process of  constructing  a
water storage tank that will be put into service in early 2005. We cannot assure
you that the  infrastructure  on which our factory is dependent will be adequate
to operate the factory successfully.

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


                                       6
<PAGE>

DEPENDENCE ON CURRENT PRODUCT APPEAL AND NEW PRODUCT INTRODUCTIONS

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

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

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

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

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

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

NO ASSURANCE OF GROWTH

         We cannot assure you that we will achieve future growth in net sales or
that  we  will  be  able  to  maintain  our  present  levels  of  net  sales  or
profitability. Our current business strategy emphasizes the sale of a controlled
number of products,  while representing a more diverse range of products than in
the past. Our products include casino and heritage electronic games,  mechanical
slot banks,  youth  electronic  games,  tabletop games,  Play TV(R) games,  Girl
Tech(R) and  Barbie(TM)  girls  electronic  lines,  the  Twinkleberries(TM)  and
Cupcakes(R)  doll  lines,  the Nitro  Battlerz(TM)  and Big  Trouble(TM)  remote
control car products, the Street Muttz(TM) plush line and video game accessories
sold under the  Gamester(R)  brand.  In any period,  our  financial  results are
likely to vary with the success or lack of success of newly introduced products,
which are  inherently  uncertain.  We cannot simply rely on continuing  sales of
existing products.

DEPENDENCE ON MAJOR CUSTOMERS

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

         On January 22, 2002, the Kmart  Corporation  filed for protection  from
its  creditors  under  Chapter  11 of the United  States  Bankruptcy  Code.  Our
receivable  exposure  to Kmart was  entirely  provided  for  during  2001 and no
additional write-downs or


                                       7
<PAGE>

expenses  related to the  bankruptcy  were incurred  during 2002. We continue to
sell our products to Kmart and closely monitor our account with them in order to
minimize future exposure.

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

         During  2004,  a  significant  portion  of our OEM sales  were sales to
Hasbro, which is also one of our competitors. We do not have a specific contract
with Hasbro  regarding  these  projects and there is no  assurance  that we will
continue to receive  orders from Hasbro,  which could have an adverse  effect on
our business.

         Also during 2004, our profitability for the 4th quarter was affected by
the reduction in orders from a major  customer that normally  accounts for about
one third of 4th quarter  sales.  This  reduction  of orders was the result of a
reduction in the  customer's  stores  carrying  several of our basic  electronic
handheld  games in order to increase  their  inventories  of seasonal  items for
Christmas.  The stores resumed carrying these items in Spring of 2005, but there
is no assurance  that this customer  won't reduce the number of stores  carrying
these or other items in 2005 and subsequent years.

         On March 17,  2005,  Toys R Us  announced  that  they had  agreed to be
acquired for $6.6  billion by Kohlberg  Kravis  Roberts & Co.,  Bain Capital and
Vornado  Realty Trust.  The acquiring  group has not announced any plans for the
future  of Toys R Us,  but a  restructuring  that  included  store  closings  or
liquidation of the company could have an adverse effect on our business.

DEPENDENCE ON SUPPLIERS AND SUBCONTRACTORS

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

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

CONCENTRATED MANUFACTURING FACILITIES

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

NO ASSURANCE OF SUCCESS IN NEW BUSINESS

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

NO ASSURANCE OF CONTINUED ODM/OEM BUSINESS

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

DEPENDENCE ON KEY PERSONNEL

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


                                       8
<PAGE>

SEASONALITY

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

         Our operating  results may also fluctuate  during the year due to other
factors such as the timing of the introduction of new products. The market price
of our common stock may be subject to  significant  fluctuations  in response to
variations in quarterly operating results and other factors.  These fluctuations
are reflected in our  statement  regarding  selected  quarterly  financial  data
attached as Exhibit 14.1 to this annual report.

INDUSTRY AND PRODUCT LINE VOLATILITY

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

COMPETITION

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

INTELLECTUAL PROPERTY RISKS

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

         In March 2005 we  received a letter  from a third  party,  and  related
information,  challenging  the  exclusivity  of our  manufacturing,  vendor  and
distributor agreement with Sega Toys, which was represented to give us exclusive
rights to the Play TV Sega Genesis  games in the United States and certain other
countries.  We are in the process of attempting to clarify this  situation  with
Sega  Toys,  and  believe  that we have a strong  position  on the merits of the
dispute  as well as  certain  rights to  indemnification  from Sega  Toys.  This
illustrates  an  additional  risk  relating to  intellectual  property  that, in
certain cases,  the rights obtained may not be as originally  represented to us.
In  these  instances,  we may face  additional  unanticipated  competition  from
another party who may also have rights in the intellectual  property that we are
using or intending to use,  and this may have a material  adverse  effect on the
sales and profitability of the products concerned. We may also incur substantial
costs and management time in defending, or attempting to defend, our rights.

PRODUCT LIABILITY

         Historically,  we have  received  only  minor  complaints  relating  to
injuries or other damages  caused by our products.  However,  in recent years we
have introduced products that involved more active play including our Play TV(R)
baseball,  snowboard and boxing  games.  In fiscal 2000, we received a number of
consumer  complaints that bats used in the Play TV baseball game could be broken
resulting in a projectile striking a game participant.  We recalled the bats for
replacement  with a  reengineered  bat. We currently  have no known  outstanding
claims resulting from damages from the recalled bat. We may be exposed to claims
for  damages  in these or other  circumstances,  some or all of which may not be
covered by insurance.  We cannot  guarantee you that current or future  products
may not result in claims or that our insurance will be adequate.

INCREASED TAXATION

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


                                       9
<PAGE>

PRODUCT "KNOCK-OFFS"

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

BAD DEBTS AND RETURNS

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

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

CONTROL BY EXISTING SHAREHOLDERS

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

DIFFICULTIES IN ENFORCING CIVIL LIABILITIES

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

SHARES ELIGIBLE FOR FUTURE SALE

         At  December  31,  2004,  we had  18,738,112  shares  of  common  stock
outstanding.  We  estimate  that most of these  shares were  previously  sold in
registered  offerings  or in  transactions  under Rule 144,  and  therefore  are
tradable   without   restriction,   other  than  any  shares  purchased  by  our
"affiliates." The remaining shares owned by existing shareholders are restricted
securities  under the Securities  Act of 1933, as amended,  and may be sold only
pursuant  to a  registration  statement  or an  applicable  exemption  from  the
registration  requirements,  including Rule 144. Most of these restricted shares
are currently eligible for sale pursuant to Rule 144, subject to the limitations
of  that  rule.  Market  sales  of  shares  by  existing   shareholders  or  the
availability  of shares  for future  sale may  depress  the market  price of our
common stock.

LICENSES AND ROYALTIES

         We have entered into various license and royalty agreements in which we
pay fees in exchange for rights to use product  inventions or trademarked names,
shapes and likenesses for use in development of our product line. The agreements
generally


                                       10
<PAGE>

include minimum fee guarantees based on a reasonable  expectation of the product
sales to be generated throughout the life of the agreement. We cannot assure you
that we will be able to meet  these  expectations  and may be  obligated  to pay
unearned  fees as a result.  Our license and  royalty  agreements  are for fixed
terms and often contain performance-related covenants. We cannot assure you that
we will be able to  maintain  or extend  the  rights to our  existing  licenses.
Several of our licenses apply to products that generate a large volume of sales.
Were we  unable  to  maintain  these  licenses,  the  lost  sales  could  have a
significant impact on future earnings.

LABOR

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

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

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

         Both  Microsoft and Nintendo have  announced that during 2005 they will
introduce new versions of their  respective Xbox and Game Cube platforms.  There
is no  guarantee  that  the  new  platforms  will  create  a  need  for  related
accessories.  Additionally,  there  is no  guarantee  that  we  will  be able to
successfully  negotiate a new licensing  agreement with Microsoft to manufacture
and distribute accessories for the Xbox platform.

UNPROFITABILITY OF THE VGA BUSINESS

         Our VGA product line,  Gamester(R),  was profitable in 2004, at a minor
level,  before deducting the goodwill  impairment  adjustment,  but this was the
first  recorded  profit  for the line  since it was  acquired  in 1999.  Several
factors  contributed  to losses  incurred in prior  years,  including  delays in
third-party  platform  introductions,  slower than expected  realization of full
U.S.  distribution  and price wars on  certain  commodity  VGA  items.  While we
believe that we have taken  measures to ensure that the line will be  successful
going forward,  we cannot  guarantee that the VGA line will be profitable in the
future or that we will continue to manufacture and distribute the line in future
years.  Insufficient  future profits and positive cash flows or withdrawal  from
the  VGA  business  would  result  in  significant  write-downs  of our  assets,
including goodwill.

         Effective  January 1, 2002, we adopted SFAS No.142,  Goodwill and Other
Intangible  Assets.  Goodwill is  required  to be tested on an annual  basis for
impairment at the reporting unit level. Furthermore,  goodwill is required to be
tested on an interim basis if an event or change in circumstances indicates that
the asset might be impaired. Our impairment testing included a discounted future
cash flow analysis based on a five-year financial  projection of the Gamester(R)
line. At December 31, 2003, we had goodwill totaling $9.6 million related to the
acquisition  of our  Gamester(R)  video game  accessory  business.  Despite  the
profitability of the VGA line in 2004 and assumed profitability of the line over
the next five years,  the carrying  value of the VGA  Gamester(R)  business line
exceeded  its  estimated  fair value.  As a result,  we recorded a $3.5  million
impairment  to goodwill as of December 31, 2004,  for the excess of the carrying
value of the VGA's goodwill over its implied fair value.  We believe that we are
making progress in making the Gamester(R)  line  consistently  profitable  going
forward by continuing to concentrate on the innovative,  higher margin sector of
the market.  However,  we cannot assure you that the measures taken in 2004 will
equate to future  profitability.  If the VGA Gamester(R)  business does not show
consistent  profits going forward,  further  write-downs of related goodwill may
occur.

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

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


                                       11
<PAGE>

ADVERSE WORLDWIDE ECONOMIC CONDITIONS

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

VOLATILE MASS MARKET RETAIL SECTOR

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

HONG KONG REAL ESTATE

         We own certain  commercial  properties  in Hong Kong,  some of which we
occupy and some of which we lease to third  parties.  Market values of Hong Kong
real estate had dropped  significantly during 1997 to 2003 and subsequently only
the residential  properties market has shown a strong recovery.  While we expect
commercial  real  estate  values  to  recover,  we  cannot  assure  you that our
commercial  properties  will do so. In general,  we  currently  intend to retain
ownership of our  properties  and either occupy or lease them, but if we were to
decide to make any of the  properties  available for sale prior to a recovery of
the market, we could suffer permanent losses.

CUSTOMER COMPLIANCE

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

CURRENCY VALUATION

         Efforts  to  increase  worldwide  distribution  have made our  business
increasingly  global.  We  expect  that  international  sales  may  continue  to
represent  a  significant   portion  of  our  revenue.   Although  most  of  our
international  sales are denominated in the US dollars,  fluctuations in foreign
currencies may have an impact on our financial results. We are prepared to hedge
against fluctuations in foreign currencies if the exposure is material, although
we have not engaged in hedging activities to date.

         We have  monetary  asset and liability  balances in foreign  currencies
other than the U.S. dollar,  including the Pound Sterling,  the Canadian dollar,
the  Hong  Kong  dollar  and  the  Chinese  Renminbi,   or  RMB.   International
distribution  and sales  revenues  usually are made by our  subsidiaries  in the
United States, United Kingdom and Canada, and are denominated typically in their
local currency.  However,  the expenses incurred by these  subsidiaries are also
denominated  in the local  currency.  As a result,  our  operating  results  are
exposed to changes in exchange  rates  between the United  States Dollar and the
Pound Sterling or the Canadian dollar.

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

EFFICACY OF ADVERTISING AND PROMOTION

         Radica promotes some of its products through advertising and promotion.
This  promotion  occurs  primarily  in the  second  half of the year  during the
traditional  holiday season and includes  television  commercials,  magazine and
newspaper  advertisements,  in-store  displays  and  viral  marketing  campaigns
orchestrated by contracted  public relations firms.  During 2004, we spent $12.8


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<PAGE>

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

ROHS COMPLIANCE

         Per Directive  2002/95/EC (on the Restriction of Hazardous  Substances)
of the European Parliament, effective 1 July 2006, new electrical and electronic
equipment  put on the European  market may not contain lead,  mercury,  cadmium,
hexavalent chromium,  polybrominated  biphenyls (PBB) or polybrominated dephenyl
ethers (PBDE). As lead is currently the main ingredient in our soldering process
we will  need to change to 'lead  free  soldering'.  In order to do this we have
purchased certain SMT equipment and are in the process of setting up a lead free
workshop  within our Dongguan  factory.  Our goal is to have this workshop fully
operational by March 31, 2006. In the event that we are not successful either we
will have to have product assembled at another facility that can produce product
to this standard or stop shipping to the European Union in Q3 2006.

ITEM 4.  INFORMATION ON THE COMPANY

DESCRIPTION OF BUSINESS

         Founded in 1983 by Americans living in Hong Kong,  Radica Games Limited
(NASDAQ: RADA) was incorporated in Bermuda in 1993. We are headquartered in Hong
Kong and  manufacture  our products in our factory in southern China. In 1994 we
went public when our shares began trading on the Nasdaq National Market.

         We  manufacture  and market a diverse line of electronic  entertainment
products  covering  multiple  product  lines - our products  include  casino and
heritage  electronic  games,  mechanical  slot banks,  youth  electronic  games,
tabletop games,  Play TV(R) games,  Girl Tech(R) and Barbie(TM) girls electronic
lines, the Twinkleberries(TM) and Cupcakes(R) doll lines, the Nitro Battlerz(TM)
and Big Trouble(TM) remote control car products, the Street Muttz(TM) plush line
and video game  accessories  sold under the Gamester(R)  brand. Our factory also
manufactures  for other  companies in the electronic  game industry and provides
sourcing  services  for  retail  customers.   We  market  our  products  through
subsidiaries in the United States, the United Kingdom, Canada and Hong Kong. Our
largest  market is in the United  States where in 2004 we had the third  largest
market share in the electronic  handheld and tabletop electronic games according
to industry data source, The NPD Group, Inc.

         We employ about 4,500 people  worldwide in our group of companies.  Our
largest retail customers include Wal-Mart,  Target,  Toys`R'Us,  Kmart,  Kohl's,
Argos  and  Best  Buy.   Our   largest   manufacturing   customer   is   Hasbro.
Internationally we sell products in approximately 35 countries.

HISTORY OF PRODUCT LINES

ELECTRONIC GAMES

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

         In 1995 we began to diversify  our product  line into other  electronic
handheld game areas beyond casino themed games.  We began to offer classic games
such as  Solitaire,  Hearts  and Gin Rummy,  and sports  games such as its World
Class  Golf(TM) and  Football.  In addition to the casino and classic games that
helped build the company,  in recent years we have expanded our electronic  game
offerings to a very broad line of electronic  games  including  virtual  fishing
games such as Bass Fishin'(R), virtual hunting games such as Buckmasters(R) Deer
Huntin'(TM), a line of games based on popular EA SPORTS(TM) products,  TETRIS(R)
and Rush  Hour(TM),  and other  games such as  Talking  Bingo(TM)  and  Ultimate
Pinball(TM).  In 2004 we introduced 20Q(TM), based on the classic guessing game.
20Q(TM) was named "The Number One Non-Television Promoted Toy" of 2004 according
to The Toy Book, an industry trade magazine.  We will continue to expand the 20Q
line in 2005 with tabletop and big screen versions of the game.

         During our history we have become known as a leader in the creative use
of technology.  For example,  our line of fishing games,  one of the top-selling
product lines in the history of electronic games,  revolutionized the electronic
handheld  games  category  after its  introduction  in 1996.  The games  feature
virtual motion-sensing technology that allows the player to use the


                                       13
<PAGE>

physical game as a rod and reel. The player casts, feels the fish bite, sets the
hook with a jerk, and reels in the fish with a real handle. This product started
an industry trend in creating  virtual reality games where the product  provides
the feel of the real sport. This is delivered by uniquely realistic game shapes,
featuring  motion  sensors and tactile  feedback.  We have  expanded our line of
virtual motion sensing games beyond the fishing category.  An example of this is
our Buckmasters(R) Deer Huntin' 3(TM) game.

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

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

         In 2004,  we  expanded  the "plug and play"  category  with our Play TV
Legends  line.  We  have  a  license  to  manufacture  and  distribute  Play  TV
Legends(TM)  Sega(R)  Genesis(TM).   It  is  the  first  official  Sega  Genesis
multi-game unit,  which  replicates  several of the original Sega Genesis games,
game codes and graphics and utilizes a replica of the original  Genesis  control
pad.  All of the  software  and content are stored in the game pad.  The Play TV
Legends line includes Space Invaders,  licensed by Taito and Tetris. In 2005, we
will  expand the line with  another  version of Play TV  Legends  Sega  Genesis,
containing  more games from the Genesis  system and another Play TV Legends Sega
game, Street Fighter(R) II Special Champion Edition.

         In  2001 we  introduced  Skannerz(R).  Targeting  boys  7-12,  Skannerz
utilizes  UPC scanner  technology  to create a  collectible-driven,  interactive
battle game. The game can be played alone or linked to battle with another unit.
Building on this success for 2003 we launched  Skannerz  Commander  and Skannerz
Battle Orbz, two variations on the original version.  In 2005, the Skannerz line
will be extended to include Skannerz(R)  Racerz(TM),  a racing game based on the
original Skannerz product.

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

GAMESTER VIDEO GAME CONTROLLERS & ACCESSORIES

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

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

         In 2001 we signed a worldwide  licensing  agreement  with  Microsoft to
design,  manufacture and market  peripherals for the Xbox(TM) video game system.
Xbox  peripherals  include the Phoenix  game pad, the Phoenix for Xbox Live pad,
which enables voice communication  technology and the Race Pac(R) controller,  a
functioning  wheel,  seat and pedals in a portable unit compatible with both the
Xbox and Sony Playstation 2 platforms.

         The  video  game   accessories   segment  expanded  in  2001  with  the
introduction  of  Nintendo's  Game  Boy(R)  Advance  (GBA).  We have  introduced
products  for  the  GBA  including  the  Flood  Light(TM),   which  provides  an
illumination of the GVA screen using a fluorescent  light. The GBA line includes
a broad selection of cases, bags,  chargers,  adaptors and accessory packs. With
the 2003  introduction  to  Nintendo's  Game Boy Advance SP, we have  introduced
several   products  for  the  SP  under  the  Gamester  brand,   including  Game
Changer(TM), which allows gamers to switch games without removing cartridges.


                                       14
<PAGE>

YOUTH ELECTRONICS

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

         In 1999, Girl Tech  introduced a line of products for girls,  including
the Password Journal(R),  which uses voice recognition  technology to unlock the
journal. In the years 2001-2004, Password Journal was among the top ten products
in the Youth  Electronics  market  according to The NPD Group.  In 2005, we will
update  the  Password  Journal  with  a  new  Password  Journal  product.  While
maintaining  the voice  recognition  lock and other features of the two previous
versions of this  product,  the new Password  Journal will include a light and a
calendar and will have an auto-opening tri-fold layout.

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

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

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

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

         The  Barbie  electronics  product  line  was  led by the  Barbie  Dance
Party(TM) game. This product allows girls to dance with Barbie on TV through the
use of the same technology that is used in our Play TV line. The player is asked
to follow Barbie's lead in dance moves and steps  demonstrated on the TV set. In
2003, we introduced My Secret Diary(TM) for the Barbie age girl. My Secret Diary
opens  electronically  with a magnetic pen. For 2004,  we introduced  the Barbie
Doorbell(TM),  a motion sensing door device allowing girls to personalize  their
message and keep their room private. We also introduced Barbie Balance Beam(TM),
a game of lights and  sounds  designed  to  simulate a  gymnastic  balance  beam
routine.

NEW CATEGORIES

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

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

MANUFACTURING SERVICES

         Since 1996 we have designed,  engineered and manufactured  products for
other  companies  in the  electronic  games  business.  Our factory in Tai Ping,
Dongguan,  Southern  China has 524,000  square feet of factory space and 308,000
square feet of  dormitory  space,  which has the  capacity to house in excess of
5,000  people,  currently  employs  approximately  3,500  people and  employment
typically  varies  from 3,000 to 6,000  depending  upon  seasonal  demands.  The
factory is capable of manufacturing up to 800,000 units per week. We manufacture
for other  companies  on an ODM  (original  design and  manufacture)  basis.  We
currently design and manufacture games for Hasbro, as well as other companies in
the U.S. and Japan. During 2005, we plan to complete an expansion of the factory
that will create an  additional  141,000  square feet of factory  space and will
cost $2.6 million, including machinery, to complete.


                                       15
<PAGE>

BUSINESS STRATEGY

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

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

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

PRODUCT LINE SALES

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

<TABLE>
<CAPTION>
                                                                                  YEAR ENDED DECEMBER 31,
                           ---------------------------------------------------------------------------------------------------
                                                    2004                                                 2003
                           ------------------------------------------------    -----------------------------------------------
                             % OF NET         NET         UNITS      NO. OF     % OF NET         NET          UNITS     NO. OF
PRODUCT LINES              SALES VALUE    SALES VALUE     SOLD      MODELS*    SALES VALUE   SALES VALUE      SOLD     MODELS*
--------------------------------------    -----------     -----     -------    -----------   -----------      ----     -------
(in thousands, except percentage and no. of models information)
<S>                              <C>          <C>          <C>           <C>          <C>        <C>            <C>         <C>
Games and Youth Electronics Segment
  Electronic Games                65.4%       $ 80,640      7,761        100          59.3%      $ 62,374       6,422       97
  Youth Electronics               13.8%         17,038      1,443         28          14.5%        15,227       1,324       27
  Other Electronic Games           2.8%          3,490        189         12
  Manufacturing Services           7.3%          9,008      3,920         28           9.8%        10,386       3,924       23
                                 -----        --------     ------        ---         -----       --------      ------      ---
                                  89.3%        110,176     13,313        168          83.6%        87,987      11,670      147
VGA Segment
  Video Game Accessories          10.4%         12,840      1,264         97          13.6%        14,294       2,150      152
  Manufacturing Services           0.3%            383        N/A        N/A           2.8%         2,919         N/A      N/A
                                 -----        --------     ------        ---         -----       --------      ------      ---
                                  10.7%         13,223      1,264         97          16.4%        17,213       2,150      152

Total                            100.0%        123,399     14,577        265         100.0%       105,200      13,820      299
                                 =====        ========     ======        ===         =====       ========      ======      ===
</TABLE>


                                       16
<PAGE>

<TABLE>
<CAPTION>

                                                                                  YEAR ENDED DECEMBER 31,
                           ---------------------------------------------------------------------------------------------------
                                                    2004                                                 2003
                           ------------------------------------------------    -----------------------------------------------
                             % OF NET         NET         UNITS      NO. OF     % OF NET         NET          UNITS     NO. OF
PRODUCT LINES              SALES VALUE    SALES VALUE     SOLD      MODELS*    SALES VALUE   SALES VALUE      SOLD     MODELS*
--------------------------------------    -----------     -----     -------    -----------   -----------      ----     -------
(in thousands, except percentage and no. of models information)
<S>                              <C>          <C>          <C>           <C>          <C>        <C>            <C>         <C>
Games and Youth Electronics Segment
  Electronic Games                50.3%       $ 62,684      6,277        101          53.0%      $ 52,268       6,007      137
  Youth Electronics               13.4%         16,744      1,208         22          11.9%        11,720       1,042       16
  Manufacturing Services          19.8%         24,634      6,666         30          19.2%        18,941       3,973       15
                                 -----        --------     ------        ---         -----       --------      ------      ---
                                  83.5%        104,062     14,151        153          84.1%        82,929      11,022      168
                                 -----        --------     ------        ---         -----       --------      ------      ---
VGA Segment
  Video Game Accessories          12.7%         15,844      2,118        150          10.5%        10,335       2,070      130
  Manufacturing Services           3.8%          4,740        N/A        N/A           5.4%         5,290         N/A      N/A
                                 -----        --------     ------        ---         -----       --------      ------      ---
                                  16.5%         20,584      2,118        150          15.9%        15,625       2,070      130

Total                            100.0%        124,646     16,269        303         100.0%        98,554      13,092      298
                                 =====        ========     ======        ===         =====       ========      ======      ===
<FN>
* Number of models includes new and continuing products as well as a significant
number of discontinued items often sold in small quantities from existing
closeout inventories.
</FN>
</TABLE>

LICENSING

         During fiscal 2004, we engaged in several licensing agreements in which
we were given permission to use the name, logo, game concept and/or license of a
person, company or brand in exchange for a royalty fee.

         Among the licensors were Electronic Arts(TM),  Buckmasters, World Poker
Tour(TM),  Codemasters(R),  owners of the Sensible Soccer license,  Leading Edge
Design,   developers  of  Bunco  Night(TM)  and  Multi  Strike  Poker(TM),  SSD,
developers of XaviX(R) technology, the Tetris(R) Company, Microsoft,  developers
of  Microsoft  Xbox(R),  Mattel,  makers of  Barbie(TM),  Taito(R)  Corporation,
creators of Space Invaders, Sega(R), makers of the original Sega Genesis system,
Funimation(R),  developers of Yu Yu Hakasho(R) and Dragon Ball GT(R) anime,  and
20Q.Net Inc, developers of the "artificial intelligence" version of 20Q.

         We intend to  incorporate  some of these licenses into our 2005 product
line and will pursue new licenses in instances  where  management  feels it will
enhance the value and marketability of a particular product.

MANUFACTURING

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

         In 2004 we assembled most of the Radica and Girl Tech lines of products
in order to control our costs, quality,  production and delivery schedules.  VGA
were assembled both in-house and by third party manufacturers.

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

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


                                       17

<PAGE>

MANUFACTURING FACILITIES

         We  currently  manufacture  our  products  at our Tai Ping  factory  in
Dongguan,  Southern  China  approximately  40 miles  northwest of Hong Kong. The
factory was constructed with the cooperation of the local  government  according
to our design  specifications on a 3.7 acre site and contains 524,000 sq. ft. of
factory  space and 308,000 sq. ft. of dormitory  space,  capable of housing over
5,000  workers.  An extension of the factory  commenced in December  1999.  As a
result of the drop in demand  for our  product  in the U.S.  during  2000,  work
towards  completion  of this  addition was  postponed  until the end of 2004. We
began  completion  of the  expansion  of the factory in late 2004 and expect the
expansion to be in service in mid 2005.  The  completed  facility will create an
additional  141,000 square feet of factory space and will cost an estimated $2.6
million,  including  machinery,  to complete.  The unit  capacity of the factory
depends on the product mix  produced.  In any event,  there can be no  assurance
that we will be able to operate at full  capacity  or have  sufficient  sales to
warrant doing so.

         In June 1994 we entered into a joint venture  agreement  with the local
government to operate the factory.  The joint venture  agreement was established
for the  construction  and operation of the factory.  We contributed the cost of
the  construction  of the factory to the joint  venture  while the local village
contributed  the land use rights.  The joint venture  agreement term is 30 years
after  which it may be  renegotiated.  We pay two  types  of costs to the  China
Government  under the joint  venture  agreement.  The first was the  payment for
construction  of the factory.  This cost is being  treated as a prepaid  30-year
leasehold on the factory.

         The second,  which began upon  commencement  of production,  are annual
fees made in the form of a fixed fee to the local government.  The annual fee is
subject to  increases  every  three years and had  originally  been set at a 20%
increase every 3 years but has been  successfully  renegotiated  to be 10% every
three  years.  The  scheduled  increases  of the annual  payment are intended to
reflect the anticipated  growth in our overall business.  We continue to believe
that we will  renegotiate any increases in this fee. As a result,  we record the
fee as an  expense  in  the  income  statement  as  incurred  rather  than  on a
straight-line  basis  over  the  term of the  agreement.  If we were  unable  to
renegotiate  the terms of the  agreement  and were  forced to pay the  scheduled
increases,  the amount of the increases would be immaterial over the 30 years of
the  contract and  therefore  accounting  for the JV payment on a  straight-line
basis  would  not  have a  material  financial  impact.  In  2004,  the  fee was
approximately $117,000.

         Aside from the fixed annual fee paid to the joint venture  partner,  we
are the sole  beneficiary  of the  results of the joint  venture,  and we solely
control the joint  venture's  operations,  including  the  operating and capital
decisions  of the joint  venture in the ordinary  course of  business.  When the
30-year term expires (unless we negotiate an extension) or in the event that the
agreement  is  terminated,  the local  government  will be entitled to the fixed
assets of the joint venture.  At the time the 30-year lease expires,  the assets
will have been fully depreciated.

         Formerly,  we also  manufactured  in the  factory  under  a  processing
agreement  with the local  government.  A processing  agreement  provides by its
terms that the local government will provide manufacturing facilities and supply
workers  to the  company  and that the  company  will pay a  management  fee and
processing  fee and certain other  charges.  The  management fee was paid to the
local  government  and was based on a negotiated  sum per worker at the factory.
The  processing  fee was based on the value of raw  materials  shipped  into the
factory and the value of products  shipped from the factory and was  established
in production  agreements agreed upon with local government  officials.  We paid
the  processing  fees  through the Bank of China in Hong Kong and the funds were
then placed in an operating  account including other company funds in China, all
of which  were used to pay the costs of the  factory  including  fees due to the
local  government as part of the  processing  agreement.  Changes in PRC tax and
customs law have made it increasingly difficult to use the processing agreement.
During 2001, we made a decision to end our use of the  processing  agreement and
as of December  31, 2003,  we had  completely  phased out use of the  processing
agreement.  We now  operate  exclusively  under the  cooperative  joint  venture
agreement.

         All the results of our factory operations in the PRC, whether under the
joint  venture  or the  previous  processing  agreement,  are  accounted  for as
wholly-owned  operations and included in our consolidated  financial  statements
since we  operate  all  aspects of the  factory,  including  hiring,  paying and
terminating workers.  Most of the factory workers are hourly employees,  live in
the on site dormitories and eat in the on site canteen. In addition, we bear all
other costs of operating the factory,  including  utilities and certain employee
social welfare charges established by the local government.  Many aspects of the
operation  of the  factory  are  dependent  on our  relationship  with the local
government and existing trade practices.  We believe that our relationship  with
the local government is good.

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


                                       18
<PAGE>

MATERIALS

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

         Our major suppliers of electronic and mechanical  handheld and tabletop
game  materials in fiscal 2004 included C & L Electric Mfg. Co., Ltd.  (cables),
Golden  Electrical  Trading  Co.  (plastic  resin),  GPI  International  Limited
(batteries),  Just Technology Co. Ltd. (keypads),  Kingsonic PCB Co.(PCBs), Lead
Jump  Development  Limited  (PCBs),  Many Paint & Chemical Co.,  Ltd.  (paints),
Mobicon Holdings Limited (electronic  components),  Polaroid Corporation (camera
and film), SSD Company Limited  (semi-conductor  chips), U Kwong Industrial Co.,
Ltd. (PVC materials),  V-Tac Technology Co. Ltd.  (semiconductor  chips),  Vbest
Electronics Ltd. (LCDs),  Wintek Corporation (LCDs) and Yu Lee Printing Co. Ltd.
(printing).

         Our major  suppliers  of VGA in fiscal 2004  included Hip Hing Cables &
Plug Mfy Ltd. (cables and plugs), Mascotte Industrial Associates (HK) Ltd. (bags
and cases) and Vanson Electronics Ltd. (battery charger and battery).

SALES AND DISTRIBUTION

         Our products are sold in  approximately  35 countries,  with the United
States accounting for approximately 66% of net sales in fiscal 2004. We sell our
products  directly  to over 200 active  retailers  in the U.S.  and U.K.  and to
approximately 30 distributors  worldwide.  We participate in the electronic data
interchange  ("EDI")  program  maintained by 15 customers in the U.S.  including
Wal-Mart,  Target, Kmart, Kohl's, Toys`R'Us and Best Buy, and 5 customers in the
U.K.: Argos, Comet,  Dixon's,  Asda Wal-mart and John Lewis. In fiscal 2004, our
largest customer,  Wal-Mart,  accounted for 24.5% of net sales. In general,  all
sales to third party  distributors  and retail customers are final upon transfer
of title. The top five customers were as follows:

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

         The following  table sets forth certain of our major customers in 2004,
including distributors (in alphabetical order):
<TABLE>
<CAPTION>
CATALOG SHOWROOMS                                 DRUG/MASS MERCHANDISERS            ELECTRONICS/GROCERY/ CONVENIENCE
-----------------                                 -----------------------            --------------------------------
<S>                                               <C>                                <C>
Argos                                             Army Airforce Exchange             About Time
Brookstone                                        Boots                              Argos
Index                                             Fred Meyer                         Asda/Wal-Mart
Sharper Image                                     Kmart                              Best Buy
                                                  Meijer                             Biggs Hypermarket
                                                  Pamida                             Blockbuster
DEPARTMENT STORES                                 QVC                                Circuit City
-----------------                                 Target                             Comet
J.C. Penney's                                     Wal-Mart                           Dixon's
John Lewis                                        Woolworth's (U.K.)                 Electronics Boutique
Kohl's                                            Zellers                            Game
May Co.                                                                              Gamestop
                                                                                     Ingram Entertainment
MAIL ORDER/SPECIALTY GIFT SHOP OPERATORS          SPORTING GOODS STORES              Mill's Fleet Farm
----------------------------------------          ---------------------
Avon                                              Bass Pro Shops                     Musicland
Buckmaster                                        Dunham's                           Production Solutions
Figis                                                                                Radioshack
</TABLE>


                                       19
<PAGE>
<TABLE>
<CAPTION>
<S>                                               <C>                                <C>
Fingerhut                                                                            Tesco
Hammacher Schlemmer                               TOY RETAILERS
                                                  -------------
Littlewoods                                       Entertainer
Next Retail                                       Kay Bee                            DISTRIBUTORS (RADICA)
Spillsbury                                        Toymaster                          ---------------------
Starboard Cruise Services                         Toys"R"Us                          Amo oy (Finland)
Wish Book                                         Youngsters                         Caesars Gauteng (South Africa)
                                                                                     Dorcy Irwin Pacific Pty, Ltd. (Australia)
ODM/OEM                                           DISTRIBUTORS (VGA)                 Edu Toys (Russia)
-------                                           ------------------                 Giochi Preziosi (Italy)
Goliath (France/Belgium)                                                             John Hansen Co. (USA)
Importadora Maduro S.A. (Panama)                                                     Joker (Germany)
Bensussen Deutch & Associate, Inc.                First Game (Korea)                 Koch (Germany)
Cranium, Inc.                                     Forte Co., Ltd. (Japan)            Lansay (France)
Forte Co., Ltd.                                   Just for Fun Toys (South Africa)   Newbay (Middle East)
Hasbro, Inc.                                      Imbi Mario Trading (Malaysia)      Planet Fun (New Zealand)
KEMCO Co., Ltd.                                   Master Genius (Thailand)           Playthings Pte Ltd. (Singapore)
Konami Corporation                                Nobilis (France)                   Sablon (Germany/Benelux)
Lexibook Limited                                  Super Chi-Yuen (Taiwan)            S. I. D. Cadeaux (France)
Sega Toys                                         Tai Sing/Fowa (Singapore)          Souvenirworld (USA)
WiZ Co. Ltd.                                      Top Toy (Denmark)                  Top Toy (Denmark)
                                                  Universal Electronics (Lebanon)    Universal Electronics (Lebanon)
                                                  Valid Trade (South Africa)
</TABLE>

         In the United States,  we use regional sales managers working for us to
manage our customers as well as manufacturers  representatives  and brokers that
sell our products to certain retailers. These manufacturers' representatives are
not our employees and work on a commission basis. In the United Kingdom,  we use
brand sales managers and manufacturers'  representatives to sell our products in
the U.K. In the rest of the world, we use third-party distributors.

         Our customers  normally provide  indications of interest,  which may be
canceled at any time, from three to six months prior to scheduled delivery,  but
only confirm orders  approximately eight weeks in advance of requested delivery.
Accordingly  we  generally  operate  without a  significant  backlog  of regular
orders.

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

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

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

INDUSTRY

         NPD Group, the service that has historically  tracked our retail sales,
no longer provides this service. It does, however,  continue to provide industry
data.  According to NPD, the toy industry in the U.S. declined slightly in 2004.
Toy  sales in gross  dollars  were  down  2.7% in 2004  from  2003  among  top 5
retailers and were also down 2.7% overall. Management believes that the declines
were the result of continuing  weaker overall sales at the mass  retailers.  Our
U.S.  sales of  Electronic  Games  increased  13.5% from 2003.  The  increase in
Electronic  Games is  primarily  due to the  success of our  PlayTV(R)  line and
20Q(TM).  Our U.S.  sales of Youth  Electronics  decreased 5.5% from 2003 due to
soft sales of Barbie(R) branded products.


                                       20
<PAGE>

         NPD's U.K. data showed no increase in the toy market in 2004 from 2003.
Electronic  and  tabletop  games  were  down 10% and youth  electronics  did not
change.  As of the  reporting  date, we do not have similar data for the rest of
Europe. Our U.K. sales of electronic games and youth electronics increased 94.3%
and 41.2%,  year-on-year,  respectively as a result of our strategic plan in the
U.K. to increase promotion and focus on electronic handheld and tabletop games.

         Annual  industry-wide  video game accessory sales were down slightly in
the U.S. in 2004.  According to the NPD Group,  VGA sales in gross  dollars were
down 1.2% in 2004 from 2003. Our U.S. sales of video game  accessories were down
0.8% from 2003.

         The U.K. and Europe do not have a reliable retail tracking  service for
video  game  accessories.   During  2003,  our  U.K.  operations  changed  their
distribution  strategy in the U.K. and Europe from  providing a full line of VGA
product,  including  low-margin  commodity  items,  to selling a smaller line of
innovative, higher margin products.

PRODUCT DEVELOPMENT

         At the end of 2004,  our  engineering  and  development  department had
approximately 92 staff worldwide.  Our product  development starts with a design
team in Dallas, Texas and continues through to the engineering teams in Shenzhen
and in the Dongguan factory.  We have a formalized product  development  process
that includes quarterly meetings of its worldwide product  development and sales
departments. In fiscal 2002, 2003 and 2004, we spent approximately $4.1 million,
$3.9 million and $4.2 million  respectively,  on research and  development.  Our
research and development is heavily oriented toward market demand.  Based on our
ongoing contact with consumers,  retailers and distributors worldwide, our sales
and marketing  departments seek to understand and assist the product development
teams in responding to consumer and retailer  preferences.  The sales department
also  targets  certain  retail  price  points for new  products  which drive our
product  development,  with  designs,  features,  materials,  manufacturing  and
distribution  all developed within the parameters of the target retail price. We
also review  product  submissions  from a network of third party  inventors that
have been  approved by  management.  These  submissions  are subject to the same
product  development  process  and  market  demand  considerations  as  internal
submissions.  Additionally,  we use  third-party  developers  in the creation of
software programs that are used in some of our products.

         In January of 2002, we executed our December 2001  reorganization  plan
that included the closure of the San Francisco  research and development  office
and the relocating of the Hong Kong  engineering  positions to offices in China.
During 2003,  we  eliminated  our  Hertfordshire,  England  design  team.  These
reorganizations  significantly reduced costs without decreasing  efficiency.  We
expect to continue  developing the majority of products  internally during 2005.
However,  changes in business  philosophy or unforeseen  circumstances may arise
that  could  force  us to  outsource  a  larger  than  expected  amount  of  our
development work.

SEGMENT INFORMATION

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

ORIGINAL DESIGN MANUFACTURING AND ORIGINAL EQUIPMENT MANUFACTURING

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

INTELLECTUAL PROPERTY

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

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


                                       21
<PAGE>

COMPETITION

         The games business is highly competitive. We believe that we are one of
the  leading  sellers of  electronic  games and youth  electronics.  Our primary
competitor is the Hasbro Games Group ("Hasbro"),  which is also an OEM customer.
Hasbro procures its products from manufacturers in China including Radica. Other
competitors  include  Jakks  Pacific,  Wild Planet and MGA. The barriers for new
producers  to enter our  markets are  relatively  low and we expect that we will
face strong  competition.  We compete  for  consumer  purchases  on the basis of
price, quality and game features and for retail shelf space also on the basis of
service,  including  reliability of delivery,  and breadth of product line. Some
competitors offer products at lower prices than we do, are better established in
the toy and games industry and are larger than we are. Our products also compete
with other gifts and games for consumer purchases.  In addition, with respect to
ODM/OEM  activities,  we compete with a number of substantially  larger and more
experienced  manufacturers.  As we enter other markets and businesses, we expect
to face strong competition.

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

TAXATION OF OUR COMPANY AND OUR SUBSIDIARIES

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

         The Hong  Kong  profits  tax rate for  2004 is  17.5%.  Currently,  our
subsidiary Radica HK pays Hong Kong profits tax on service and sales income.

         On July 1, 1994, our  manufacturing  operations  were  transferred to a
Sino-Foreign  joint  venture.  The joint venture  enjoyed a two year tax holiday
which expired in 1999. We paid $596,000 in foreign  enterprise  tax on our joint
venture in China in 2004. This is the sixth year we have paid foreign enterprise
tax in China.  We were  granted 50% relief from foreign  enterprise  tax through
December  31, 2001 under the Foreign  Enterprise  Income Tax Law of The People's
Republic of China, or PRC, and were therefore taxed at 12%. In 2002 and 2003, we
were taxed at the full rate of tax of 27%; however,  we successfully  applied to
be designated as an "Export Oriented Enterprise", which resulted in a tax rebate
which was received in 2003 and 2004 that  reduced our China tax rate  applicable
to 2002  and 2003 to 12%  which  does  not  include  the  local  tax of 3%.  The
application to be designated as an "Export  Oriented  Enterprise" is required to
be made on a yearly basis.  We applied for the same  designation for 2004 and if
our application is successful,  it will result in the receipt of a tax rebate in
2005.

         Our  subsidiaries  Radica USA,  Radica  Canada and Disc Inc.  are fully
subject to U.S. and Canada federal taxation,  as well as any applicable state or
local taxation, on their taxable income. Currently, the highest marginal rate of
U.S.  federal  corporate  income tax is 35%; the highest marginal rate of Canada
federal  corporate income tax is 25%. In addition,  dividends paid by Radica USA
and Disc Inc. to our company will be subject to a 30% U.S.  federal  withholding
tax,  resulting in an effective  rate of U.S.  federal  taxation on  distributed
profits of up to 54.5%.

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

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


                                       22
<PAGE>

EMPLOYEES

         As of December 31, 2004 our workforce was comprised of the following:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
                      Production       Sales and          R&D            Finance        Operations       Total by
                                       Marketing                                         & Admin         location
-----------------------------------------------------------------------------------------------------------------
<S>                     <C>               <C>              <C>             <C>             <C>
Asia                    4,148             12               79              24              132            4,395
-----------------------------------------------------------------------------------------------------------------
USA                       1               26               13               8               17               65
-----------------------------------------------------------------------------------------------------------------
Europe                    -                8               -                5                7               20
-----------------------------------------------------------------------------------------------------------------
Total                   4,149             46               92              37              156            4,480
-----------------------------------------------------------------------------------------------------------------
</TABLE>

         At December 31, 2003 and 2002 our workforce comprised 3,640 persons and
4,332 persons, respectively.

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

DESCRIPTION OF PROPERTIES

         See  "Manufacturing  Facilities" above. We completed the first phase of
construction  of our factory  (241,000  sq. ft.) on a 3.7 acre parcel of land in
May 1995 and the second  phase  (223,000  sq. ft.) in August  1998.  The factory
currently  contains  524,000  sq. ft. of factory  space and  308,000  sq. ft. of
dormitory  space,  capable of housing  over 5,000  workers.  An extension of the
factory commenced in December of 1999. As a result of the drop in demand for our
product in the U.S.  during 2000,  work towards  completion of this addition was
postponed until the end of 2004. We began  completion of the 141,000 square foot
expansion  of the factory at the end of 2004 and expect the  expansion to be put
into service in mid 2005. We own a long-term  leasehold on our executive offices
(11,000 sq. ft.  inclusive  of two leased  unit of 4,800 sq. ft.) and  warehouse
space  (7,900 sq. ft.) in Fo Tan,  Hong Kong.  We operate our factory  under the
terms of the  joint  venture  agreement.  We lease  additional  office  space in
Hertfordshire,  U.K.;  Macau and Shenzhen,  China;  Dallas,  Texas and Pasadena,
California.  We lease  showrooms in Tsim Sha Tsui,  Hong Kong and New York,  New
York  and  provide   individual   offices  for  sales   personnel   employed  in
Massachusetts and Illinois. During 2004, we leased one of our executive units in
Fo Tan, Hong Kong totaling  2,500 sq. ft. and sold one house that was leased out
in 2003. We are currently paying rent on two different houses for Mr. Howell and
Mr.  Scott in Hong  Kong.  We also  leased a flat in Macau  which  has been made
available to Mr. Chu, an officer of our company.

LEGAL PROCEEDINGS

         We are  subject to pending  claims and  litigation.  On April 4, 2000 a
lawsuit was filed by the Lemelson Foundation  ("Lemelson") against us in Arizona
Court for patent infringement.  Lemelson claims to be owner of nearly 800 issued
and  pending  patents,  including  the  patent on Machine  Vision and  Automatic
Identification  (Auto ID) operations.  The Auto ID operation is used in machines
that are part of our bonding and heat-sealing manufacturing processes.  Lemelson
is contesting that the use of machines that incorporate this patented technology
infringes  on their IP rights and  therefore  we are  obligated to pay a royalty
based on the use of this technology.

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

         During 2004,  we were  approached  with an offer of license of a patent
portfolio from Immersion  Corporation.  Immersion asserts that  manufacturers of
products  employing  vibration  or feel such as those  found in  several  of our
Gamester(R)  products  require a license and has gained  licenses  from  several
companies within this industry.  While Immersion has filed suit recently against
two companies, it is not known whether it will file suit against us if a license
agreement  is  not  reached.   We  are   considering  the  license  offer  while
investigating  the validity  and scope of the  patents,  but at this time we are
unable to  determine  the  legitimacy  of  Immersion's  claims or our  potential
liability should we fail to enter into a licensing agreement with them.

         Although  there  is none  currently,  from  time to time we have  other
litigation against us.

ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS

RESULTS OF OPERATIONS

FISCAL 2004 COMPARED TO FISCAL 2003

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


                                       23
<PAGE>

                                                       Year ended December 31,
                                                       -----------------------
                                                       2004              2003
                                                       -----             -----

Net sales                                              100.0%            100.0%
Cost of sales                                           66.1%             62.1%
                                                       -----             -----
Gross profit                                            33.9%             37.9%
Selling, general and administrative expenses            24.4%             23.8%
Research and development                                 3.4%              3.7%
Depreciation and amortization                            1.4%              1.9%
Impairment of goodwill                                   2.9%                 -
Restructuring charge                                        -              0.1%
                                                       -----             -----
Operating income                                         1.9%              8.4%
Other income                                             0.6%              0.3%
Foreign currency gain, net                               0.3%              0.2%
Interest income, net                                     0.6%              0.3%
                                                       -----             -----
Income before income taxes                               3.5%              9.1%
(Provision) credit for income taxes                      (.7%)             2.7%
                                                       -----             -----
Net income                                               2.8%             11.9%
                                                       =====             =====

         We  reported  a net  profit  for the year of $3.5  million or $0.18 per
diluted share compared to $12.5 million or $0.66 per diluted share for 2003. The
decline in net profit was in part the result of a pretax non-cash charge of $3.5
million for impairment of goodwill for the VGA or Gamester  business acquired in
1999.  Despite an increase in sales of $18.2 million that  generated  additional
gross profits of $6.2 million, pretax profit before goodwill impairment declined
by 19% ($1.8  million)  due largely to a sales mix shift to lower margin Play TV
Legends sales,  which  accounted for $0.5 million of the decline,  increased air
freight  ($1.5 million of the  decline),  outsourcing  costs due to increases in
demand in Q3 and Q4 ($1.5  million of the decline),  and  increased  selling and
advertising  expenses ($3.5 million of the decline).  Other factors contributing
to the profit decline included a $0.6m charge against an underperforming license
guarantee and inventory  writedowns for certain  discontinued product lines. The
effective tax rate was 19.5% and due to a favorable tax  adjustment  recorded in
Q4 of 2003 resulted in a significant increase in tax expense compared to 2003 of
$3.2 million for the 4th quarter and $3.7 million for the full year.

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

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

Games and Youth Electronics Segment
Electronic Games                                  $ 80,640           $ 62,374
Youth Electronics                                   17,038             15,227
Other Electronic Toys                                3,490                  -
Manufacturing Services                               9,008             10,386
                                                  --------           --------
                                                  $110,176           $ 87,987
VGA Segment
Video Game Accessories                            $ 12,840           $ 14,294
Manufacturing Services                                 383              2,919
                                                  --------           --------
                                                  $ 13,223           $ 17,213

TOTAL                                             $123,399           $105,200
                                                  ========           ========


                                       24
<PAGE>

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

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

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

                                                  Year ended December 31,
                                                 ------------------------
(US$ in millions)                                 2004             2003
                                                 ------           ------
Advertising and co-op expenses                   $ 10.6           $ 7.6
Other selling and promotion expenses                2.2             1.8
Indirect salaries and bonus                         8.8             8.3
Research and development expenses                   4.2             3.9
Depreciation and amortization                       1.7             2.0
Provision (credit) for income taxes                 0.8            (2.9)
Impairment of goodwill                              3.5               -
Other general and administrative expenses           8.4             7.4


CAPITAL RESOURCES AND LIQUIDITY

         At  December  31,  2004 we had  $40.1  million  of cash and  investment
securities,  and net assets of $91.1  million as compared  to $42.0  million and
$89.2  million,  respectively,  at December 31, 2003.  Inventories  increased to
$26.8 million from $15.5 million at December 31, 2003,  reflecting current sales
growth rates and the reduction in expected  shipments to a large customer in the
4th quarter of 2004 of products that are largely expected to be reordered in the
first half by that same  customer.  Receivables  increased to $18.4 million from
$15.4  million at December  31,  2003 also due to higher  volume of sales in the
fourth quarter of 2004 compared to the same quarter in 2003.

         In addition to our previously  announced factory expansion,  we plan to
significantly  invest in new equipment for 2005 including major expansion of our
surface mount  technology  (SMT) capacity in compliance  with European lead free
soldering  regulations and  replacement of certain  factory  equipment with more
efficient  models. As a result,  total capital  expenditures for 2005 will be in
the range of $6 to $7 million.

         Current  liabilities  were  $18.9  million at  December  31,  2004,  an
increase  from $13.1  million at December 31, 2003.  This is primarily due to an
increase in payables for raw material for  production of  inventories  needed to
meet Q1 2005 demand.

         Cash  flows  from  operating  activities,  adjusted  for the  impact on
proceeds and purchases of trading securities, decreased from $10 million to $0.8
million  due  primarily  to increase in  inventory  levels at December  31, 2004
compared to December 31, 2003.

         Cash used in investing  activities  was $1.2 million  compared to a net
utilization  of $10 million in 2003.  This decrease was caused by $10 million in
investment securities in 2003 offset by an increase in capital purchases related
to the factory expansion.

         Cash used in financing  activities  was $1.9  million in 2004,  up from
$1.5  million  of cash  used in 2003.  This was the  result of $3.0  million  in
dividends  paid during the year offset by funds from stock options  exercised by
directors and employees.

         During  the  normal  course  of  business,   we  enter  into  licensing
agreements  and  commitments  with  various  third  parties for the use of their
inventor  concepts and  intellectual  property.  Certain of these agreements and
commitments  contain provisions for guaranteed or minimum royalty amounts during
the term of the contracts.  Additionally,  we lease certain offices,  warehouses
and equipment under various operating lease  arrangements.  In the normal course
of business,  leases that expire will be renewed or replaced. Under the terms of
a joint venture  agreement  with the local  government in Dongguan,  we are also
committed to pay fees


                                       25

<PAGE>

over the next 20 years,  as described  above under "Item 4.  Information  on the
Company - Description of Business - Manufacturing Facilities".

         As of December 31, 2004, we were  obligated  under  various  licensing,
joint  venture   agreements,   non-cancelable   operating   leases  and  capital
commitments requiring future minimum payments as follows:

<TABLE>
<CAPTION>
(US$ in thousands)
                                   Total         2005         2006         2007         2008         2009      Thereafter
                                  ---------------------------------------------------------------------------------------
<S>                               <C>          <C>           <C>          <C>          <C>          <C>         <C>
Operating leases                  $ 3,116      $   720       $ 601        $ 374        $ 318        $ 204       $   899
Licensing commitments               1,861        1,294         106          231           10          210            10
Joint venture fees                  3,317          125         129          129          137          142         2,655
Capital commitments                   571          571           -            -            -            -             -
                                  ---------------------------------------------------------------------------------------
Total minimum payments            $ 8,865      $ 2,710       $ 836        $ 734        $ 465        $ 556       $ 3,564
                                  =======================================================================================
</TABLE>

         We  had  no  derivative  instruments  or  off-balance  sheet  financing
activities  during fiscal years 2003 and 2004. We believe that our existing cash
and cash  equivalents  and cash  generated  from  operations  are  sufficient to
satisfy the current anticipated working capital needs of our core business.

         Management  believes that our existing  credit lines are  sufficient to
meet future short-term cash demands,  including  seasonal build up of inventory.
We fund our  operations  and liquidity  needs  primarily  through cash flow from
operations,  as well as utilizing  borrowings under secured and unsecured credit
facilities when needed. At December 31, 2004, we had general banking  facilities
including  overdraft and trade facilities totaling  $3,798,000.  During 2005, we
expect to continue to fund our working capital needs through  operations and the
revolving  credit  facility and we believe that the funds are  available to meet
our needs.  However,  unforeseen  circumstances such as severe softness in, or a
collapse  of, the retail  environment  may  result in a  significant  decline in
revenues  and  operating  results,  thereby  causing  us  to  exhaust  our  cash
resources.  If this  were  to  occur,  we may be  required  to seek  alternative
financing of working capital.

FISCAL 2003 COMPARED TO FISCAL 2002

         We  reported  net  income  for the year of $12.5  million  or $0.66 per
diluted  share  compared to $11.9 million or $.65 per diluted share for the same
period in 2002.  Sales for the year  decreased  by 15.6% to $105.2  million from
$124.6 million in 2002 due to the reduction in "one-off"  manufacturing business
generated by the  production of the "Ekara"  karaoke  product  manufactured  for
Takara in 2002,  reduced  sales in the United  Kingdom  which was  impacted by a
particularly  weak fourth  quarter retail  environment  and weaker than expected
sales of Barbie(TM) licensed products.

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

         Summary of sales achieved from each category of products:


                                       26

<PAGE>

<TABLE>
<CAPTION>

                                            YEAR ENDED DECEMBER 31,
                             -----------------------------------------------------------
                                               2003                            2002
                               % OF NET         NET            % OF NET         NET
PRODUCT LINES                SALES VALUE    SALES VALUE      SALES VALUE    SALES VALUE
----------------------------------------    -----------      -----------    -----------
(US$ in thousands)
<S>                                 <C>        <C>                  <C>        <C>
Games and Youth Electronics Segment
  Electronic Games                  59.3%      $  62,374            50.3%      $  62,684
  Youth Electronics                 14.5%         15,227            13.4%         16,744
  Manufacturing Services             9.8%         10,385            19.8%         24,634
                                   -----       ---------           -----       ---------
                                    83.6%         87,986            83.5%        104,062

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

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

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

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

         During  the  fourth   quarter  we  released  the  valuation   allowance
previously  provided  against  deferred taxes in the U.S. This,  combined with a
larger than expected tax  reimbursement  in China,  resulted in a net tax credit
for the year of $2.9 million.

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

                                                      Year ended December 31,
                                                      -----------------------
(US$ in millions)                                      2003           2002
                                                      ------         ------
Advertising and co-op expenses                        $ 7.6          $ 7.4
Other selling and promotion expenses                    1.8            2.4
Indirect salaries and bonus                             8.3           10.0
Research and development expenses                       3.9            4.1
Depreciation and amortization                           2.0            2.9
(Credit) provision for income taxes                    (2.9)           2.7


CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

BAD DEBT ALLOWANCE

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


                                       27
<PAGE>

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

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

         The movement of the doubtful  accounts  allowance by geographic  region
was as follows for 2004:
<TABLE>
<CAPTION>
                                         Balance at                                        Balance at
                                         beginning      Charged to       Utilization /       end of
(US$ in thousands)                        of year      income statement    write-offs         year
                                         ---------     ----------------  ------------      ----------
<S>                                        <C>              <C>             <C>              <C>
Allowance for Doubtful Accounts
-------------------------------
North America                              $ 208            $ 1             $  (83)          $ 126
Europe                                        43              5                (26)             22
                                           -----            ---             ------           -----
                                           $ 251            $ 6             $ (109)          $ 148
                                           =====            ===             ======           =====
</TABLE>

         Asia sales are primarily to third-party  distributors and manufacturing
services  customers.  These sales are generally secured by an irrevocable letter
of credit  resulting  in no  historical  bad debts  writeoffs  and  therefore no
allowance for bad debts has been made.  The North  American  utilization  of the
provision was for the write off of unpaid receivables  deemed  uncollectible for
several small customers. The increase to the European provision was made through
the third quarter and was based on historical  utilization rates as a percentage
of sales.  At the end of Q3, an  evaluation  of the U.K.  provision was made and
$26k of the  provision  was  released,  which  consists  of the all of the  2004
utilization of the European provision.

         On a consolidated  basis,  our five largest  customers,  Wal-mart (US),
Toys R Us (US), Target (US), Argos (UK) and Hasbro (Asia),  account for 55.3% of
2004 sales and 67% of total  receivables  at December 31, 2004.  If any of these
retailers  were to  experience  financial  difficulties,  it could  expose us to
significant  bad debt charges and related  declines in  earnings.  Additionally,
deterioration  in the retail  environment or the economy could adversely  impact
the trade  receivables  valuation  which would increase our bad debt  allowance,
thus decreasing our earnings.

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

(US$ in thousands)                       2004         2003        2002
                                        -----        -----       -----
Allowance for bad debts                 $ 148        $ 251       $ 315
As a percentage of net sales             0.1%         0.2%        0.3%


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

ALLOWANCE FOR SALES RETURNS

         A sales return  allowance is recorded for estimated  sales returns from
customers.  The allowance is based on historical  trends and  management's  best
assessment  of sales  returns  as a  percentage  of  overall  sales.  Management
believes  this to be a  critical  accounting  estimate  because  changes  in the
assumptions used to develop this estimate could materially  affect key financial
measures, such as sales, net income and receivables.

         The movement in the allowance for estimated sales returns by geographic
region was as follows for 2004:


                                       28

<PAGE>
<TABLE>
<CAPTION>

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

<S>                                              <C>             <C>               <C>                  <C>
Allowance for Estimated Sales Returns
-------------------------------------
North America                                    $   284         $   350           $   (333)            $ 301
Europe                                             1,106             795             (1,278)              623
                                                 -------         -------           --------             -----
                                                 $ 1,390         $ 1,145           $ (1,611)            $ 924
                                                 =======         =======           ========             =====
</TABLE>

         The  utilization  of the allowance was mostly  related to the return of
various defective product (net of warranty cost) and over stock of products from
customers  which  were  anticipated  at the end of 2003  and  during  2004.  The
Company's  U.S.  sales  terms  and  policies  do not  allow  for the  return  of
non-defective  products;  however  such a return may occur  infrequently  if the
Company can maintain  the same  economic  benefit by reselling  the product at a
similar margin.  In keeping with industry  practice,  the Company does allow for
the  return  of  non-defective  products  in the U.K.  In the U.K.,  the  return
allowance balance is adjusted monthly as a percentage of the prior six months of
sales; in the U.S., the return  allowance is adjusted  quarterly as a percentage
of the prior six months' sales.  The percentage is based on historical  data and
is reviewed quarterly. Defective product returns can be reliably estimated based
on  past  history  and  do  not  fluctuate   widely  from  quarter  to  quarter.
Non-defective   returns  are  much  more   difficult  to  estimate  due  to  the
unpredictability of consumer tastes.

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

(US$ in thousands)                     2004          2003          2002
                                      -----       -------       -------
Allowance for sales returns           $ 924       $ 1,390       $ 1,247
As a percentage of net sales           0.7%          1.3%          1.0%

         The 2004 decline in the  allowance  as a  percentage  of net sales from
2003 is the result of quality improvement efforts and a strategic  initiative in
the U.S.  to move our  customers  from  defective  return  programs  to warranty
allowance  programs.  Defective return programs typically grant return credit to
customers  for all products  returned to their stores as  defective.  A warranty
allowance is a flat,  negotiated allowance taken as a percentage of sales and is
typically  preferable  to defective  returns  because  liberal  customer  return
policies generate higher return rates than the negotiated  warranty  allowances.
Additionally,  sales to our  third-party  distributors,  which  have no right of
return,  have  increased  significantly  in  2004,  reducing  the  need  for the
allowance for returns.

         Management  believes that the current  allowance  for  estimated  sales
returns is adequate to provide for 2004  related  sales  returns  expected to be
received during 2005. If defective returns were to exceed historical  estimates,
or if we were to experience  large overstock  returns,  then we may have to take
higher than  anticipated  charges in order to adequately  increase the allowance
which  would  decrease  our  earnings.  For  example,  if in  2005,  we  were to
experience returns resulting from a recall or overstocked  product that caused a
25% increase from our estimated sales return provisions for 2004 that were based
on historical  return data, the impact would be roughly  $300,000.  Although our
estimates were primarily based on historical data, there is no way to anticipate
such an increase as recalls and poor sell through cannot be reliably predicted.

ALLOWANCE FOR SALES, MARKETING AND ADVERTISING EXPENSES

         We record an  allowance  for sales,  marketing  and  advertising  costs
agreed  with  certain  customers.  Management  believes  this  to be a  critical
accounting  estimate  because  changes in the  assumptions  used to develop this
estimate could  materially  affect key financial  measures,  such as selling and
administrative expenses, net income and short-term liabilities. These allowances
are based on specific dollar-value  programs or percentages of sales,  depending
on how the program is negotiated  with the individual  customer.  The largest of
these  allowances is for accrued sales expenses;  the movement of this allowance
by geographic region in 2004 was as follows:


                                       29
<PAGE>
<TABLE>
<CAPTION>

                                                Balance at                                            Balance at
                                                beginning       Charged to          Utilization /       end of
(US$ in thousands)                               of year       income statement      write-offs         year
                                                ----------     ----------------     ------------      ----------
<S>                                              <C>                <C>               <C>               <C>
Accrued Sales Expenses Allowance
North America                                    $ 2,428            $ 1,826           $ (2,866)         $ 1,388
Europe                                               465              1,008               (950)             523
                                                 -------            -------           --------          -------
                                                 $ 2,893            $ 2,834           $ (3,816)         $ 1,911
                                                 =======            =======           ========          =======
</TABLE>

         The charges or provisions to the North American and European allowances
were recorded monthly based on the cumulative total of the amounts granted under
individual   customer  sales  programs,   including  volume  rebates  and  co-op
advertising  credits.  The  utilization  of  the  provisions  related  to  sales
discounts  subsequently  provided and customer  claims made under  various sales
programs throughout the year. The utilization of the provision can be materially
impacted by  sell-through of our product at retail because poor sell through can
result in  increased  markdown  or  co-operative  advertising  expenditures.  We
request  that all  customers  submit  claims  for annual  sales and  advertising
programs by no later than February 28th of the subsequent  year but typically we
receive  significant claims through June 30th of the subsequent year. At the end
of the third and fourth quarter,  management  assesses the remaining  provisions
from the prior year and  releases  any  provisions  that we believe  will not be
utilized.  At the end of the third  quarter  and  fourth  quarters  of 2004,  we
released $174,000 and $313,000  respectively of prior year accrued balances into
the income statement that we believe will not be utilized or claimed.

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

(US$ in thousands)                      2004        2003        2002
                                      -------     -------      -------

Allowance for sales expenses          $ 1,911     $ 2,893      $ 3,591
As a percentage of net sales              1.5%        2.8%         2.9%

         The decrease in the  allowances  for sales  expenses as a percentage of
total sales is the result of an effort by management to replace  allowances that
were based on a certain  percentage  of sales with  allowance  that are based on
specific  advertising and promotional  targets agreed to at the beginning of the
year and applied to Radica products.

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

WARRANTY

         We record a warranty  allowance for costs related to defective  product
sold to  customers.  Management  believes  warranty  allowance  to be a critical
accounting  estimate  because  changes in the  assumptions  used to develop this
estimate could materially affect key financial  measures,  such as cost of sales
and net income.  Additionally,  the warranty  allowance  is based on  historical
trends and management's  best assessment of what the defective return percentage
will be for a given  product.  Projecting  defective  return  percentages on new
products can lead to deviations between recorded warranty  allowances and actual
defective returns.  Significant negative deviations could have a material impact
on our financial  results,  if large amounts of finished  goods were found to be
defective.


                                       30
<PAGE>

         The movement of this allowance by geographic region is as follows:
<TABLE>
<CAPTION>
                            Balance at                                             Balance at
                            beginning        Charged to          Utilization /        end of
(US$ in thousands)           of year        income statement      write-offs          year
                            ----------      ----------------     -----------       ----------
Warranty Allowance
------------------

<S>                           <C>               <C>               <C>                  <C>
North America                 $   841           $ 1,399           $ (1,469)            $ 771
Europe                            199               396               (405)              190
Other countries                     -               109                  -               109
                              -------           -------           --------           -------
                              $ 1,040           $ 1,904           $ (1,874)          $ 1,070
                              =======           =======           ========           =======
</TABLE>

         The following table summarizes our warranty allowance at December 31:

(US$ in thousands)                      2004        2003        2002
                                      -------     -------      -------

Warranty allowance                      1,070     $ 1,040      $ 1,040
As a percentage of net sales             0.9%        1.0%         0.8%

         Warranty  allowance  as  a  percentage  of  total  sales  has  remained
consistent over the past three years. Despite our continued efforts at improving
the quality of our products,  there can be no assurance that we will continue to
see the same defective  product  rates.  New product  introductions,  changes to
existing   products   or  changes  in   material   vendors   and   manufacturing
subcontractors  could all have a  negative  impact on our  defective  rates that
could cause us to take  additional  charges to our  allowance.  For example,  an
increase  in  defective  returns and  allowances  of 1% of 2004 sales would have
decreased pretax earnings by roughly $1.2 million.

INVENTORIES

         We  value  our  inventory  at the  lower of cost or  market.  Inventory
write-downs are recorded for slow-moving and obsolete inventory. Management uses
estimates to record these write-downs. Management believes this to be a critical
accounting  estimate  because  changes in the  assumptions  used to develop this
estimate could materially affect key financial measures,  such as cost of sales,
net income and inventory.  Slow-moving and obsolete inventories are written-down
to their estimated  market value depending on the length of time the product has
been in inventory and the forecast  sales for the product over the course of the
following  year.  Changes  in public  and  consumer  preferences  and demand for
product or changes in the buying patterns and inventory  management of customers
could adversely impact the level of inventory provision.

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

(US$ in thousands)                      2004        2003        2002
                                      -------     -------      -------

Allowance for obsolescence            $ 1,353     $ 2,228      $ 4,193
As a percentage of total inventory       4.8%       12.6%        17.1%

         During  2002  and  2003,  we  took   significant   provisions   against
slow-moving,  commodity-type video game accessory products in the U.S., U.K. and
Asia,  most of which have been sold.  This  resulted in higher  allowances  as a
percentage of total inventory than we experienced in 2004.

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

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


                                       31
<PAGE>

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

IMPAIRMENT OF GOODWILL

         In accordance  with SFAS No. 142,  goodwill and  intangible  assets not
subject to amortization  are tested annually for impairment,  and are tested for
impairment more frequently if events and  circumstances  indicate that the asset
might be impaired.  At the end of the fiscal year ended  December  31, 2004,  we
completed testing of the goodwill related to Radica's  Gamester(R) or video game
accessory  (VGA) segment.  In determining  the fair value of the VGA segment,  a
discounted  cash flow  analysis was  performed in which the net present value of
cash flows were calculated  based on a five-year  projected  profit and loss and
working capital requirements.  The estimated net present value of the cash flows
was then added to an estimated  residual  value that was  calculated by taking a
multiple  of  projected  earnings  before  interest,   taxes,  depreciation  and
amortization at the year end of year five to arrive at the fair value of the VGA
segment. Based on a comparison of the estimated fair value of the VGA segment to
the VGA's carrying value,  including goodwill, a second step was performed which
compared the implied  fair value of the  reporting  unit's  goodwill to the book
value of goodwill.  In determining  the implied fair value of the reporting unit
goodwill,  the fair  values  of the  tangible  net  assets  and  recognized  and
unrecognized intangible assets are deducted from the fair value of the reporting
unit.  If the implied  fair value of reporting  unit  goodwill is lower than its
carrying  amount,  goodwill is  determined to be impaired and is written down to
its implied fair value. After performing this annual  evaluation,  we recognized
an  impairment  charge  related to goodwill  of $3.5  million for the year ended
December 31, 2004.

         Despite  the  small  profit  for the VGA  segment  in 2004  before  the
goodwill impairment adjustment, the reason for the decline in the estimated fair
value of the VGA's  segment from the previous  year was  primarily the result of
lower sales  forecasts  for fiscal years 2005 through  2009.  The  adjustment to
projected  annual  sales from prior year was based on our  current  strategy  of
concentrating  on the  innovative,  higher  margin  sector of the  market.  This
improved the projected  gross  margins and operating  margins as a percentage of
sales in our model,  but decreased the total operating margin and cash flows. We
believe that this new model portrays a more accurate  picture of our future cash
flows and that our new  strategy  limits the large  closeout  returns  and price
pressures that made the VGA segment unprofitable from 1999 through 2003.

DEFERRED TAX ASSETS

         We record  valuation  allowances  against our deferred  tax assets.  In
determining  the  allowance,  management  considers all  available  evidence for
certain tax credit,  net  operating  loss and capital  loss  carryforwards.  The
evidence used in assessing the need for valuation allowances includes the use of
business  planning,  projections of future taxable income and corporate-wide tax
planning.  Based primarily in our U.K. subsidiary's failure to generate profits,
we recorded  our  allowance  against the entire U.K.  deferred tax asset of $4.5
million.  Differences in actual results from projections used in determining the
valuation allowances could result in future adjustments to the allowance.

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

RECENTLY ISSUED ACCOUNTING STANDARDS

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

         In  November  2004,  the  FASB  issued  SFAS  No.  153,   Exchanges  of
Nonmonetary  Assets -- An  Amendment  of APB  Opinion No. 29 ("SFAS  153").  The
provisions of this  statement are  effective  for non monetary  asset  exchanges
occurring  in fiscal  periods  beginning  after June 15,  2005.  This  statement
eliminates  the  exception  to fair value for  exchanges  of similar  productive
assets and replaces it with a general  exception for exchange  transactions that
do not have commercial  substance -- that is, transactions that are not expected
to result in significant  changes in the cash flows of the reporting  entity. We
do not believe that the adoption of SFAS 153 will have a  significant  effect on
its financial statements.


                                       32
<PAGE>

         In  December  2004,  the FASB  issued  SFAS  No.  123  (revised  2004),
Share-Based  Payment. The new pronouncement  replaces the existing  requirements
under  SFAS No.  123 and APB 25.  According  to SFAS No.  123(R),  all  forms of
share-based payments to employees, including employee stock options and employee
stock  purchase  plans,  would  be  treated  the  same  as  any  other  form  of
compensation  by  recognizing  the related cost in the statement of  operations.
This   pronouncement   eliminates   the  ability  to  account  for   stock-based
compensation transactions using APB No. 25 and generally would require that such
transactions be accounted for using a fair-value based method.  For the Company,
SFAS No. 123(R) is effective for awards and stock options  granted,  modified or
settled in cash in  interim or annual  periods  beginning  after June 15,  2005,
which for the Company will be its third quarter ending  September 30, 2005. SFAS
No. 123(R)  provides  transition  alternatives  for public  companies to restate
prior interim  periods or prior years.  We are in the process of evaluating  the
impact of this standard on its financial  statements  and will adopt SFAS 123(R)
on July 1, 2005.

ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

         The following table sets forth the directors and executive  officers of
the Company in fiscal 2004, as updated to reflect changes in January 2005.

<TABLE>
<CAPTION>
                                Term
Name                           Expires    Residency         Position
----                           -------    ---------         --------
<S>                             <C>         <C>             <C>
Jon N. Bengtson (3)             2005        USA             Chairman of the Board and Director

Timothy R. Busch (1)(3)         2005        USA             Director

Albert J. Crosson (1)(2)        2005        USA             Director

Theodore J. Eischeid            2005        USA             President, Chief Operating Officer and Director

Patrick S. Feely (3)            2005        USA             Chief Executive Officer and Director

David C.W. Howell               2005        Hong Kong       President Asia Operations, Chief Financial Officer and Director

James J. O'Toole (2)            2005        USA             Director

Peter L. Thigpen (1)(2)         2005        USA             Director

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

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

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

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

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

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

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

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

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

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

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


                                       33
<PAGE>
<TABLE>
<CAPTION>
<S>                             <C>         <C>             <C>
Rick C.K. Chu                   N/A         Hong Kong       Director of Customer Service

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

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

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

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

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

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

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

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

         Timothy R. Busch was  appointed  a director of the Company in May 2003.
Mr. Busch is CEO and founder of The Busch Firm.  Founded in 1979, The Busch Firm
specializes  in  estate  planning,   asset  protection,   tax,   corporate  law,
partnership and real estate matters.  He is also founder of Pacific  Hospitality
Group, an Irvine-based  hotel firm that constructs and operates hotels; St. Anne
School of Laguna Niguel,  California, a private Christian elementary school; and
the new private JSerra High School.  Mr. Busch serves on a number of private and
public  boards in various  industries,  including  Advanced  Materials,  Inc. of
Rancho  Dominguez,  California.  Mr. Busch received his Juris Doctor degree from
the Wayne State University of Law, and his B.B.A.,  summa cum laude, degree from
Western Michigan University. He is an attorney licensed in Michigan, California,
Texas,  and Washington,  D.C., and a CPA licensed in Michigan,  California,  and
Nevada.  He is a member  of the  Orange  County  and Palm  Springs  Chapters  of
Legatus, an organization of Catholic CEOs.

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

         Theodore  J.  Eischeid  was  appointed  President  and Chief  Operating
Officer in January  2005.  He has been a director of the Company  since May 2003
and served as Chairman of the Audit  Committee until January 2005. Most recently
Mr. Eischeid was Vice President - Global CDMA Partnership and Product Management
for  Motorola,  Inc., a global  leader in  wireless,  automotive  and  broadband
communications.  Prior to that, he was Senior Vice President and Chief Financial
Officer of K12 Inc., a developer of online curriculum for grades K-12;  formerly
President and CEO of Educational  Insights,  Inc., a publicly traded  developer,
manufacturer and marketer of educational  products;  and prior to that served as
President of Revell-Monogram,  Inc., an international


                                       34
<PAGE>

manufacturer  and  marketer of plastic  hobby kits,  where he lead a  successful
initial public  offering in 1991 and continued as President when the company was
acquired by Hallmark Inc. in 1994. Mr.  Eischeid also served as Chief  Financial
Officer of Arvey  Corporation,  a  manufacturer  and retailer of paper and paper
products,  and began his career  with  Arthur  Andersen & Co. He is a  Certified
Public  Accountant,  a member of the Illinois Bar and a past Chairman of the Toy
Manufacturers  of America.  Mr. Eischeid  received his Juris Doctor,  cum laude,
degree  from the  Loyola  University  of  Chicago  School  of Law,  his MBA from
Northwestern  University's  Kellogg  Graduate  School of Management,  and his BS
degree from Iowa State University.

         Patrick S. Feely has been Chief Executive  Officer since April 1999. He
was Chief  Operating  Officer and  President  of the  Company  from July 1997 to
January  2005 and has been a director of the Company  since July 1996.  Prior to
joining Radica, he was President and CEO of Spectrum HoloByte, Inc. from 1993 to
1995;  President  of Bandai  America,  Inc.  from 1991 to 1992;  and founder and
President of Toy Soldiers,  Inc. (which merged with Bandai America) from 1988 to
1991.  Mr.  Feely was an executive at Tonka,  Inc.  from 1982 to 1988,  where he
served as President of the Tonka Products  Division and a Director of the parent
company.  At Tonka,  in addition to his other  responsibilities,  he managed the
launch of the Sega video game  system  into the U.S.  market.  Mr.  Feely was an
executive  at  Mattel  Toys  from  1977 to 1982  and  began  his  career  at RCA
Corporation  in  1970.  Mr.  Feely  is  also  an  advisor  to the  Toy  Industry
Association  Board of Directors,  where he was Chairman from 2000 to 2002. He is
also a director of the Board of Trustees of the Toy Industry Foundation.  He has
a BA from Duke University and an MBA from the University of Michigan.

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

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

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

         Jeanne M. Olson was promoted to President North American  Operations in
January 2004. She previously  held the positions of Executive Vice President and
General  Manager from 2002 to 2003,  and Senior Vice  President,  Marketing from
2000 to  2002.  Prior to  joining  the  Company  in 2000,  she was  Senior  Vice
President of Sales & Marketing at Lyrick Studios,  a  privately-held  children's
entertainment  company.  Ms.  Olson has over 15 years of  experience  in the toy
industry,  having held executive  marketing and  management  positions at Mattel
Toys, Hasbro Inc., and Tonka Toys. She started her career in marketing  research
with The Pillsbury Company and with Custom Research Inc.

         Denis Horton has been Managing Director of Radica U.K. Ltd. since April
2003 and  President  Radica  Europe since  January 2005. He has over 18 years of
experience  in the  toy  industry,  previously  having  held  Managing  Director
positions at Mattel U.K.,  Fisher Price and Tonka Europe.  Prior to entering the
toy  industry,  Mr.  Horton  worked  in the food  industry  and held  management
positions at United Biscuits and H J Heinz Co., Ltd. He received his BA (Honors)
degree in Business Studies from Nottingham Trent University,  and is a Fellow of
the Chartered Institute of Marketing in the U.K.

         James M. Romaine  joined  Radica USA in  September  1999 as Senior Vice
President  of Sales for Radica USA. He has been an executive in the Toy Industry
for over 32  years.  He spent  the  1980's  and into the  early  90's at  Parker
Brothers  where he was Senior  Vice  President  of Sales.  Mr.  Romaine  was the
President of Play Tech Inc.,  a VTech  company,  for seven years before  joining
Radica USA. His most recent  educational  credentials  include the completion of
the  Executive  Program for General  Managers at the  University  of  Michigan's
School of Business.

         Laurence  M.  Scott,  Jr. was  appointed  Senior  Vice  President  Asia
Operations in April 2002. Previously he was Managing Director - Asian Operations
for iLogistix  Singapore Supply Chain Management Pte. Limited.  Prior to that he
was Managing


                                       35
<PAGE>

Director for MGA Entertainment (Hong Kong) Limited (1998 - 2000); Vice President
-  Operations  for Atari  Corporation  (1992 - 1996) and then Vice  President  -
Worldwide  Materials for JTS  Corporation  (1996 - 1997) after Atari merged with
JTS; and  President  and Managing  Director for Radofin  Electronics  (Far East)
Limited.  (1975 - 1991).  Mr.  Scott  has over 25 years  experience  with  Asian
Manufacturing  Operations. He has a BSc. and MBA from the University of Southern
California.

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

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

         Robert E. Esterbrook joined Radica U.K. as Finance Director and Company
Secretary during July  2001,becoming  Vice President U.K. Finance and Operations
in 2004.  He has held  executive  positions in the U.K. toy industry for over 25
years. He has previously worked at Tonka Toys,  Playmates Toys and Ideal Toys as
Finance  Director and was involved with the  establishment of Mattel Toys in the
U.K. in 1980. He re-joined Invicta Plastics,  Ltd, originators of the board game
Mastermind, as Managing Director from 1989 to 1991. He is a fellow member of the
Chartered  Institute of Management  Accountants and completed a program in legal
studies at Demontfort University.

         Paul  Fogarty  commenced  working as Sales  Director for Radica U.K. in
January 2004 and was promoted to Vice  President of U.K.  Sales in January 2005.
He has over 10 years  experience  in the toy  industry  previously  having  held
senior  management  positions for Mattel U.K., Tyco Toys U.K. and JAKKS Pacific.
Prior to this Mr.  Fogarty worked in the paper industry for Scott Paper Ltd. Mr.
Fogarty,  who is  originally  from New  Zealand,  moved to England  in 1989.  He
received his Bachelor of Commerce  degree in Marketing  from the  University  of
Auckland.

         Louis S.W. Kwok has been the General Manager,  Factory from April 2004.
Prior to that, he was the  Materials and Logistics  Director of the Company from
March 2002 to March 2003 and the Plant Administration Director from January 2001
to  February  2002.  He has  over 16 years  experience  in  manufacturing  plant
operations. Major companies he has worked with are Fymetics (Hong Kong) Limited,
Management, Investment and Technology Company Limited, and Sunciti Manufacturers
Limited.  He  has  a  Higher  Diploma  in  Mechanical  Engineering,  Diploma  in
Mechanical  Engineering  (Manufacturing  Technology),  and  National  Diploma in
Mechanical Engineering.

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

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

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

         Martin  Frain  joined  Radica U.K. as  Marketing  Director in May 2004.
Prior to that he was  marketing  manager at Hasbro  U.K.,  where he worked  from
1999.  He  entered  the toy  industry  in 1993 when he  started a games and toys
distribution business in


                                       36
<PAGE>

Southern Africa. Prior to that he worked as a journalist on a daily newspaper in
Johannesburg.  He is currently completing his Masters of Business Administration
at the University of Bath.

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

         Donny K.W. So joined the Company as Director of Project  Management  in
September  2002.  Before joining the Company,  he held  management  positions in
product  development at VTech HK for 4 years.  Mr. So has 17 years experience in
project management and product development in major appliances,  electronics and
toys industries.  He obtained his Six Sigma experience while working for General
Electric  Company,  and led the development of Total Cycle Time management skill
at VTech. He has a Postgraduate  Certificate in Business Administration from the
Open  University  of Hong Kong,  a BA in  Industrial  Design  from the Hong Kong
Polytechnic  University  and a Diploma  in  Product  Design  from LWL  Technical
Institute.

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

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

COMPENSATION OF OFFICERS AND DIRECTORS

COMPENSATION

         In  fiscal  2004,  the  aggregate  amount of  compensation  paid to all
executive   officers  and   directors  for  services  in  all   capacities   was
approximately  $3.2 million.  In addition,  bonus  payments of $0.2 million were
accrued in 2004 for 2004 performance and are expected to be paid in April 2005.

         In fiscal 2004,  each outside (i.e.  non-employee  and  non-affiliated)
director  of the  Company  received  compensation  according  to  the  following
schedule:

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

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

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

         Upon each annual  re-election  to the Board of Directors,  each outside
director  receives  stock  options to purchase  2,500  shares per quarter  (i.e.
10,000  shares per annum) of Common  Stock of the Company at an  exercise  price
equal to the then  current  market  price of the  Company's  Common  Stock.  The
average  exercise  price  was  $9.02  per  share  in  2004.  These  options  are
exercisable after one year from the date of grant.

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


                                       37
<PAGE>

EMPLOYMENT AGREEMENTS

         Messrs. Feely, Eischeid,  Howell, Bengtson, Horton and Ms. Jeanne Olson
have each entered into individual employment agreements with the Company.  After
giving effect to the latest  renewals,  the  employment  agreements  are renewed
automatically on an annual basis unless 90 days notice is given by either party,
for periods of two years each,  from July 2003 for Mr. Feely,  from January 2005
for Mr. Eischeid,  and from December 2002 for Messrs.  Howell,  Bengtson and Ms.
Olson. The employment  agreement for Mr. Horton from April 2003 continues unless
12 months  notice  is given by the  Company  or 6 months  notice is given by the
employee.  Each  employment  agreement is  terminable  by the Company for cause.
Under their agreements Messrs. Feely, Eischeid, Howell, Bengtson, Horton and Ms.
Olson shall each receive  minimum  annual base  salaries of $365,000,  $315,000,
$250,000, $43,200, $238,500 and $275,000 (the amount for Mr. Horton is stated in
U.K. currency as (pound)132,500), respectively. The agreement with Mr. Bengtson,
in operation since December 1995, is for part-time services.  Under the terms of
their employment agreements Messrs. Feely, Eischeid,  Howell,  Bengtson,  Horton
and Ms. Olson are  eligible to  participate  in the  Company's  bonus plan.  The
employment agreements for Messrs. Feely, Eischeid,  Howell, Horton and Ms. Olson
contain certain  restrictions on their  involvement in businesses other than the
Company during the course of their employment and certain provisions  applicable
after termination of employment which prohibit the solicitation of customers and
other  employees  of  the  Company,  employment  or  engagement  with  competing
entities,  or the  disclosure of  proprietary  information  of the Company.  The
Company  provides  residences  for Mr. Howell and Mr. Scott in Hong Kong. In the
agreement  for Mr.  Feely,  he was granted  300,000 stock options of the Company
common stock at the then market price of $3.625 per share,  another 60,000 stock
options at the then market  price of $14.125  per share in  November  1998 and a
further  60,000 stock options at the then market price of $3.00 per share in May
2000,  subject to the terms and  conditions  of the agreement and the 1994 Stock
Option Plan. Additionally, in May 2001, Mr. Feely would have been granted 60,000
stock options at the then market price provided he achieved  certain  conditions
as stated in the agreements;  however, these were not achieved. In the agreement
for Mr.  Eischeid,  he was granted  60,000 stock  options of the Company  common
stock at the then market price of $7.90 per share and 25,000  restricted  shares
at $7.91 per share in February  2005 subject to the terms and  conditions of the
agreement and the Omnibus Plan, and provided certain  conditions are achieved as
stated in the agreement. In the agreements for Mr. Howell, he was granted 25,000
stock options per annum of the Company  common stock at the then market price of
$3.00 and $2.90 per share in May 2000 and 2001  respectively.  In June 2002, Mr.
Howell was granted 25,000 stock options at the then market price, subject to the
terms and  conditions  of the  agreement  and the 1994 Stock Option Plan. In the
agreement for Ms. Olson,  she had been granted 60,000 stock options upon initial
employment and was granted an additional 40,000 stock options at the then market
price of $3.45 per share in January 2002 subject to the terms and  conditions of
the agreement  and the 1994 Stock Option Plan. In the agreement for Mr.  Horton,
he had been granted 60,000 stock options of the Company common stock at the then
market price of $4.43 in March 2003 upon initial employment subject to the terms
and  conditions of the  agreement and the 1994 Stock Option Plan.  Additionally,
Messrs. Feely, Howell and Ms. Olson were granted 60,000, 25,000 and 25,000 stock
options at the then market price,  respectively in February 2001. Mr. Howell was
granted  3,750 stock options in March 2002 for  achieving  certain  requirements
under an incentive plan. Based upon 2002 performance the Company's  Compensation
Committee  voted in March 2003 to accelerate  the vesting of 60,000  options for
Mr. Feely and 25,000 options for Ms. Olson and Mr. Howell.  The  acceleration of
the stock  options was approved in  accordance  with the  original  terms of the
contract and these options  would become vested in five years  regardless of the
achievement  of the  performance  goals and therefore the  acceleration  did not
result in a new  measurement  of the stock options for accounting  purposes.  In
March 2003,  Mr. Feely was granted  120,000  options at the then market price of
$4.43 per the  Company's  prior  practices.  In  September  2004,  Ms. Olson was
granted  30,000  options  at the  then  market  price  of  $8.24  for  long-term
compensation equalization.

OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES

         The Company's 1994 Stock Option Plan provided for the granting of stock
options to directors,  officers and  employees of the Company.  The Stock Option
Plan is  administered by the  Compensation  Committee of the Board of Directors.
The total number of shares of the  Company's  Common Stock that may be purchased
pursuant to stock  options  under the Stock  Option Plan shall not exceed in the
aggregate 3.7 million  shares.  The Stock Option Plan terminated in October 2004
but continues in effect for outstanding options under such plan.

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

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


                                       38
<PAGE>

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

         In fiscal year 2004, an aggregate of 137,000 options  (exclusive of the
outside  directors'  options and net of stock  options that were both issued and
forfeited in the year) were granted to directors,  officers and other  employees
under the Stock Option Plan to purchase the Company's  shares at exercise prices
ranging from $7.15 to $9.11 per share.

         As a result of the  foregoing,  at the end of fiscal  year 2004,  after
giving effect to all prior exercises and forfeitures of options, an aggregate of
1,317,886 options (exclusive of the outside directors' options) were outstanding
at exercise prices ranging from $1.09 to $19.63 per share,  and of such amount a
total of 967,750  options were held by directors and  executive  officers of the
Company as a group.  Also, an aggregate of 265,000  outside  director's  options
were  outstanding  at  exercise  prices  ranging  from $2.0 to $12.63 per share.
During 2004, a total of 510,636 shares were issued upon the exercise of options,
at exercise prices ranging from $1.09 to $6.78 per share. Prior to 2004, a total
of  1,636,042  shares had been issued  upon the  exercise of options at exercise
prices ranging from $0.57 to $11.0 per share.

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

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

ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

CONTROL OF REGISTRANT

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

(b)  The following  table is based on  information  available to the Company and
     identifies  the owners of more than five percent  (5%) of the  registrant's
     common stock (based on their filings of Forms 13D or 13G) and the amount of
     common stock  beneficially  owned by the officers and directors as a group,
     as of January 31, 2005.  The Company must rely on  information  provided by
     individual shareholders and therefore cannot verify its accuracy:

<TABLE>
<CAPTION>
                         Identity of
     Title of Class      Person or Group                        Amount Owned       Percent of Class
     --------------      ---------------                        ------------       ----------------
     <S>                 <C>                                       <C>                   <C>
     Common stock        Dito Devcar Corporation, et al. (1)       8,728,888             46.4%
     Common stock        RAD Partners 1999 LLC, et al. (2)         1,093,700              5.8%
     Common stock        Royce & Associates, LLC (3)                 972,250              5.2%
     Common stock        Officers & Directors as a Group           2,587,511             13.7%

<FN>

     (1)  Includes  shares  of  Common  Stock  owned  by the  following  related
          persons:  Dito  Devcar  Corporation,   DRP  Charitable  Unitrust,  TMP
          Charitable  Unitrust,  Dito Devcar,  LP, Dito Caree, LP, Pickup Family
          Trust, Pickup Charitable  Unitrust II, TD Investments,  LLC, Plus Four
          Equity Partners LP, Dito Devcar Foundation and Richard H. Pickup.  The
          ownership  percentages of this group as reported in the Company's 2003
          and 2002 Forms 20-F were 46.8% and 44.1%, respectively.

     (2)  Includes  shares  of  Common  Stock  owned  by the  following  related
          persons:  RAD Partners 1999 LLC,  Lenawee  Trust,  92653 Trust,  Busch
          Family  Foundation  and  Timothy R.  Busch,  who is a director  of the
          Company.  The ownership  percentages  of this group as reported in the
          Company's 2003 and 2002 Forms 20-F were 8.9% and 9.1%, respectively.

     (3)  This shareholder reported ownership in excess of 5% of the outstanding
          Common Stock for the first time this year.
</FN>
</TABLE>


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

(d)  As of January 31, 2005, the Company had approximately 100 record holders of
     its Common Stock, and over 90% of such stock was held by U.S. holders.


                                       39

<PAGE>

INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS

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

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

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

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

ITEM 8.  FINANCIAL INFORMATION

FINANCIAL STATEMENTS

         The Company's Consolidated Financial Statements are included herein.

ITEM 9.  THE OFFER AND LISTING

         The  Company's  common  stock is traded on the Nasdaq  National  Market
under the symbol RADA.  The Company's  common stock is not traded on any foreign
trading  market.  The following table lists the high and low closing stock price
for each quarter of fiscal 2004 and fiscal 2003:

                       Fiscal year ended           Fiscal year ended
                       December 31, 2004           December 31, 2003
                      -------------------         ------------------
                      High          Low           High         Low
                      ----          ----          ----         ----
First Quarter         11.64         6.88          6.54         4.20
Second Quarter         9.86         8.00          8.00         5.54
Third Quarter         10.35         8.24          8.17         6.88
Fourth Quarter        10.92         7.52          7.95         6.30

         The annual high and low closing  stock  prices in fiscal 2002 were $4.6
and $3.4;  in fiscal  2001 were $4.9 and $1.625 and in fiscal  2000 were $10 and
$1.625.

         The monthly high and low closing  stock prices over the last six months
in fiscal 2004 were $9.1 and $8.24 in July 2004; $9.49 and $8.28 in August 2004;
$10.35 and $8.75 in September  2004;  $10.92 and $9 in October 2004;  $10.55 and
$8.93 in November 2004; and $9.7 and $7.52 in December 2004.

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


                                       40
<PAGE>

         On January 5, 2004, the Company announced a quarterly dividend program.
In fiscal 2004, the Company paid $3.0 million in dividends to its shareholders.

         On January 4, 2005, our Board of Directors declared a dividend of $.045
per share payable on January 31, 2005, to  shareholders  of record as of January
20, 2005.  The Board has also approved an initial target  quarterly  dividend of
$.045 per share for  subsequent  quarters;  however,  the actual  amount of each
quarterly  dividend,  as well as each declaration  date, record date and payment
date, is subject to the discretion of the Board,  and the target  dividend level
may be adjusted during the year at the discretion of the Board.  The factors the
Board is expected to consider in determining the actual amount of each quarterly
dividend will include our financial  performance and on-going capital needs, our
ability to declare and pay dividends in light of other  financial  requirements,
and other factors deemed relevant.

ITEM 10.  ADDITIONAL INFORMATION

MEMORANDUM AND BY-LAWS

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

EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS

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

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

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

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

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

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

TAXATION

         The  following  discussion  is a summary  of  certain  anticipated  tax
consequences  of the ownership of Common Stock under Bermuda tax laws, Hong Kong
income tax laws,  Macau income tax laws,  and United States  Federal  income tax
laws. The


                                       41
<PAGE>

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

BERMUDA TAXATION

         The Company is incorporated in Bermuda.  At date of this filing,  there
is no Bermuda income, corporation or profits tax, withholding tax, capital gains
tax,   capital   transfer  tax,  estate  duty  or  inheritance  tax  payable  by
shareholders  of the  Company  other than  shareholders  ordinarily  resident in
Bermuda. The Company is not subject to stamp or other similar duty on the issue,
transfer or redemption of its shares of Common Stock.  Furthermore,  the Company
has  received  from the  Minister  of  Finance  of  Bermuda  under The  Exempted
Undertakings  Tax  Protection  Act 1966,  an assurance  that,  in the event that
Bermuda enacts any  legislation  imposing any tax computed on profits or income,
or computed  on any  capital  assets,  gain or  appreciation,  or any tax in the
nature of estate duty or  inheritance  tax, the imposition of such tax shall not
be  applicable  to the  Company  or any of  its  operations,  or to the  shares,
debentures  or other  obligations  of the Company,  until March 28,  2016.  This
assurance does not,  however,  prevent the imposition of any such tax or duty on
such  persons as are  ordinarily  resident in Bermuda and holding  such  shares,
debentures or  obligations of the Company or on land in Bermuda leased or let to
the Company.

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

HONG KONG TAXATION

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

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

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

MACAU TAXATION

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

UNITED STATES FEDERAL INCOME TAXATION

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

         A "U.S.  Holder" is a  beneficial  owner of Common Stock that is a U.S.
citizen or resident, a domestic  corporation,  an estate subject to U.S. federal
income  taxation on a net income basis,  or a trust if a court within the United
States is able to exercise


                                       42
<PAGE>

primary  supervision over the administration of the trust and one or more United
States  persons have the authority to control all  substantial  decisions of the
trust.

         Dividends. Under the United States federal income tax laws, and subject
to the passive foreign  investment  company,  or PFIC,  foreign personal holding
company,  or FPHC and controlled  foreign  corporation,  or CFC rules  discussed
below, if you are a U.S. holder,  the gross amount of any dividend we pay out of
our current or accumulated earnings and profits (as determined for United States
federal  income  tax  purposes)  is  subject  to United  States  federal  income
taxation.  If you  are a  noncorporate  U.S.  holder,  dividends  paid to you in
taxable  years  beginning  before  January  1,  2009 that  constitute  qualified
dividend  income  will be taxable to you at a maximum  tax rate of 15%  provided
that  you hold the  shares  for more  than 60 days  during  the  121-day  period
beginning  60 days before the  ex-dividend  date and meet other  holding  period
requirements.  Dividends  we pay with  respect to the shares  generally  will be
qualified  dividend  income  provided  that,  in the year that you  receive  the
dividend, the shares are readily tradable on an established securities market in
the United States.

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

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

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

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

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

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

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

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

               Under these rules:

         o     the gain or excess  distribution  will be allocated  ratably over
               your holding period for the shares,
         o     the amount  allocated  to the taxable  year in which you realized
               the gain or excess distribution will be taxed as ordinary income,
         o     the amount allocated to each prior year, with certain exceptions,
               will be taxed at the  highest  tax rate in effect  for that year,
               and
         o     the interest charge generally  applicable to underpayments of tax
               will be imposed in respect of the tax  attributable  to each such
               year.


                                       43
<PAGE>

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

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

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

         Foreign  Personal  Holding Company Rules. We believe that we were not a
foreign  personal  holding company for United States tax purposes in 2004 on the
basis  that  last  year we did not meet the  asset  test.  In  general,  the tax
consequences to equity holders of a foreign personal holding company include the
following:

         o     if you are a U.S. holder,  you will be taxed currently on certain
               categories of our undistributed passive income,
         o     a U.S. person who acquires shares from a decedent will not have a
               stepped-up basis in the shares but will have a tax basis equal to
               the  lower  of  the  fair  market  value  of  the  shares  or the
               decedent's basis in the shares, and
         o     if you are a U.S. holder,  any dividends that we pay in a taxable
               year  that we are a  foreign  personal  holding  company  will be
               taxable to you at rates applicable to ordinary income rather than
               the special rates applicable to qualified dividend income.

         The American Job Creation Act of 2004 has repealed the foreign personal
holding  company rules for tax years  beginning  after December 31, 2004 and the
years of U.S.  shareholders  whose tax year ends with or within  the  FHPC's tax
year.

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

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

         o     dividend  payments  or other  taxable  distributions  made to you
               within the United States, and
         o     the payment of  proceeds to you from the sale of shares  effected
               at a United States office of a broker.

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

         o     fails to provide an accurate taxpayer identification number,
         o     is notified by the Internal  Revenue Service that you have failed
               to report all interest and dividends required to be shown on your
               federal income tax returns, or
         o     in  certain  circumstances,   fails  to  comply  with  applicable
               certification requirements.

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

         o     dividend  payments made to you outside the United States by us or
               another non-United States payor and
         o     other dividend  payments and the payment of the proceeds from the
               sale of shares effected at a United States office of a broker, as
               long as the income  associated  with such  payments is  otherwise
               exempt from United States federal income tax, and:


                                       44
<PAGE>

         o     the payor or broker does not have actual  knowledge  or reason to
               believe  that  you  are a  United  States  person  and  you  have
               furnished the payor or broker:
               o    an Internal  Revenue  Service  Form W-8BEN or an  acceptable
                    substitute  form upon which you certify,  under penalties of
                    perjury, that you are a non-United States person, or
               o    other  documentation  upon  which it may  rely to treat  the
                    payments as made to a non-United States person in accordance
                    with U.S. Treasury regulations, or
               o    you otherwise establish an exemption.

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

         o     the proceeds are  transferred to an account  maintained by you in
               the United States,
         o     the payment of proceeds or the confirmation of the sale is mailed
               to you at a United States address, or
         o     the sale has some  other  specified  connection  with the  United
               States as provided in U.S. Treasury regulations,

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

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

         o     a United States person,
         o     a controlled foreign corporation for United States tax purposes,
         o     a foreign person 50% or more of whose gross income is effectively
               connected  with the conduct of a United  States trade or business
               for a specified three-year period, or
         o     a foreign partnership, if at any time during its tax year:
               o    one or more of its partners are "U.S.  persons",  as defined
                    in U.S. Treasury regulations, who in the aggregate hold more
                    than  50%  of  the  income  or  capital   interest   in  the
                    partnership, or
               o    such  foreign  partnership  is engaged  in the  conduct of a
                    United States trade or business,

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

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

DOCUMENTS ON DISPLAY

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

ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

MARKET RISK DISCLOSURES

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


                                       45
<PAGE>

INTEREST RATE SENSITIVITY

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

         As  of  December  31,  2004,  our  cash   equivalents   and  short-term
investments  included $12.5 million of debt securities,  consisting primarily of
money market funds and certificates of deposit.  Notwithstanding  our efforts to
manage  interest  rate  risks,  there  can be no  assurances  that  we  will  be
adequately   protected   against  the  risks   associated   with  interest  rate
fluctuations.

FOREIGN CURRENCY RISK

         The Company has net monetary  asset and  liability  balances in foreign
currencies  other  than the U.S.  dollar,  including  the  Pound  Sterling,  the
Canadian  dollar,  the Hong  Kong  dollar  and the  Chinese  RMB.  International
distribution and sales revenues  usually are made by the Company's  subsidiaries
in the United States,  United Kingdom and Canada, and are denominated  typically
in their local currency and the expenses incurred by these subsidiaries are also
denominated in the local  currency.  As a result,  the operating  results of the
Company  are  exposed to changes in exchange  rates  between  the United  States
Dollar and the Pound  Sterling or the  Canadian  dollar.  The  Company  does not
currently  hedge its foreign  exchange  risk,  which is not  significant at this
time.   The  Company   will   continue  to  monitor  its  exposure  to  currency
fluctuations,  and, where  appropriate,  may use financial hedging techniques in
the  future  to  minimize  the  effect  of these  fluctuations.  If the  Chinese
Government  were to trade its  currency  on the open  market and the RMB were to
increase in value relative to the U.S.  dollar,  we would  experience  increased
factory and  production  costs,  including  labor and certain raw materials that
could have a material impact on the cost of our products.  See also "Item 3. Key
Information - Risk Factors - Currency Valuation".

ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

         Not Applicable


                                     PART II

ITEM 13.  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

         None

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

         None or Not Applicable

ITEM 15.  CONTROLS AND PROCEDURES

         An  evaluation  was  carried  out  under the  supervision  and with the
participation of the Company's management, including our Chief Executive Officer
and Chief Financial Officer, of the effectiveness of our disclosure controls and
procedures  (as defined in Rule 13a-15(e)  under the Securities  Exchange Act of
1934) at December  31, 2004.  Based upon that  evaluation,  the Chief  Executive
Officer and Chief Financial Officer concluded that these disclosure controls and
procedures were effective.  In addition,  no change in our internal control over
financial  reporting (as defined in Rule 13a-15(f) under the Securities Exchange
Act of 1934)  occurred  during the fiscal year ended  December 31, 2004 that has
materially affected,  or is reasonably likely to materially affect, our internal
control over financial reporting.

ITEM 16A.  AUDIT COMMITTEE FINANCIAL EXPERT

         In 2004,  our board of directors  determined  that Theodore J. Eischeid
qualified  as an audit  committee  financial  expert and that Mr.  Eischeid  was
independent within the meaning of the listing standards  applicable to Radica as
a Nasdaq National Market company. However, on January 31, 2005, Mr. Eischeid was
named  President  and Chief  Operating  Officer of Radica and resigned  from the
Audit Committee. Timothy R. Busch has been named Chairman of the Audit Committee
in replacement of Mr.  Eischeid.  The board has determined  that Mr. Busch is an
independent  director within the meaning of such listing  standards but has made
no  determination  that Mr. Busch would qualify as an audit committee  financial
expert.  However,  the board has  determined  that Mr. Busch meets the financial
sophistication requirement of such listing standards.


                                       46
<PAGE>

         Therefore,  the board of directors has  determined  that the registrant
does not have an audit committee financial expert serving on its Audit Committee
at the present time.  This is due to the inability of the  registrant to replace
Mr.  Eischeid  as audit  committee  financial  expert  in the short  time  frame
associated with his hiring as an officer. The registrant is hopeful that it will
be able to add a new member to the Audit Committee in connection with its annual
general meeting in May 2005 and that such person will be both independent and an
audit committee financial expert as defined in applicable rules.

ITEM 16B.  CODE OF ETHICS

         The Company has adopted a Code of Ethics that is  applicable to all its
directors,  senior management and employees. The Code of Ethics contains written
standards that are reasonably designed to deter wrongdoing and to promote honest
and ethical conduct and the other standards applicable to public companies.  The
Company's  Code of Ethics is  maintained on the  Company's  internet  website at
www.radicagames.com.

ITEM 16C.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

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

2003                        $ 250            $ 5              $ 137      $ 392
2004                          283              4                 91        378

AUDIT-RELATED FEES

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

TAX FEES

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

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

         None.

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

         None.

                                    PART III

ITEM 17.  FINANCIAL STATEMENTS

         Not Applicable

ITEM 18.  FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS                                                                   PAGE
<S>                                                                                             <C>
         Report of Independent Registered Public Accounting Firm                                 F-1

         Consolidated Balance Sheets                                                             F-2

         Consolidated Statements of Operations                                                   F-3

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

         Consolidated Statements of Cash Flows                                                   F-5

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

<PAGE>

ITEM 19.  EXHIBITS

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

<PAGE>

             Report of Independent Registered Public Accounting Firm


The Board of Directors and Shareholders
Radica Games Limited:


We have audited the  accompanying  consolidated  balance  sheets of Radica Games
Limited  and  subsidiaries  as of December  31,  2004 and 2003,  and the related
consolidated  statements of operations,  shareholders'  equity and comprehensive
income  (loss),  and cash flows for each of the years in the  three-year  period
ended  December  31,  2004.  These  consolidated  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of Radica Games Limited
and  subsidiaries  as of December  31,  2004 and 2003,  and the results of their
operations and their cash flows for each of the years in the  three-year  period
ended  December 31, 2004, in conformity  with United States  generally  accepted
accounting principles.


/s/ KPMG

KPMG

HONG KONG
February 25, 2005, except for
footnote 16, which is as of March 17, 2005






                                      F-1
<PAGE>
<TABLE>
<CAPTION>
                              RADICA GAMES LIMITED
                          CONSOLIDATED BALANCE SHEETS
                           December 31, 2004 and 2003

(US dollars in thousands, except share data)                                          2004            2003
                                                                                    --------        --------
                                         ASSETS
Current assets:
<S>                                                                                <C>             <C>
Cash and cash equivalents                                                          $  27,614       $  13,944
Investment securities                                                                 12,456          28,009
Accounts receivable, net of allowances for doubtful accounts
  of $148 ($251 in 2003)                                                              18,359          15,360
Inventories                                                                           26,818          15,503
Prepaid expenses and other current assets                                              3,374           2,748
Income taxes receivable                                                                  168           1,404
Deferred income taxes and charges                                                      1,850           1,706
                                                                                    --------        --------
Total current assets                                                                  90,639          78,674
                                                                                    --------        --------
Property, plant and equipment, net                                                    11,480          11,908
Goodwill                                                                               6,015           9,551
Other assets                                                                             854             875
Deferred income taxes                                                                    953           1,206
                                                                                    --------        --------
        Total assets                                                               $ 109,941       $ 102,214
                                                                                    --------        --------
                          LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable                                                                   $  10,770       $   6,350
Accrued payroll and employee benefits                                                  1,486           1,353
Accrued warranty expenses                                                              1,070           1,040
Other accrued liabilities                                                              5,251           3,976
Income taxes payable                                                                     287             339
                                                                                    --------        --------
        Total current liabilities                                                     18,864          13,058
                                                                                    --------        --------
        Total liabilities                                                             18,864          13,058
                                                                                    --------        --------
Shareholders' equity:
Common stock
  par value $0.01 each, 100,000,000 shares authorized,
  18,738,112 shares issued and outstanding (18,225,204 in 2003)                          187             182
Additional paid-in capital                                                             4,610           3,517
Retained earnings                                                                     85,909          85,437
Accumulated other comprehensive income                                                   371              20
                                                                                    --------        --------
       Total shareholders' equity                                                     91,077          89,156
                                                                                    --------        --------
Commitments and contingencies

       Total liabilities and shareholders' equity                                  $ 109,941       $ 102,214
                                                                                    ========        ========
</TABLE>
        See accompanying notes to the consolidated financial statements.

                                      F-2
<PAGE>

<TABLE>
<CAPTION>
                              RADICA GAMES LIMITED
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  Years ended December 31, 2004, 2003 and 2002

(US dollars in thousands,                                         2004               2003*            2002*
 except per share data)                                       ----------         ----------       ----------

<S>                                                            <C>                <C>              <C>
Revenues:
Net sales                                                      $ 123,399          $ 105,200        $ 124,646
Cost of goods sold
  (exclusive of items shown separately below)                    (81,576)           (65,350)         (78,138)
                                                              ----------         ----------       ----------
Gross profit                                                      41,823             39,850           46,508
                                                              ----------         ----------       ----------
Operating expenses:
Selling, general and administrative expenses                     (30,071)           (25,000)         (27,038)
Research and development                                          (4,164)            (3,895)          (4,094)
Depreciation                                                      (1,693)            (2,033)          (2,438)
Amortization of goodwill and intangible assets                         -                  -             (420)
Impairment of goodwill                                            (3,536)                 -                -
Restructuring charge                                                   -                (87)               -
                                                              ----------         ----------       ----------
 Total operating expenses                                        (39,464)           (31,015)         (33,990)
                                                              ----------         ----------       ----------
Operating income                                                   2,359              8,835           12,518
Other income                                                         754                317              306
Foreign currency gain, net                                           417                178            1,744
Interest income                                                      765                344              253
Interest expense                                                       -                (49)            (218)
                                                              ----------         ----------       ----------
Income before income taxes                                         4,295              9,625           14,603

(Provision) credit for income taxes                                 (839)             2,866           (2,669)
                                                              ----------         ----------       ----------
Net income                                                     $   3,456          $  12,491        $  11,934
                                                              ==========         ==========       ==========
Net income per share:
  Basic                                                           $ 0.19             $ 0.69           $ 0.67
                                                              ==========         ==========       ==========
  Diluted                                                         $ 0.18             $ 0.66           $ 0.65
                                                              ==========         ==========       ==========
Weighted average number of common and
common equivalent shares:

  Basic                                                       18,653,471         18,016,789       17,725,879
                                                              ==========         ==========       ==========
  Diluted                                                     19,525,757         19,059,974       18,335,827
                                                              ==========         ==========       ==========
Cash dividends paid per share
(4 cents declared and paid for each
quarter ended March 31, June 30,
September 30, and December 31, 2004)                           $    0.16          $       -        $       -
                                                              ==========         ==========       ==========
* Reclassified to conform with 2004 presentation.
</TABLE>
        See accompanying notes to the consolidated financial statements.

                                      F-3
<PAGE>

<TABLE>
<CAPTION>
                              RADICA GAMES LIMITED
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                        AND COMPREHENSIVE INCOME (LOSS)
                  Years ended December 31, 2004, 2003 and 2002

(US dollars in thousands)                      Common stock                                            Accumulated
                                         -----------------------  Additional  Warrants to                  other          Total
                                           Number                  paid-in      acquire      Retained   comprehensive  shareholders'
                                         of shares     Amount      capital    common stock   earnings  income (loss)      equity
                                         ---------  ------------  ----------  ------------   --------  --------------  ------------
<S>                                    <C>             <C>         <C>             <C>      <C>             <C>         <C>
Balance at December 31, 2001           17,646,740      $ 176       $ 1,549        $ 445      $ 61,012      $ (130)      $ 63,052
Issuance of stock                           4,945          1            20            -             -           -             21
Stock options exercised, inclusive        144,446          1           306            -             -           -            307
     of nil tax
Expiration of stock warrants                    -          -           445         (445)            -           -              -
Net income                                      -          -             -            -        11,934           -         11,934
Foreign currency translation,                   -          -             -            -             -        (678)          (678)
     net of nil tax
                                       ----------      -----       -------        -----      --------      ------       --------
Balance at December 31, 2002           17,796,131      $ 178       $ 2,320          $ -      $ 72,946      $ (808)      $ 74,636
Issuance of stock                           3,073          -            20            -             -           -             20
Stock options exercised, inclusive        426,000          4         1,177            -             -           -          1,181
     of $44 tax benefit
Net income                                      -          -             -            -        12,491           -         12,491
Unrealized loss on investment                   -          -             -            -             -         (46)           (46)
     securities available-for-sale,
     net of nil tax
Foreign currency translation,                   -          -             -            -             -         874            874
     net of nil tax
                                       ----------      -----       -------        -----      --------      ------       --------
Balance at December 31, 2003           18,225,204      $ 182       $ 3,517          $ -      $ 85,437        $ 20       $ 89,156
Issuance of stock                           2,272          -            21            -             -           -             21
Stock options exercised, inclusive        510,636          5         1,072            -             -           -          1,077
     of nil tax
Dividends paid                                  -          -             -            -        (2,984)          -         (2,984)
Net income                                      -          -             -            -         3,456           -          3,456
Unrealized loss on investment                   -          -             -            -             -         (90)           (90)
     securities available-for-sale,
     net of nil tax
Foreign currency translation,                   -          -             -            -             -         441            441
     net of nil tax
                                       ----------      -----       -------        -----      --------      ------       --------
Balance at December 31, 2004           18,738,112      $ 187       $ 4,610          $ -      $ 85,909       $ 371       $ 91,077
                                       ==========      =====       =======        =====      ========      ======       ========

The comprehensive  income (loss) of the Company,  which represents the aggregate
of the net income,  unrealized loss on investment  securities available for sale
and the  foreign  currency  translation  adjustments,  was  $3,807,  $13,319 and
$11,256 for the years ended December 31, 2004, 2003 and 2002, respectively.

        See accompanying notes to the consolidated financial statements.
</TABLE>
                                      F-4
<PAGE>
<TABLE>
<CAPTION>
                              RADICA GAMES LIMITED
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                  Years ended December 31, 2004, 2003 and 2002

(US dollars in thousands)                                                        2004            2003*            2002
                                                                               -------         -------         -------
<S>                                                                            <C>             <C>             <C>
Cash flow from operating activities:
Net income                                                                    $  3,456         $ 12,491        $ 11,934
Adjustments to reconcile net income to net cash
  provided by operating activities:
  Deferred income taxes                                                            109           (2,947)          2,134
  Depreciation                                                                   1,693            2,033           2,438
  Amortization                                                                       -                -             420
  Impairment of goodwill                                                         3,536                -               -
  (Gain) loss on disposal and write off of property, plant and equipment           (19)             102              57
  Compensatory elements of stock issuances                                          21               20              21
  Gain on trading securities                                                      (108)               -               -
  Unrealized gain on trading securities                                             (1)             (55)              -
  Proceeds from sale of trading securities                                      15,572                -               -
  Purchases of trading securities                                                    -          (18,000)              -
  Changes in current assets and liabilities:
    Increase in accounts receivable                                             (2,999)            (221)         (1,271)
    (Increase) decrease in inventories                                         (11,315)           4,882          (3,206)
    (Increase) decrease in prepaid expenses and other current assets              (626)          (1,074)            609
    Increase (decrease) in accounts payable                                      4,420           (1,624)         (1,227)
    Increase (decrease) in accrued payroll and employee benefits                   133           (1,400)          1,810
    Increase in accrued warranty expenses                                           30                -             140
    Increase (decrease) in other accrued liabilities                             1,275           (1,864)         (1,645)
    Increase (decrease) in net income taxes receivable                           1,184             (443)           (198)
                                                                                ------          -------          ------
Net cash provided by (used in) operating activities                             16,361           (8,100)         12,016
                                                                                ------          -------          ------
Cash flow from investing activities:
Purchases of available-for-sale securities                                           -          (10,000)              -
Proceeds from sale of property, plant and equipment                              1,292              955             201
Purchase of property, plant and equipment                                       (2,517)            (943)         (1,316)
                                                                                ------          -------          ------
Net cash used in investing activities                                           (1,225)          (9,988)         (1,115)
                                                                                ------          -------          ------
Cash flow from financing activities:
Funds from stock options exercised                                               1,077            1,137             307
Dividends paid                                                                  (2,984)               -               -
Decrease in short-term borrowings                                                    -             (846)              -
Repayment of long-term debt                                                          -           (1,825)         (3,648)
                                                                                ------          -------          ------
Net cash used in financing activities                                           (1,907)          (1,534)         (3,341)
                                                                                ------          -------          ------
Effect of currency exchange rate change                                            441              874            (678)
                                                                                ------          -------          ------
Net increase (decrease) in cash and cash equivalents                            13,670          (18,748)          6,882
                                                                                ------          -------          ------
Cash and cash equivalents:
  Beginning of year                                                             13,944           32,692          25,810
                                                                                ------          -------          ------
End of year                                                                     27,614         $ 13,944        $ 32,692
                                                                                ======          =======          ======
Supplementary disclosures of cash flow information:
  Interest paid                                                               $      -         $     50        $    220
  Income taxes paid                                                              1,084              538           1,314

* Reclassified to conform with 2004 presentation.
</TABLE>

        See accompanying notes to the consolidated financial statements.

                                      F-5
<PAGE>


                              RADICA GAMES LIMITED

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                 (YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002)
                            (US dollars in thousands)

1.   ORGANIZATION AND BASIS OF FINANCIAL STATEMENTS

     Radica Games  Limited (the  "Company")  manufactures  and markets a diverse
     line of electronic entertainment products covering multiple product lines -
     casino  and  heritage  electronic  games,   mechanical  slot  banks,  youth
     electronic  games,  tabletop  games,  Play TV(R)  games,  Girl  Tech(R) and
     Barbie(TM) girls electronic lines, the  Twinkleberries(TM)  and Cupcakes(R)
     doll lines, the Nitro  Battlerz(TM) and Big Trouble(TM)  remote control car
     products,  the Street  Muttz(TM) plush line and video game accessories sold
     under the Gamester(R)  brand. The Company is headquartered in Hong Kong and
     manufactures  its  products in its factory in Southern  China.  In 1994 the
     Company went public when its shares began trading on the NASDAQ exchange.

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

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

     Investment Securities
     Investment  securities  at December  31, 2004  consist of  certificates  of
     deposits and money-market  mutual fund investments.  The Company classifies
     its investment  securities in one of three categories:  trading,  available
     for sale,  or held to  maturity.  Trading  securities  are  bought and held
     principally   for  the   purpose  of   selling   them  in  the  near  term.
     Held-to-maturity  debt securities are those securities in which the Company
     has the  ability  and  intent  to hold the  security  until  maturity.  All
     securities  not included in trading or held to maturity are  classified  as
     available for sale.

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

     A decline in the fair value of an  investment  security  below cost that is
     deemed to be other-than-temporary results in a reduction in carrying amount
     to fair value.  The  impairment is charged to earnings and a new cost basis
     for the security is  established.  In  determining  whether  impairment  is
     other-than-temporary,  the Company considers whether it has the ability and
     intent to hold the  investment for a reasonable  period of time  sufficient
     for a  forecasted  recovery  of fair  value up to (or  beyond)  the cost of
     investment  and  considers  whether  evidence  indicating  the  cost of the
     investment  is  recoverable  within a reasonable  period of time  outweighs
     evidence to the contrary.  Evidence  considered in this assessment includes
     the cause of the decline, the severity and duration of the decline, changes
     in value subsequent to year-end and forecast performance of the investment.

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


                                      F-6


<PAGE>


                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002)
                            (US dollars in thousands)

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

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

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

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

     All of the  Company's  land and building  holdings in the PRC and Hong Kong
     are   considered   to  be  leasehold   property  and  are  amortized  on  a
     straight-line  basis  over the  term of the  lease,  ranging  from 30 to 50
     years. The buildings on the land are also depreciated over the same period.
     Costs of leasehold improvements are amortized over the economic life of the
     asset  (ranging  from 3 to 5 years) or the term of the lease,  whichever is
     shorter.  Upon sale or retirement  of property,  plant and  equipment,  the
     costs and related  accumulated  depreciation or amortization are eliminated
     and any resulting gain or loss is included in the statement of operations.

     The Company's real property in Hong Kong consists of purchased office space
     in an office building that was built on land that is owned by the Hong Kong
     government.  When the  Company  purchased  the office  space,  there was no
     separate amount paid to the government for land use rights because the land
     continues  to be owned  by the  Hong  Kong  government.  Also,  there is no
     ongoing obligation to the government to pay any land use right fee. In Hong
     Kong,  substantially all properties or buildings are built on land owned by
     the Hong Kong  Government for which a developer or owner is required to pay
     a land premium fee to the government  for the land use rights.  This fee is
     paid by the developer at the time the developer  commences the construction
     of the  building.  The  developer  is solely  responsible  for the payment.
     Properties,  including office space, in Hong Kong are purchased and sold at
     their current market value with no additional  lease payment required to be
     made.  The Company  amortizes its properties in Hong Kong over a fifty-year
     period as all leases are set at fifty years since 1997,  when Hong Kong was
     handed back to the Chinese government.

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


                                      F-7
<PAGE>


                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002)
                            (US dollars in thousands)

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     Goodwill
     Goodwill  represents  the  excess  of costs  over  fair  value of assets of
     businesses  acquired.  The Company  follows the  provisions of Statement of
     Financial   Accounting   Standards  (SFAS)  No.  142,  Goodwill  and  Other
     Intangible  Assets.  Goodwill and intangible  assets acquired in a purchase
     business  combination and determined to have an indefinite  useful life are
     not  amortized,  but instead  tested for impairment at least annually or if
     certain  circumstances   indicate  a  possible  impairment  may  exist,  in
     accordance  with the provisions of SFAS No. 142. The Company  evaluates the
     recoverability  of goodwill and indefinite lived intangible  assets using a
     two-step impairment test approach at the reporting unit level at the end of
     each  year.  In the first  step,  the fair value of the  reporting  unit is
     compared to its carrying value  including  goodwill.  The fair value of the
     reporting  unit is  determined  based upon a  combination  of  multiple  of
     earnings,  discounted future cash flows and the projected  profitability of
     the  market in which it  operates.  In the case that the fair  value of the
     reporting unit is less than the carrying  value, a second step is performed
     which compares the implied fair value of the reporting  unit's  goodwill to
     the book value of the goodwill.  In  determining  the implied fair value of
     the reporting unit goodwill, the fair values of the tangible net assets and
     recognized  and  unrecognized  intangible  assets is deducted from the fair
     value of the reporting  unit.  If the implied fair value of reporting  unit
     goodwill is lower than its  carrying  amount,  goodwill is impaired  and is
     written down to its implied fair value.

     In  connection  with  SFAS  No.  142's  transitional   goodwill  impairment
     evaluation  in  2002,  the  Company  performed  the  required  transitional
     impairment  review of  goodwill  as of  January  1,  2002.  For each of the
     reporting  units,  the estimated  fair value of the reporting unit exceeded
     their carrying value and therefore no writedown of goodwill was required.

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

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

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


                                      F-8
<PAGE>


                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002)
                            (US dollars in thousands)

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

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

     Advertising
     Advertising  costs are  expensed  as  incurred.  The cost of media  related
     advertising  is  incurred  by the  Company at the earlier of the first time
     that  the  advertising  takes  place  or the  invoice  date  for the  media
     purchase.  In addition,  the Company  offers  discounts  to  customers  who
     advertise Radica products through  cooperative  advertising  programs.  The
     cooperative advertising costs associated with customer benefit programs are
     accrued as the related revenues are recognized. The cooperative advertising
     costs are characterized as a cost if the Company receives a benefit that is
     sufficiently  separable  from  the  retailer's  purchase  of the  Company's
     products  and the fair  value of the  cooperative  advertising  benefit  is
     determinable  and  greater  than or  equal to the  cooperative  advertising
     allowance  provided  to the  retailer.  Cooperative  advertising  costs not
     meeting these  criteria are recorded as reductions in revenue.  Advertising
     and cooperative  advertising expenses are recorded as selling,  general and
     administrative  expenses in the  consolidated  statement of operations  and
     amounted to  approximately  $10,620,  $7,614 and $7,350 for the years ended
     December 31, 2004, 2003 and 2002, respectively.

     Research and Development
     Research  and  development  costs are  expensed as  incurred.  Research and
     development  costs  amounted  to $4,164,  $3,895,  and $4,094 for the years
     ended December 31, 2004, 2003 and 2002, respectively.

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

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


                                      F-9
<PAGE>


                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002)
                            (US dollars in thousands)

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

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

<TABLE>
<CAPTION>

                                                              2004          2003          2002
                                                            --------      --------      --------

<S>                                                    <C>           <C>           <C>
     Net income as reported                                 $  3,456      $ 12,491      $ 11,934
     Deduct total stock-based employee compensation
       expense determined under fair-value-based method
       for all rewards, net of tax                              (551)         (496)         (746)
                                                            --------      --------      --------
     Pro forma net income                                   $  2,905      $ 11,995      $ 11,188
                                                            ========      ========      ========
</TABLE>

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

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


                                      F-10
<PAGE>


                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002)
                            (US dollars in thousands)

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     Use of Estimates
     The  preparation of financial  statements in conformity  with United States
     generally  accepted  accounting  principles  requires  management  to  make
     estimates and assumptions  that affect reported  amounts of certain assets,
     liabilities,  revenues and expenses and the disclosure of contingent assets
     and liabilities as of and during the reporting  periods.  Significant items
     subject to such estimates and  assumptions  include the carrying  amount of
     goodwill,  property,  plant and equipment and  inventories,  allowances for
     doubtful  receivables  and  deferred  income tax assets  and  reserves  for
     warranties,  product returns and customer sale  incentives.  Actual results
     may  differ  from such  estimates.  Differences  from those  estimates  are
     recorded in the period they become known.

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

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

     In November  2004,  the FASB issued SFAS No. 153,  Exchanges of Nonmonetary
     Assets -- An Amendment of APB Opinion No. 29 ("SFAS 153").  The  provisions
     of this statement are effective for non monetary asset exchanges  occurring
     in fiscal periods beginning after June 15, 2005. This statement  eliminates
     the exception to fair value for exchanges of similar  productive assets and
     replaces it with a general exception for exchange  transactions that do not
     have commercial substance -- that is, transactions that are not expected to
     result in  significant  changes in the cash flows of the reporting  entity.
     The  Company  does not  believe  that the  adoption of SFAS 153 will have a
     significant effect on its financial statements.

     In December 2004, the FASB issued SFAS No. 123 (revised 2004),  Share-Based
     Payment.  The new pronouncement  replaces the existing  requirements  under
     SFAS  No.  123 and APB 25.  According  to SFAS  No.  123(R),  all  forms of
     share-based  payments to employees,  including  employee  stock options and
     employee stock purchase plans,  would be treated the same as any other form
     of  compensation  by  recognizing  the  related  cost in the  statement  of
     operations.  This  pronouncement  eliminates  the  ability to  account  for
     stock-based compensation  transactions using APB No. 25 and generally would
     require that such  transactions  be accounted for using a fair-value  based
     method. For the Company,  SFAS No. 123(R) is effective for awards and stock
     options  granted,  modified or settled in cash in interim or annual periods
     beginning  after June 15,  2005,  which for the  Company  will be its third
     quarter  ending  September 30, 2005.  SFAS No. 123(R)  provides  transition
     alternatives for public companies to restate prior interim periods or prior
     years.  The  Company  is in the  process of  evaluating  the impact of this
     standard on its financial  statements and will adopt SFAS 123(R) on July 1,
     2005.


                                      F-11
<PAGE>


                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002)
                            (US dollars in thousands)

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     Reclassifications
     Certain  reclassifications  have been made to prior year amounts to conform
     to the current year's presentation.  The purchase of trading investments in
     2003 was reclassified from investing  activities to operating activities in
     order to conform to the  provisions  of SFAS No. 115. The  reclassification
     resulted in a reduction of $18,000 in the amount of net cash flow  provided
     by operating  activities  from $9,900 (as originally  reported) to net cash
     flow used in operating  activities of $8,100 and a corresponding  change in
     the amount of net cash flows used in investing  activities from $27,988 (as
     originally  reported)  to net cash flows used in  investing  activities  of
     $9,988.

3.   INVESTMENT SECURITIES

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

     Management  classifies  investments in marketable securities at the time of
     purchase and reevaluates such classification at each balance sheet date. At
     December 31, 2004,  investments in  certificates of deposits of $9,864 were
     classified as  "available-for-sale"  and  accordingly  are reported at fair
     value with unrealized losses of approximately  $136 reported as a component
     of accumulated other comprehensive  income (loss) in shareholders'  equity.
     The fair  value  of  these  investments  is  based  on  market  information
     available to management as of the balance sheet date presented.  Unrealized
     losses are charged  against  income when a decline in the fair market value
     of an  individual  security  is  determined  to be  other  than  temporary.
     Realized gains and losses on investments are included in other income.

     The amortized  cost,  gross  unrealized  holding  gains,  gross  unrealized
     holding losses, and fair value of available-for-sale securities at December
     31, 2004 and 2003 were as follows:

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

<S>                                        <C>              <C>          <C>               <C>
     At December 31, 2004
       Available for sale:
         Certificates of deposits          $10,000          $--          $  (136)          $ 9,864

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


                                      F-12
<PAGE>


                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002)
                            (US dollars in thousands)

3.   INVESTMENT SECURITIES (Continued)

     The following table shows the gross unrealized losses and fair value of the
     Company's  available for sale investments  with unrealized  losses that are
     not deemed to be other-than-temporarily  impaired, aggregated by investment
     category  and  length of time  that  individual  securities  have been in a
     continuous unrealized loss position, at December 31, 2004:

<TABLE>
<CAPTION>
                                     Less than 12 months        12 months or greater              Total
                                   ---------------------      ----------------------     -----------------------
                                                Unrealized                 Unrealized                 Unrealized
                                   Fair value     losses      Fair value     losses      Fair value     losses
                                   ----------     ------      ----------     ------      ----------     ------

<S>                                 <C>          <C>            <C>          <C>           <C>          <C>
     Certificate of deposits        $     --     $     --       $9,864       $ (136)       $9,864       $ (136)
</TABLE>

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

     The Company also  maintains an  investment  portfolio of $2,592 and $18,055
     portfolio of investment classified as trading securities as of December 31,
     2004  and  2003,   respectively.   These  investments  represent  primarily
     municipal  fixed income and money market funds subject to price  volatility
     associated with any interest-bearing instrument.

     Net realized  investment gains and net changes in unrealized gains (losses)
     on  investments  for the years ended  December 31, 2004,  2003 and 2002 are
     summarized as follows:

<TABLE>
<CAPTION>
                                                                   2004         2003         2002
                                                                  -----        -----        -----

<S>                                                               <C>          <C>          <C>
     Net realized investment gains
       Available-for-sale                                         $  --        $  --        $  --
       Trading                                                      108           --           --
                                                                  -----        -----        -----
                                                                  $ 108        $--          $  --

     Net changes in unrealized gains (losses) on investment
       Available-for-sale                                         $ (90)       $ (46)       $  --
       Trading                                                        1           55           --
                                                                  -----        -----        -----
                                                                  $ (89)       $   9        $  --

     Net realized investment gains and changes
       in unrealized gains (losses) on investment                 $  19        $   9        $  --
                                                                  =====        =====        =====
</TABLE>

                                      F-13
<PAGE>


                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002)
                            (US dollars in thousands)

3.   INVESTMENT SECURITIES (Continued)

     Following  is a summary of the  disposition  and  purchases  of  investment
     securities for the years ended December 31, 2004, 2003 and 2002:

<TABLE>
<CAPTION>
                                                             Gross realized
                                                        -----------------------    Net realized
                                        Amount             Gains        Losses         Gain
                                       --------         ---------      --------    ------------
<S>                                     <C>              <C>              <C>         <C>
     Sales:
     2004 - Available-for-sale          $  --            $  --            $-          $  --
          Trading                        15,572              108           -              108

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

     2002 - Available-for-sale          $  --            $  --            $-          $  --
          Trading                          --               --             -             --

     Purchases:
     2004 - Available-for-sale          $  --            $  --            $-          $  --
          Trading                          --               --             -             --

     2003 - Available-for-sale          $10,000          $  --            $-          $  --
          Trading                        18,000             --             -             --

     2002 - Available-for-sale          $  --            $  --            $-          $  --
          Trading                          --               --             -             --
</TABLE>


                                      F-14
<PAGE>


                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002)
                            (US dollars in thousands)

4.   INVENTORIES

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

                                  2004            2003
                              ------------    -----------

     Raw materials                $ 4,017        $ 1,554
     Work in progress               6,830          2,758
     Finished goods                15,971         11,191
                              ------------    -----------
                                 $ 26,818       $ 15,503
                              ============    ===========

5.   PROPERTY, PLANT AND EQUIPMENT

     Property, plant and equipment consists of the following:

                                                            2004         2003
                                                         ----------   ----------

     Land and buildings                                   $  9,431     $ 10,953
     Plant and machinery                                     8,142        7,754
     Furniture and equipment                                 8,196        7,514
     Leasehold improvements                                  3,067        2,943
     Construction-in-progress                                  265           --
                                                         ----------   ----------
          Total                                           $ 29,101     $ 29,164
     Less: Accumulated depreciation and amortization       (17,621)     (17,256)
                                                         ----------   ----------
          Total, net                                      $ 11,480     $ 11,908
                                                         ==========   ==========

     In November 2002, the AICPA  International  Practices Task Force (the "Task
     Force")  discussed an issue  relating to accounting  for land use rights in
     the  People's  Republic of China  ("PRC").  The Task Force view is that PRC
     land use rights are  considered  operating  leases,  as they are  long-term
     leases of lands,  which do not transfer  title. As of December 31, 2004 and
     2003, other assets of $854 and $875 respectively,  comprise of prepaid land
     use rights. The prepaid land use rights have a term of 50 years.


                                      F-15
<PAGE>


                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002)
                            (US dollars in thousands)

6.   GOODWILL

     At December 31, 2004 and 2003,  the Company's  cost in excess of fair value
     of  net  assets  purchased   (goodwill)   related  primarily  to  the  1999
     acquisition  of Leda Media Products  Limited,  now called Radica UK Limited
     ("Radica  UK").  On June 24,  1999,  the  Company  purchased  Radica UK for
     approximately  $15,970.  During  the  quarter  ended  June 30,  2000,  upon
     claiming  certain  breaches  of  warranty at Radica UK, the Company and the
     ex-shareholders  of Radica UK mutually  agreed to cancel certain loan notes
     such that the purchase  price was reduced by $1,399.  The Company  recorded
     goodwill of  approximately  $12,069  resulting  from the adjusted  purchase
     price.  The goodwill was allocated to the VGA reporting unit and is not tax
     deductible.  Accumulated  amortization  related to goodwill of $2,518 arose
     prior to the adoption of SFAS No. 142.

     Effective  January 1, 2002, the Company adopted SFAS No. 142,  Goodwill and
     Other  Intangible  Assets.  Upon  implementation  of SFAS 142, and annually
     thereafter,  the Company  tested  goodwill  for  impairment.  The  goodwill
     arising  from the  purchase of Radica UK was  allocated  to the Video Games
     Accessories  ("VGA") reporting unit and the Company has undertaken goodwill
     impairment  testing  as follows  to  determine  whether  the  goodwill  was
     impaired and the extent of such impairment.

     The methods used in the Company's  testing of goodwill  impairment  were as
     follows: 1) the Company determined the fair market value of the VGA segment
     by  estimating  the  expected  discounted  future  cash  flows  of the  VGA
     reporting unit. In estimating the discounted future cash flows, the Company
     followed FASB Concepts  Statement  No. 7, Using Cash Flow  Information  and
     Present  Value in  Accounting  Measurements,  by taking  into  account  the
     Company's expectations about possible variations in the amount or timing of
     those  cash  flows,  the  risk-free  rate of  interest  and the  discounted
     interest rate. 2) The Company then compared the estimated fair value of the
     VGA  reporting  unit with the  carrying  value of the VGA  reporting  unit,
     including  goodwill.  3) Since the fair value of the VGA reporting unit was
     less than the carrying value,  the second step was performed which compared
     the implied  fair value of the VGA  reporting  unit's  goodwill to the book
     value of the goodwill. After performing this annual evaluation, the Company
     recognized an impairment  charge related to goodwill of $3,536 for the year
     ended  December 31, 2004. The  impairment  charge  recorded at December 31,
     2004 adjusted the carrying  value of the VGA reporting  unit's  goodwill to
     its implied fair value.  The reason for the  impairment  was  primarily the
     result of lower sales  forecasts  for fiscal years 2005 through  2009.  The
     adjustment  to  projected  annual  sales  from  prior year was based on the
     Company's  current  strategy of  concentrating  on the  innovative,  higher
     margin sector of the market.  This improved the projected gross margins and
     operating  margins  as a  percentage  of  sales,  but  decreased  the total
     operating  margin and cash  flows.  Management  believes  that the  revised
     forecast  portrays a more  accurate  picture of the  Company's  future cash
     flows and that the new strategy limits the large closeout returns and price
     pressures that made the VGA business unprofitable from 1999 through 2003.


                                      F-16

<PAGE>


                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002)
                            (US dollars in thousands)

7.   OTHER ACCRUED LIABILITIES

     Other accrued liabilities consist of the following:

                                                2004            2003
                                               ------          ------

     Accrued advertising expenses              $  910          $1,091
     Accrued license and royalty fees           1,963           1,062
     Commissions payable                           93             166
     Other accrued liabilities                  2,285           1,657
                                               ------          ------
          Total                                $5,251          $3,976
                                               ======          ======

8.   INCOME TAXES

     The components of income before income taxes are as follows:

                              2004              2003               2002
                            --------          --------           --------

     United States          $  3,472          $  9,964           $ 10,807
     International               823              (339)             3,796
                            --------          --------           --------
                            $  4,295          $  9,625           $ 14,603
                            ========          ========           ========

     The  Company's  subsidiary  in the People's  Republic of China ("PRC") is a
     Sino-foreign joint venture enterprise.  The statutory tax rate of the joint
     venture is 27%. The joint venture  successfully applied for the designation
     as an "Export  Oriented  Enterprise",  which  resulted in a 12% tax rate in
     2003 and 2004.


                                      F-17
<PAGE>


                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002)
                            (US dollars in thousands)

8.   INCOME TAXES (Continued)

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

<TABLE>
<CAPTION>
                                                           2004           2003           2002
                                                         -------        -------        -------
<S>                                                      <C>            <C>            <C>
     Current:
         US federal and state                            $   274        $    39        $    51
         International                                       456             42            950
                                                         -------        -------        -------
       Total current income tax provision                $   730        $    81        $ 1,001
                                                         -------        -------        -------

     Deferred:
         US federal                                      $   900        $(2,857)       $  --
         International                                      (791)           (90)         1,668
                                                         -------        -------        -------
      Total deferred income tax provision (credit)       $   109        $(2,947)       $ 1,668
                                                         -------        -------        -------

     Total income taxes (credit) provision               $   839        $(2,866)       $ 2,669
                                                         =======        =======        =======
</TABLE>

     The income taxes for the years ended December 31, 2004,  2003 and 2002 were
     allocated as follows:

<TABLE>
<CAPTION>
                                                            2004           2003            2002
                                                           -------        -------        -------

<S>                                                        <C>            <C>            <C>
     Income from continuing operations                     $   839        $(2,866)       $ 2,669
     Shareholders' equity - compensation expense for
       tax purposes in excess of amounts recognized
       for financial reporting purposes                       --               44           --
                                                           -------        -------        -------
                                                           $   839        $(2,822)       $ 2,669
                                                           =======        =======        =======
</TABLE>

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

<TABLE>
<CAPTION>
                                                              2004           2003            2002
                                                             -------        -------        -------
<S>                                                          <C>            <C>            <C>
     The US statutory rate                                     35%            35%             34%
     Computed "expected" tax expense
       at the US statutory rate                              $ 1,503        $ 3,369        $ 4,965
     State tax, net of federal tax benefit                       127              1              4
     Tax rate differential                                    (1,028)          (807)          (763)
     Change in valuation allowance                               380         (4,476)        (1,282)
     Effect on opening deferred tax balances resulting          --             (478)          --
       from an increase in tax rate during the year
     China tax rebates                                          (212)          (472)          --
     Other, net                                                   69             (3)          (255)
                                                             -------        -------        -------
     Income tax provision (credit)                           $   839        $(2,866)       $ 2,669
                                                             =======        =======        =======
</TABLE>

     The US  statutory  rate has been used since the  majority of the  Company's
     taxable income arises in the US. Other, net in the tax reconciliation above
     primarily includes the tax effect of non-deductible and non-taxable items.


                                      F-18
<PAGE>


                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002)
                            (US dollars in thousands)

8.   INCOME TAXES (Continued)

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

                                                       2004           2003
                                                     -------        -------
     Deferred tax assets:
     Property, plant and equipment                   $   479        $   386
     Net operating loss carryforwards                  4,441          4,169
     Advertising allowances                              322            399
     Accounts receivable                                  43             75
     Inventories                                         416            232
     Sales allowance and returns                         580            968
     Alternative minimum tax credit                      519            324
     Other                                                10             42
                                                     -------        -------
       Total gross deferred tax assets                 6,810          6,595
     Valuation allowance                              (4,510)        (3,683)
                                                     -------        -------
       Net deferred tax assets                       $ 2,300        $ 2,912

     Deferred tax liabilities:
     Other                                               (17)          --
                                                     -------        -------
       Total gross deferred tax liabilities              (17)          --

       Net deferred tax assets                       $ 2,283        $ 2,912
                                                     =======        =======

     Deferred tax charge on unrealized profits
       on intercompany sales                         $   520        $  --
                                                     =======        =======

     The  valuation  allowance  was  $9,441 at January  1,  2002.  The  increase
     (decrease) in the valuation  allowance  during the years ended December 31,
     2002, 2003 and 2004 were $(1,282), $(4,476) and $827, respectively.


                                      F-19
<PAGE>


                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002)
                            (US dollars in thousands)

8.   INCOME TAXES (Continued)

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

                                            2004         2003
                                           ------       ------

     Current deferred tax assets           $1,330       $1,706
     Long-term deferred tax assets            953        1,206
                                           ------       ------
       Total net deferred tax assets       $2,283       $2,912
                                           ======       ======

     As of December 31, 2004, the Company's US subsidiary had approximately $647
     of tax operating loss carryforwards  which will begin to expire after 2020.
     In addition,  as of December 31, 2004,  the Company's  United  Kingdom (UK)
     subsidiary had approximately  $14,000 tax net operating loss  carryforwards
     which will carryforward  indefinitely.  The Company has alternative minimum
     tax  credit  carryforwards  in  the US of  approximately  $519,  which  are
     available to reduce future US Federal regular income taxes, if any, over an
     indefinite period.

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

     Based on management's  assessment of the need for a valuation  allowance as
     at the balance  sheet dates,  the Company views the  recoverability  of the
     deferred tax assets, net of existing valuation  allowances,  as more likely
     than not to be realizable.  Movement in the valuation  allowance during the
     year ended  December  31, 2004  primarily  reflected  the net effect of the
     change in deferred tax assets in respect of tax losses  carried  forward of
     the Company's UK subsidiary.

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

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



                                      F-20
<PAGE>


                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002)
                            (US dollars in thousands)

9.   RESTRUCTURING CHARGE

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

     In December 2001, the Board of Directors  approved a restructuring  plan to
     transfer  its  R&D  operations  in  the US  and  Hong  Kong  to  China  for
     implementation  in  February  2002.  The  estimated  costs  related to this
     restructuring  were accrued in December 2001.  These accrued  restructuring
     charges were substantially  disbursed during 2002. The total  restructuring
     charges  consisted  of $1,514 of cash  outlays,  the majority of which were
     incurred  in  fiscal  2002,  and $40 of  non-cash  charges,  primarily  for
     leasehold improvements  write-offs.  The remaining restructuring reserve as
     at  December  31,  2002  consisted  of $34,  primarily  related  to certain
     termination benefits which were paid in 2003.

     The components of restructuring charges are as follows:

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

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


                                      F-21
<PAGE>


                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002)
                (US dollars in thousands, except per share data)

10.  EARNINGS PER SHARE

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

<TABLE>
<CAPTION>
                                                      2004               2003              2002
                                                   -----------       -----------       -----------
<S>                                                <C>               <C>               <C>
     Numerator for basic and diluted
       earnings per share:
       Net income                                  $     3,456       $    12,491       $    11,934
                                                   ===========       ===========       ===========

     Denominator:
     Basic weighted average shares                  18,653,471        18,016,789        17,725,879
     Effect of dilutive options and warrants           872,286         1,043,185           609,948
                                                   -----------       -----------       -----------
     Diluted weighted average shares                19,525,757        19,059,974        18,335,827
                                                   ===========       ===========       ===========

     Basic net income per share:                   $      0.19       $      0.69       $      0.67
                                                   ===========       ===========       ===========

     Diluted net income per share:                 $      0.18       $      0.66       $      0.65
                                                   ===========       ===========       ===========
</TABLE>

     Options and warrants on 54,000,  136,500 and 441,700 shares of common stock
     for the years ended December 31, 2004, 2003 and 2002, respectively were not
     included in computing  diluted  earnings per share since their effects were
     antidilutive.

11.  STOCK-BASED COMPENSATION

     The Company's 1994 Stock Option Plan and 2004 Omnibus Equity Incentive Plan
     for employees and directors  (together,  the "Stock Option Plan")  provides
     for options to be granted for the  purchase of an  aggregate  of  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 shareholders' approval, the
     total number of shares of the Company's  common stock that may be purchased
     pursuant to options under such plan has been increased to 4,200,000 shares.
     Options to employees  are  generally  exercisable  over three to five years
     from the date of grant and vest, or are exercisable, in equal installments,
     the  period  beginning  one year after the date of grant  unless  otherwise
     provided.  Options granted to employees under the stock option plan must be
     exercised no later than ten years from the date of grant.  The Company also
     maintains plans under which it offers stock options to directors.  Pursuant
     to the terms of the plans under  which  directors  are  eligible to receive
     options,  each director is entitled to receive  options to purchase  common
     stock upon initial  election to the Board and at each subsequent  quarterly
     Board meeting. Options are exercisable during the period beginning one year
     after the date of grant.

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


                                      F-22
<PAGE>


                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002)
           (US dollars in thousands, except share and per share data)

11.  STOCK-BASED COMPENSATION (continued)

     A summary of option activity is as follows:-

<TABLE>
<CAPTION>
                                               2004                     2003                       2002
                                    ------------------------  -------------------------  -------------------------

                                                   Weighted                   Weighted                   Weighted
                                                   average                     average                    average
                                                   exercise                    exercise                   exercise
(Shares in thousands)                 Shares        price       Shares          price       Shares        price
                                      ------        -----       ------          -----       ------        -----
<S>                                    <C>          <C>          <C>          <C>           <C>          <C>
     Outstanding at
       beginning of year               1,947        $   3.41     2,313        $    4.05     2,191        $   3.88
     Options granted                     187            8.36       370             5.10       585            3.75
     Options exercised                  (510)           2.11      (426)            2.67      (145)           2.13
     Options forfeited                   (41)           4.19      (310)           11.24      (318)           3.21
                                     --------                  --------                    --------
     Outstanding at end of year        1,583        $   4.39     1,947        $    3.41     2,313        $   4.05
                                     ========                  ========                    ========

     Options exercisable
       at year end                     1,091        $   3.80     1,232        $    2.88     1,352        $   4.52
                                     ========                  ========                    ========
</TABLE>

     The following is additional  information relating to options outstanding as
     of December 31, 2004:

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

<S>                                <C>              <C>                  <C>             <C>          <C>
     $ 1.090 to 2.000                 76            $    1.83            5.07               76        $    1.83
     $ 2.001 to 4.000                880                 3.27            5.08              760             3.26
     $ 4.001 to 6.000                304                 4.37            7.93              127             4.33
     $ 6.001 to 8.000                139                 6.81            8.24              104             6.76
     $ 8.001 to 10.000               167                 8.56            9.25                7             8.57
     $ 12.001 to 14.000               16                12.63            4.31               16            12.63
     $ 18.001 to 20.000                1                20.00            3.00                1            20.00
                               ---------                                              --------
                                   1,583            $    4.39            6.34            1,091        $    3.80
                               =========                                              ========
</TABLE>

     Pro forma  information  regarding  net  income  and  earnings  per share is
     required by SFAS No.  123,  and has been  determined  as if the Company had
     accounted  for its employee  stock  options  under the fair value method of
     SFAS No. 123. The weighted  average fair value of stock  options at date of
     grant were $2.70,  $1.47 and $1.51 per option for the years ended  December
     31, 2004, 2003 and 2002, respectively.  The values were estimated using the
     Black-Scholes  option  pricing  model with the following  weighted  average
     assumptions:


                                      F-23

<PAGE>


                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002)
           (US dollars in thousands, except share and per share data)

11.  STOCK-BASED COMPENSATION (continued)

<TABLE>
<CAPTION>
                                                        2004            2003           2002
                                                     -----------    -----------    -----------

<S>                                                   <C>            <C>            <C>
     Expected life of options                          3.5 years      3.6 years      3.4 years
     Risk-free interest rate                           3.6%           2.8%           4.1%
     Expected volatility of underlying stock            45%            33%            51%
     Dividends                                         1.9%            --             --
</TABLE>

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

     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 and
     earnings  per share would have been  adjusted  to the pro forma  amounts as
     follows:

                                            2004          2003            2002
                                         ---------     ----------      ---------

     Reported net income                 $   3,456     $   12,491      $  11,934
     Pro forma net income                    2,905         11,995         11,188

     Reported net income per share
          Basic                          $    0.19     $     0.69      $    0.67
          Diluted                             0.18           0.66           0.65

     Pro forma net income per share
          Basic                          $    0.16     $     0.66      $    0.63
          Diluted                             0.15           0.62           0.61

12.  RETIREMENT PLAN

     In Hong Kong,  the Company has both  mandatory  provident  fund and defined
     contribution  retirement plans covering substantially all employees.  Under
     these  plans,   eligible  employees   contribute  amounts  through  payroll
     deductions  which  are 5% or more of  individual  salary,  supplemented  by
     employer  contributions  ranging  from  5%  to  10%  of  individual  salary
     depending on the years of service. The expenses related to these plans were
     $198,  $253 and $142 for the years ended December 31, 2004,  2003 and 2002,
     respectively.

     Radica's US and UK employees are eligible to  participate  in savings plans
     administered by independent trustees, all of which are defined contribution
     plans.  The Company makes company  contributions  and both  individual  and
     company  contributions  are invested into a balanced  variety of investment
     funds.  The Company  contributed  approximately  $118, $74 and $60 to these
     plans for the years ended December 31, 2004, 2003 and 2002, respectively.


                                      F-24

<PAGE>


                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002)
                            (US dollars in thousands)

13.  FAIR VALUE OF FINANCIAL INSTRUMENTS

     The  amounts  reported  for  cash  and  cash  equivalents,  trade  accounts
     receivable  and trade accounts  payable are considered to approximate  fair
     values because of the short duration of these instruments.

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

14.  PLEDGE OF ASSETS

     At December 31, 2004, the Company has general banking facilities  including
     overdraft and trade facilities  totaling $3,798 available to be drawn upon.
     The facilities are  collateralized by leasehold land and buildings and bank
     balances with an aggregate net book value of $3,232.

15.  COMMITMENTS AND CONTINGENCIES

     Leases

     The Company leases certain offices,  warehouses and equipment under various
     operating lease arrangements. The rental expense under the operating leases
     was  approximately  $761,  $589 and $509 for the years ended  December  31,
     2004, 2003 and 2002, respectively. In the normal course of business, leases
     that expire will be renewed or replaced by leases on other  properties.  As
     of  December  31,  2004,  the Company was  obligated  under  non-cancelable
     operating leases requiring future minimum rental payments as follows:

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

     2005                                               720
     2006                                               601
     2007                                               374
     2008                                               318
     2009                                               204
     Thereafter                                         899
                                             ---------------
     Total minimum lease payments                   $ 3,116
                                             ===============

     Joint Venture Agreement

     Under the terms of a joint venture  agreement with the local  government in
     Dongguan as of December 31,  2004,  the Company is committed to pay a total
     of $3,317 in varying amounts over the next 20 years.

     Warranties

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


                                      F-25
<PAGE>


                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002)
                            (US dollars in thousands)

15.  COMMITMENTS AND CONTINGENCIES (Continued)

     Licensing Commitments

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

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

     2005                            $ 1,294
     2006                                106
     2007                                231
     2008                                 10
     2009                                210
     Thereafter                           10
                                   ------------
                                     $ 1,861
                                   ============

     Capital Commitments

     The Company has capital commitments of $571 at December 31, 2004 in respect
     of the  expansion of its  manufacturing  facilities  in Dongguan,  PRC. The
     Company expects the expansion to be fully completed in 2005.

     Litigation

     On  April  4,  2000  a  lawsuit  was  filed  by  the  Lemelson   Foundation
     ("Lemelson")  against the Company in Arizona Court for patent infringement.
     Lemelson  claims to be owner of nearly  800  issued  and  pending  patents,
     including the patent on Machine Vision and Automatic  Identification  (Auto
     ID) operations.  The Auto ID operation is used in machines that are part of
     the Company's bonding and heat-sealing manufacturing processes. Lemelson is
     contesting  that  the  use  of  machines  that  incorporate  this  patented
     technology  infringes  on their IP rights  and  therefore  the  Company  is
     obligated to pay a royalty based on the use of this technology. The suit by
     Lemelson  has been stayed  pending the outcome of Lemelson  vs.  Cognex,  a
     similar suit filed by Lemelson,  which will have some bearing on the Radica
     case with Lemelson. On January 23, 2004 a declaratory judgment was given in
     the Cognex case that the  Lemelson's  patent  claims are  invalid.  If this
     judgment is upheld following appeal,  the Company believes that this result
     is favorable to the Company's defense of the Lemelson lawsuit.  On June 29,
     2004,  Lemelson  filed its notice of appeal to the Court of Appeals for the
     Federal  Circuit.  The briefing is not  expected to be completed  until the
     first half of 2005 and a decision  from the Court will likely not be issued
     until 2006.

     The Company  cannot  predict the outcome of the Lemelson case or the effect
     of such litigation on the financial results of the Company.  No accrual has
     been  recorded at December 31, 2004 and December 31, 2003 in respect of the
     Lemelson case or other claims or legal actions, in accordance with SFAS No.
     5  Accounting  for  Contingencies.  Management  does not  believe  that the
     ultimate  disposition  of the other  matters  will have a material  adverse
     effect  on  the  Company's  consolidated  financial  position,  results  of
     operations or liquidity.


                                      F-26
<PAGE>


                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002)
                            (US dollars in thousands)

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

     Accounts receivable of the Company are subject to a concentration of credit
     risk with  customers in the North  American and the United  Kingdom  retail
     sector and customers in the Company's  manufacturing services. This risk is
     somewhat  limited  due to the  large  number  of  customers  composing  the
     Company's  customer  base  and  their  geographic  dispersion,  though  the
     Company's  Games  business had one customer  which  accounted for more than
     twenty-four  percent of consolidated  net sales for the year ended December
     31, 2004, one customer which accounted for more than thirty-one  percent of
     consolidated  net  sales  for the  year  ended  December  31,  2003 and one
     customer which accounted for more than twenty-four  percent of consolidated
     net sales for the year ended  December 31,  2002.  The  Company's  top five
     customers  accounted for 55% and 42% of the Company's net sales in 2004 and
     2003  respectively.  The Company performs ongoing credit evaluations of its
     customers' financial condition and, generally,  requires no collateral from
     its  customers.  Several of the Company's  licenses  apply to products that
     generate a large volume of sales.  To the extent,  the Company is unable to
     maintain these licenses,  the lost sales could have a significant impact on
     future sales. On March 17, 2005, a significant  customer that accounted for
     approximately  10% of the Company's  sales in 2004,  announced  that it had
     agreed to be acquired.  The acquiring group has not commenced any plans for
     the  future of this  customer,  but a  restructuring  that  includes  store
     closings or  liquidation of the company could have an adverse effect on the
     Company's business.

17.  SEGMENT INFORMATION

     The Company is a worldwide  designer,  producer and marketer of  electronic
     entertainment  devices.  The Company has two reportable segments from which
     it derives its  revenues:  the Games and Youth  Electronics  business  that
     sells product under the Company's different brand names, and the Video Game
     Accessory   ("VGA")   business  that  sells  product  under  the  Company's
     Gamester(R)  brand name. The reportable  segments are strategic  businesses
     that offer different products,  and have different production processes and
     different type of customers. The Company also sources certain VGA and other
     electronic   products  through  third  party  manufacturers  for  retailers
     ("Manufacturing  Services")  to sell under their own  brands;  this is also
     included in the Games and Youth Electronics and VGA segments. Manufacturing
     Services is not considered a separate  business  segment because the nature
     of the products and services  provided under a manufacturing  service order
     is always  either Games and Youth  Electronics  or VGA.  Except for certain
     small tools that are  expensed in the year of service,  the Company did not
     acquire additional machines or equipment to manufacture these products.  As
     such, the chief  operating  decision maker has not analyzed or assessed the
     performance of  Manufacturing  Services as a separate line of business or a
     reportable  operating  segment,  but  rather  as a  type  of  service  that
     generates auxiliary income to the Company to the extent if it has excessive
     production  capacity to fill the order.  Revenue  and costs  related to the
     Manufacturing  Services are allocated  between Games and Youth  Electronics
     and VGA based on product type.

     The accounting  policies of the  reportable  segments are the same as those
     described elsewhere in these Notes to the Company's  consolidated financial
     statements  for the year ended  December  31,  2004.  The Company  measures
     segment  performance  based on net income  before  foreign  currency  gain,
     income  taxes,  interest,  other income and allocable  corporate  expenses.
     Unallocable   corporate   expenses   such  as  costs  related  to  business
     integration  and other  general  and  administrative  expenses  are managed
     outside of the operating  segments and are included as corporate costs. All
     other  indirect costs have been  apportioned on the basis of  corresponding
     sales  and  direct  costs.  Inter-segment  sales  and  transfers  have been
     eliminated and are not included in the following table.

     A large  proportion of the  Company's  assets are utilized by both segments
     and are  therefore  not suitable for  allocating  to specific  assets.  The
     segment  assets are  comprised  of  accounts  receivable,  inventories  and
     goodwill.  Other assets included in corporate principally are cash and cash
     equivalents,  investment securities,  deferred tax assets,  property, plant
     and equipment,  and all other  insignificant  assets not  reportable  under
     other  segments.  Information by segment and a  reconciliation  to reported
     amounts for the year ended December 31, 2004, 2003 and 2002 are as follows:


                                      F-27
<PAGE>


                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002)
                            (US dollars in thousands)

17.  SEGMENT INFORMATION (Continued)

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

<TABLE>
<CAPTION>
                                                   2004          2003            2002
                                                ---------      ---------      ---------
<S>                                             <C>            <C>            <C>
     Revenues from external customers
       Games and Youth Electronics              $ 110,176      $  87,986      $ 104,062
       VGA                                         13,223         17,214         20,584
                                                ---------      ---------      ---------
     Total revenues from external customers     $ 123,399      $ 105,200      $ 124,646
                                                =========      =========      =========

     Depreciation and amortization
       Games and Youth Electronics              $   1,505      $   1,671      $   2,446
       VGA                                            188            362            412
                                                ---------      ---------      ---------
     Total depreciation and amortization        $   1,693      $   2,033      $   2,858
                                                =========      =========      =========

     Impairment of goodwill
       Games and Youth Electronics              $      --      $      --      $      --
       VGA                                          3,536             --             --
                                                ---------      ---------      ---------
     Total impairment of goodwill               $   3,536      $      --      $      --
                                                =========      =========      =========

     Segment income (loss)
       Games and Youth Electronics              $   8,833      $  13,788      $  18,004
       VGA                                         (3,527)        (2,547)        (3,636)
                                                ---------      ---------      ---------
     Total segment income                       $   5,306      $  11,241      $  14,368

     Corporate
       Unallocated corporate expenses           $  (2,947)     $  (2,406)     $  (1,850)
       Net interest and other income                1,936            790          2,085
       (Provision) credit for income taxes           (839)         2,866         (2,669)
                                                ---------      ---------      ---------
     Total consolidated net income              $   3,456      $  12,491      $  11,934
                                                =========      =========      =========

     Segment assets
       Games and Youth Electronics              $  38,134      $  23,061      $  26,037
       VGA                                         13,058         17,353         19,038
       Corporate                                   58,749         61,800         50,227
                                                ---------      ---------      ---------
     Total consolidated assets                  $ 109,941      $ 102,214      $  95,302
                                                =========      =========      =========
</TABLE>

                                      F-28
<PAGE>


                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002)
                            (US dollars in thousands)

17.  SEGMENT INFORMATION (Continued)

     Revenues  from  external  customers  by segment  and product  category  and
     manufacturing services within the segment are summarized as follows:

                                               2004         2003         2002
                                             --------     --------     --------
     Games and Youth Electronics Segment
       Electronic Games                      $ 80,640     $ 62,374     $ 62,684
       Youth Electronics                       17,038       15,227       16,744
       Other Electronic Toys                    3,490         --           --
       Manufacturing Services                   9,008       10,386       24,634
                                             --------     --------     --------
                                              110,176       87,987      104,062
     VGA Segment
       Video Games Accessories                 12,840       14,294       15,844
       Manufacturing Services                     383        2,919        4,740
                                             --------     --------     --------
                                               13,223       17,213       20,584

     Total net revenues                      $123,399     $105,200     $124,646
                                             ========     ========     ========

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

                                 2004         2003         2002
                               --------     --------     --------

     Net sales:
       United States           $ 81,542     $ 72,520     $ 76,926
       United Kingdom            18,156       13,189       17,888
       New Zealand                1,094          152         --
       Japan                      1,591          930       14,832
       Europe                     3,744        3,292        1,863
       Canada                     3,471        2,191        2,279
       Australia                  4,387        1,970          465
       Other countries            9,414       10,956       10,393
                               --------     --------     --------
                               $123,399     $105,200     $124,646
                               ========     ========     ========

     Long-lived assets:
       United States           $  6,534     $  9,937     $    771
       United Kingdom               147          114        9,733
       China and Hong Kong       11,668       12,283       13,977
                               --------     --------     --------
                               $ 18,349     $ 22,334     $ 24,481
                               ========     ========     ========


                                      F-29
<PAGE>


                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                 (YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002)
                            (US dollars in thousands)

18.  VALUATION AND QUALIFYING ACCOUNTS

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

<S>                                                       <C>              <C>               <C>               <C>
     2004
         Allowance for doubtful accounts                  $   251          $     6           $  (109)          $   148
         Allowance for estimated product returns            1,390            1,145            (1,611)              924
         Accrued warranty expenses                          1,040            1,903            (1,873)            1,070
         Accrued sales allowance                            2,893            2,834            (3,816)            1,911
                                                          -------          -------           -------           -------
                                                          $ 5,574          $ 5,888           $(7,409)          $ 4,053
                                                          =======          =======           =======           =======

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

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


                                      F-30
<PAGE>


                                   SIGNATURES


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



                                            RADICA GAMES LIMITED




Date:    March 24, 2005                      /s/ Craig D. Storey
     ------------------------               ------------------------------------
                                            Craig D. Storey
                                            Chief Accounting Officer
















                                      I-1


<PAGE>

EXHIBIT INDEX
-------------

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

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

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

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

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

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

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

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

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

               4.6         Amendment No. 1 to Employment Agreement,  dated as of
                           March 31, 2003,  between  Radica USA and Jeanne Olson
                           (incorporated  by  reference  to  exhibit  4.6 to the
                           filing of the  registrant  identified  in  footnote 8
                           below).

               *4.6(a)     Amendment No. 2 to Employment Agreement,  dated as of
                           February 1, 2005, between Radica USA and Jeanne Olson

               4.7         Change in Control Bonus Agreement,  dated as of March
                           31,  2003,   between  Radica  USA  and  Jeanne  Olson
                           (incorporated  by  reference  to  exhibit  4.7 to the
                           filing of the  registrant  identified  in  footnote 8
                           below).

               4.8         Agreement (in  connection  with  Executive's  sale of
                           shares),  dated as of March 31, 2003,  between Radica
                           USA and Jeanne  Olson  (incorporated  by reference to
                           exhibit   4.8  to  the   filing  of  the   registrant
                           identified in footnote 8 below).

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

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


                                      I-2

<PAGE>

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

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

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

               4.14        2004 Omnibus Equity  Incentive Plan  (incorporated by
                           reference  to  exhibit  4.14  to  the  filing  of the
                           registrant identified in footnote 8 below).

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

               4.16        Amendment No. 1 to Employment Agreement,  dated as of
                           March  31,  2003,  among  Radica  USA,  Radica  Games
                           Limited and Patrick Feely  (incorporated by reference
                           to  exhibit  4.16  to the  filing  of the  registrant
                           identified in footnote 8 below).

               * 4.16(a)   Amendment No. 2 to Employment  Agreement  dated as of
                           January  31,  2005 among  Radica  USA,  Radica  Games
                           Limited and Patrick Feely.

               4.17        Change in Control Bonus Agreement,  dated as of March
                           31, 2003,  among Radica USA, Radica Games Limited and
                           Patrick Feely  (incorporated  by reference to exhibit
                           4.17 to the filing of the  registrant  identified  in
                           footnote 8 below).

               4.18        Agreement (in  connection  with  Executive's  sale of
                           shares),  dated as of March 31,  2003,  among  Radica
                           USA,   Radica   Games   Limited  and  Patrick   Feely
                           (incorporated  by  reference  to  exhibit  3.2 to the
                           filing of the  registrant  identified  in  footnote 1
                           below).

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

               4.20        Amendment No. 1 to Employment Agreement,  dated as of
                           March 31,  2003,  between  Radica  Games  Limited and
                           David  C.W.  Howell  (incorporated  by  reference  to
                           exhibit   4.20  to  the  filing  of  the   registrant
                           identified in footnote 8 below).

               * 4.20(a)   Amendment No. 2 to Employment Agreement,  dated as of
                           February 18, 2005,  between  Radica Games Limited and
                           David C.W. Howell.

               4.21        Change in Control Bonus Agreement,  dated as of March
                           31, 2003, between Radica Games Limited and David C.W.
                           Howell  (incorporated by reference to exhibit 4.21 to
                           the filing of the registrant identified in footnote 8
                           below).

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

               * 4.23      Employment  Agreement  among Radica USA, Radica Games
                           Limited and  Theodore J.  Eischeid  dated  January 7,
                           2005.

               * 6.1       Statement re Computation of Per Share Earnings.


                                      I-3
<PAGE>

               * 8.1       List of subsidiaries

               * 12.1      Section 302 Certification of Patrick S. Feely

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

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

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

               * 15.1      Statement re Selected Quarterly Financial Data

               * 15.2      Consent of KPMG


----------

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

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

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

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

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

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

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

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


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

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

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



                                      I-4