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, 2002.

                                       OR

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


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


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

                                     BERMUDA
                 (Jurisdiction of incorporation or organization)

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

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

                                      None

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

                          Common Stock, Par Value $.01

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

                                      None

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

         Title of each class                           Amount Outstanding
         -------------------                           ------------------
    Common Stock, Par Value $.01                           17,796,131

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, 2002

                               ITEMS IN FORM 20-F

                                                                           Page
                                                                           ----

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                                      11

    ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS                    23

    ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                      28

    ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS               34

    ITEM 8.  FINANCIAL INFORMATION                                           35

    ITEM 9.  THE OFFER AND LISTING                                           35

    ITEM 10.  ADDITIONAL INFORMATION                                         36

    ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
              MARKET RISK                                                    39

    ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES         39

PART II                                                                      39

    ITEM 13.  DEFAULTS, DIVIDEND AVERAGES AND DELINQUENCIES                  39

    ITEM 14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND
    USE OF PROCEEDS                                                          39

    ITEM 15.  CONTROLS AND PROCEDURES                                        40

    ITEM 16A.  AUDIT COMMITTEE FINANCIAL EXPERT                              40

    ITEM 16B.  CODE OF ETHICS                                                40

    ITEM 16C.  PRINCIPAL ACCOUNTANT FEES AND SERVICES                        40

PART III                                                                     40

     ITEM 17.  FINANCIAL STATEMENTS                                          40

     ITEM 18.  FINANCIAL STATEMENTS                                          40

     ITEM 19.  EXHIBITS                                                      40


                                       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, 2002.  See "Item 3. Key  Information  - Risk Factors" in this report on Form
20-F. We are not  undertaking to publicly  update or revise any  forward-looking
statement if we obtain new  information  or upon the occurrence of future events
or otherwise.






                                       3
<PAGE>


                                     PART I

ITEM 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

         Not Applicable

ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE

         Not Applicable

ITEM 3.  KEY INFORMATION

SELECTED FINANCIAL DATA

         Set forth below is the selected income statement and balance sheet data
for the year ended October 31, 1998, the two months in the period ended December
31, 1998 (the  Company's  year end having changed from October 31 to December 31
in that year) and each of the four years in the period ended  December 31, 2002.
This data is derived  from the  financial  statements  included  herein and from
those previously  reported for earlier  periods.  This summary should be read in
conjunction  with  "Operating  and  Financial  Review  and  Prospects"  and  the
consolidated  financial  statements and notes thereto included elsewhere in this
document.

<TABLE>
<CAPTION>
                                                                                                         TWO MONTHS       YEAR
                                                                                                            ENDED         ENDED
(in thousands, except per share data and margins)                 YEAR ENDED DECEMBER 31,               DECEMBER 31,  OCTOBER 31,
                                                2002         2001           2000            1999            1998          1998
                                                ----         ----           ----            ----            ----          ----
INCOME STATEMENT DATA:
<S>                                           <C>           <C>           <C>             <C>             <C>           <C>
Net sales                                     $124,646      $98,554       $106,696        $136,716        $21,071      $155,618
Cost of sales                                   77,481       64,698         83,041          80,910         10,717        70,576
                                               -------       ------        -------         -------         ------       -------
Gross profit                                    47,165       33,856         23,655          55,806         10,354        85,042
                                               -------       ------        -------         -------         ------       -------
Operating expenses:
  Selling, general and administrative           27,695       26,279         32,322          28,353          3,639        27,507
  Research and development                       4,094        5,775          5,210           6,036            730         3,710
  Acquired research and development                 --           --             --              --             --         1,500
  Depreciation and amortization                  2,858        4,013          5,427           4,956            612         3,423
  Restructuring charge                              --        1,551          1,190              --             --            --
                                               -------       ------        -------         -------         ------       -------
Total operating expenses                        34,647       37,618         44,149          39,345          4,981        36,140
                                               -------       ------        -------         -------         ------       -------
Operating income (loss)                         12,518       (3,762)       (20,494)         16,461          5,373        48,902
Other income                                       306           24            781             718            471           807
Foreign currency gain (loss), net                1,744         (219)            49             304            (18)         (281)
Share of loss of affiliated company                 --           --             --          (1,748)          (120)         (334)
Net interest income                                 35          136            664           1,469            289         1,896
                                               -------       ------        -------         -------         ------       -------
Income (loss) before income taxes               14,603       (3,821)       (19,000)         17,204          5,995        50,990
(Provision) credit for income taxes             (2,669)        (553)           901            (149)          (176)          226
                                               -------       ------        -------         -------         ------       -------
Net income (loss)                              $11,934      $(4,374)      $(18,099)        $17,055         $5,819       $51,216
                                               =======       ======        =======         =======         ======       =======
Net income (loss) per share - basic              $0.67       $(0.25)        $(1.03)          $0.94          $0.31         $2.53
                                               =======       ======        =======         =======         ======       =======
Weighted average number of common shares        17,726       17,612         17,608          18,144         18,883        20,240

Net income (loss) per share - diluted            $0.65       $(0.25)        $(1.03)          $0.90          $0.29         $2.39
                                               =======       ======        =======         =======         ======       =======
Weighted average number of common shares
  and common equivalent shares                  18,336       17,612         17,608          18,979         20,094        21,488

                                                                                  (continued)

                                                                  4
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                                                                            TWO MONTHS       YEAR
                                                                                              ENDED          ENDED
(in thousands, except per share data and margins)                 YEAR ENDED DECEMBER 31,   DECEMBER 31,  OCTOBER 31,
                                            2002        2001         2000         1999         1998          1998
                                            ----        ----         ----         ----         ----          ----
INCOME STATEMENT DATA:
<S>                                       <C>          <C>          <C>          <C>          <C>           <C>
STATISTICAL DATA:
Gross margin                                37.8%        34.4%        22.2%        40.8%        49.1%        54.6%
Operating margin                            10.0%        (3.8%)      (19.2%)       12.0%        25.5%        31.4%

BALANCE SHEET DATA (AT PERIOD END):
Working capital                           $50,155      $36,709      $42,619      $65,123      $65,776      $59,913
Total assets                               95,302       88,407       99,315      122,174      108,190      113,521
Long-term debt                                  -        1,825        5,473       10,946            -            -
Total debt                                  2,671        6,319       12,901       13,809            -            -
Common stock                                  178          176          176          176          189          189
Shareholders' equity                       74,636       63,052       67,388       86,062       85,735       79,839
</TABLE>

RISK FACTORS

         Investment  in the  shares  of Common  Stock of Radica  Games Ltd ("the
Company")  involves a significant degree of risk.  Prospective  investors should
carefully  consider the following  factors  together with the other  information
contained or  incorporated  by reference  herein prior to making any  investment
decision regarding the Company or its securities.

MANUFACTURING IN CHINA

         The Company's factory (the "Factory") location is in Southern China and
its headquarters are in Hong Kong, which is a Special  Administrative  Region of
China.  See "Item 4.  Information  on the  Company -  Description  of Business -
Manufacturing Facilities".

         Risk of China  Losing  Normal  Trade  Relations  ("NTR")  Status  or of
Changes  in Tariff or Trade  Policies.  The  Company  manufactures  in China and
exports  from  Hong Kong and  China to the  United  States  and  worldwide.  Its
products  sold in the  United  States  are  currently  not  subject to US import
duties.  On September  19, 2000,  the US Senate voted to  permanently  normalize
trade with China,  which provides a favorable  category of US 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 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 the Company's business.

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

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


                                       5
<PAGE>


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

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

         Chinese Taxation.  The Company paid $920,000 in foreign  enterprise tax
on its Joint  Venture  in China in 2002,  the  fourth  year it has paid  foreign
enterprise  tax in China.  The  Company  was  granted  50% relief  from  foreign
enterprise tax through December 31, 2001 under the Foreign Enterprise Law of The
People's Republic of China ("PRC"), and was therefore taxed at 12%. In 2002, the
Company  was  taxed at the full  rate of tax of 24%;  however,  the  Company  is
applying to be designated as an "Export Oriented Enterprise",  which will reduce
its tax rate to 12% if the  application  is successful.  In addition,  under the
existing  processing   arrangement  and  in  accordance  with  the  current  tax
regulations in the PRC, manufacturing income generated in the PRC is not subject
to PRC  foreign  enterprise  taxes (see "Item 4.  Information  on the  Company -
Description of Business - Manufacturing Facilities").

         The PRC assesses tax on the Company based on two separate contracts:  a
Processing Agreement (PA) and a Joint Venture (JV) contract.  The JV 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 tax on a PA is assessed on labor and raw material costs submitted
periodically  to the PRC customs offices  throughout the year.  During 2001, the
Company made a decision to end its use of PA  contracts.  As of the date of this
report,  the Company had one  outstanding  PA contract for which a discharge has
been applied.  The Company does not expect to have any open PA contracts by June
30, 2003.

         The Chinese tax system is subject to substantial  uncertainties and has
been subject to recently enacted changes,  the interpretation and enforcement of
which are also uncertain.  There can be no assurance that changes in Chinese tax
laws or their  interpretation  or their application will not subject the Company
to substantial Chinese taxes in the future.

         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.

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

DEPENDENCE ON CURRENT PRODUCT APPEAL AND NEW PRODUCT INTRODUCTIONS

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

         Some of the Company's  products have been only recently  introduced and
although they may  experience  good initial sales growth,  there is no assurance
that such initial  success is  indicative  of  significant  future  sales.  As a
general matter, the


                                       6
<PAGE>


Company  expects that the sales of these products will eventually  decline.  The
Company cannot predict how long the product cycle will last for any product.  In
order to control costs,  and take advantage of the finite shelf space  available
to the Company, it will also need to delete products from its line periodically.
The Company's long-term operating results will therefore depend largely upon its
continued ability to conceive,  develop and introduce new appealing  products at
competitive prices.

         Once  a  new  product  is  conceived,   the  principal   steps  to  the
introduction  of  the  product  include  design,  sourcing  and  testing  of the
electronic  components,  tooling,  and  purchase  and  design  of  graphics  and
packaging.  At any stage in the process,  there may be difficulties or delays in
completing the necessary  steps to meet the  contemplated  product  introduction
schedule.  It is, for example,  common in new product  introductions  or product
revisions to encounter technical and other difficulties affecting  manufacturing
efficiency and, at times, the ability to manufacture at all, that will typically
be  corrected  or improved  over a period of time with  continued  manufacturing
experience  and  engineering  efforts.  If one or  more  aspects  necessary  for
introduction  of  products  are not met in a  timely  fashion,  or if  technical
difficulties take longer than anticipated to overcome,  the anticipated  product
introductions will be delayed, or in some cases may be terminated.  Therefore no
assurances can be given that products will be introduced in a timely fashion.

         For  most  of  the  Company's  history,  electronic  games  made  up  a
significant  portion of the  Company's  overall sales (see chart on page 16). In
1998 and 1999,  electronic  games  made up 77.1%  and  64.2%,  respectively.  In
response to the heavy  concentration  of sales within this category,  Radica has
worked to diversify its product  lines.  Electronic  games  accounted for 54.2%,
53.0% and 50.3% of sales in 2000, 2001 and 2002, respectively.

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

         There is no  assurance  that  retailers  will react  positively  to new
product introductions.  There is also a risk that the demand for new or existing
products  could  drop  suddenly.  As a result,  the  Company  may  build  excess
quantities of certain products and subsequently have to put inventory provisions
in  place  to mark  the  value  of  excess  inventory  quantities  down to their
estimated market value.

         There  are often  technical  challenges  in  bringing  a  product  into
production.  The Company may  announce and sell a product but later find it must
be delayed or abandoned due to difficulties  in engineering  and  manufacturing.
There can be no assurance that an announced  product will ship on time or not be
abandoned.

NO ASSURANCE OF GROWTH

         There can be no assurance  that the Company will achieve  future growth
in net sales or that it will be able to maintain its present levels of net sales
or profitability. The Company's current business strategy emphasizes the sale of
a controlled  number of products,  while  representing  a more diverse  range of
products,  e.g., Handheld games,  Barbie(TM)  electronic games, the Girl Tech(R)
line,  Play  TV(R)  products,  video  game  accessories  ("VGA")  sold under the
Gamester(R) brand,  Original Design Manufacturing ("ODM") and Original Equipment
Manufacturing ("OEM") products.

DEPENDENCE ON MAJOR CUSTOMERS

         Historically,  a significant  portion of the Company's  sales have been
concentrated  with a few  large  retail  customers.  See Note 18 of Notes to the
Consolidated  Financial Statements included herein. Most of the Company's retail
customers  operate  on a  purchase  order  basis and the  Company  does not have
long-term  contracts with its retail customers.  While management  considers the
Company's  relationships with its major retail customers to be good, the loss of
one or more of its major retail  customers  would have an adverse  effect on the
Company's results of operations.

         On January 22, 2002 the Kmart Corporation filed for protection from its
creditors under Chapter 11 of the United States  Bankruptcy  Code. The Company's
receivable  exposure  was entirely  provided  for during 2001 and no  additional
write-downs or expenses related to the bankruptcy were incurred during 2002. The
Company continued to sell to Kmart under a debtor-in-possession agreement during
2002 and will closely monitor its account with Kmart in order to minimize future
exposure.

         During 2002, a  significant  portion of the  Company's  sales also came
from Shinsedai Co., Ltd.  ("SSD") in the form of OEM projects.  Additionally,  a
significant portion of OEM sales came from Hasbro, which is also a competitor of
the Company.


                                       7
<PAGE>


The Company does not have a specific contract with SSD or Hasbro regarding these
projects  and there is no assurance  that the Company  will  continue to receive
orders from SSD or Hasbro, which could have an adverse effect on the Company.

DEPENDENCE ON SUPPLIERS AND SUBCONTRACTORS

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

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

         The Company also relies on outside manufacturers for production of some
of its video game accessories.  While the Company has moved the majority of this
production into its own Factory,  manufacturer delays or shut downs could have a
significant impact on future sales of VGA products.

CONCENTRATED MANUFACTURING FACILITIES

         A disruption of operations at the Factory due to fire,  labor  dispute,
dispute with the local government or otherwise,  would have an adverse effect on
the Company's results of operations. In such event, the Company believes that it
could  partially  mitigate the effect of a disruption by  increasing  the use of
subcontractors  to assemble its products,  but there can be no assurance that it
would be able to do so. In addition, the Company's manufacturing  facilities are
dependent on the Company's relationship with the local government.

NO ASSURANCE OF SUCCESS IN NEW BUSINESS

         From time to time,  Radica  expands into related or new  businesses  in
order to diversify and grow. Examples include the development of its ODM and OEM
partnerships  and its expansion into the VGA market.  There is no assurance that
such  businesses  can be retained or that the Company will be successful in such
ventures.

NO ASSURANCE OF CONTINUED ODM/OEM BUSINESS

         The  Company  manufactures  goods for third  parties,  often  without a
contract.  The  Company's  contracts  with ODM/OEM  customers  can  generally be
terminated by either party on short notice,  therefore there can be no assurance
that such business can be retained for an extended  period of time. Loss of such
business would materially affect the Company's revenues.

DEPENDENCE ON KEY PERSONNEL

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

SEASONALITY

         The Company experiences a significant seasonal pattern in its operating
results and working capital  requirements.  The Company typically generates most
of its sales in the third and fourth  quarters of its fiscal year,  prior to the
traditional  gift season.  The high level of  seasonality  causes the Company to
take large risks in the purchase of inventory and extending  credit to customers
for the  holiday  season.  There can be no  guarantee  that the  Company  or its
customers  will sell all their  inventories.  Excess  inventory  at year-end may
result in financial losses from obsolescence  reserves,  returns,  markdowns and
bad debts.

         The Company's  operating results may also fluctuate during the year due
to other factors such as the timing of the  introduction  of new  products.  The
market price of the Common Stock may be subject to significant  fluctuations  in
response to variations in quarterly  operating  results and other  factors.  See
Exhibit 12.1 Statement re Selected Quarterly Financial Data included herein.


                                       8
<PAGE>


INDUSTRY AND PRODUCT LINE VOLATILITY

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

COMPETITION

         The electronic  games,  youth electronics and VGA businesses are highly
competitive.  The Company  currently faces direct  competition  from a number of
other producers of handheld  electronic  games and video game  accessories.  The
barriers for new  producers to enter into the Company's  markets are  relatively
low and the  Company  expects  that it will face  increased  competition  in the
future.  Some competitors offer products at lower prices, are better established
in the industry and are larger than the  Company.  In addition,  with respect to
ODM/OEM  manufacturing,  the  Company  competes  with a number of  substantially
larger and more experienced  manufacturers.  As the Company enters other markets
and businesses, it expects 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 the Company's  industry generally or
to the  Company's  business  specifically.  The Company will evaluate each claim
relating to its products or other aspects of its business  and, if  appropriate,
will seek a license to use the protected  technology.  There can be no assurance
that the Company  will be able to obtain  licenses to  intellectual  property of
third parties on  commercially  reasonable  terms,  if at all. In addition,  the
Company  could be at a  disadvantage  if its  competitors  obtain  licenses  for
protected  technologies  on more favorable  terms than does the Company.  If the
Company or its suppliers are unable to license protected  technology used in the
Company's  products,  the  Company  could be  prohibited  from  marketing  those
products or may have to market products without desirable features.  The Company
could also incur  substantial  costs to redesign  its  products or to defend any
legal  action  taken  against  the  Company.   If  the  Company's   products  or
manufacturing  methods  should be found to infringe  protected  technology,  the
Company could be enjoined from further  infringement and required to pay damages
to the infringed party. Any of the foregoing could have an adverse effect on the
results of  operations  and  financial  position  of the  Company.  See "Item 8.
Financial Information - Legal Proceedings".

PRODUCT LIABILITY

         Historically, the Company has had only a minor experience of complaints
relating to injuries or other damages caused by its products. However, in recent
years the  Company  has  introduced  products  that  involved  more  active play
including its Play TV baseball,  snowboard and boxing games. In fiscal 2000, the
Company  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.  The Company  recalled the bats for replacement with a reengineered
bat. The Company is in the process of handling all  remaining  claims  resulting
from damages  from the  recalled  bat and all pending  claims are covered by the
Company's product liability insurance.  The Company may be exposed to claims for
damages in these or other circumstances, some or all of which may not be covered
by insurance.  There can be no guarantee that current or future products may not
result in claims or that the Company's insurance will be adequate.

TAXATION

         The  Company  cannot  predict  whether its tax rates will change as tax
regulations  and  the  application  or  interpretation  thereof  in the  various
jurisdictions  within which the Company  operates are always  subject to change.
See "Item 4.  Information on the Company - Description of Business - Taxation of
the Company and its  Subsidiaries".  Taxes are subject to audit. There can be no
guarantee  that  additional  taxes  may be due as a result  of  audits  or other
factors. See also "Risk Factors - Manufacturing in China - Chinese Taxation".

COPY PRODUCT

         On  occasion in the  electronic  games and VGA  industries,  successful
products are  "knocked-off" or copied.  While the Company strives to protect its
intellectual  property there can be no guarantee that knock-offs will not have a
significant effect on


                                       9
<PAGE>


its  business.  The costs  incurred in  protecting  the  Company's  intellectual
property  rights could be significant and there is no assurance that the Company
will be able to successfully protect its rights.

BAD DEBTS AND RETURNS

         While the Company  performs  full credit checks on all of its customers
it cannot be assured  that any  customer  will not default on a payment of debt.
Such a default could have a significant effect on the Company's  results.  It is
industry practice for retailers to hold back payments on slow moving stock or to
request  markdowns or returns on such stock. It is the Company's policy in North
America to only take back  defective  product and while the Company  believes it
will be able to enforce this policy under normal industry conditions, it may not
be  possible  to  enforce  this  policy in all cases.  The VGA market  generally
experiences a higher rate of defective and overstock returns than the electronic
and mechanical game market does. Generally,  defective VGA 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 the Company will be
paid by the manufacturer.

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

CONTROL BY EXISTING SHAREHOLDERS

         The Company's largest shareholders (see "Item 7. Major Shareholders and
Related  Party  Transactions  - Control of  Registrant")  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 and/or Mary
Hansen,  own beneficially in the aggregate a majority of the outstanding  Common
Stock.  Assuming that they were in agreement,  such persons would have the power
to elect the Company's  directors and to approve or disapprove all other matters
requiring   shareholders'   approval   regardless  of  the  vote  of  any  other
shareholders.

ENFORCEABILITY OF CIVIL LIABILITIES

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

SHARES ELIGIBLE FOR FUTURE SALE

         At December 31, 2002, the Company had 17,796,131 shares of Common Stock
outstanding.  The  Company  estimates  that most of such  shares  were sold in a
registered  offering or in a  transaction  under Rule 144,  and  therefore  such
shares  (other than any shares  purchased  by  "affiliates"  of the Company) are
tradable   without   restriction.   The  remaining   shares  owned  by  existing
shareholders  are  restricted  securities  under the  Securities Act of 1933, as
amended (the  "Securities  Act") and may be sold only pursuant to a registration
statement  under  the  Securities  Act  or  an  applicable  exemption  from  the
registration  requirements of the Securities Act, including Rule 144 thereunder.
Most of these restricted shares are currently eligible for sale pursuant to Rule
144,  subject to the  limitations  of such rule.  In  addition,  the Company has
granted to the Hansen  Trust  certain  registration  rights with  respect to its
shares.  (See "Item 7. Major  Shareholders  and  Related  Party  Transactions  -
Interest of Management in Certain  Transactions")  No predictions can be made as
to the effect,  if any, that market sales of shares by existing  shareholders or
the availability of such shares for future sale will have on the market price of
Common Stock prevailing from time to time. The prevailing market price of Common
Stock could be  adversely  affected by future  sales of Common Stock by existing
shareholders.


                                       10
<PAGE>


LICENCES AND ROYALTIES

         The Company has entered into various license and royalty  agreements in
which it pays fees in exchange  for rights to the use of product  inventions  or
trademarked names, shapes and likenesses for use in development of the Company's
product line. The agreements generally include minimum fee guarantees based on a
reasonable  expectation of the product sales to be generated throughout the life
of the  agreement.  There can be no  assurance  that the Company will be able to
meet these  projected  expections and may be obligated to pay unearned fees as a
result.  Licence and royalty  agreements  are for fixed terms and often  contain
performance-related  covenants.  There is no assurance  that the Company will be
able to maintain or extend the rights to its existing licences.

CONSIGNMENT INVENTORY

         During 2001, the Company entered into distribution agreements in France
and Germany in which  inventory  is sold to the  distributors  on a  consignment
basis.  The  Company  has  implemented  controls  to  ensure  that the  physical
inventory is regularly matched to the Company's  internal  records.  There is no
assurance  that the  consumer  demand for the product in France and Germany will
match the distributors'  anticipated demand and there is a risk that the Company
will be left with excess  inventories in these  markets,  which would need to be
closed out at prices below cost.

LABOR

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

SOURCING

         The Company  sources  batteries,  power sources and various  electronic
devices from various  manufacturers  for certain  customers and receives most of
its sourcing revenue from one customer. This revenue is subject to bid and there
can be no assurance  that this customer will not find another agent or method of
sourcing.

DEPENDENCE ON VGA PLATFORM PROVIDERS

         The Company's VGA Product Range (Gamester), 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) and Game Boy(R) Advance,  and to continue to develop gaming formats and
accompanying  software in the future.  Radica 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,  the  Company  may be forced to
liquidate its inventories or accept returns resulting in significant losses.

PROFITABILITY OF THE VGA BUSINESS

         The Company's VGA product line, Gamester, has not been profitable since
the  acquisition of the line in 1999.  Several  factors have  contributed to the
losses  including  delays in  third-party  platform  introductions,  slower than
expected realization of full US distribution and price wars on certain commodity
VGA items.  While the Company believes that it has taken measures during 2002 to
ensure that the line will be successful in 2003,  there is no guarantee that the
VGA line will be  profitable  in the future or that the Company will continue to
manufacture and distribute the line in future years.  Continued future losses or
withdrawal  from the VGA  business  may  result in  significant  write  downs of
certain Company assets.

ITEM 4.  INFORMATION ON THE COMPANY

DESCRIPTION OF BUSINESS

         Radica Games Limited (NASDAQ:  RADA) manufactures and markets a diverse
line  of  electronic  entertainment  products  covering  three  product  lines -
electronic  games carrying the Radica and Play TV brand names,  Gamester branded
video game controllers & accessories,  and youth  electronics  carrying the Girl
Tech and Barbie(TM) brand names. Radica also manufactures for other companies in
the  electronic  game  industry  and  provides   sourcing  services  for  retail
customers.  Manufacturing services are classified as a fourth product line while
sourcing  services are  included  within the results of other  product  lines as
appropriate.  The business is divided into two reportable segments: Games, which
includes the electronic games


                                       11
<PAGE>


and youth electronics product lines as well as manufacturing services, and Video
Game Accessories  ("VGA") which relates to the Gamester  product line.  Sourcing
services are provided within both reporting segments.

         Founded  in 1983 by  Americans  living in Hong  Kong,  the  Company  is
headquartered  in Hong Kong and  manufactures  its  products  in its  Factory in
southern  China.  The Company markets its products  through  subsidiaries in the
United States,  the United Kingdom,  Canada and Hong Kong. Its largest market is
in the United States where in 2002 it had the second largest market share in the
electronic  handheld and tabletop  electronic  games  according to industry data
source, The NPD Group, Inc. In the United Kingdom,  the Company's subsidiary had
the largest market share of the video game controller  market among  third-party
manufacturers  in 2001 according to industry data source,  Chart Track.  In 1994
the Company went public when its shares began trading on the NASDAQ exchange and
are traded under the RADA symbol.  A complete  description  of Radica's  product
line and company information can be found on its website (www.radicagames.com).

         Radica employs about 4,000 people  worldwide in its group of companies.
The Company's  largest retail customers  include  Wal-Mart,  Target,  Toys R Us,
Kmart,  Kohl's, Argos and Kay Bee. Its largest  manufacturing  customers are SSD
Company  (Japan)  and Hasbro.  Internationally  the  Company  sells  products in
approximately 30 countries.

HISTORY OF PRODUCT LINES

ELECTRONIC GAMES

         The Company has operated as a marketer and  manufacturer of games since
1983,  starting a small  operation in Hong Kong providing  souvenir casino games
for the Las Vegas market including mechanical,  toy, bank slot machines.  Radica
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 the Company  became the  leading  supplier of
casino type electronic  handheld games in the US market with games such as Video
Poker and Video Blackjack. The Company's electronic game products are sold under
the Radica and Play TV brand names.

         In  1995  Radica  began  to  diversify  its  product  line  into  other
electronic  handheld game areas beyond casino themed games. The Company 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 Radica has expanded
its electronic game offerings to a very broad line of electronic games including
virtual  fishing games such as Bass  Fishin'(TM),  virtual hunting games such as
Buckmasters(R)  Deer  Huntin'(TM),  a  line  of  games  based  on EA  SPORTS(TM)
products,  TETRIS(R) and Rush Hour(TM),  Harley-Davidson(R)  licensed games, and
other  games  such as King  Pin  Bowling(TM),  Talking  Bingo(TM)  and  Ultimate
Pinball(TM).

         During its history  Radica has become  known as an  industry  leader in
innovation and creative use of technology. For example, Radica's line of fishing
games, one of the top-selling  product lines in the history of electronic games,
revolutionized the electronic  handheld games category after its introduction in
1996. The games feature virtual motion-sensing technology that allows the player
to use the physical  game as a rod and reel.  The player  casts,  feels the fish
bite, sets the hook with a jerk, and reels in the fish with a real handle.  This
product  started an industry trend in creating  virtual  reality games where the
product provides the feel of the real sport. This is delivered by realistic game
shapes,  motion  sensors and tactile feed back.  For 2003 Radica is  introducing
Castmaster Bass  Fishin'(R).  Castmaster has a portable unit which detaches from
the main rod to slip into a briefcase and allows the fisherman on the go to take
practice  fishing  on the  road.  Place  the unit back in the rod and you have a
full-featured fishing game with all the realism and feedback for which Radica is
known.  Radica has expanded its line of virtual  motion sensing games beyond the
fishing category. An example of this is the Company's Buckmasters(R) Bow Huntin'
II(TM)  game.  Motion  sensors  in the game mean you just tilt the game left and
right and up and down to get the deer in you sight.

         In 2000,  Radica  developed  virtual reality further when it introduced
NASCAR(R)  I-Racer(TM).  The full headset complete with  headphones,  produce 3D
graphics  and  digital  dimensional  sound  for a  virtual  reality  experience.
Vibration  feedback  in the  steering  wheel puts you in the race.  Radica  also
introduced in 1999 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, Radica once again brought innovation to the electronic games
category with the introduction of Radica Play TV games featuring XaviX(R)
technology licensed from SSD Co., Ltd. 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 your


                                       12
<PAGE>

race down a video ski slope. Play TV Baseball, Play TV Snowboarder,  and Play TV
Buckmasters(R) Huntin' were introduced in 2000 and 2001. In 2002 Radica expanded
the Play TV line to include Play TV Baseball 2(TM), Play TV Boxing(TM),  Play TV
Soccer(TM) and Play TV Junior  Construction(TM).  In 2003 Radica will update its
top selling Play TV  Buckmasters(R)  Huntin' by  introducing  Huntin' 2. Play TV
will reach a whole new audience with Play TV Rescue  Heroes(TM),  an interactive
vehicle playset based on Fisher-Price's(R)  preschool vehicle, action figure and
playset line.

         In 2001 Radica introduced  Skannerz(R).  Targeting boys 7-12,  Skannerz
utilizes UPC scanner  technology to create a fun,  collectible-driven  game. Use
Skannerz  to scan the UPC code of any  consumer  product to  download  monsters,
magic potions and weapons to use in battle. Play alone or link two game units to
battle against a friend.  Each game unit includes a comic book. Building on this
line for 2003 Radica  will launch  Skannerz  Commander  for Spring and  Skannerz
Battle Orbz in Fall.  Skannerz Commander allows kids to create and control their
own tribe of all new  monsters.  Train the  strong,  banish the weak and compete
head-to-head  against your friends.  Skannerz  Battle Orbz is a whole new way to
battle.  Players collect  "monster  disks," create their team,  train and battle
them against their  opponents  using"Rolling  Battle Action." You can learn more
about   Skannerz   and   Radica's   new   Skannerz   products   on  its  website
(www.skannerz.com).

         In  2003  Radica  will  introduce  its  first   multiplayer  table  top
electronic game. Total  Meltdown(TM) is a skill and action game which appeals to
the whole family.  Total Meltdown is a race against time that challenges players
to test their mind and  agility  with four  intense  code-breaking  games.  With
flashing lights,  ticking clock and a taunting voice,  players must complete the
series  of  games:  decipher  the  correct  port for each of the  "live  wires;"
complete a circuit with 12 perplexing pieces;  crack the code to access the core
and be agile  enough to remove the core  without  touching  the sides  before it
suffers a Total Meltdown.

VIDEO GAME ACCESSORIES

         In June  of  1999,  Radica  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,  Radica  has
established  unique and successful 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.

         Radica  began  shipping  and selling the  Gamester  product line to the
United  States and Canada  during the second  half of 2001 and has moved most of
the  manufacturing  of  controllers  into its Factory in China.  The addition of
Radica's wholly owned  manufacturing  plant in China served to boost the brand's
credibility  after  the  acquisition  in 1999 with use of a  thoroughly  modern,
high-tech,  ISO 9001 certified facility. As a result, new product development is
specially  designed  and built by Radica  for the  Gamester  brand,  except  for
certain items which are outsourced to third parties.

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

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

         The portable video game category expanded in 2001 with the introduction
of Nintendo's Game Boy(R) Advance (GBA).  Radica has introduced several products
for  the  GBA  including  the new  Flood  Light(TM)  that  provides  a  superior
illumination  of the GVA screen using a fluorescent  light.  The UK has licensed
NXT(R),  creators of sound  technology,  to develop speakers to enhance surround
sound of all GBA  software  titles.  The  licensing  agreement  has  created the
popular GBA Mini Woofer. The GBA line includes a broad selection of cases, bags,
chargers,  adaptors and accessory packs. A detailed  description of the Gamester
line  can  be   found   on  the   Internet   at   www.gamesterusa.com   (US)  or
www.gamesteruk.com (UK).

YOUTH ELECTRONICS

         In 1998 Radica  acquired  the start up Girl Tech  Company.  Girl Tech's
mission  is to  enhance  girls'  lives and  foster  their use of  technology  by
bringing to market personal,  technology enhanced lifestyle electronics just for
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


                                       13
<PAGE>


communication. Girl Tech's products and services are tied by the common theme of
encouraging  girls to have fun with and benefit from the use of technology.  The
web site  (www.girltech.com)  contains over 600 pages of content to help address
girls issues and  acquaint  girls with the uses of  technology.  It has been the
recipient  of  website  awards  and is also a great  place to see the Girl  Tech
product line.

         In 1999, Girl Tech  introduced of a line of  breakthrough  products for
girls,   including  the  Password  Journal(R),   which  uses  voice  recognition
technology  to keep a girl's  journal  safe  from  intruders.  In 2001 and 2002,
Password  Journal  2 was  among the top ten  products  in the Youth  Electronics
market  according to The NPD Group.  Based on this success,  Radica continues to
expand its Password line for 2002 with the introduction of a new item:  Password
Room  Control(TM),  the first electronic device that allows a girl to turn on or
off electric  appliances in her bedroom with the sound of her voice.  Also added
to the Girl Tech line for 2002 was  Eye-Lock(TM)  Room Guard,  the high-tech way
for girls to "snoop-proof" their bedroom.  The high tech "eye-code" allows girls
to enter their private color  combination and secure their  doorknob.  Blink the
correct  code and you can enter,  blink the wrong code and an alarm  sounds.  In
2003 Radica will continue to update and improve the Password  Journal with a new
Password Journal product. While maintaining the voice recognition lock and other
features  that have made the two  previous  versions of this product so popular,
the new Password  Journal  allows girls to customize  their journal by designing
their own  cover.  The new  Password  Journal  includes a gel pen and custom fit
paper for girls to use their creativity to personalize their journal.

         Another  introduction  for  Girl  Tech in 2003  is Dare  Ya!(TM),  "The
Ultimate  Game of Truth or Dare."  Girls can create  their own  double  dares by
recording  them into the game.  The game  comes with  traditional  truth or dare
cards in different  categories such as gross,  dreamy and performance.  Truth or
Dare has been a classic  game for  years and the new Dare Ya!  from Girl Tech is
taking it to a new level.

         In February of 2002 Radica and Mattel  announced that Radica received a
license to bring to market  electronic  girls lifestyle  products and electronic
games under the  Barbie(TM)  brand name.  The product line previewed at the 2002
Toy Fair and  featured  products  intended for a younger age range than its Girl
Tech line and targets girls 3 to 7 years old.  Barbie(TM) is the dominant  brand
in girls' toys

         The new Barbie(TM)  electronics  product line was led by the Barbie(TM)
Dance  Party(TM)  game.  This product allows girls to dance with Barbie(R) on TV
through the use of the XaviX(R) technology that is used on the Company's Play TV
line.  The  player is asked to follow  Barbie(R)'s  lead in fun dance  moves and
steps  all  demonstrated  on  the  TV  set.  In  2003,   Radica  will  introduce
Scanimals(TM)  Pet Rescue  applying the same  technology  used in the  Company's
Skannerz product. Girls scan UPC codes in search of lost pets. There are 50 pets
in all with  different  games such as Match and  Obstacle  Course.  Based on the
success of Password  Journal,  Radica  will  introduce  My Secret  Diary for the
Barbie(TM)  age girl.  My Secret  Diary  opens  electronically  with a  magnetic
glitter pen. Additional games and accessories are planned for the future.

MANUFACTURING SERVICES

         Since 1996 Radica has designed,  engineered and  manufactured  products
for other companies in the electronic games business.  The Company's  Factory in
Tai Ping, Dongguan,  Southern China has 524,000 square feet of factory space and
308,000 square feet of dormitory  space.  It has the capacity to house in excess
of 5,000 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.  Radica  manufactures  for other  companies on an ODM  (original
design and manufacture)  basis.  Radica currently designs and manufactures games
for Hasbro,  WiZ and their customer  Bandai,  as well as SSD and their customers
Takara and Epoch. Radica also provides sourcing services for customers in the UK
market, the largest customer of which is Argos.

BUSINESS STRATEGY

         As a result of its efforts toward diversification,  the Company now has
a significant  presence in four core product lines including  electronic  games,
youth  electronics,  video game  accessories  and  manufacturing  services.  The
Company  believes  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 of its categories of electronic entertainment. As
a result there are  synergistic  skills that can be used to benefit each area of
the Company's four core product lines. Within these product lines the Company is
focused on building its 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 the  Company's  strategy to focus on building  each of
these  product lines and brands to their fullest  potential  through  aggressive
product development and marketing programs.


                                       14
<PAGE>


         The  Company's  products  are  sold to  retail  customers  and  foreign
distributors  who sub distribute to retail  customers in certain other worldwide
markets.  The Company sells direct to retail  customers in North America and the
United Kingdom. While the Company may occasionally sell directly to retailers in
other worldwide markets it usually sells through sub distributors.

         The Company also  manufacturers most of its own products in its Factory
in China in  order to  maintain  quality  and to  minimize  inventories  of long
lead-time electronic  components.  A small percentage of product sales come from
products that are sourced from other factories by Radica's  sourcing group.  The
Company utilizes the excess capacity of its Factory to manufacture products of a
similar nature to its own products for other  companies such as the Hasbro Games
Group and SSD in Japan. The Company also provides  sourcing  services to certain
retailers such as Argos in the United Kingdom.  By providing such  manufacturing
and  sourcing  services to other  companies  Radica seeks to spread the overhead
cost  of  its  manufacturing  and  sourcing   operations  in  order  to  improve
profitability.

PRODUCT LINE SALES

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

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                         -----------------------------------------------------------------------------------------------------
                                               2002                                                  2001
                         -------------------------------------------------     -----------------------------------------------
                          % OF NET         NET          UNITS      NO. OF       % OF NET         NET         UNITS     NO. OF
PRODUCT LINES            SALES VALUE   SALES VALUE       SOLD      MODELS*     SALES VALUE    SALES VALUE     SOLD     MODELS*
------------------------------------------------------------------------------------------------------------------------------
(in thousands, except percentage and no. of models information)
<S>                            <C>        <C>            <C>          <C>          <C>         <C>          <C>         <C>

Electronic Games               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
VGA                            12.7%        15,844       2,118        150          10.5%         10,335      2,070       130
Manufacturing Services         23.6%        29,374       6,666         30          24.6%         24,231      3,973        15
                              100.0%       124,646      16,269        303         100.0%         98,554     13,092       298
</TABLE>

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                         -----------------------------------------------------------------------------------------------------
                                               2002                                                  2001
                         -------------------------------------------------     -----------------------------------------------
                          % OF NET         NET          UNITS      NO. OF       % OF NET         NET         UNITS     NO. OF
PRODUCT LINES            SALES VALUE   SALES VALUE       SOLD      MODELS*     SALES VALUE    SALES VALUE     SOLD     MODELS*
------------------------------------------------------------------------------------------------------------------------------
(in thousands, except percentage and no. of models information)
<S>                            <C>        <C>            <C>          <C>          <C>         <C>          <C>         <C>
Electronic Games               54.2%      $ 57,868      6,933        114            64.2%      $ 87,775      8,667       100
Youth Electronics              13.0%        13,897      1,211         12             5.4%         7,444        594         6
VGA                             9.5%        10,116      1,752        108             7.0%         9,558      1,871       139
Manufacturing Services         23.3%        24,815      4,686         22            23.4%        31,939      6,109        22
Total                         100.0%       106,696     14,582        256           100.0%      $136,716     17,241       267

* 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.

</TABLE>

         Radica sells a broad range of electronic  and  mechanical  handheld and
tabletop  games under the Radica  brand name.  These games  simulate  sports and
recreational   activities,   such  as  fishing,   hunting,  golf,  baseball  and
snowboarding;  casino  games,  such as blackjack,  poker and slots;  and popular
heritage games such as solitaire, checkers, Tetris(R) and crossword puzzles.

         During  1999,  Radica  introduced  its  Girl  Tech  line of  electronic
products.  The Girl Tech line provides  unique and innovative  gadgets for girls
that utilize  technologies  such as the  electronic  voice  recognition  used in
Password Journal and Password Room Control.

         In June of 1999,  the Company  acquired  Radica UK, which  expanded its
product portfolio to include VGA such as steering wheels,  joypads, memory cards
and other video game accessories for PlayStation(R),  PlayStation(R) 2, Nintendo
64,

                                       15
<PAGE>


Nintendo Game Boy(R) and PC Platforms.  The Company currently sells products for
the following platforms:  Sony  PlayStation(R),  Sony PlayStation(R) 2, Nintendo
Game Boy(R) Advance, Nintendo GameCube(TM) and Microsoft Xbox(TM).

         During 2000, Radica introduced its Play TV line, featuring the XaviX(R)
technology  which allows users to plug games directly into their  television set
for  display  of the game  contact on the screen  without  requiring  connection
through a video game system.

         During  2001,  Radica  entered  into an agreement to become an approved
licensed vendor of video game accessories for the Microsoft  Xbox(TM).  Xbox(TM)
peripherals include the Xbox(TM) Pro Racer and the Xbox(TM) Vortex Assortment.

NEW PRODUCT INTRODUCTION

         Each year Radica plans to introduce  new products to refresh and extend
its  product  line.  The  company is  currently  following a strategy in the VGA
business segment to reduce the number of stock keeping units (SKUs), focusing on
only the highest  potential  products.  In fiscal 2003,  the Company  intends to
update its product line by introducing approximately 60 new products. This would
represent  a reduction  of 31 new  introductions  from 2002 in the VGA line.  In
2002,  VGA  introductions  were higher than would be expected in 2003 due to the
fact that new video  game  platform  introductions  required  a higher  level of
supporting new products than in subsequent years.

             2003 vs. 2002 New Product Introductions (by category)

                                        2003              2002
                                        ----              ----
           Electronic Games               23                14
           Youth Electronics              12                 8
           VGA                            25                56
                                          --                --
           TOTAL                          60                78

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

         The Company  anticipates that new product  introductions in fiscal 2003
will be  concentrated  in the second  and third  quarters  of that  year.  It is
possible  that the Company will  determine not to proceed with any given product
or that one or more aspects necessary for introduction of the products in fiscal
2003 will be delayed,  which could delay or prevent certain  anticipated product
introductions.

LICENSING

         During fiscal 2002, Radica engaged in several  licensing  agreements in
which the Company  was given  permission  to use the name,  logo,  game  concept
and/or license of a person, company or brand in exchange for a royalty fee.

         Among the licensors were Electronic Arts, Group Lotus plc, UK,
Buckmasters, Harley-Davidson, Elvis Presley Enterprises, Sony Pictures, makers
of Men in Black II(TM), the Tetris(R) Company, New Transducers Limited,
developers of NXT(R) manufacturing sound technology, SSD, developers of XaviX(R)
technology, Microsoft, developers of Microsoft Xbox(TM) and Mattel, makers of
Barbie(TM).

         The Company intends to incorporate some of these licenses into its 2003
product line and will pursue new licenses in instances where management feels it
will enhance the value and marketability of a particular product.

MANUFACTURING

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

         In 2002 the Company assembled most of the Radica and Girl Tech lines of
products  in order to  control  its  costs,  quality,  production  and  delivery
schedules. VGA were assembled both in-house and by third party manufacturers.


                                       16
<PAGE>


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

         The Company received renewal of its ISO 9001 quality certification from
Underwriters  Laboratory  on January  24,  2001.  The scope of the  registration
covers the design,  sales and distribution of electronic and  electro-mechanical
games and related gift products.

MANUFACTURING FACILITIES

         Radica  currently  manufactures its products at its Tai Ping Factory in
Dongguan,  Southern  China  approximately  40 miles  northwest of Hong Kong. The
Factory was constructed with the cooperation of the local  government  according
to the Company's design  specifications  on a 3.7 acre site and contains 524,000
sq. ft. of factory  space and 308,000  sq. ft. of  dormitory  space,  capable of
housing over 5,000  workers.  An extension of the Factory  commenced in December
1999 to add  202,000  square feet of factory  space and  178,000  square feet of
dormitory  space allowing for up to an additional  3,000 employees to be housed.
The cost of  construction of the extension  would have been  approximately  $3.0
million, exclusive of manufacturing equipment. As a result of the drop in demand
for Radica  product  in the US during  2000,  work  towards  completion  of this
addition has been postponed and may continue when market demand  warrants use of
the additional space. The expansion has been sufficiently completed to the point
that no  impairment  issues  exist and it is  currently  being used for  storage
during peak production  season.  The unit capacity of the Factory depends on the
product mix produced.  In any event,  there can be no assurance that the Company
will be able to operate at full  capacity  or have  sufficient  sales to warrant
doing so.

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

         The  Company  also  manufactures  in the  Factory  under  a  processing
agreement  ("Processing  Agreement") with the local  government.  The Processing
Agreement  provides  by  its  terms  that  the  local  government  will  provide
manufacturing  facilities and supply workers to the Company and that the Company
will pay a management  fee and  processing  fee and certain other  charges.  The
management fee is paid to the local  government and is based on a negotiated sum
per  worker  at the  Factory.  The  processing  fee is based on the value of raw
materials  shipped  into the Factory and the value of products  shipped from the
Factory  and is  established  in  production  agreements  agreed upon with local
government  officials.  The Company pays the processing fees through the Bank of
China in Hong  Kong  and the  funds  are then  placed  in an  operating  account
including  other Company funds in China,  all of which are used to pay the costs
of the  Factory  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.

         All of the Company's  operations in the PRC,  whether  within the joint
venture or the Processing Agreement are accounted for as wholly-owned operations
and included in the Company's consolidated financial statements.

         During  2001,  the  Company  made  a  decision  to end  its  use of the
Processing  Agreement.  As of the  date  of this  report,  the  Company  has one
outstanding  Processing  Agreement  contract  which  requires PRC tax  authority
approval  before it can be transferred to the joint venture.  An application has
been  made for this  approval.  The  Company  does not  expect  to have any open
Processing Agreement contracts by June 30, 2003.

         In order to  completely  discontinue  its use of  Processing  Agreement
contracts,  the  Company  must  transfer  all  existing  assets  held  under the
Processing  Agreement.  This may require the Company to incur a one-time payment
to increase the capital reserves of the Joint Venture  Agreement.  The amount of
this  payment  has yet to be  determined.  The  payment  would not result in any
outflow of funds in the Company's consolidated financial statements.


                                       17
<PAGE>


         In practice, the Company operates all aspects of the Factory, including
hiring,  paying and terminating  workers.  Most of the Company's Factory workers
are hourly employees and are provided room and board in addition to their wages.
In  addition,  the  Company  bears all other  costs of  operating  the  Factory,
including  utilities and certain employee social welfare charges  established by
the local government.  Many aspects of the Processing Agreement and operation of
the  Factory  are  dependent  on  the  Company's  relationship  with  the  local
government  and  existing  trade  practices  in  addition  to the  terms  of the
Processing Agreement.  The Company believes that its relationship with the local
government is good.

         Should the Company  decide to curtail its  manufacturing  activities in
China,  it may be required to pay back  certain tax benefits it has received and
may be held liable for certain fees. Such liabilities may be substantial.

MATERIALS

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

         The Company's major suppliers of electronic and mechanical handheld and
tabletop game materials in fiscal 2002 included Arrow / Components Agent Limited
(semi-conductor   chips),  Epson  Hong  Kong  Limited   (semi-conductor  chips),
Evergreen PCB Factory Limited (PCBs),  GPI  International  Limited  (batteries),
Lead Jump  Development  Limited  (PCBs),  Meise Label  Printing Fty  (printing),
Senmax, Limited (keypads), Sensory, Inc. (semiconductor chips), SSD Company, Ltd
(semi-conductor  chips),  United Radiant Technology (HK) Limited (LCDs),  Wintek
Corporation (LCDs) and Yu Lee Printing Co. (printing).

         The  Company's  major  suppliers of VGA in fiscal 2002  included  Minwa
Electronics Co. Ltd. (power adaptors),  Mascotte Industrial Associates (HK) Ltd.
(game accessories) and Jesmay Electronics Co. Ltd. (cables).

SALES AND DISTRIBUTION

         Radica's  products are sold in  approximately  30  countries,  with the
United States  accounting  for over 60% of net sales in fiscal 2002. The Company
sells its products directly to over 350 active retailers in the US and UK and to
approximately  30  distributors  worldwide.  The  Company  participates  in  the
electronic data  interchange  ("EDI") program  maintained by 15 customers in the
USA including Wal-Mart,  Target,  Kmart,  Kohl's, J.C. Penney's and Sears, and 7
customers in the UK,  including  Argos,  Comet and Dixon's.  In fiscal 2002, the
largest customer of the Company, Wal-Mart,  accounted for 24.7% of net sales; in
addition  ODM/OEM  work for SSD  accounted  for 9.2% of net sales.  All sales to
third party  distributors and retail customers are final upon transfer of title.
In the case of the  consignment  distributors  in France and Germany,  sales are
recognized   only  upon   verification  of  sell-through  to  the  customers  of
distributors. The top five customers were as follows:

                                         % OF SALES
        CUSTOMER NAME               FOR THE FISCAL YEAR
                                     2002         2001
                                     ----         ----
        1.  Wal-Mart (USA)          24.7%         22.8%
        2.  SSD (Japan)              9.2%         11.1%
        3.  TRU (USA)                8.5%          5.0%
        4.  Argos (UK)               8.3%          7.3%
        5.  Target (USA)             7.4%          6.1%

         The following table sets forth certain of the Company's major customers
in 2002, including distributors (alphabetical order).


                                       18
<PAGE>


<TABLE>
<CAPTION>
CATALOG SHOWROOMS                            DRUG/MASS MERCHANDISERS                   ELECTRONICS/GROCERY/ CONVENIENCE
-----------------                            -----------------------                   --------------------------------
<S>                                          <C>                                       <C>
Brookstone                                   Ames                                      About Time
Sharper Image                                Army Airforce Exchange                    Best Buy
                                             BJ Stores                                 Biggs Hypermarket
                                             Cokem                                     Circuit City
                                             Dollar General                            Comet
DEPARTMENT STORES                            Fred Meyer                                Corner Distributors
-----------------
J.C. Penney's                                Kmart                                     Dixon's
Kohl's                                       Meijer                                    Electronics Boutique
Woolworth's                                  Milton D Myer Co.                         Fry's
                                             Pamida                                    Gamestop
                                             QVC                                       Ingram Entertainment
                                             Ross Stores                               Musicland
                                             Shopko                                    Transworld Entertainment
                                             Snyder Drugs                              W.H. Smith
                                             Target
                                             Wal-Mart
                                             Zellers

MAIL ORDER/SPECIALTY GIFT SHOP OPERATORS     SPORTING GOODS STORES                     DISTRIBUTORS (RADICA)
----------------------------------------     ---------------------                     ---------------------
Avon                                         Sports Authority                          Amoy oy (Finland)
Buckmaster                                   Bass Pro Shops                            Estona Inc. (Japan)
Custom Souvenir and Novelty                                                            Forte Co. Ltd. (Japan)
DFS North America                                                                      Galeria 765 S.A. de C.V. (Mexico)
Dufferen Game Room Stores                                                              Gemini Industria F Comericio (Brazil)
Figis                                        TOY RETAILERS                             Imbi Mario Trading (Malaysia)
                                             -------------
Hammacher Schlemmer                          Kay Bee                                   Importadora Maduro S.A. (Panama)
Home Shopping Network                        Toys'R'Us                                 Irwin Pacific Pty, Ltd. (Australia)
Host Marriott Corp                                                                     John Hansen Co. (USA)
Spiegel                                                                                Lansay (France)
Spillsbury                                                                             Masudaya Corp. (Japan)
Spencer Gifts                                DISTRIBUTORS (VGA)                        Playthings Pte Ltd. (Singapore)
                                             ------------------
Starboard Cruise Services                    Giochi Preziosi (Italy)                   Replay Interactive (Singapore)
Wish Book                                    Koch (Germany)                            Souvenirworld (USA)
Zany Brainy                                  Nobilis (France)                          The Oriental Trading Co. (Hong Kong)
                                             Pifa S.A. (Belgium)                       Universal Electronics (Lebanon)
                                             Top Toy (Denmark)
                                             Unsaco AS (Norway)
</TABLE>

         The  acquisition of Radica UK gave the Company the resources to move UK
sales  of  Radica  product   in-house.   Subsequently,   Radica  terminated  its
distribution agreement with its UK distributor in 1999.

         Radica USA uses  regional  sales  managers  working  for the Company to
manage its customers as well as the  manufacturers  representatives  and brokers
that sell its products to certain retailers. These manufacturers representatives
are not employees of the Company and work on a commission basis.

         The Company's customers normally provide indications of interest, which
may be  canceled  at any  time,  from  three to six  months  prior to  scheduled
delivery,   but  only  confirm  orders  eight  weeks  in  advance  of  delivery.
Accordingly  the Company  generally  operates  without a significant  backlog of
regular orders.

         During  2002,   the  Company  sold  on   consignment   to  two  of  its
distributors:  Nobilis  in  France  and  Koch  in  Germany  (see  "Item  3.  Key
Information  - Risk  Factors - Risk of  Consignment  Inventory").  At the end of
2002, the Company  terminated  its current  agreement with Nobilis and is in the
process of  negotiating a distributor  agreement  with them.  The impact of this
decision has been accrued for as at 31 December 2002.

         In certain  instances,  where retailers are unable to sell the quantity
of products  which have been  ordered  from the  Company,  the  Company  may, in
accordance with industry practice,  assist retailers to enable them to sell such
excess inventory

                                       19
<PAGE>

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.  The Company
minimizes the related costs of such discounts and returns by engaging  personnel
to visit  selected  customers  and assist in the  management  of Radica  product
returns.  The Company establishes  provisions based on historical  experience at
the time of sale of the related products.  The return of non-defective  products
occurs infrequently in the US. In the UK market, accepting non-defective product
is regular industry  practice and the Company  establishes its return provisions
on such sales based on experience.

         In February  2003,  the  Company  gave  notice of  termination  to both
Nobilis and Koch of their distributor  agreements.  The Company took a provision
against the consignment  inventories held by these distributors that was accrued
for as of 31 December 2002.  While the Company  believes the accrual is adequate
to cover potential losses, there can be no guarantee it will be adequate.

         The Company's Radica,  Girl Tech, Play TV and Connectv products carry a
90 days  consumer  warranty  from the date of sale.  The  Company's 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.

PRODUCT DEVELOPMENT

         At the end of 2002, Radica's engineering and development department had
approximately 97 staff worldwide.  The Company's product development starts with
design teams in Dallas, Texas; and Hertfordshire,  England and continues through
to the engineering  teams in Shenzhen and in the Dongguan  Factory.  The Company
has a formalized product development process that includes quarterly meetings of
its worldwide product  development and sales  departments.  In fiscal 2000, 2001
and 2002, the Company spent approximately $5,210,000,  $5,775,000 and $4,094,000
respectively,   on  research  and  development.   The  Company's   research  and
development  is heavily  oriented  toward  market  demand.  Based on its ongoing
contact with  consumers,  retailers and  distributors  worldwide,  the Company's
sales and  marketing  departments  seek to  understand  and assist  the  product
development teams in responding to consumer and retailer preferences.  The sales
department also targets certain retail price points for new products which drive
the  Company's  product   development,   with  designs,   features,   materials,
manufacturing and distribution all developed within the parameters of the target
retail  price.  The Company also reviews  product  submission  from a network of
third party inventors that have been approved by management.  These  submissions
are  subjected  to the  same  product  development  process  and  market  demand
considerations as internal submissions.

         In  January  of  2002,   the  Company   executed  its   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.  This  reorganization  significantly  reduced  costs  without
decreasing  efficiency.  By  trimming  the  breadth of its  product  lines going
forward,  the Company  expects to continue  developing  the majority of products
internally during 2003.  However,  changes in business  philosophy or unforeseen
circumstances  may arise that could force the Company to outsource a larger than
expected amount of its development work.

SEGMENT INFORMATION

         See  Note 19 of the  Notes  to the  Consolidated  Financial  Statements
included herein.

ORIGINAL DESIGN MANUFACTURING AND ORIGINAL EQUIPMENT MANUFACTURING

         In 1995, the Company was successful in establishing a relationship with
the Hasbro Games Group to design and manufacture  products for them. The Company
continues to manufacture for Hasbro,  which is also Radica's largest competitor,
and also has OEM and ODM  business  with SSD of Japan.  In 2002 the Company used
the technology  developed for its Skannerz  product line to build  D-Scanner for
WiZ of Japan.  The Company  intends to pursue  other ODM and OEM business in the
future.  However it is  uncertain  whether  the  Company  can retain its current
business on a long-term basis or successfully attract additional ODM business or
that it will be profitable.

INTELLECTUAL PROPERTY

         The Company owns many patents,  trademarks and copyrights and is in the
process of registering other intellectual properties.  It will continue to apply
for  intellectual  property  registrations  on new products as management  deems
necessary.

         The Company anticipates that patents, trademarks,  copyrights and other
intellectual   property  rights  will  become  increasingly   important  in  the
electronic  entertainment  industry in which the Company operates,  particularly
since the Company is  introducing  a wider range of  products.  As the  industry
focuses on intellectual  property  matters,  there will be opportunities for


                                       20
<PAGE>

the  Company to protect  its  products  through  patents,  trademarks  and other
formalized filings,  although the efficacy of these protections is uncertain. By
the same token,  the Company will be exposed to risks that its products or other
aspects of its  business  will be found to infringe  the  intellectual  property
rights of others.  See "Item 3. Key  Information  - Risk Factors -  Intellectual
Property Risks".

COMPETITION

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

         The VGA market is also highly  competitive.  The market share in the UK
is spread primarily amongst ten companies that have 63.5% of the overall market.
The Company began significant distribution of VGA in the US market in 2001. Like
the  handheld  electronic  games  market,  the  Company  competes  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, Guillemot
and Big Ben.

         In  January  2003 the  Company  established  Radica  (Macao  Commercial
Offshore) Limited in Macao,  China to handle all sales  administration on behalf
of the Factory in Dongguan.

TAXATION OF THE COMPANY AND ITS SUBSIDIARIES

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

         The Hong Kong profits tax rate currently  applying to  corporations  is
16%.  The Hong  Kong  government  has  recently  announced  that  this rate will
increase to 17.5% in 2003.  Currently,  Radica HK and one other Hong  Kong-based
subsidiary pay Hong Kong profits tax on service and sales income.

         On  July  1,  1994,  the  Company's   manufacturing   operations   were
transferred  to a Sino-Foreign  Joint  Venture.  As Radica Games itself does not
carry on any  business  in China,  it is not subject to tax.  The Joint  Venture
enjoyed a two year tax holiday  which  expired in 1999.  From January 1, 1999 to
December  31, 2001 its  profits  were taxed at a reduced  rate of 12%,  half the
regular tax rate of 24%. In 2002,  the Company was taxed at the regular tax rate
plus a local tax rate of 3%,  but has  applied  to be  designated  as an "Export
Oriented  Enterprise",  which will reduce its tax rate to 12% if the application
is successful. The excess tax paid in 2002 will offset the profit tax of 2003 if
the application for a reduced rate is approved in May 2003.

         Radica USA and Disc Inc.  are fully  subject  to US and Canada  federal
taxation,  as well as any applicable  state or local taxation,  on their taxable
income.  Currently, the highest marginal rate of US 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 the Company will be
subject to a 30% US federal  withholding tax,  resulting in an effective rate of
US federal taxation on distributed profits of up to 54.5%.

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

                                       21
<PAGE>


EMPLOYEES

         As of December 31, 2002 the Company's workforce was comprised of the
following:

         Production    Sales and    R&D     Finance    Operations    Total by
                       Marketing                        & Admin      location
--------------------------------------------------------------------------------
Asia          4,015         6        79        24          124          4,248
--------------------------------------------------------------------------------
USA             -          21        13         9           14            57
--------------------------------------------------------------------------------
Europe          -          10         5         5            7            27
--------------------------------------------------------------------------------
Total         4,015        37        97        38          145          4,332
--------------------------------------------------------------------------------

         At December 31, 2001 and 2000 the Company's  workforce  comprised 4,185
persons and 4,378 persons, respectively.

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

DESCRIPTION OF PROPERTIES

         See  "Manufacturing  Facilities" above. The Company completed the first
phase of construction  of its Factory  (241,000 sq. ft.) on a 3.7 acre parcel of
land in May 1995 and the second  phase  (223,000  sq. ft.) in August  1998.  The
Factory currently  contains 524,000 sq. ft. of factory space and 308,000 sq. ft.
of dormitory space,  capable of housing over 5,000 workers.  An extension of the
Factory  commenced  in December  of 1999 to add  202,000  square feet of factory
space and 178,000  square feet of  dormitory  space.  As a result of the drop in
demand for Radica product in the US during 2000, work towards completion of this
addition has been postponed and will continue when market demand warrants use of
the additional  space.  The Company owns a long-term  leasehold on its executive
offices  (13,561  sq.  ft.  inclusive  of 2 leased  units of 4,482 sq.  ft.) and
warehouse  space (7,900 sq. ft.) in Fo Tan,  Hong Kong as well as two houses for
employees  in Hong Kong (2,100 sq. ft.  each) which have been made  available to
Mr. Howell and Mr. Scott,  officers of the Company.  Radica operates its Factory
under the terms of the Joint Venture  Agreement and  Processing  Agreement.  The
Company leases additional office space in Hertfordshire,  UK and Macau,  Dallas,
Texas and Pasadena,  California.  The Company leases showrooms in Tsim Sha Tsui,
Hong Kong and New  York,  New York and  provides  individual  offices  for sales
personnel employed in Massachusetts and Illinois.  During 2002, the Company sold
one of its executive  units in Fo Tan, Hong Kong totaling 1,843 sq. ft.,  leased
one of its Fo Tan units  totaling  2,589 sq. ft.  and plans to lease  additional
space in another Fo Tan unit totaling 2,500 sq. ft in 2003. In addition,  during
2002 the Company leased out the house that had been made available to Mr. Howell
and is currently paying rent on a different house for Mr. Howell in Hong Kong.


                                       22
<PAGE>


ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS

RESULTS OF OPERATIONS

FISCAL 2002 COMPARED TO FISCAL 2001

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

                                                        Year ended December 31,
                                                        -----------------------
                                                         2002           2001
                                                        ---------     ---------

Net sales                                               100.0%         100.0%
Cost of sales                                            62.2%          65.6%

Gross margin                                             37.8%          34.4%
Selling, general and administrative expenses             22.2%          26.7%
Research and development                                  3.3%           5.8%
Depreciation and amortization                             2.3%           4.1%
Restructuring charge                                      0.0%           1.6%

Operating income (loss)                                  10.0%          (3.8%)
Other income                                              0.3%           0.0%
Foreign currency gain (loss), net                         1.4%          (0.2%)
Interest income, net                                      0.0%           0.1%

Income (loss) before income taxes                        11.7%          (3.9%)
Provision for income taxes                               (2.1%)         (0.5%)

Net income (loss)                                         9.6%          (4.4%)

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

         Summary of sales achieved from each category of products:

<TABLE>
<CAPTION>
                                                  YEAR ENDED DECEMBER 31,
                        ----------------------------------------------------------------------
                                        2002                                  2001
                        --------------------------------     ---------------------------------
                           % of Net           Net               % of Net            Net
Product Lines            Sales Value      Sales Value          Sales Value      Sales Value
--------------------------------------- ----------------     ---------------- ----------------
(US$ in thousands)

<S>                             <C>           <C>                     <C>            <C>
Electronic Games                 50.3%         $ 62,684                53.0%         $ 52,268
Youth Electronics                13.4%           16,744                11.9%           11,720
VGA                              12.7%           15,844                10.5%           10,335
Manufacturing Services           23.6%           29,374                24.6%           24,231
                        --------------- ----------------     ---------------- ----------------
Total                           100.0%        $ 124,646               100.0%         $ 98,554
                        =============== ================     ================ ================
</TABLE>

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

         Operating  expenses for the year were $34.6  million  compared to $37.6
million for the year ended December 31, 2001. The decrease in expenditure was as
a result of cost reductions, including R&D due to the restructuring announced in
Q4 2001, offset by increased  variable costs due to the 26.5% increase in sales.
In addition  depreciation  and  amortization  charges dropped by $1.2 million of
which  $0.8  million  was  due to the  adoption  of SFAS  142 and the  resulting
cessation of amortization of goodwill.


                                       23
<PAGE>

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

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

Commissions                                        $ 0.6             $ 0.7
Indirect salaries and wages                          8.1               8.2
Advertising and promotion expenses                   8.5               8.1
Research and development expenses                    4.1               5.8
Provision for income taxes                           2.7               0.6

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

CAPITAL RESOURCES AND LIQUIDITY

         At December  31,  2002 the  Company  had $32.7  million of cash and net
assets  of  $74.6  million   compared  to  $25.8  million  and  $63.1   million,
respectively at December 31, 2001. The Company generates a significant  majority
of its cash from its normal  operations but seasonal cash requirements have been
met with the use of  short-term  borrowings,  which  included  borrowings  under
secured lines of credit.

         At December  31, 2002,  cash and cash  equivalents,  net of  short-term
borrowings,  were $31.8 million of which $9.0 million of cash deposits have been
pledged as security for undrawn or substantially  repaid facilities.  Management
does not consider that there are any significant  restrictions on its ability to
gain access to these  deposits  given the  significant  excess of pledged assets
over outstanding borrowings.  This compares with cash and cash equivalents,  net
of  short-term  borrowings  of $25.0  million at December 31, 2001.  The Company
generated  approximately $12.0 million,  $10.3 million and $(4.7 million) of net
cash from its operating  activities in 2002,  2001 and 2000,  respectively.  The
increase in 2002 from 2001 was  primarily a result of higher  sales  revenue and
higher  gross  margins  in  2002  compared  to  2001,  combined  with  decreased
expenditure as a result of cost reductions in operations.  Receivables increased
to $15.1 million from the December 31, 2001 level of $13.9 million. This was the
result of higher  sales  during the  second  half of 2002  compared  to the same
period in 2001.  Inventories  increased to $20.4  million from $17.2  million at
December 31, 2001 primarily as a result of inventory  buildup in preparation for
the first quarter of 2003. The reserves for doubtful accounts, customer returns,
warranty expenses and accrued sales allowance were as follows:

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

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

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

         Current liabilities were $20.7 million at December 31, 2002 compared to
$23.5 million at December 31, 2001.  The decrease was the result of reduction in
accounts  payable,  current portion of long-term debt and accrued  expenses from
2001.


                                       24
<PAGE>

Prepaid assets decreased to $1.7 million from $2.3 million at December 31, 2001.
This was the result of a decrease in prepaid  license and royalty fees.  Accrued
payroll and  employee  benefits  increased  to $2.8 million at December 31, 2002
from $0.9 million at December 31, 2001 primarily as a result of accrued  bonuses
relating to the 2002 fiscal  year.  Total debt stood at $2.7 million at December
31, 2002, down $3.6 million from $6.3 million at December 31, 2001.

         Cash flows from  investing  activities  were a net  utilization of $1.1
million,  $1.0 million and $4.3 million in 2002,  2001, and 2000,  respectively.
During 2002 and 2001,  the Company  invested in the purchase of property,  plant
and equipment.

         Cash used in financing  activities  was $3.3  million in 2002  compared
with $6.4  million  in 2001.  This  change was  primarily  due to  repayment  of
short-term debt during 2001.

         The Company commits to inventory production,  advertising and marketing
expenditures prior to the peak third and fourth quarter  retail-selling  season.
Accounts  receivable  increase  during the third and fourth quarter as customers
increase their purchases to meet customer demand during the holiday season.  Due
to the  concentrated  time  frame of this  selling  period,  payments  for these
accounts  receivable  are generally not due until the fourth quarter or early in
the first  quarter  of the  subsequent  year.  This  timing  difference  between
expenses  paid and  revenues  collected  sometimes  makes it  necessary  for the
Company to borrow  amounts during the year. As of December 31, 2002, the Company
had more than $5.0 million of various lines of credit available.  A breakdown of
the Company's short-term and long-term financing during 2002 is as follows:

<TABLE>
<CAPTION>
                             Loan Amount      Debt        Loan Amount         Date of
         Bank              as at 1/1/2002   Repayment   as at 12/31/2002     Maturity
-------------------------  --------------  -----------  ----------------  --------------
(US$ in thousands)

<S>                              <C>         <C>             <C>          <C>
China Construction Bank          $   846     $   --          $   846      August 7, 2003
  (Humen, China)
HSBC                             $ 5,473     $ (3,648)       $ 1,825      June 22, 2003
</TABLE>

Both loans are payable in  installments.  Loan  installments  due within  twelve
months of year-end are included in short-term liabilities;  installment payments
scheduled beyond twelve months from year-end are included in long-term debt (See
Note 9 of the Consolidated  Financial  Statements).  The term loan is secured by
certain  properties and deposits of the Company (see Note 16 of the Consolidated
Financial  Statements).  The  agreements  contain  covenants  that,  among other
things, require the Company to maintain a minimum of tangible net worth, gearing
ratio and other  financial  ratios.  The  Company  is in  compliance  with these
covenants as at December 31, 2002.

         In the  normal  course  of  business,  the  Company  enters  into  debt
arrangements,  licensing  agreements and commitments  with various third parties
for the use of their inventor  concepts and  intellectual  property.  Certain of
these  agreements and commitments  contain  provisions for guaranteed or minimum
royalty amounts during the term of the contracts.

<TABLE>
<CAPTION>
                     Total     2003     2004     2005     2006     2007  Thereafter
                     ------   ------   ------   ------   ------   ------ ----------
(US$ in thousands)

<S>                  <C>      <C>      <C>      <C>      <C>      <C>      <C>
Long-term debt       $1,825   $1,825   $ --     $ --     $ --     $ --     $ --
Licensing minimums       80       63        1       16     --       --       --
Operating leases      2,744      475      350      252      245      242    1,180
Joint venture fee     3,808      126      130      130      138      143    3,141
                     ------   ------   ------   ------   ------   ------   ------
Total                $8,457   $2,489   $  481   $  398   $  383   $  385   $4,321
                     ======   ======   ======   ======   ======   ======   ======
</TABLE>

         Management  believes  that the  Company's  existing  credit  lines  are
sufficient  to meet  future  short-term  cash  demands.  The  Company  funds its
operations and liquidity needs primarily  through cash flow from operations,  as
well as utilizing  borrowings  under the Company's  secured and unsecured credit
facilities when needed. During 2003, the Company expects to continue to fund its
working capital needs through  operations and its revolving  credit facility and
believes  that the funds  available  to it are  adequate to meet its needs.  The
Company  expects  to be in  compliance  with its  covenants  in  2003.  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  of the  Company,  thereby  causing  the  Company  to  exhaust  its cash
resources.  If  this  were  to  occur,  the  Company  may be  required  to  seek
alternative  financing of its working capital.  In addition,  this may cause the
Company  to be in  non-compliance  with its debt  covenants  and to be unable to
utilize its revolving credit facility.


                                       25
<PAGE>

         The  Company  had  no  derivative  instruments  or  off  balance  sheet
financing  activities  during fiscal years 2001 and 2002.  The Company  believes
that its existing cash and cash  equivalents  and cash generated from operations
are sufficient to satisfy the current  anticipated  working capital needs of its
core business.

FISCAL 2001 COMPARED TO FISCAL 2000

         The Company experienced a net loss of $4.4 million for fiscal year 2001
or $0.25  per  diluted  share  versus a net loss of $18.1  million  or $1.03 per
diluted share for fiscal year 2000.

         Net sales for 2001 were $98.6  million,  compared to $106.7  million in
2000.  The decline in net sales during 2001  resulted  from  worldwide  economic
recession;  and the effect of the  September 11  terrorist  attacks in New York,
which eroded US consumer confidence and as a result caused retailers to exercise
caution in their buying.  Several top US retailers cancelled holiday reorders in
the wake of the attacks.

<TABLE>
<CAPTION>
                                               YEAR ENDED DECEMBER 31,
                        ----------------------------------------------------------------------
                                     2001                                    2000
                        --------------------------------     ---------------------------------
                           % OF NET           NET               % OF NET            NET
PRODUCT LINES            SALES VALUE      SALES VALUE          SALES VALUE      SALES VALUE
--------------------------------------- ----------------     ---------------- ----------------
(US$ in thousands)

<S>                             <C>            <C>                    <C>           <C>
Electronic Games                 53.0%         $ 52,268                54.2%        $  57,868
Youth Electronics                11.9%           11,720                13.0%           13,897
VGA                              10.5%           10,335                 9.5%           10,116
Manufacturing Services           24.6%           24,231                23.3%           24,815
                        --------------- ----------------     ---------------- ----------------
Total                           100.0%         $ 98,554               100.0%        $ 106,696
                        =============== ================     ================ ================
</TABLE>

         Gross  margin for the year was 34.4%  compared  to 22.2% in fiscal year
2000 as a result of a combination of improvements to inventory  control allowing
for less closeout product and continued cost reduction on products.

         Operating  expenses for 2001,  excluding $1.6 million of  restructuring
costs,  were $36.1  million  compared to  operating  expenses of $43.0  million,
excluding  $1.2  million of  restructuring  costs in fiscal year 2000.  The 2001
restructuring  plan was approved by the Board of Directors in December  2001 for
implementation  in  February of 2002 and  included  the  elimination  of the San
Francisco R&D office, the elimination of several R&D and operational  provisions
in Hong Kong with the intent of replacing many of these positions with new staff
at the factory in China,  the elimination of certain other  positions  worldwide
and the transfer of two employees to other offices.  The estimated costs related
to the  reorganization  were  accrued in the fourth  quarter of 2001 and include
$1.4 million in severance-related  costs and $0.2 million in office shutdown and
other reorganization related costs.

         The 2000  restructuring plan occurred in the second quarter of 2000 and
included the elimination of several positions worldwide. The costs included $1.1
million in severance-related costs and $0.1 million in office shutdown and other
reorganization related costs.

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

                                             Year ended December 31,
                                       ---------------------------------
(US dollars in millions)                   2001              2000
                                       ---------------    --------------

Commissions                                   $ 0.7             $ 2.3
Indirect salaries and wages                     8.2               7.5
Advertising and promotion expenses              8.1              11.1
Research and development expenses               5.8               5.2
Other income                                      -               0.8
Provision (credit) for income taxes             0.6              (0.9)

         The decrease in commissions in 2001 was the result of both the decrease
in sales from 2000 and Radica USA's decision to increase  efficiency by changing
its sales  force from third  party sales  representatives  to an in-house  sales
team.  Because the


                                       26
<PAGE>

Play TV line of products  was in its second year and  required  less  promotion,
advertising and promotional costs decreased in 2001 from 2000.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

BAD DEBT ALLOWANCE

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

ALLOWANCE FOR SALES RETURNS, MARKETING AND ADVERTISING

         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.  The Company also
records an allowance  for marketing  and  advertising  costs agreed with certain
customers. These allowances are based on other specific dollar-value programs or
percentages  of sales,  depending  on how the  program  is  negotiated  with the
individual customer.

WARRANTY

The Company records a warranty  allowance for costs related to defective product
sold to  customers.  The warranty  allowance is based on  historical  trends and
management's best assessment of what the defective return percentage will be for
a given product.  Due to the introduction of new product,  actual warranty costs
could deviate  significantly from the recorded  allowance.  This deviation could
have a material impact on the financial results of the Company.

INVENTORIES

         The Company states its inventory values at the lower of cost or market.
Inventory reserves are accrued for slow-moving and obsolete inventory.  Radica's
management  uses estimates to record these  reserves.  Slow-moving  and obsolete
inventories  may be partially or fully reserved  depending on the length of time
the product has been in inventory  and the  forecast  sales for the product over
the course of the following year. Changes in public and consumer preferences and
demand for product or changes in the buying patterns and inventory management of
customers could adversely impact the inventory valuation.

IMPAIRMENT OF LONG-LIVED ASSETS AND GOODWILL

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

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

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

                                       27
<PAGE>

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

DEFERRED TAX ASSETS

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

RECENTLY ISSUED ACCOUNTING STANDARDS

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

ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

         The following table sets forth the directors and executive  officers of
the Company in fiscal 2002.

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

<S>                             <C>         <C>               <C>
Jon N. Bengtson (3)             2003        USA               Chairman of the Board and Director

Albert J. Crosson (1)(2)        2003        USA               Director

Robert E. Davids                2003        USA               Vice-Chairman of the Board and Director

Patrick S. Feely (3)            2003        USA               President, Chief Executive Officer and Director

David C.W. Howell               2003        Hong Kong         President Asia Operations,
                                                              Chief Financial Officer and Director

Henry Hai-Lin Hu (1)(3)         2003        Australia         Director

Siu Wing Lam                    2003        USA               Director

James J. O'Toole (2)(4)         2003        USA               Director

Millens W. Taft (1)(4)          2003        USA               Director

Peter L. Thigpen (1)(2)(4)      2003        USA               Director

Jeanne M. Olson                 N/A         USA               Executive Vice President/General Manager, Radica USA

John J. Doughty                 N/A         UK                Managing Director, Radica UK

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

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

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

Larry C.N. Cheng                N/A         Hong Kong         Engineering Director

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


                                       28
<PAGE>

<TABLE>
<S>                             <C>         <C>               <C>
Rick C.K. Chu                   N/A         Hong Kong         International Sales Director

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

Tiki K.K. Ho                    N/A         Hong Kong         Engineering Director

Louis S.W. Kwok                 N/A         Hong Kong         Plant Administration Director

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

Lavinia K.W. Wong               N/A         Hong Kong         Director of VGA & Sourcing

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

(1) Current member of the Audit Committee.
(2) Current member of the Compensation and Organization Committee.
(3) Current member of the Executive Committee.
(4) Current member of the Governance Committee.

         The Company annually prepares a proxy statement/management  information
circular for  distribution  to its  shareholders  in connection  with its annual
meeting of  shareholders.  Additional  information  is  contained  in such proxy
statement with respect to the ownership of shares of the Company's  common stock
by directors and executive officers, the ages of such persons, and the functions
or board  practices of the committees of the Company's  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
the  Company's  annual  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  a director of The Sands
Regent.

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

         Robert E. Davids  became  Chairman of the  Executive  Committee  of the
Board  of   Directors,   Vice   Chairman  of  the  Board  and  Chief   Executive
Officer-Emeritus  in April 1999 and has been a director  since December 1989. He
was Chief Executive  Officer of the Company from January 1994 to April 1999, and
President of the Company from  December  1993 to July 1997.  Prior to 1993,  Mr.
Davids had been the Co-Chief  Executive  Officer and director of Radica HK since
he joined the Company in 1988.  Mr.  Davids has over 30 years  experience in the
development,  design and  engineering of non-gambling  casino gifts,  commercial
gaming machines,  automobiles and other products.  From 1984 until he joined the
Company,  he was the General Manager of Prospector  Gaming  Enterprises  Inc., a
casino in Reno,  Nevada.  From 1978 through  1984,  Mr. Davids served in various
positions  at IGT,  including  Director  of Special  Projects  and  Director  of
Engineering.

         Patrick S. Feely has been Chief Executive  Officer since April 1999. He
has been Chief  Operating  Officer and  President of the Company since July 1997
and a director of the Company since July 1996. Previously,  he was President and
CEO of Spectrum HoloByte,  Inc. from 1993 to 1995;  President of Bandai America,
Inc.  from 1991 to 1992;  founder and  President of Toy  Soldiers,  Inc.  (which
merged  with  Bandai  America)  from 1988 to 1991;  and  President  of the Tonka
Products

                                       29
<PAGE>

Division of Tonka,  Inc. from 1986 to 1988, after  previously  serving as Senior
Vice President  Commercial  Operations from 1982 to 1986. As President of Tonka,
Mr.  Feely was  responsible  for the  successful  launch of the Sega  video game
system into the US market.  Mr.  Feely was an executive at Mattel Toys from 1977
to 1982 and began his career at RCA  Corporation  in 1970.  Mr. Feely is also an
advisor  to the Toy  Industry  Association  Board  of  Directors,  where  he was
Chairman from 2000 to 2002. He is currently Chairman of the Board of Trustees of
the Toy Industry  Foundation.  He has a BA from Duke  University and an MBA from
the University of Michigan.

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

         Henry  Hai-Lin Hu was  appointed  a director of the Company in December
1998.  He is  currently  the  Principal  of Business  Plus  Consultants  Limited
providing services to Hong Kong toy companies on business development. From 1993
through 1996, he was Chairman and Chief Executive Officer of Zindart  Industrial
Co.  Ltd.,  a NASDAQ  listed  manufacturer  of die cast car replicas and premium
giftware.  He  co-founded  Wah Shing Toy Group in 1982,  a Singapore  listed toy
company,  and retired from Wah Shing in 1991.  Mr. Hu has served in director and
senior  officer roles in several toy companies in Hong Kong since 1967. He has a
B.Sc.  in  Mechanical  Engineering  from Hong Kong  University,  is a Registered
Professional  Engineer, and a member of the Institution of Electrical Engineers,
Hong Kong.

         Siu Wing Lam has been a director of the Company  since January 1994. He
was the  Executive  Vice  President,  Engineering  of the  Company  from 1998 to
February 2002, Vice President, Engineering and the head of Radica HK engineering
department  from 1988 to 1998,  and joined the Company in 1985. Mr. Lam has over
20  years  of  experience  in  manufacturing,  product  design  and  engineering
management.  He is currently the President of Providence  International Limited,
providing  services on new product  development to US and HK companies.  Mr. Lam
has an  Associateship  in Production and Industrial  Engineering  from Hong Kong
Polytechnic University and a Postgraduate Diploma in Engineering Management from
City University of Hong Kong. He is a Chartered  Engineer and a corporate member
of the Institute of Electrical Engineers of the UK.

         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 Chairman of the
Board of  Academic  Advisors  of the Booz Allen  Hamilton  Strategic  Leadership
Center.

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

         Peter 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  - US  Operations  and a
member of the Executive Management Committee at Levi Strauss & Company, retiring
after 23 years with the San Francisco-based  apparel company.  During his tenure
at Levi Strauss, Mr. Thigpen held positions of President of European Operations,
President - Levi Strauss USA,  President - The Jeans Company and was a member of
the Board of Directors.

         Jeanne M.  Olson is the  Executive  Vice  President/General  Manager of
Radica USA.  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.


                                       30
<PAGE>

         John J.  Doughty has been  Managing  Director  with Radica UK since May
2001, having  previously held the positions  General Manager,  Head of Sales and
Marketing,  Head of Sales,  and UK Sales Manager since joining in March 1998. He
personally  manages Radica UK's major European  Accounts,  and also oversees the
day to day running of the UK operation.  Mr. Doughty has had 15 years experience
in the 'gaming'  industry having  previously worked at Entertainment UK, part of
the Kingfisher  Group,  as Senior Buyer,  and prior to that having worked at HMV
UK, as a Buyer.

         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 29  years.  He spent  the  1980's  and into the  early  90's at  Parker
Brothers  where he was Senior  Vice  President  of Sales.  Mr.  Romaine  was the
President of Play Tech Inc.,  a VTech  company,  for seven years before  joining
Radica USA. His most recent  educational  credentials  include the completion of
the  Executive  Program for General  Managers at the  University  of  Michigan's
School of Business.

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

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

         Larry C.N. Cheng has been an Engineering Director since April 1999. 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.

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

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

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

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

         Louis S.W. Kwok has been the  Materials  and Logistics  Director of the
Company from March 2002 and was the Plant Administration Director of the Company
from  January  2001 to February  2002.  He has had over 15 years  experience  in

                                       31
<PAGE>

manufacturing  plant  operations  throughout his career.  Major companies he has
worked  with are  Pymetics  (Hong  Kong)  Limited,  Management,  Investment  and
Technology Company Limited, and Sunciti  Manufacturers  Limited. He has a Higher
Diploma  in   Mechanical   Engineering,   Diploma  in   Mechanical   Engineering
(Manufacturing Technology), and National Diploma in Mechanical Engineering.

         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 15 years experience in
project management and product development in major appliances,  electronics and
toys.  He  obtained  his 6 Sigma  experience  while  working for GE, and led the
development  of Total  Cycle  Time  management  skill at  VTech.  He has a BA in
Industrial Design from Hong Kong Polytechnic University and a Diploma in Product
Design from LWL Technical Institute.

         Lavinia K.W.  Wong was appointed as a Director of VGA & Sourcing of the
Company in April 2001.  Since  joining  the  Company in June 1999,  she has been
supervising the management of both the sourcing  business and out-sourced  video
game accessories.  Prior to that, she was a Director of LMP HK, where she set up
the Hong Kong  office of LMP UK and  managed the  day-to-day  operations,  which
included  sourcing,  finance  and  management.  Miss  Wong  has  over  10  years
experience  in the  electronics  and games  business  and has held an  executive
marketing position in a publicly listed electronics company in Hong Kong.

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

COMPENSATION OF OFFICERS AND DIRECTORS

COMPENSATION

         In  fiscal  2002,  the  aggregate  amount of  compensation  paid to all
executive  officers and directors as a group for services in all  capacities was
approximately  $2.3 million.  In addition,  bonus payments made to all executive
officers  as a group in  April  of 2003  related  to 2002  performance  that was
accrued at the end of 2002 was $0.56 million.

         Each outside (i.e.,  non-employee and  non-affiliated)  director of the
Company receives a $10,000 annual fee paid in quarterly installments.  Directors
may elect to receive half of this fee payable in shares of the Company's  Common
Stock  valued at the then current  market  price.  Each outside  director of the
Company also receives a fee of $600 for  attendance at each  Committee  meeting.
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  $4.00  per  share  in  2002.  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.

EMPLOYMENT AGREEMENTS

         Messrs. Feely, Howell, Bengtson, Doughty 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 for periods of two
years each, from July 2001 for Mr. Feely, from December 2001 for Messrs. Howell,
Bengtson and Ms. Olson and from May 25, 2001 for Mr.  Doughty.  Each  employment
agreement is terminable by the Company for cause. Under their agreements Messrs.
Feely, Howell, Bengtson, Doughty and Ms. Olson shall each receive minimum annual
base salaries of $282,600,  $225,000, $43,200, $116,000 and $200,000 (the amount
for Mr.  Doughty  is  stated in UK  currency  as  (pound)80,000),  respectively.
Messrs.  Feely and  Howell  took  voluntary  pay cuts  from 2000 and their  full
salaries were reinstated on January 1, 2003. The agreement with Mr. Bengtson, in
operation  since  December 1995, is for part-time  services.  Under the terms of
their employment  agreements Messrs.  Feely, Howell,  Bengtson,  Doughty and Ms.
Olson are eligible to  participate  in the Company's  bonus plan.


                                       32
<PAGE>

The  employment  agreements  for Messrs.  Feely,  Howell,  Doughty 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 $3.625 per share,  another  60,000 stock  options at $14.125 per
share in November 1998 and a further  60,000 stock options at $3.00 per share in
May 2000,  subject to the terms and  conditions  of the  agreement  and the 1994
Stock Option Plan. Additionally,  in May 2001, Mr. Feely would have been granted
60,000 stock options at market price provided he achieved certain  conditions as
stated in the agreements,  however,  these were not achieved.  In the agreements
for Mr.  Howell,  he was granted  25,000 stock  options per annum of the Company
common stock at $3.00 and $2.90 per share in May 2000 and 2001 respectively.  In
June 2002, Mr. Howell was granted 25,000 stock options at market price,  subject
to the terms and  conditions of the agreement and the 1994 Stock Option Plan. In
the  agreement  for Ms.  Olson,  she had been granted  60,000 stock options upon
initial  employment and was granted an additional  40,000 stock options at $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.  Doughty,  he had been
granted 26,400 stock options of the Company common stock at $3.00 and $1.625 per
share in May 2000 and January 2001, respectively upon initial employment and was
granted an additional 6,000 stock options at $3.00 per share in May 2001 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,  respectively  in February  2001 and Mr.  Doughty was
granted 25,000 stock options in May 2001 under an incentive plan. 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.

OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES

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

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

         In fiscal year 2000, an aggregate of 788,000 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 $1.63 to $3.25 per share.

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

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

         As a result of the  foregoing,  at the end of fiscal  year 2002,  after
giving effect to all prior exercises and forfeitures of options, an aggregate of
2,008,223 options (exclusive of the outside directors' options) were outstanding
at exercise prices ranging from $1.09 to $19.63 per share,  and of such amount a
total of 1,337,950 options were held by directors and executive  officers of the
Company as a group.  Also, an aggregate of 305,000  outside  director's  options
were  outstanding  at exercise  prices  ranging  from $2.00 to $18.75 per share.
During 2002, a total of 144,446 shares were issued upon the exercise of options,

                                       33
<PAGE>

at exercise prices ranging from $1.09 to $3.25 per share. Prior to 2002, a total
of  1,065,596  shares had been issued  upon the  exercise of options at exercise
prices ranging from $0.57 to $11.00 per share.

         Additional  information  with respect to stock  options is contained in
Note 12 of the Notes to the Consolidated  Financial  Statements included in this
filing.

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

ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

CONTROL OF REGISTRANT

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

(b)  The following  table is based on  information  available to the Company and
     identifies  the owners of more than five percent  (5%) of the  registrant's
     common  stock and the  amount of common  stock  owned by the  officers  and
     directors as a group,  as of December  31,  2002.  The Company must rely on
     information provided by individual shareholders and therefore cannot verify
     its accuracy:

                  Identity of
Title of Class  Person or Group                  Amount Owned   Percent of Class
--------------  ---------------                  ------------   ----------------
Common stock    Dito Devcar Corporation, et al.    7,843,938         44.1%
Common stock    Mary Hansen / Hansen Trust         1,450,000          8.2%
Common stock    RAD Partners 1999 LLC, et al.      1,626,200          9.1%
Common stock    Officers & Directors as a Group      516,921          2.9%

(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 December 31, 2002, the Company had  approximately  120 record holders
     of its Common  Stock,  and  approximately  80% of such stock was held by US
     holders.

INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS

         Robert E. Davids, the Hansen Trust,  certain other former  stockholders
and the Company  were parties to a  shareholders  agreement  (the  "Shareholders
Agreement") which provided for certain matters relating to the management of the
Company and ownership of its Common Stock.  In January  1998,  the  Shareholders
Agreement  was amended to  eliminate  provisions  respecting  the  election  and
removal of directors, restrictions on transfer and a right of first refusal. The
registration rights provisions of the Shareholders Agreement remain operative.

         Pursuant to the Shareholders Agreement, the Company 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  US state
securities laws. The Shareholders Agreement also grants each Shareholder certain
"piggyback"  registration  rights entitling each Shareholder,  at any time after
February  16,  1996,  to sell Common  Stock in certain  registered  offerings of
equity  securities of the Company.  These  "piggyback"  registration  rights are
exercisable by each Shareholder only twice.  The foregoing  registration  rights
are subject to other limitations set forth in the Shareholders Agreement.

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


                                       34
<PAGE>

         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.

LEGAL PROCEEDINGS

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

         The suit by Lemelson  has been  stayed  pending the outcome of Lemelson
vs.  Cognex,  a similar suit filed by Lemelson,  which will have some bearing on
the Radica case with  Lemelson.  As of the reporting  date, no judgment had been
handed out in the Cognex  case.  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, 2002 in respect of the
Lemelson case or other claims or legal actions, in accordance with the Company's
accounting policy.

         The Company has other pending  litigation  against it.  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.

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 2002 and fiscal 2001:

                     Fiscal year ended               Fiscal year ended
                     December 31, 2002               December 31, 2001
                     -----------------               -----------------
                     High          Low               High          Low
                     ----          ---               ----          ---
First Quarter        4.400        3.400              3.375        1.625
Second Quarter       4.600        3.800              3.500        2.500
Third Quarter        4.029        3.560              4.250        2.400
Fourth Quarter       4.600        3.450              4.900        2.531

         The annual  high and low closing  stock  prices in fiscal 2000 were $10
and $1.625;  in fiscal 1999 were $16 and $7.25;  and in fiscal 1998 were $21 and
$10.438.

         The monthly high and low closing  stock prices over the last six months
in fiscal 2002 were $4.029 and $3.6 in July 2002; $4 and $3.7 in August 2002; $4
and $3.56 in September 2002; $3.9 and $3.45 in October 2002;  $4.42 and $3.65 in
November 2002; and $4.6 and $4.21 in December 2002.

         Radica  Games  Limited was formed in 1994 as a holding  company and has
not paid any  dividends.  Except to the  extent  set forth  below,  the  Company
intends to retain its earnings for  operations and expansion of its business for
the  foreseeable  future.  The  payment of any future  dividends  will be at the
discretion of the Board of Directors and will depend upon,  among other factors,
the Company's earnings,  financial  condition,  capital requirements and general
business  outlook at the time the payment is considered.  The Company intends to
make cash  distributions at the end of its taxable year at least equal to 50% of
its  foreign  personal  holding  company  income  for any  year in which it is a
personal  foreign  holding  company  (see  Item  10.  Additional  Information  -
Taxation).


                                       35
<PAGE>

ITEM 10.  ADDITIONAL INFORMATION

MEMORANDUM AND BY-LAWS

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

EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS

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

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

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


                                       36

<PAGE>

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, as currently in effect, a holder of Common
Stock is not  subject to Hong Kong tax on  dividends  paid with  respect to such
shares  and no  holder  of  Common  Stock is  liable  for Hong Kong tax on gains
realized on sale or other disposition of such Common Stock except that Hong Kong
profits tax may be  chargeable on  assessable  profits,  to the extent that they
arise in or derive from Hong Kong, arising on the sale or disposal of the Common
Stock  where  such  transactions  are or form  part of a  trade,  profession  or
business carried on in Hong Kong. Hong Kong does not impose a withholding tax on
dividends paid by the Company or its subsidiaries. In addition, the Company will
not be subject to Hong Kong taxes as a result of its receipt of  dividends  from
any of its subsidiaries.

         Hong Kong stamp duty is levied on the  transfer of Common Stock of Hong
Kong companies at the rate of 0.03% 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.

UNITED STATES FEDERAL INCOME TAXATION

         General.  The  following  is a general  discussion  of the  material US
federal  income  tax  consequences  to a US  Holder  (as  defined  below) of the
ownership of Common  Stock and does not address the US 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 US 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 "US  Holder"  is a  beneficial  owner of  Common  Stock  that is a US
citizen or resident,  a domestic  corporation,  an estate  subject to US federal
income  taxation on a net income basis,  or a trust if a court within the United
States is able to exercise primary  supervision over the  administration  of the
trust and one or more United  States  persons have the  authority to control all
substantial decisions of the trust.

         Dividends.  Subject to the FPHC, PFIC, and CFC discussions  below, a US
Holder receiving a distribution on Common Stock will be required to include such
distribution  in gross income as a dividend to the extent such  distribution  is
paid from  current  or  accumulated  earnings  and  profits  of the  Company  as
determined  under US  federal  income  tax law.  Distributions  in excess of the
earnings and profits of the Company will be treated,  for US federal  income tax
purposes,  as a  nontaxable  return of capital to the extent of the US  Holder's
basis in the  Common  Stock  and then as gain  from  the sale or  exchange  of a
capital asset.  Dividend  income with respect to the Common Stock generally will
constitute  foreign  source  "passive"  income,  or in the  case of  certain  US
Holders,  "financial  services"  income for  purposes  of the foreign tax credit
limitation.   A   corporate   shareholder   will   not  be   eligible   for  the
dividends-received deduction.


                                       37
<PAGE>

         Sale or Exchange of Common Stock.  Subject to the FPHC,  PFIC,  and CFC
discussions below, gain or loss on the sale or exchange of the Common Stock by a
US  Holder  generally  will be  treated  as  capital  gain or loss  and  will be
long-term  capital  gain or loss if the US Holder has held the Common  Stock for
more than one year at the time of the sale or exchange. Gain or loss realized by
a US Holder  will  generally  be US source  gain.  Long-term  capital  gain of a
non-corporate US Holder is generally subject to a maximum tax rate of 20%.

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

         The Company believes that it is not currently a FPHC because the income
test was not met in 2002.  However,  this conclusion is a factual  determination
that is made  annually  and thus is subject to change.  The  Company  intends to
manage its  business  such that it will not meet the income test until such time
that it begins to receive significant dividends from its subsidiaries,  which is
not expected to occur in the  foreseeable  future.  The Company  would then be a
FPHC only if, in the same taxable year, it also met the shareholder test.

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

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

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

         The Company  believes that it is not currently a PHC because the income
test was not met in 2002. The Company  intends to cause any subsidiary that is a
PHC to make  distributions  on a basis such that it will not have  undistributed
personal holding company income.

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

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


                                       38
<PAGE>

         In general,  the Company will be a PFIC with respect to a US Holder if,
for any taxable  year in which the US Holder held the  Company's  Common  Stock,
either (i) at least 75% of the gross  income of the Company for the taxable year
is passive income or (ii) at least 50% of the value  (determined on the basis of
a quarterly  average) of the  Company's  assets is  attributable  to assets that
produce or are held for the  production  of passive  income.  For this  purpose,
passive income generally includes dividends,  interests, royalties, rents (other
than certain  rents and  royalties  derived in the active  conduct of a trade or
business), annuities and gains from assets that produce passive income.

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.

INTEREST RATE SENSITIVITY

         The Company's  long-term loan agreement is based upon the US$ Singapore
Interbank  Offered  Rate  ("SIBOR")  and, as such,  is  sensitive  to changes in
interest rates. The Company has not used derivative financial instruments in its
indebtedness.  At December 31, 2002, the result of a hypothetical one percentage
change in the  underlying  US$ SIBOR rates would have resulted in less than $0.1
million  change in the annual amount of interest  payable on such debt. If SIBOR
went up by 1% from the interest rate of the long-term loan agreement at December
31, 2001, the effect on the P&L would be $6,800.

FOREIGN CURRENCY RISK

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

ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

         Not Applicable


                                     PART II

ITEM 13.  DEFAULTS, DIVIDEND AVERAGES AND DELINQUENCIES

         None

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

         None or Not Applicable


                                       39
<PAGE>

ITEM 15.  CONTROLS AND PROCEDURES

         Within  a  90-day  period  prior  to the  filing  of  this  report,  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-14(c)  under the Securities  Exchange Act of
1934).  Based  upon that  evaluation,  the  Chief  Executive  Officer  and Chief
Financial Officer  concluded that these disclosure  controls and procedures were
effective to collect,  process and disclose the information  that is required to
disclose in this report filed with the SEC. No significant  changes were made in
such controls or in other factors that could significantly affect these controls
subsequent to the date of their evaluation.

ITEM 16A.  AUDIT COMMITTEE FINANCIAL EXPERT

         Not Applicable

ITEM 16B.  CODE OF ETHICS

         Not Applicable

ITEM 16C.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

         Not Applicable


                                    PART III

ITEM 17.  FINANCIAL STATEMENTS

         Not Applicable

ITEM 18.  FINANCIAL STATEMENTS

INDEX TO FINANCIAL STATEMENTS                                             PAGE

         Independent Auditors' Reports                                    F-1, 2

         Consolidated Balance Sheets                                      F-3

         Consolidated Statements of Operations                            F-4

         Consolidated Statements of Shareholders' Equity                  F-5

         Consolidated Statements of Cash Flows                            F-6

         Notes to the Consolidated Financial Statements                   F-7

ITEM 19.  EXHIBITS

             *     3.1     Memorandum of Association

             *     3.2     Bye-Laws

             *     3.3     Certificate of Incorporation on Change of Name

             *     4.1     Specimen Certificate for the Shares of Common Stock

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


                                       40
<PAGE>

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

             @    10.3     Cooperative  Joint  Venture  Contract of D.G.  Radica
                           Games  Manufacturing  Co., Ltd.,  dated June 24, 1994
                           (see exhibit 10.16 to 20-F for year ended October 31,
                           1994)

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

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

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

             ^    10.6     Employment Agreement,  dated as of December 15, 2001,
                           between Radica USA and Jeanne Olson

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

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

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

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

             >    10.9     1994  Stock  Option  Plan,   most  recent   amendment
                           restated in May 2000 to increase options

             >    10.11    Amendment and  Restatement  to  Employment  Agreement
                           among Radica USA,  Radica  Games  Limited and Patrick
                           Feely dated September 27, 2000

             >    10.13    Amendment and  Restatement  to  Employment  Agreement
                           between  Radica Games  Limited and David C.W.  Howell
                           dated September 29, 2000

             >    10.14    Amendment and  Restatement  to  Employment  Agreement
                           between  Radica Games  Limited and Siu Wing Lam dated
                           October 4, 2000

             ^    10.15    Employment  Agreement,  dated  as of  May  25,  2001,
                           between Radica UK Limited and John Doughty

             ##   10.16    Share Purchase  Agreement  dated as of June 24, 1999,
                           relating  to the  acquisition  of the  entire  issued
                           share  capital of Leda Media  Products  Limited  (now
                           Radica UK Limited).

                  11.1     Statement re Computation of Per Share Earnings

                  12.1     Statement re Selected Quarterly Financial Data

                  21.1     List of subsidiaries

                  23.1     Consent of KPMG

                  23.2     Consent of Deloitte Touche Tohmatsu

                  99.1     Section 906 Certification of Patrick S. Feely

                  99.2     Section 906 Certification of David C.W. Howell


                                       41
<PAGE>

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

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

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

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

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

##   Incorporated  by  reference  to Form 20-F for the year ended  December  31,
     1999.

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

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

The other exhibits not footnoted are included as part of this filing.



                                       42

<PAGE>

                              RADICA GAMES LIMITED

                        CONSOLIDATED FINANCIAL STATEMENTS










                                                                        Page
                                                                        ----

Independent Auditors' Reports .......................................  F-1, 2

Consolidated Balance Sheets .........................................    F-3

Consolidated Statements of Operations ...............................    F-4

Consolidated Statements of Shareholders' Equity
and Comprehensive Income ............................................    F-5

Consolidated Statements of Cash Flows ...............................    F-6

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







<PAGE>



                          INDEPENDENT AUDITORS' REPORT


The Board of Directors and Shareholders
Radica Games Limited:


We have audited the  accompanying  consolidated  balance  sheets of Radica Games
Limited  and  subsidiaries  as of December  31,  2002 and 2001,  and the related
consolidated  statements of operations,  shareholders'  equity and comprehensive
income, and cash flows for the years then ended.  These  consolidated  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of Radica Games Limited
and  subsidiaries  as of December  31,  2002 and 2001,  and the results of their
operations  and their cash flows for the years  then  ended in  conformity  with
accounting principles generally accepted in the United States of America.

As discussed in note 5 to the  consolidated  financial  statements,  the Company
changed its method of accounting for goodwill in 2002.





/S/ KPMG

HONG KONG
February 18, 2003





                                      F-1
<PAGE>


                          INDEPENDENT AUDITORS' REPORT



To the Shareholders and Directors of Radica Games Limited


         We have audited the consolidated  balance sheet (not presented  herein)
of Radica  Games  Limited  and  subsidiaries  as of  December  31,  2000 and the
accompanying   related  statements  of  operations,   shareholders'  equity  and
comprehensive  income,  and cash flows for the year then ended.  These financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

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

         In our  opinion,  such  financial  statements  present  fairly,  in all
material   respects,   the  financial  position  of  Radica  Games  Limited  and
subsidiaries  as of December  31, 2000 and the results of their  operations  and
their  cash  flows  for the year  then  ended,  in  conformity  with  accounting
principles generally accepted in the United States of America.




/S/ Deloitte Touche Tohmatsu

HONG KONG
February 12, 2001 (April 15, 2003 as to the last paragraph of Note 5)


                                      F-2
<PAGE>
                              RADICA GAMES LIMITED
                          CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2002 AND 2001

<TABLE>
<CAPTION>
                                                ASSETS
(US dollars in thousands, except share data)                                              2002                   2001
                                                                                    ------------------     ------------------

<S>                                                                                          <C>                    <C>
Current assets:
Cash and cash equivalents
(Pledged deposits of $8,951 in 2002 and $8,955 in 2001 )                                     $ 32,692               $ 25,810
Accounts receivable, net of allowances for doubtful accounts
of $315 ($2,207 in 2001)                                                                       15,139                 13,868
Inventories, net of provision of $4,193 ($3,997 in 2001)                                       20,385                 17,179
Prepaid expenses and other current assets                                                       1,674                  2,283
Income taxes receivable                                                                           931                    931
Deferred income taxes                                                                               -                    168
                                                                                    ------------------     ------------------

Total current assets                                                                           70,821                 60,239
                                                                                    ------------------     ------------------

Property, plant and equipment, net                                                             14,930                 16,310

Goodwill                                                                                        9,551                  9,551

Purchased intangible assets, net of accumulated amortization of $6,260
($5,840 in 2001)                                                                                    -                    420

Deferred income taxes, noncurrent                                                                   -                  1,887
                                                                                    ------------------     ------------------

        Total assets                                                                         $ 95,302               $ 88,407
                                                                                    ==================     ==================

                                 LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings                                                                           $ 846                  $ 846
Accounts payable                                                                                7,974                  9,201
Current portion of long-term debt                                                               1,825                  3,648
Accrued payroll and employee benefits                                                           2,753                    943
Accrued warranty expenses                                                                       1,040                    900
Other accrued liabilities                                                                       5,840                  7,485
Income taxes payable                                                                              309                    507
Deferred income taxes                                                                              79                      -
                                                                                    ------------------     ------------------

        Total current liabilities                                                              20,666                 23,530
                                                                                    ------------------     ------------------

Long-term debt                                                                                      -                  1,825
                                                                                    ------------------     ------------------

        Total liabilities                                                                      20,666                 25,355
                                                                                    ------------------     ------------------

Shareholders' equity:
Common stock
par value $0.01 each, 100,000,000 shares authorized,
17,796,131 shares issued and outstanding (17,646,740 in 2001)                                     178                    176
Additional paid-in capital                                                                      2,320                  1,549
Warrants to acquire common stock                                                                    -                    445
Retained earnings                                                                              72,946                 61,012
Accumulated other comprehensive loss                                                             (808)                  (130)
                                                                                    ------------------     ------------------

       Total shareholders' equity                                                              74,636                 63,052
                                                                                    ------------------     ------------------

       Total liabilities and shareholders' equity                                            $ 95,302               $ 88,407
                                                                                    ==================     ==================
</TABLE>

        See accompanying notes to the consolidated financial statements.

                                      F-3
<PAGE>

                              RADICA GAMES LIMITED
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

<TABLE>
<CAPTION>
(US dollars in thousands,                                            2002               2001               2000
except per share data)                                       ------------------  -----------------  ------------------

<S>                                                              <C>                <C>                 <C>
Revenues:
Net sales                                                        $     124,646      $      98,554       $     106,696
Cost of goods sold (exclusive of items
shown separately below)                                                (77,481)           (64,698)            (83,041)
                                                             ------------------  -----------------  ------------------
Gross profit                                                            47,165             33,856              23,655
                                                             ------------------  -----------------  ------------------

Operating expenses:
Selling, general and administrative expenses                           (27,695)           (26,279)            (32,322)
Research and development                                                (4,094)            (5,775)             (5,210)
Depreciation                                                            (2,438)            (2,631)             (2,601)
Amortization of intangible assets and goodwill                            (420)            (1,382)             (2,826)
Restructuring charge                                                         -             (1,551)             (1,190)
                                                             ------------------  -----------------  ------------------
 Total operating expenses                                              (34,647)           (37,618)            (44,149)
                                                             ------------------  -----------------  ------------------

Operating income (loss)                                                 12,518             (3,762)            (20,494)

Other income                                                               306                 24                 781

Foreign currency gain (loss), net                                        1,744               (219)                 49

Interest income                                                            253                733               1,472

Interest expense                                                          (218)              (597)               (808)
                                                             ------------------  -----------------  ------------------

Income (loss) before income taxes                                       14,603             (3,821)            (19,000)

(Provision) credit for income taxes                                     (2,669)              (553)                901
                                                             ------------------  -----------------  ------------------

Net income (loss)                                                $      11,934      $      (4,374)      $     (18,099)
                                                             ==================  =================  ==================

Net income (loss) per share:

Basic                                                            $        0.67      $       (0.25)      $       (1.03)
                                                             ==================  =================  ==================

Diluted                                                          $        0.65      $       (0.25)      $       (1.03)
                                                             ==================  =================  ==================

Weighted average number of common and
common equivalent shares

Basic                                                               17,725,879         17,611,886          17,608,167
                                                             ==================  =================  ==================

Diluted                                                             18,335,827         17,611,886          17,608,167
                                                             ==================  =================  ==================
</TABLE>

        See accompanying notes to the consolidated financial statements.

                                      F-4
<PAGE>
                              RADICA GAMES LIMITED
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                            AND COMPREHENSIVE INCOME
                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2002

<TABLE>
<CAPTION>
                                                Common Stock                                          Accumulated
(US dollars in thousands)                       ------------ 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, 1999         17,639,594       $ 176      $ 1,090         $ 667     $ 84,100        $   29     $ 86,062
Issuance of stock                         9,158           -           23             -            -             -           23
Cancellation of repurchased stock      (156,055)         (1)         (25)            -         (615)            -         (641)
Stock options exercised                  71,600           1          100             -            -             -          101
Net loss                                      -           -            -             -      (18,099)            -      (18,099)
Foreign currency translation                  -           -            -             -            -           (58)         (58)
                                   ------------- ----------- ------------ ------------- ------------ -------------  -----------

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

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

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

<FN>
The  comprehensive  income  (loss) of the Company,  which  represents  the  aggregate of the net income  (loss) and the foreign
currency  translation  adjustments,  was $11,256,  $(4,475) and $(18,157) for the years ended December 31, 2002, 2001 and 2000,
respectively.
</FN>
</TABLE>

        See accompanying notes to the consolidated financial statements.

                                      F-5
<PAGE>
                              RADICA GAMES LIMITED
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

<TABLE>
<CAPTION>
(US dollars in thousands)                                                      2002                2001               2000
                                                                         -----------------   -----------------  -----------------

<S>                                                                           <C>                 <C>                <C>
Cash flow from operating activities:
Net income (loss)                                                             $    11,934         $    (4,374)       $   (18,099)
Adjustments to reconcile net income (loss) to net cash
  provided by (used in) operating activities:
  Deferred income taxes                                                             2,134                (918)             2,541
  Depreciation                                                                      2,438               2,631              2,601
  Amortization                                                                        420               1,382              2,826
  Loss on disposal and write off of property, plant and equipment                      57                  73                 10
  Changes in current assets and liabilities:
    (Increase) decrease in accounts receivable                                     (1,271)              8,678             (2,181)
    (Increase) decrease in inventories                                             (3,206)             (3,208)            10,654
    Decrease (increase) in prepaid expenses and other current assets                  609                (709)             3,178
    (Decrease) increase in accounts payable                                        (1,227)              2,124             (3,852)
    Increase (decrease) in accrued payroll and employee benefits                    1,810                  (7)            (1,561)
    Increase (decrease) in accrued warranty expenses                                  140                 (50)              (150)
    (Decrease) increase in other accrued liabilities                               (1,645)              1,036              2,220
    (Decrease) increase in income taxes payable                                      (198)              3,638             (2,875)
                                                                         -----------------   -----------------  -----------------

Net cash provided by (used in) operating activities                                11,995              10,296             (4,688)
                                                                         -----------------   -----------------  -----------------

Cash flow from investing activities:
Proceeds from sale of property, plant and equipment                                   201                  64                 75
Purchase of property, plant and equipment                                          (1,316)             (1,103)            (3,138)
Purchase of intangible assets                                                           -                   -             (1,260)
                                                                         -----------------   -----------------  -----------------

Net cash used in investing activities                                              (1,115)             (1,039)            (4,323)
                                                                         -----------------   -----------------  -----------------

Cash flow from financing activities:
Funds from issuance of stock                                                  $        21         $        22                 23
Funds from stock options exercised                                                    307                 117                101
(Decrease) increase in short-term borrowings                                            -              (2,934)             2,316
Proceeds from bank loan                                                                 -                   -             10,945
Repayment of long-term debt                                                        (3,648)             (3,648)           (12,737)
Repurchase of common stock                                                              -                   -               (641)
                                                                         -----------------   -----------------  -----------------

Net cash (used in) provided by financing activities                                (3,320)             (6,443)                 7
                                                                         -----------------   -----------------  -----------------

Effect of currency exchange rate change                                              (678)               (101)               (58)
                                                                         -----------------   -----------------  -----------------

Net increase (decrease) in cash and cash equivalents                                6,882               2,713             (9,062)

Cash and cash equivalents:
  Beginning of year                                                                25,810              23,097             32,159
                                                                         -----------------   -----------------  -----------------

  End of year                                                                 $    32,692         $    25,810        $    23,097
                                                                         =================   =================  =================

Supplementary disclosures of cash flow information:
  Interest paid                                                               $       220         $       594        $       797
  Income taxes paid                                                                 1,314                 433                109

Non-cash investing and financing activities:
  Loan notes forfeited                                                        $         -         $         -        $     1,399
  Inventory exchanged for advertising and development
    of Internet arcade game                                                             -                   -                177
</TABLE>

        See accompanying notes to the consolidated financial statements.

                                      F-6
<PAGE>


                              RADICA GAMES LIMITED

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                 (YEARS ENDED DECEMBER 31, 2002, 2001 and 2000)
                            (US dollars in thousands)

1.   ORGANIZATION AND BASIS OF FINANCIAL STATEMENTS

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

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

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

     Depreciation and Amortization of Property, Plant and Equipment
     Property,  plant and equipment are stated at cost. Depreciation is provided
     on the straight-line  method at rates based upon the estimated useful lives
     of the  property,  generally not more than seven years except for leasehold
     land and buildings which are 50 years or where shorter,  the remaining term
     of the lease, by equal annual installments. Costs of leasehold improvements
     and capital leased assets are amortized over the useful life of the related
     asset or the term of the lease,  whichever is shorter. The Company expenses
     all mold costs in the year of purchase or, for internally  produced  molds,
     in the year of construction. Upon sale or retirement, the costs and related
     accumulated depreciation or amortization are eliminated from the respective
     accounts and any resulting gain or loss is included in income.

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


                                      F-7
<PAGE>



                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2002, 2001 and 2000)
                            (US dollars in thousands)

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

     Prior  to the  adoption  of SFAS  No.  142,  goodwill  was  amortized  on a
     straight-line basis over the expected periods to be benefited, generally 15
     years,  and  assessed  for   recoverability  by  determining   whether  the
     amortization  of the  goodwill  balance  over its  remaining  life could be
     recovered through  undiscounted future operating cash flows of the acquired
     operation.  The  Company's  other  intangible  asset  was  amortized  on  a
     straight-line basis over its estimated useful lives. The amount of goodwill
     and other  intangible  asset  impairment,  if any,  was  measured  based on
     projected  discounted  future  operating  cash flows using a discount  rate
     reflecting the Company's average cost of funds.

     Impairment of Long-lived Assets
     The Company  adopted SFAS No. 144 Accounting for the Impairment or Disposal
     of Long-lived  Assets  effective  January 1, 2002.  SFAS No. 144 provides a
     single  accounting model for long-lived  assets to be disposed of. SFAS No.
     144 also changes the criteria  for  classifying  an asset as held for sale;
     and  broadens  the scope of  businesses  to be disposed of that qualify for
     reporting as discontinued  operations and changes the timing of recognizing
     losses on such operations.  The adoption of SFAS No. 144 did not affect the
     Company's financial statements.

     In  accordance  with SFAS No. 144,  long-lived  assets,  such as  property,
     plant, and equipment,  and purchased  intangibles  subject to amortization,
     are reviewed for  impairment  whenever  events or changes in  circumstances
     indicate  that the  carrying  amount  of an asset  may not be  recoverable.
     Recoverability of assets to be held and used is measured by a comparison of
     the carrying amount of an asset to estimated undiscounted future cash flows
     expected to be generated by the asset.  If the carrying  amount of an asset
     exceeds its estimated future cash flows, an impairment charge is recognized
     by the amount by which the  carrying  amount of the asset  exceeds the fair
     value of the asset.
     Goodwill  and  intangible  assets not  subject to  amortization  are tested
     annually for  impairment,  and are tested for impairment more frequently if
     events and  circumstances  indicate  that the asset might be  impaired.  An
     impairment  loss is  recognized  to the  extent  that the  carrying  amount
     exceeds the asset's fair value.

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

     Revenue Recognition
     Revenues are recognized as sales when  merchandise is shipped,  which is in
     accordance with the terms of the sale which are FOB shipping point,  except
     in a few cases where terms of sale are FOB destination. This represents the
     point at which the customer  takes  ownership and assumes risk of loss. The
     Company has consignment  agreements with certain European  distributors and
     records these  shipments as revenues upon  confirmation  of sell-through by
     the distributor.


                                      F-8
<PAGE>



                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2002, 2001 and 2000)
                            (US dollars in thousands)

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

     Allowance for Doubtful Accounts
     The  Company  is  required  to  estimate   the   collectibility   of  trade
     receivables. A considerable amount of judgment is required in assessing the
     realization of these receivables including the current  creditworthiness of
     each  customer  and  related  aging of the past due  balances.  In order to
     assess the collectibility of these receivables,  ongoing credit evaluations
     of  the  customers'  financial  condition  are  performed.   Through  these
     evaluations  the Company may become  aware of a situation  where a customer
     may not be able to meet its financial  obligations due to  deterioration of
     its financial  viability,  credit ratings or bankruptcy.  The allowance for
     doubtful  accounts is based on the best facts  available to the Company and
     are  reevaluated  and adjusted as additional  information is received.  The
     Company does not have any off-balance  sheet credit  exposures  relating to
     its customers.

     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 expensed by the Company the first time that the  advertising
     takes place.  In addition,  the Company  offers  discounts to customers who
     advertise Radica products.  These Co-op  advertising  costs associated with
     customer   benefit  programs  are  accrued  as  the  related  revenues  are
     recognized.  Co-op  advertising  costs are  characterized  as a cost if the
     Company  receives  a  benefit  that  is  sufficiently  separable  from  the
     retailer's  purchase of the  Company's  products  and the fair value of the
     co-op advertising  benefit is determinable and greater than or equal to the
     co-op  advertising  allowance  provided to the retailer.  Co-op advertising
     costs not meeting  these  criteria are recorded as  reductions  in revenue.
     Advertising  expense was approximately  $7,200,  $6,600 and $11,100 for the
     years ended December 31, 2002, 2001 and 2000, respectively.

     Research and Development
     Research  and  development  costs are  expensed as  incurred.  Research and
     development  costs amounted to $4,094,  $5,775 and $5,210 in 2002, 2001 and
     2000, respectively.

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


                                      F-9
<PAGE>



                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2002, 2001 and 2000)
                            (US dollars in thousands)

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

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

     Stock-based Compensation
     The  Company  applies  the   intrinsic-value-based   method  of  accounting
     prescribed by Accounting  Principles Board (APB) Opinion No. 25, Accounting
     for Stock Issued to Employees,  and related interpretations  including FASB
     Interpretation No. 44, Accounting for Certain Transactions  involving Stock
     Compensation,  an  interpretation  of APB Opinion  No. 25,  issued in March
     2000,  to account for its  fixed-plan  stock  options.  Under this  method,
     compensation  expense is  recorded on the date of grant only if the current
     market price of the underlying stock exceeded the exercise price.  SFAS No.
     123, Accounting for Stock-based  Compensation,  established  accounting and
     disclosure  requirements using a fair-value-based  method of accounting for
     stock-based  employee  compensation  plans. As allowed by SFAS No. 123, the
     Company has elected to continue to apply the  intrinsic-value-based  method
     of  accounting  described  above,  and  has  adopted  only  the  disclosure
     requirements of SFAS No. 123 (See Note 12). The following table illustrates
     the effect on net income  (loss) if the fair  value  based  method had been
     applied to all outstanding and unvested awards in the period:

                                                           2002          2001
                                                       ------------   ----------

Net income (loss), as reported                           $ 11,934      $ (4,374)
Deduct total stock-based employee compensation
  expense determined under fair-value-based method
  for all rewards, net of tax                                (746)         (793)
                                                       ------------   ----------
Prof forma net income (loss)                             $ 11,188      $ (5,167)
                                                       ============   ==========

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

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


                                      F-10
<PAGE>



                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2002, 2001 and 2000)
                            (US dollars in thousands)

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

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

     Recently Issued Accounting Pronouncement
     In June 2001,  FASB issued SFAS No. 143,  Accounting  for Asset  Retirement
     Obligations.  SFAS No. 143 requires the Company to record the fair value of
     an asset  retirement  obligation  as a liability  in the period in which it
     incurs a legal  obligation  associated  with  the  retirement  of  tangible
     long-lived   assets  that  result  from  the   acquisition,   construction,
     development,  and/or  normal use of the assets.  The Company also records a
     corresponding  asset  that is  depreciated  over  the  life  of the  asset.
     Subsequent to the initial  measurement of the asset retirement  obligation,
     the  obligation  will be  adjusted at the end of each period to reflect the
     passage of time and changes in the estimated  future cash flows  underlying
     the obligation. The Company is required to adopt SFAS No. 143 on January 1,
     2003.  The  adoption  of SFAS No.  143 is not  expected  to have a material
     effect on the Company's financial statements.

     In April 2002, the FASB issued SFAS No. 145,  Rescission of FASB Statements
     No.  4, 44 and 64,  Amendment  of FASB  Statement  No.  13,  and  Technical
     Corrections.  SFAS No. 145 amends existing  guidance on reporting gains and
     losses on the  extinguishment of debt to prohibit the classification of the
     gain or  loss as  extraordinary,  as the use of such  extinguishments  have
     become part of the risk management strategy of many companies. SFAS No. 145
     also amends SFAS No. 13 to require  sale-leaseback  accounting  for certain
     lease  modifications  that have economic effects similar to  sale-leaseback
     transactions.  The provisions of the Statement related to the rescission of
     Statement  No. 4 is applied in fiscal years  beginning  after May 15, 2002.
     Earlier  application of these  provisions is encouraged.  The provisions of
     the Statement  related to Statement No. 13 were effective for  transactions
     occurring  after May 15,  2002,  with  early  application  encouraged.  The
     adoption of SFAS No. 145 is not  expected to have a material  effect on the
     Company's financial statements.

     In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
     with  Exit  or  Disposal  Activities.  SFAS  No.  146  addresses  financial
     accounting  and  reporting  for  costs  associated  with  exit or  disposal
     activities  and  nullifies  Emerging  Issues Task Force  (EITF) Issue 94-3,
     Liability  Recognition for Certain Employee  Termination Benefits and Other
     Costs to Exit an Activity.  The  provisions of this Statement are effective
     for exit or disposal activities that are initiated after December 31, 2002,
     with early  application  encouraged.  The  adoption  of SFAS No. 146 is not
     expected to have a material effect on the Company's financial statements.


                                      F-11
<PAGE>



                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2002, 2001 and 2000)
                            (US dollars in thousands)

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     In  November  2002,  the FASB  issued  Interpretation  No. 45,  Guarantor's
     Accounting and Disclosure  Requirements for Guarantees,  Including Indirect
     Guarantees of Indebtedness to Others,  an interpretation of FASB Statements
     No. 5, 57 and 107 and a  rescission  of FASB  Interpretation  No. 34.  This
     Interpretation  elaborates on the  disclosures to be made by a guarantor in
     its interim and annual  financial  statements  about its obligations  under
     guarantees issued.  The  Interpretation  also clarifies that a guarantor is
     required to  recognize,  at inception of a guarantee,  a liability  for the
     fair  value of the  obligation  undertaken.  The  initial  recognition  and
     measurement  provisions of the  Interpretation are applicable to guarantees
     issued or modified  after  December 31, 2002 and are not expected to have a
     material  effect on the  Company's  financial  statements.  The  disclosure
     requirements  are effective  for financial  statements of interim or annual
     periods ending after December 15, 2002.

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

     In January 2003, the FASB issued  Interpretation  No. 46,  Consolidation of
     Variable  Interest  Entities,   an  interpretation  of  ARB  No.  51.  This
     Interpretation  addresses  the  consolidation  by business  enterprises  of
     variable   interest  entities  as  defined  in  the   Interpretation.   The
     Interpretation  applies  immediately  to  variable  interests  in  variable
     interest entities created after January 31, 2003, and to variable interests
     in  variable  interest  entities  obtained  after  January  31,  2003.  The
     application  of this  Interpretation  is not  expected  to have a  material
     effect on the Company's financial statements.  The Interpretation  requires
     certain disclosures in financial statements issued after January 1, 2003 if
     it is  reasonably  possible that the Company will  consolidate  or disclose
     information  about  variable  interest  entities  when  the  Interpretation
     becomes effective.

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

3.   INVENTORIES

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

                                       2002           2001
                                   -----------    -----------

Raw materials                        $  3,004       $  3,165
Work in progress                        3,462          3,176
Finished goods                         13,308         10,137
Consigned finished goods                  611            701
                                   -----------    -----------
                                     $ 20,385       $ 17,179
                                   ===========    ===========


                                      F-12
<PAGE>


                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2002, 2001 and 2000)
                            (US dollars in thousands)

4.   PROPERTY, PLANT AND EQUIPMENT

     Property, plant and equipment consists of the following:

                                                        2002           2001
                                                    ------------   ------------

Land and buildings                                     $ 13,281       $ 13,374
Plant and machinery                                       7,520          7,274
Furniture and equipment                                   7,303          7,560
Leasehold improvements                                    2,879          2,803
                                                    ------------   ------------
     Total                                             $ 30,983       $ 31,011
Less: Accumulated depreciation and amortization         (16,053)       (14,701)
                                                    ------------   ------------
     Total, net                                        $ 14,930       $ 16,310
                                                    ============   ============

     Included  in land  and  buildings  are land use  rights  for the  Company's
     factory in Southern China carried at $896 (2001: $917).

5.   GOODWILL AND INTANGIBLE ASSETS

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

     The Company adopted SFAS No. 142, Goodwill and Other Intangible  Assets, on
     January  01,  2002.  Under SFAS 142,  goodwill is required to be tested for
     impairment  on an annual basis at the  reporting  unit level.  Furthermore,
     goodwill is required to be tested on an interim basis if an event or change
     in circumstances  indicates that the asset might be impaired.  The goodwill
     arising  from the  purchase of Radica UK was  allocated  to the Video Games
     Accessories  ("VGA") reporting unit and the Company has undertaken goodwill
     impairment testing as described in note 1 to determine whether the goodwill
     carried on the books was impaired and the extent of such impairment.  After
     performing  this  evaluation  there was no  indication  that  goodwill  was
     impaired as of December  31, 2002 as the fair value of the  reporting  unit
     (as  determined  using the  expected  present  value of future  cash flows)
     exceeded the carrying amount of the reporting unit (including goodwill).

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

                                      F-13
<PAGE>



                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2002, 2001 and 2000)
                (US dollars in thousands, except per share data)

5.   GOODWILL AND INTANGIBLE ASSETS (Continued)

     Amortization of goodwill and other intangible  assets totaled $420,  $1,382
     and  $2,826  for  the  years  ended  December  31,  2002,  2001  and  2000,
     respectively. Net income (loss) and net income (loss) per share adjusted to
     exclude  amortization  of  goodwill  in fiscal  years  prior to 2002 are as
     follows (in thousands, except per share data):

                                             2002         2001          2000
                                         ----------    ---------     ----------

Reported net income (loss)               $   11,934    $ (4,374)     $  (18,099)
Add back: Goodwill amortization                --            796            822
                                         ----------    ---------     ----------
Adjusted net income (loss)               $   11,934    $  (3,578)    $  (17,277)
                                         ==========    =========     ==========

Diluted income (loss) per share:
Reported net income (loss)               $    0.65     $   (0.25)    $    (1.03)
Goodwill amortization                          --           0.05           0.05
                                         ----------    ---------     ----------
Adjusted net income (loss)               $    0.65     $   (0.20)    $    (0.98)
                                         ==========    =========     ==========

Basic income (loss) per share:
Reported net income (loss)               $    0.67     $   (0.25)    $    (1.03)
Goodwill amortization                          --           0.05           0.05
                                         ----------    ---------     ----------
Adjusted net income (loss)               $    0.67     $   (0.20)    $    (0.98)
                                         ==========    =========     ==========

6.   SHORT-TERM BORROWINGS

     As of December 31, 2002,  the Company had  line-of-credit  agreements  with
     various banks that provided for borrowings of up to  approximately  $5,800,
     including  uncommitted  credit  facilities  and amounts  available  for the
     issuance  of  letters  of  credit.  Substantially  all  of  the  short-term
     borrowings   outstanding  as  of  December  31,  2002  and  2001  represent
     borrowings made under these lines of credit.  The weighted average interest
     rate  of the  outstanding  borrowing  was  approximately  5.7,  5.9 and 6.0
     percent for the years ended December 31, 2002, 2001 and 2000, respectively.

7.   OTHER ACCRUED LIABILITIES

     Other accrued liabilities consist of the following:

                                         2002           2001
                                     -----------    -----------

Accrued advertising expenses            $ 1,243        $ 1,105
Accrued license and royalty fees          1,479          2,346
Commissions payable                         191            149
Other accrued liabilities                 2,927          3,885
                                     -----------    -----------
     Total                              $ 5,840        $ 7,485
                                     ===========    ===========


                                      F-14
<PAGE>


                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2002, 2001 and 2000)
                            (US dollars in thousands)

8.   INCOME TAXES

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

                                       2002             2001              2000
                                     --------         --------         --------

United States                        $ 10,807         $ (5,523)        $(20,240)
International                           3,796            1,702            1,240
                                     --------         --------         --------
                                     $ 14,603         $ (3,821)        $(19,000)
                                     ========         ========         ========

     As the Company's  subsidiary in the People's Republic of China ("PRC") is a
     sino-foreign joint venture enterprise, it is eligible for an exemption from
     income  tax for two  years  starting  from  the  first  profitable  year of
     operations  and  thereafter  a 50 percent  relief  from  income tax for the
     following  three years under the Income Tax Law of the PRC. That subsidiary
     had its first  profitable year of operations in the year ended December 31,
     1997 and the  effective  tax rate was 27%,  12% and 12% for the years ended
     December 31, 2002, 2001 and 2000, respectively.

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

                                                     2002      2001      2000
                                                   -------   -------    -------
Current:
   US federal and state                            $    51   $   644    $(3,236)
   International                                       950       827       (206)
                                                   -------   -------    -------
Total current income tax provision (credit)        $ 1,001   $ 1,471    $(3,442)
                                                   -------   -------    -------

Deferred:
   US federal                                      $  --     $  --      $ 3,375
   International                                     1,668      (918)      (834)
                                                   -------   -------    -------
Total deferred income tax provision (credit)       $ 1,668   $  (918)   $ 2,541
                                                   -------   -------    -------

Total income taxes provision (credit)              $ 2,669   $   553    $  (901)
                                                   =======   =======    =======

     A  reconciliation   between  income  tax  expense   (benefit)  and  amounts
     calculated using the US statutory rate of 34 percent is as follows:

                                                   2002       2001       2000
                                                  -------    -------    -------

Computed "expected" tax expense (benefit)
   at the US statutory rate of 34%                $ 4,965    $(1,299)   $(6,460)
State tax                                               4         13          9
International tax effect, net                        (763)      (647)    (1,646)
Change in valuation allowance                      (1,282)     2,163      7,052
Other, net                                           (255)       323        144
                                                  -------    -------    -------
Income tax expense (benefit)                      $ 2,669    $   553    $  (901)
                                                  =======    =======    =======

     The US  statutory  rate has been used since the  majority of the  Company's
     taxable  income arises in the US. As of December 31, 2002, the Company's US
     subsidiary had approximately $9,700 of tax net operating loss carryforwards
     which will begin to expire  after 2020.  In  addition,  as of December  31,
     2002,  the  Company's  UK  subsidiary  had  approximately  $6,900  tax  net
     operating loss carryforwards which will carryforward indefinitely.


                                      F-15
<PAGE>



                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2002, 2001 and 2000)
                            (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:

                                                             2002        2001
                                                           --------    --------
Deferred tax assets:
Excess of financial reporting depreciation
over tax depreciation                                      $    239    $    176
Net operating loss carryforwards                              5,456       8,325
Advertising allowances                                          413         348
Bad debt allowance                                               56         337
Inventory obsolescence reserve                                  288         345
Sales allowance and returns                                     974       1,329
Other                                                           733         715
                                                           --------    --------
Total gross deferred tax assets                               8,159      11,575
Valuation allowance                                          (8,159)     (9,441)
                                                           --------    --------
Net deferred tax assets                                    $   --      $  2,134
                                                           ========    ========

Deferred tax liabilities:
Excess of tax over financial reporting depreciation        $    (79)   $    (79)
                                                           ========    ========

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

                                                             2002        2001
                                                           --------    --------
Current deferred tax assets                                $   --      $    168
Long-term deferred tax (liabilities) assets                     (79)      1,887
                                                           --------    --------
Total net deferred tax (liabilities) assets                $    (79)   $  2,055
                                                           ========    ========

     The Company records valuation  allowances  against its deferred tax assets.
     In determining the allowance,  management  considers all available evidence
     for certain tax credit,  net operating loss and capital loss  carryforwards
     that would likely expire prior to their  utilization.  The evidence used in
     assessing  the need for valuation  allowances  includes the use of business
     planning,  projections  of future  taxable  income and  corporate-wide  tax
     planning.   Differences  in  actual  results  from   projections   used  in
     determining the valuation  allowances could result in future adjustments to
     the allowance.

     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 net
     deferred tax assets as not more likely than not.  Movement in the valuation
     allowance  during  2002  reflected  the  change in  deferred  tax assets in
     respect of tax losses carried forward.

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

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


                                      F-16
<PAGE>



                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2002, 2001 and 2000)
                            (US dollars in thousands)

9.   LONG-TERM DEBT

     The  Company  has  $1,825  outstanding  under a term  loan  related  to the
     financing of the Radica UK  acquisition in 1999. The loan bears interest at
     the three month Singapore  Interbank  Offered Rate ("SIBOR") plus 2% (3.38%
     at December 31,  2002).  The  agreement  requires  quarterly  principal and
     interest payments and matures in June 2003. The balance  outstanding of the
     $1,825  loan is  classified  as  current  liabilities  in the  consolidated
     balance sheet at December 31, 2002.

     The term loan is secured by certain  properties and deposits of the Company
     (see Note 16). The agreement  contains  covenants that, among other things,
     require  the  Company to  maintain a minimum  tangible  net worth,  gearing
     ratio, and other financial ratios.  The Company is in compliance with these
     covenants as at December 31, 2002.

     Long-term debt is as follows:

                               2002         2001
                             -------      -------

Term loan payable            $ 1,825      $ 5,473
Less: Current portion         (1,825)      (3,648)
                             -------      -------
                             $  --        $ 1,825
                             =======      =======

10.  RESTRUCTURING CHARGE

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

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

     During 2000,  the Company  recorded a  restructuring  charge of $1,190 as a
     result of the  Company's  plan to change its  business  strategy to address
     changes in the market for handheld games and to allow the Company to adjust
     the overall cost structure given current revenue levels.  Specific  actions
     taken included reducing the Company's workforce,  consolidating facilities,
     and closing one office. The employee  separations  related to approximately
     150 employees worldwide, predominantly occurring in Asia and North America.
     Total  restructuring  costs  were  approximately   composed  of  $1,100  in
     connection with severance and benefits and $90 for the write-off of certain
     assets  associated with closing one office.  Total remaining  restructuring
     expenses  accrued at December 31, 2000 was $246,  primarily  related to the
     remaining amount of termination benefit payments.



                                      F-17
<PAGE>



                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2002, 2001 and 2000)
           (US dollars in thousands, except share and per share data)

10.  RESTRUCTURING CHARGE (Continued)

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

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

2000
Severance and other compensation          $  --            $ 1,100           $  (854)          $   246
Lease termination costs and
related asset writedowns                     --                 90               (90)             --
                                          -------          -------           -------           -------
                                          $  --            $ 1,190           $  (944)          $   246
                                          =======          =======           =======           =======
</TABLE>

11.  EARNINGS PER SHARE

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

<TABLE>
<CAPTION>
                                                2002            2001               2000
                                            -----------     ------------      --------------

<S>                                         <C>             <C>               <C>
Numerator for basic and diluted
   earnings (loss) per share:
   Net income (loss)                        $    11,934     $     (4,374)     $      (18,099)
                                            ===========     ============      ==============

Denominator:
Basic weighted average shares                17,725,879       17,611,886          17,608,167
Effect of dilutive options and warrants         609,948             --                  --
                                            -----------     ------------      --------------
Diluted weighted average shares              18,335,827       17,611,886          17,608,167
                                            ===========     ============      ==============

Basic net income (loss) per share:          $      0.67     $      (0.25)     $        (1.03)
                                            ===========     ============      ==============

Diluted net income (loss) per share:        $      0.65     $      (0.25)     $        (1.03)
                                            ===========     ============      ==============
</TABLE>

     Options and warrants on 441,700,  2,440,867 and 2,728,800  shares of common
     stock for the years ended  December 31, 2002,  2001 and 2000,  respectively
     were not  included  in  computing  diluted  earnings  per share since their
     effects were  antidilutive.  Stock options and warrants  were  antidilutive
     because they had an exercise  price  greater than the average  market price
     during the year or due to the net loss in 2001 and 2000.


                                      F-18
<PAGE>



                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2002, 2001 and 2000)
           (US dollars in thousands, except share and per share data)

12.  STOCK OPTIONS

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

     A summary of option activity is as follows:-

<TABLE>
<CAPTION>
                                       2002                    2001                    2000
                              ----------------------  ----------------------  ---------------------

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

<S>                               <C>        <C>          <C>        <C>          <C>       <C>
Outstanding at
  beginning of year               2,191      $ 3.88       2,354      $ 5.81       2,000     $ 7.93
Options granted                     585        3.75         521        2.64         853       2.79
Options exercised                  (145)       2.13         (76)       1.56         (72)      1.41
Options forfeited                  (318)       3.21        (608)      10.60        (427)     10.43
                              ----------              ----------              ----------
Outstanding at end of year        2,313      $ 4.05       2,191      $ 3.88       2,354     $ 5.81

Options exercisable
  at year end                     1,352      $ 4.52       1,151      $ 4.54         910     $ 7.52
</TABLE>


                                      F-19
<PAGE>



                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2002, 2001 and 2000)
           (US dollars in thousands, except share and per share data)

12.  STOCK OPTIONS (continued)

     The following is additional  information relating to options outstanding as
     of December 31, 2002:

<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                491             $ 1.41                 4.25               451         $   1.37
    $ 2.001 to 4.000              1,440               3.20                 7.50               646             3.24
    $ 4.001 to 6.000                132               4.17                 9.23                19             4.26
    $ 6.001 to 8.000                 27               6.78                 4.59                27             6.78
    $ 8.001 to 10.000                 8               9.13                 5.88                 7             9.00
    $ 12.001 to 14.000               61              12.62                 6.28                61            12.54
    $ 14.001 to 16.000               60              14.13                 5.85                48            14.13
    $ 16.001 to 18.000               60              16.82                 5.70                60            16.82
    $ 18.001 to 20.000               34              18.85                 5.26                33            18.94
                           -------------                                              ------------
                                  2,313             $ 4.05                 6.72             1,352          $  4.52
                           =============                                              ============
</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 $1.51,  $1.24 and $1.57 per option for the years ended  December
     31, 2002, 2001 and 2000, respectively.  The values were estimated using the
     Black-Scholes  option  pricing  model with the following  weighted  average
     assumptions:

                                                2002          2001       2000
                                            ------------  -----------  ---------

Expected life of options                      3.4 years     4 years     5 years
Risk-free interest rate                         4.1%         4.5%        6.0%
Expected volatility of underlying stock         51%          55%         58%
Dividends                                        0%           0%          0%

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


                                      F-20
<PAGE>



                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2002, 2001 and 2000)
                (US dollars in thousands, except per share data)

12.  STOCK OPTIONS (Continued)

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

                                              2002        2001          2000
                                          ----------   ----------   -----------

Reported net income (loss)                $   11,934   $  (4,374)   $ (18,099)
Pro forma net income (loss)                   11,188      (5,167)     (19,306)

Reported net income (loss) per share
     Basic                                $     0.67   $   (0.25)   $   (1.03)
     Diluted                                    0.65       (0.25)       (1.03)

Pro forma net income (loss) per share
     Basic                                $     0.63   $   (0.29)   $   (1.10)
     Diluted                                    0.61       (0.29)       (1.10)


13.  WARRANTS

     During 1999, in connection with Electronic Arts ("EA") worldwide  licensing
     agreement,  the Company issued  warrants to purchase  375,000 shares of the
     Company's common stock at various exercise prices.  Using the Black-Scholes
     option pricing  model,  the fair value of the warrants of $667 was recorded
     as an intangible asset and has been fully amortized in 2001. As of December
     31, 2002, all warrants have expired or been forfeited.

14. 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
     $142,  $240 and $170 for the years ended December 31, 2002,  2001 and 2000,
     respectively.

     Radica's US and UK employees are eligible to  participate  in savings plans
     sponsored  by the  Company and its  subsidiaries,  all of which are defined
     contribution  plans.  The  Company  makes  company  contributions  and both
     individual and company  contributions  are invested into a balanced variety
     of investment funds. The Company  contributed  approximately  $60, $59, and
     $74 to these plans for the years ended  December 31,  2002,  2001 and 2000,
     respectively.

15.  FAIR VALUE OF FINANCIAL INSTRUMENTS

     The carrying  amounts of cash and cash  equivalents,  accounts  receivable,
     accounts payable and bank borrowings are reasonable estimates of their fair
     value because of the short-term  maturity of these  instruments  or, in the
     case of  long-term  debt,  the market rate of interest  which is charged at
     variable rates.


                                      F-21
<PAGE>



                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2002, 2001 and 2000)
                            (US dollars in thousands)

16.  PLEDGE OF ASSETS

     At December 31, 2002,  the Company's loan  agreements  and general  banking
     facilities  including overdraft and trade facilities were collateralized as
     follows:

Leasehold land and buildings                     $ 11,164
Bank balances                                       8,951
Inventories                                         7,290
                                              ---------------
                                                 $ 27,405
                                              ===============

17.  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  $509, $491, and $1,113 for the years ended December 31,
     2002, 2001 and 2000, respectively. In the normal course of business, leases
     that expire will be renewed or replaced by leases on other  properties.  As
     of December  31,  2002,  the Company was  obligated  under  non-cancellable
     operating leases requiring future minimum rental payments as follows:

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

2003                                                   $ 475
2004                                                     350
2005                                                     252
2006                                                     245
2007                                                     242
Thereafter                                             1,180
                                              ---------------
Total minimum lease payments                         $ 2,744
                                              ===============

     Joint Venture Agreement

     Under the terms of a joint venture  agreement with the local  government in
     Dongguan  the  Company  is  committed  to pay a total of $3,808 in  varying
     amounts over the next 21 years.

     Warranties

     The Company provides product warranties to its customers for a period of 90
     days from the date of  purchase  for  games and one year for VGA  products.
     Details of the movement in the warranty  provision  during the year are set
     out in note 20.


                                      F-22
<PAGE>



                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2002, 2001 and 2000)
                            (US dollars in thousands)

17.  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
                              -----------
2003                           $      63
2004                                   1
2005                                  16
                              -----------
                               $      80
                              ===========

     Litigation

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

     The suit by Lemelson  has been stayed  pending the outcome of Lemelson  vs.
     Cognex,  a similar suit filed by Lemelson,  which will have some bearing on
     the Radica case with  Lemelson.  As of the reporting  date, no judgment had
     been  handed  out in  the  Cognex  case.  The  Company  has  other  pending
     litigation   against  it.  These  matters  are  substantially   covered  by
     insurance,  however 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, 2002 in respect of
     the Lemelson case or other claims or legal actions,  in accordance with the
     Company's accounting policy.  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-23
<PAGE>



                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2002, 2001 and 2000)
                            (US dollars in thousands)

18.  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, 2002, two customers which  accounted for more than  twenty-two  percent
     and eleven  percent of  consolidated  net sales for the year ended December
     31, 2001 and two customers which accounted for more than seventeen  percent
     and  sixteen  percent for the year ended  December  31,  2000.  The Company
     performs ongoing credit evaluations of its customers'  financial  condition
     and, generally, requires no collateral from its customers.

     During 2002,  $19,144 of the  Company'  sales came from the Play TV line of
     products.  Each of these  products  contains a XaviX CPU which is purchased
     from  Shinsedai  Co.,  Ltd.  ("SSD")  under the terms of the Basic  License
     Agreement dated July 1, 1999. If this CPU were to become  unavailable,  the
     Company  would need to source an  alternative  CPU which would  require all
     software  to be  re-written  and may involve  additional  cost to achieve a
     similar level of quality. In addition the Company purchases other CPUs from
     other suppliers around the world which are specific to individual products,
     however,  no individual  product accounted for more than 9% of sales during
     the year.

19.  SEGMENT INFORMATION

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

     The accounting  policies of the  reportable  segments are the same as those
     described elsewhere in these Notes to the Company's  consolidated financial
     statements  for the year ended  December  31,  2002.  The Company  measures
     segment  performance  based on net income before  interest and other income
     and income taxes.  Inter-segment  sales and transfers have been  eliminated
     and are not included in the following table. Certain corporate expenses are
     managed  outside of the  operating  segments.  Corporate  expenses  consist
     primarily of costs  related to business  integration  and other general and
     administrative  expenses.  All  corporate  and  indirect  costs  have  been
     apportioned on the basis of corresponding sales and direct costs.

     A large  proportion of the  Company's  assets are utilized by both segments
     and are therefore not suitable for allocating to specific assets.  In 2002,
     the Company has further refined the segment assets.  The segment assets are
     comprised of accounts receivable,  inventories and intangible assets. Other
     assets  included in corporate  principally  are cash and cash  equivalents,
     deferred  tax  assets,   property,  plant  and  equipment,  and  all  other
     insignificant   assets  not  reportable   under  other  segments.   Certain
     information  presented in the tables below has been  restated to conform to
     the current management structure as of January 2002. Information by segment
     and a  reconciliation  to reported  amounts for the year ended December 31,
     2002, 2001 and 2000 are as follows:


                                      F-24
<PAGE>



                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2002, 2001 and 2000)
                            (US dollars in thousands)

19.  SEGMENT INFORMATION (Continued)

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

<TABLE>
<CAPTION>
                                              2002           2001           2000
                                           ---------      ---------      ---------
<S>                                        <C>            <C>            <C>
Revenues from external customers
  Games and Youth Electronics              $ 104,062      $  82,929      $  91,036
  VGA                                         20,584         15,625         15,660
                                           ---------      ---------      ---------
Total revenues from external customers     $ 124,646      $  98,554      $ 106,696
                                           =========      =========      =========

Depreciation and amortization
  Games and Youth Electronics              $   2,446      $   3,120      $   4,449
  VGA                                            412            893            978
                                           ---------      ---------      ---------
Total depreciation and amortization        $   2,858      $   4,013      $   5,427
                                           =========      =========      =========

Segment income (loss)
  Games and Youth Electronics              $  16,459      $     990      $ (15,029)
  VGA                                         (3,941)        (4,752)        (5,465)
                                           ---------      ---------      ---------
Total segment income (loss)                $  12,518      $  (3,762)     $ (20,494)

Corporate
  Net interest and other income                2,085            (59)         1,494
  (Provision) credit for income taxes         (2,669)          (553)           901
                                           ---------      ---------      ---------
Total consolidated net income (loss)       $  11,934      $  (4,374)     $ (18,099)
                                           =========      =========      =========

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

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

                                      F-25
<PAGE>



                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (YEARS ENDED DECEMBER 31, 2002, 2001 and 2000)
                            (US dollars in thousands)

19.  SEGMENT INFORMATION (Continued)

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

                                          2002            2001           2000
                                        --------        --------        --------

Electronic Games                        $ 62,684        $ 52,268        $ 57,868
Youth Electronics                         16,744          11,720          13,897
VGA                                       15,844          10,335          10,116
Manufacturing Services                    29,374          24,231          24,815
                                        --------        --------        --------
Total net revenues                      $124,646        $ 98,554        $106,696
                                        ========        ========        ========

     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, intangible assets and long-term investment:

                                            2002         2001         2000
                                          --------     --------     --------

Net sales:
     United States and Canada             $ 79,205     $ 59,584     $ 66,637
     Asia Pacific and other countries       25,690       21,300       21,359
     Europe                                 19,751       17,670       18,700
                                          --------     --------     --------
                                          $124,646     $ 98,554     $106,696
                                          ========     ========     ========

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


                                      F-26
<PAGE>



                              RADICA GAMES LIMITED

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                 (YEARS ENDED DECEMBER 31, 2002, 2001 and 2000)
                            (US dollars in thousands)

20.  VALUATION AND QUALIFYING ACCOUNTS

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

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

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

2000
    Allowance for doubtful accounts                   $   389            $ 2,648           $   (964)           $ 2,073
    Allowance for estimated product returns               624              1,423               (553)             1,494
    Accrued warranty expenses                           1,100              1,113             (1,263)               950
    Accrued sales allowance                             1,726              4,260             (2,269)             3,717
                                               ---------------    ---------------    ---------------    ---------------
                                                      $ 3,839            $ 9,444           $ (5,049)           $ 8,234
                                               ===============    ===============    ===============    ===============
</TABLE>


                                      F-27
<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: April 15, 2003                           /S/ Craig D. Storey
      ---------------                          ---------------------------------
                                               Craig D. Storey
                                               Chief Accounting Officer




                                      I-1

<PAGE>



CERTIFICATIONS


I, Patrick S. Feely, certify that:

1. I have reviewed this annual report on Form 20-F of Radica Games Limited;

2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact  necessary to make the statements
made, in light of the  circumstances  under which such statements were made, not
misleading with respect to the period covered by this annual report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information included in this report, fairly present in all material respects the
financial  condition,  results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;

4.  The  registrant's  other  certifying  officers  and  I are  responsible  for
establishing  and  maintaining  disclosure  controls and procedures and internal
controls and  procedures  for  financial  reporting  (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:

         a) designed  such  disclosure  controls and  procedures  to ensure that
         material  information   relating  to  the  registrant,   including  its
         consolidated  subsidiaries,  is made known to us by others within those
         entities,  particularly during the period in which this report is being
         prepared;

         b) evaluated the effectiveness of the registrant's  disclosure controls
         and  procedures as of a date within 90 days prior to the filing date of
         this report (the "Evaluation Date"); and

         c) presented in this report our conclusions  about the effectiveness of
         the disclosure  controls and  procedures  based on our evaluation as of
         the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

         a) all significant  deficiencies in the design or operation of internal
         controls  which  could  adversely  affect the  registrant's  ability to
         record,   process,   summarize  and  report  financial  data  and  have
         identified  for the  registrant's  auditors any material  weaknesses in
         internal controls; and

         b) any fraud,  whether or not  material,  that  involves  management or
         other  employees  who  have a  significant  role  in  the  registrant's
         internal controls; and

6. The  registrant's  other  certifying  officers  and I have  indicated in this
report whether or not there were significant  changes in internal controls or in
other factors that could  significantly  affect internal controls  subsequent to
the date of our most recent  evaluation,  including any corrective  actions with
regard to significant deficiencies and material weaknesses.

Date: April 15, 2003
     ...............


                                      /s/ Patrick S. Feely
                                      -------------------------------------
                                      Patrick S. Feely
                                      President and Chief Executive Officer


                                      I-2
<PAGE>



CERTIFICATIONS


I, David C.W. Howell, certify that:

1. I have reviewed this annual report on Form 20-F of Radica Games Limited;

2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact  necessary to make the statements
made, in light of the  circumstances  under which such statements were made, not
misleading with respect to the period covered by this annual report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information included in this report, fairly present in all material respects the
financial  condition,  results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;

4.  The  registrant's  other  certifying  officers  and  I are  responsible  for
establishing  and  maintaining  disclosure  controls and procedures and internal
controls and  procedures  for  financial  reporting  (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:

         a) designed  such  disclosure  controls and  procedures  to ensure that
         material  information   relating  to  the  registrant,   including  its
         consolidated  subsidiaries,  is made known to us by others within those
         entities,  particularly during the period in which this report is being
         prepared;

         b) evaluated the effectiveness of the registrant's  disclosure controls
         and  procedures as of a date within 90 days prior to the filing date of
         this report (the "Evaluation Date"); and

         c) presented in this report our conclusions  about the effectiveness of
         the disclosure  controls and  procedures  based on our evaluation as of
         the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

         a) all significant  deficiencies in the design or operation of internal
         controls  which  could  adversely  affect the  registrant's  ability to
         record,   process,   summarize  and  report  financial  data  and  have
         identified  for the  registrant's  auditors any material  weaknesses in
         internal controls; and

         b) any fraud,  whether or not  material,  that  involves  management or
         other  employees  who  have a  significant  role  in  the  registrant's
         internal controls; and

6. The  registrant's  other  certifying  officers  and I have  indicated in this
report whether or not there were significant  changes in internal controls or in
other factors that could  significantly  affect internal controls  subsequent to
the date of our most recent  evaluation,  including any corrective  actions with
regard to significant deficiencies and material weaknesses.

Date: April 15, 2003
     ...............


                                      /s/ David C.W. Howell
                                      -----------------------------
                                      David C.W. Howell
                                      President Asia Operations and
                                      Chief Financial Officer





<PAGE>



EXHIBIT INDEX

             *     3.1     Memorandum of Association

             *     3.2     Bye-Laws

             *     3.3     Certificate of Incorporation on Change of Name

             *     4.1     Specimen Certificate for the Shares of Common Stock

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

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

             @    10.3     Cooperative  Joint  Venture  Contract of D.G.  Radica
                           Games  Manufacturing  Co., Ltd.,  dated June 24, 1994
                           (see exhibit 10.16 to 20-F for year ended October 31,
                           1994)

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

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

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

             ^    10.6     Employment Agreement,  dated as of December 15, 2001,
                           between Radica USA and Jeanne Olson

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

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

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

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

             >    10.9     1994  Stock  Option  Plan,   most  recent   amendment
                           restated in May 2000 to increase options

             >    10.11    Amendment and  Restatement  to  Employment  Agreement
                           among Radica USA,  Radica  Games  Limited and Patrick
                           Feely dated September 27, 2000

             >    10.13    Amendment and  Restatement  to  Employment  Agreement
                           between  Radica Games  Limited and David C.W.  Howell
                           dated September 29, 2000

             >    10.14    Amendment and  Restatement  to  Employment  Agreement
                           between  Radica Games  Limited and Siu Wing Lam dated
                           October 4, 2000

             ^    10.15    Employment  Agreement,  dated  as of  May  25,  2001,
                           between Radica UK Limited and John Doughty


                                      I-4
<PAGE>

             ##   10.16    Share Purchase  Agreement  dated as of June 24, 1999,
                           relating  to the  acquisition  of the  entire  issued
                           share  capital of Leda Media  Products  Limited  (now
                           Radica UK Limited).

                  11.1     Statement re Computation of Per Share Earnings

                  12.1     Statement re Selected Quarterly Financial Data

                  21.1     List of subsidiaries

                  23.1     Consent of KPMG

                  23.2     Consent of Deloitte Touche Tohmatsu

                  99.1     Section 906 Certification of Patrick S. Feely

                  99.2     Section 906 Certification of David C.W. Howell

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

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

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

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

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

##   Incorporated  by  reference  to Form 20-F for the year ended  December  31,
     1999.

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

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

The other exhibits not footnoted are included as part of this filing.


                                      I-5