##### Table of Contents









UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 20-F



|  |                                                                                                   
|- | --------------------------------------------------------------------------------------------------
|o | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR
    (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR



|  |                                                                                         
|- | ----------------------------------------------------------------------------------------
|þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934

For
the fiscal year ended March 31, 2004

or



|  |                                                                                             
|- | --------------------------------------------------------------------------------------------
|o | 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 000-22161

Zindart Limited

(Exact name of Registrant as specified in its
charter)


Hong Kong, S.A.R., China

(Jurisdiction of incorporation or
organization)


Flat D, 25/F., Block 1, Tai Ping
Industrial Centre,

57 Ting Kok Road, Tai Po, New
Territories, Hong Kong, S.A.R. China


(Address of principal executive
offices)


Securities registered or to be registered
pursuant to Section 12(b) of the Act.

|                    |  |                                          
|------------------- |  | -----------------------------------------
|Title of each class |  | Name of each exchange on which registered
|                    |  |                                          
|Not Applicable      |  | Not Applicable                           

Securities registered or to be registered
pursuant to Section 12(g) of the Act.

American Depositary Shares (Representing Ordinary
Shares)

(Title of Class)


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

Not Applicable

(Title of Class)


The number of the issuers ordinary shares
outstanding at July 16, 2004 was 9,455,298, of which
9,455,297 were represented by American Depositary Shares.

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.     þ     Yes     o     No

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

o     Item 17     þ     Item 18




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---










ZINDART LIMITED

INDEX TO ANNUAL REPORT ON FORM 20-F

FOR THE FISCAL YEAR ENDED MARCH 31,
2004


|             |  |                                                                |    |      |    | 
|------------ |  | -------------------------------------------------------------- | -- | ---- | -- | 
|             |  |                                                                |    | Page
|             |  |                                                                |    |     
|PART I      
|Item 3.      |  | Key Information                                                |    |      | 3  | 
|Item 4.      |  | Information on the
    Company                                 |    |      | 11 | 
|Item 5.      |  | Operating and Financial
    Review and Prospects               |    |      | 18 | 
|Item 6.      |  | Directors, Senior Management
    and Employees                 |    |      | 27 | 
|Item 7.      |  | Major Shareholders and
    Related Party Transactions          |    |      | 34 | 
|Item 8.      |  | Financial Information                                          |    |      | 35 | 
|Item 9.      |  | The Offer and Listing                                          |    |      | 36 | 
|Item 10.     |  | Additional Information                                         |    |      | 37 | 
|Item 11.     |  | Quantitative and Qualitative
    Disclosures About Market Risk |    |      | 42 | 
|PART II     
|Item 13.     |  | Defaults, Dividend
    Arrearages and Delinquencies            |    |      | 44 | 
|Item 15.     |  | Controls and Procedures                                        |    |      | 44 | 
|Item 16A.    |  | Audit Committee Financial
    Expert                           |    |      | 45 | 
|Item 16B.    |  | Code of Ethics                                                 |    |      | 45 | 
|Item 16C.    |  | Principal Accountant Fees
    and Services                     |    |      | 45 | 
|PART III    
|Item 18.     |  | Financial Statements                                           |    |      | 47 | 
|Item 19.     |  | Exhibits                                                       |    |      | 81 | 
|Signatures   |  |                                                                | 83 |     
|EXHIBIT 8.1 
|EXHIBIT 12.1
|EXHIBIT 12.2
|EXHIBIT 13.1



1



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##### Table of Contents



DEFINITIONS

Unless the context otherwise requires, references
in this annual report on Form 20-F (the Annual
Report) to the Company refers to Zindart
Limited and the term Group refers to Zindart Limited
and its subsidiaries (including Hua Yang and Corgi). The term
Zindart Manufacturing refers to Zindart Limited and
its subsidiaries (excluding Hua Yang and Corgi). The term
Hua Yang refers to Hua Yang Holdings Co., Limited
(HYHCL), its main operating subsidiary, Hua Yang
Printing Holdings Co., Limited (HYPHCL), and its
other subsidiaries. The Company completed the sale of Hua Yang
in May 2004; certain references to the Group that
are relevant to time periods after such sale exclude Hua Yang.
The term Corgi refers to Corgi Classics Holdings
Limited (Corgi Holdings), its main operating
subsidiaries, Corgi Classics Limited (Corgi UK),
Corgi Classics, Inc. (Corgi US), and its other
subsidiaries.

DISCLOSURE REGARDING FORWARD-LOOKING
STATEMENTS

This Annual Report contains 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 (the Exchange Act) regarding
events and trends which may affect the Groups future
operating results and financial position. These statements are
subject to risks, assumptions and uncertainties that could cause
actual results to differ materially from those anticipated.
These risks, assumptions and uncertainties include, but are not
limited to, dependence on certain customers, competition, access
to credit facilities, market demand for our products, changes in
general economic conditions, changes in governmental
regulations, a decline in capital markets, changes in the
political, social and economic situations of the United States
(the U.S.), Hong Kong and the Peoples Republic
of China (excluding Hong Kong, the PRC), and other
risks described in Risk Factors in Item 3 of this Annual
Report. In some cases, forward-looking statements can be
identified by terminology such as may,
will, should, could,
predicts, potential,
continue, expects,
anticipates, future,
intends, plans, believes,
estimates, and similar expressions. The
forward-looking statements are based on information available to
the Group on the date of this Annual Report. The Group
undertakes no obligation to revise or publicly release the
results of any revision to these forward-looking statements to
reflect subsequent events or circumstances. Readers should
carefully review the risk factors described in this Annual
Report as well as in other documents that we file from time to
time with the Securities and Exchange Commission (the
SEC).

NOTE REGARDING FINANCIAL
PRESENTATION

The consolidated financial statements contained
in this Annual Report are those of the Group. Such financial
statements and the other financial data contained in this Annual
Report that were derived from the Groups consolidated
financial statements have been prepared in accordance with
U.S. generally accepted accounting principles.

2



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##### Table of Contents






PART 1






|        |                
|------- | ---------------
|Item 3. | Key Information

Selected Financial Data

The selected consolidated statements of
operations data for the years ended March 31, 2004, 2003
and 2002, and selected consolidated balance sheets data at
March 31, 2004 and 2003, are derived from the consolidated
financial statements included in Item 18 of this Annual
Report. The selected consolidated statements of operations data
for the years ended March 31, 2001 and 2000, and selected
consolidated balance sheets data at March 31, 2002, 2001
and 2000 were derived from the consolidated financial statements
of the Group previously filed with the SEC. As discussed in our
March 31, 2003 Annual Report on Form 20-F, the
consolidated financial statements of the Group for the years
ended March 31, 2002, 2001 and 2000 were restated to
reflect the correction of misstatements in those prior financial
statements.

The selected consolidated financial data have
been reclassified for discontinued operations during the year
ended March 31, 2004, which are described in note 2 of
the Notes to Consolidated Financial Statements in Item 18
of this annual report. The selected consolidated statements of
operations data for the years ended March 31, 2003, 2002,
2001 and 2000 have been restated to reflect the
reclassification. The selected consolidated financial data
presented for the year ended March 31, 2000 include the
operating results of Corgi from July 28, 1999, the date of
the Companys acquisition of Corgi.

The following selected consolidated financial
data should be read in conjunction with Item 5 and
Item 18 of this Annual Report.

|                                                |                     |                                                              |         |      |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |        |        | 
|----------------------------------------------- | ------------------- | ------------------------------------------------------------ | ------- | ---- | ------ | ---- | ------- | ------ | ------ | ---- | ------- | ------ | ------ | - | ------- | ------ | ------ | - | ------- | ------ | ------ | 
|                                                |                     |                                                             
|                                                |                     | Year Ended March 31,                                        
|                                                |                     |                                                             
|                                                |                     | 2004                                                         |         | 2003 |        | 2002 |         | 2001   |        | 2000
|                                                |                     |                                                              |         |      |        |      |         |        |        |     
|                                                |                     |                                                             
|                                                |                     | (In thousands, except share data)                           
|Consolidated Statements of Operations
    Data: |                     |                                                              |         |      |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |       
|Net sales                                       |                     | $                                                            | 95,819  |      |        | $    | 83,357  |        |        | $    | 92,481  |        |        | $ | 101,166 |        |        | $ | 99,305  |       
|Cost of goods sold                              |                     |                                                              | (65,300 | )    |        |      | (52,413 | )      |        |      | (64,231 | )      |        |   | (68,296 | )      |        |   | (64,356 | )     
|                                                |                     |                                                              |         |      |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |       
|                                                |                     | Gross profit                                                 |         |      | 30,519 |      |         |        | 30,944 |      |         |        | 28,250 |   |         |        | 32,870 |   |         |        | 34,949 | 
|Selling, general, and administrative expenses   |                     |                                                              | (32,531 | )    |        |      | (27,729 | )      |        |      | (32,266 | )      |        |   | (29,112 | )      |        |   | (22,841 | )     
|Amortization of goodwill                        |                     |                                                              |        |      |        |      |        |        |        |      | (1,376  | )      |        |   | (1,374  | )      |        |   | (942    | )     
|                                                |                     |                                                              |         |      |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |       
|                                                |                     | Operating (loss) income                                      |         |      | (2,012 | )    |         |        | 3,215  |      |         |        | (5,392 | ) |         |        | 2,384  |   |         |        | 11,166 | 
|Other (expense) income:                         |                     |                                                              |         |      |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |       
|                                                | Interest income     |                                                              |         | 39   |        |      |         | 111    |        |      |         | 240    |        |   |         | 504    |        |   |         | 545    |       
|                                                | Interest expense    |                                                              |         | (905 | )      |      |         | (1,372 | )      |      |         | (1,997 | )      |   |         | (3,517 | )      |   |         | (2,457 | )     
|                                                | Other (loss) income |                                                              |         | (130 | )      |      |         | (145   | )      |      |         | 42     |        |   |         | 60     |        |   |         | 215    |       
|                                                |                     |                                                              |         |      |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |       
|                                                |                     | (Loss) income before income taxes and minority
    interests |         |      | (3,008 | )    |         |        | 1,809  |      |         |        | (7,107 | ) |         |        | (569   | ) |         |        | 9,469  | 
|Income tax (expense) benefit                    |                     |                                                              | (121    | )    |        |      | (145    | )      |        |      | 470     |        |        |   | (543    | )      |        |   | (1,698  | )     
|                                                |                     |                                                              |         |      |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |       
|                                                |                     | (Loss) income before minority interests                      |         |      | (3,129 | )    |         |        | 1,664  |      |         |        | (6,637 | ) |         |        | (1,112 | ) |         |        | 7,771  | 
|Minority interests                              |                     |                                                              | (298    | )    |        |      | (191    | )      |        |      | (210    | )      |        |   | (294    | )      |        |   | (307    | )     
|                                                |                     |                                                              |         |      |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |       
|                                                |                     | (Loss) income from continuing operations                     |         |      | (3,427 | )    |         |        | 1,473  |      |         |        | (6,847 | ) |         |        | (1,406 | ) |         |        | 7,464  | 
|(Loss) income from discontinued operations      |                     |                                                              | (1,882  | )    |        |      | 1,092   |        |        |      | (1,398  | )      |        |   | 1,478   |        |        |   | 1,302   |       
|                                                |                     |                                                              |         |      |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |       
|                                                |                     | Net (loss) income                                            |         | $    | (5,309 | )    |         |        | 2,565  |      |         |        | (8,245 | ) |         | $      | 72     |   |         | $      | 8,766  | 
|                                                |                     |                                                              |         |      |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |       

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|                                                                                                 |          |                                            |                   |           |       |       |         |           |      |      |         |           |       |       |         |           |       |      |         |           |      |      | 
|------------------------------------------------------------------------------------------------ | -------- | ------------------------------------------ | ----------------- | --------- | ----- | ----- | ------- | --------- | ---- | ---- | ------- | --------- | ----- | ----- | ------- | --------- | ----- | ---- | ------- | --------- | ---- | ---- | 
|                                                                                                 |          |                                           
|                                                                                                 |          | Year Ended March 31,                      
|                                                                                                 |          |                                           
|                                                                                                 |          | 2004                                       |                   | 2003      |       | 2002  |         | 2001      |      | 2000
|                                                                                                 |          |                                            |                   |           |       |       |         |           |      |     
|                                                                                                 |          |                                           
|                                                                                                 |          | (In thousands, except share data)         
|(Loss) earnings per common share:                                                                |          |                                            |                   |           |       |       |         |           |      |      |         |           |       |       |         |           |       |      |         |          
|                                                                                                 | Basic:   |                                            |                   |           |       |       |         |           |      |      |         |           |       |       |         |           |       |      |         |           |     
|                                                                                                 |          | (Loss) income from continuing operations   |                   | $         | (0.38 | )     |         | $         | 0.17 |      |         | $         | (0.78 | )     |         | $         | (0.16 | )    |         | $         | 0.85 |     
|                                                                                                 |          | (Loss) income from discontinued operations |                   |           | (0.22 | )     |         |           | 0.12 |      |         |           | (0.15 | )     |         |           | 0.17  |      |         |           | 0.14 |     
|                                                                                                 |          |                                            |                   |           |       |       |         |           |      |      |         |           |       |       |         |           |       |      |         |          
|                                                                                                 |          |                                            | Net (loss) income |           | $     | (0.60 | )       |           | $    | 0.29 |         |           | $     | (0.93 | )       |           | $     | 0.01 |         |           | $    | 0.99 | 
|                                                                                                 |          |                                            |                   |           |       |       |         |           |      |      |         |           |       |       |         |           |       |      |         |          
|                                                                                                 | Diluted: |                                            |                   |           |       |       |         |           |      |      |         |           |       |       |         |           |       |      |         |           |     
|                                                                                                 |          | (Loss) income from continuing operations   |                   | $         | (0.38 | )     |         | $         | 0.16 |      |         | $         | (0.78 | )     |         | $         | (0.16 | )    |         | $         | 0.84 |     
|                                                                                                 |          | (Loss) income from discontinued operations |                   |           | (0.22 | )     |         |           | 0.12 |      |         |           | (0.15 | )     |         |           | 0.17  |      |         |           | 0.15 |     
|                                                                                                 |          |                                            |                   |           |       |       |         |           |      |      |         |           |       |       |         |           |       |      |         |          
|                                                                                                 |          |                                            | Net (loss) income |           | $     | (0.60 | )       |           | $    | 0.28 |         |           | $     | (0.93 | )       |           | $     | 0.01 |         |           | $    | 0.99 | 
|                                                                                                 |          |                                            |                   |           |       |       |         |           |      |      |         |           |       |       |         |           |       |      |         |          
|Weighted average number of common shares
    outstanding:(1)                                     |          |                                            |                   |           |       |       |         |           |      |      |         |           |       |       |         |           |       |      |         |          
|                                                                                                 | Basic    |                                            |                   | 8,907,015 |       |       |         | 8,834,125 |      |      |         | 8,834,125 |       |       |         | 8,834,125 |       |      |         | 8,821,701 |     
|                                                                                                 |          |                                            |                   |           |       |       |         |           |      |      |         |           |       |       |         |           |       |      |         |          
|                                                                                                 | Diluted  |                                            |                   | 8,907,015 |       |       |         | 9,044,122 |      |      |         | 8,834,125 |       |       |         | 8,834,125 |       |      |         | 8,874,209 |     
|                                                                                                 |          |                                            |                   |           |       |       |         |           |      |      |         |           |       |       |         |           |       |      |         |          
|Consolidated Balance Sheets Data:                                                                |          |                                            |                   |           |       |       |         |           |      |      |         |           |       |       |         |           |       |      |         |          
|Cash and cash equivalents                                                                        |          | $                                          | 1,539             |           |       | $     | 1,973   |           |      | $    | 3,425   |           |       | $     | 8,622   |           |       | $    | 12,488  |          
|Assets of discontinued operations                                                                |          |                                            | 31,712            |           |       |       |        |           |      |      |        |           |       |       |        |           |       |      |        |          
|Liabilities of discontinued operations                                                           |          |                                            | 18,068            |           |       |       |        |           |      |      |        |           |       |       |        |           |       |      |        |          
|Working capital(2)                                                                               |          |                                            | (3,305            | )         |       |       | (1,022  | )         |      |      | (8,501  | )         |       |       | 10,191  |           |       |      | 10,229  |          
|Property, plant, and equipment and land use
    rights, net                                      |          |                                            | 23,386            |           |       |       | 30,709  |           |      |      | 31,152  |           |       |       | 33,434  |           |       |      | 35,732  |          
|Total assets                                                                                     |          |                                            | 131,542           |           |       |       | 125,821 |           |      |      | 124,026 |           |       |       | 139,654 |           |       |      | 146,150 |          
|Short-term debt, current installments of
    long-term debt and obligations under capital leases |          |                                            | 12,480            |           |       |       | 16,639  |           |      |      | 26,586  |           |       |       | 18,560  |           |       |      | 21,046  |          
|Long-term debt and obligations under capital
    leases, excluding current installments          |          |                                            | 701               |           |       |       | 3,588   |           |      |      | 252     |           |       |       | 14,937  |           |       |      | 18,492  |          
|Stockholders equity                                                                             |          |                                            | 68,190            |           |       |       | 70,574  |           |      |      | 66,504  |           |       |       | 75,133  |           |       |      | 76,533  |          



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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Stock options outstanding for the year ended
    March 31, 2004 were not included in computing diluted
    (loss) earnings per common share since their effects were
    anti-dilutive due to the net loss from continuing operations for
    the year. The difference between basic and diluted weighted
    average number of common shares for the year ended
    March 31, 2003 is due to the dilutive effect of stock
    options outstanding by application of the treasury stock method.
    Stock options and convertible note outstanding for the years
    ended March 31, 2002 and 2001 were not included in
    computing diluted (loss) earnings per common share since their
    effects were anti-dilutive. Stock options and convertible note
    for the year ended March 31, 2002 were anti-dilutive due to
    the net loss from continuing operations for the year. Stock
    options for the year ended March 31, 2001 were
    anti-dilutive because they had an exercise price greater than
    the average market price during the year. Similarly, convertible
    note was anti-dilutive because its interest per common share
    obtainable on conversion exceeded basic earnings per share. The
    difference between basic and diluted weighted average number of
    common shares for the year ended March 31, 2000 results
    from the assumption that stock options outstanding were
    exercised by application of the treasury stock method.

4



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|    |                                                                                                                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Working capital is equal to current assets less
    current liabilities. At March 31, 2002, net current
    liabilities included the reclassification of long-term debt of
    approximately $6.0 million as current liabilities as a
    result of the Groups breach of certain financial covenants
    under its banking facilities.

RISK FACTORS

Risks Related to the Groups
Business



| |                              
| | -----------------------------
| | Dependence on Major Customers

The Groups success is dependent on
continued sales to a small number of large customers. The
Groups most significant customers are Hallmark Cards, Inc.
(Hallmark) and Mattel® Toys
(Mattel). Sales to Hallmark and Mattel represented
12.9% and 10.6%, respectively, of the total net sales for the
year ended March 31, 2004. The Groups dependence on
its major customers is expected to continue in the foreseeable
future. The loss of any one of its major customers, particularly
Hallmark or Mattel, would have a material adverse effect on the
Groups business, financial condition and results of
operations. None of the Groups major customers is
obligated under a long-term purchase contract. Instead, the
Groups sales transactions with all of its customers are
based on purchase orders received by the Group from time to
time, which purchase orders are subject to cancellation.



| |            
| | -----------
| | Competition

The Group faces significant competition in both
of its business segments. In die-cast and injection-molded
collectibles and collectible holiday ornaments manufacturing,
Zindart Manufacturing competes with contract manufacturers
located primarily in the PRC. In addition, Zindart Manufacturing
competes with customers that have the capability to manufacture
their products internally. In branded toys and collectibles,
Corgi competes with numerous companies located all over the
world.

The Group does not believe that there are any
significant barriers to entry into the light manufacturing
business. The Group has no registered trademarks in respect of
its manufacturing businesses. Accordingly, additional
participants may enter the market at any time. The Group owns
certain trademarks and other intellectual property rights
associated with Corgi and its wholly owned subsidiary Lledo
Collectibles Ltd. (Lledo). Key trademarks are
registered in the substantive territories in which the Group
operates or distributes its products. The Groups key
employees have entered into confidentiality agreements with the
Group.

In addition, certain of the Groups
customers manufacture a substantial portion of their products
internally. Any determination by a principal customer to
manufacture new products internally or to move manufacturing
from the Group to another third party could have a material
adverse effect on the Groups business, financial condition
and results of operations.



| |                                                                           
| | --------------------------------------------------------------------------
| | Concentration of Credit Risk; Timely
    Collection of Accounts Receivable

Concentration of credit risk is primarily limited
to trade accounts receivable and is subject to the financial
conditions of certain major customers. The Group performs an
ongoing credit evaluation of each customers financial
condition. At March 31, 2004, the Groups five largest
trade accounts receivable accounted for approximately 48.0% of
the total gross trade accounts receivable from continuing
operations. The Group maintains reserves for potential credit
losses and such losses in the aggregate have not exceeded
managements projections. However, no assurances can be
given as to the ability of the Group to recover the trade
accounts receivable on a timely basis, and the inability to do
so on a timely basis or at all could have a material adverse
effect on the Groups financial condition.



| |                                                                                                     
| | ----------------------------------------------------------------------------------------------------
| | Introduction of New Products by
    Manufacturing Customers; Market Acceptance; Economic
    Factors

The Groups long-term operating results
depend in part upon the ability of the customers of Zindart
Manufacturing to continue to conceive of, design and market new
products and upon continuing market

5



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##### Table of Contents



acceptance of its customers existing and
future products. In the ordinary course of their businesses, the
customers of Zindart Manufacturing continuously develop new
products and create additions to their existing product lines.
Significant delays by the customers of Zindart Manufacturing in
the introduction of, or their failure to introduce or market,
new products or additions to their respective product lines
would impair the Groups results of operations. Changing
consumer tastes and interests, which are difficult to predict
and over which the customers of Zindart Manufacturing may have
little control, affect the die-cast and injection-molded
collectibles and collectible holiday ornaments markets. These
products have limited life cycles and may be discontinued by the
customer at any time. Accordingly, there can be no assurance
that existing or future products of the Group or the
Groups customers will continue to receive substantial
market acceptance. In addition, because a significant portion of
the products manufactured and sold by the Group are sold in the
U.S., the Groups profitability also depends on the
strength of the U.S. economy, which can affect
U.S. consumers spending habits on such items as
die-cast and injection-molded collectibles and collectible
holiday ornaments. Any downturn in the U.S. economy could
have a material adverse effect on the Groups business,
financial condition and results of operations.




| |                                                
| | -----------------------------------------------
| | Production Facilities; Capacity
    Limitations

Zindart Manufacturings die-cast and
injection-molded collectibles and collectible holiday ornaments
production facilities are located in Dongguan, PRC (the
Dongguan Facility).

If the Dongguan facility were to become
unavailable or inoperable, as a result of a natural disaster or
otherwise, Zindart Manufacturing would need to obtain
alternative facilities to conduct its operations. This could
result in significantly increased operating costs and
significant delays in the fulfillment of customer orders. No
assurance can be given that alternative facilities could be
obtained at an affordable price or at all. Such increased costs
or delays, or inability to obtain alternative facilities, could
have a material adverse effect on the Groups business,
financial condition and results of operations.

A disruption of operations at the Dongguan
Facility due to fire, labor dispute, dispute with the local
government or otherwise, would have an adverse effect on the
Groups results of operations. In such event, the Group
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.



| |                          
| | -------------------------
| | Dependence on PRC Parties

The Dongguan Facility is owned and operated by a
contractual joint venture in which the Group has a majority
interest. The other party to this contractual joint venture is
an entity that is controlled by PRC governmental bodies. The
Group has land use rights for such land for a remaining period
of 40 years.

The efficient and cost-effective operation of the
Dongguan facility depends upon the cooperation and support of
the development authorities and the joint venture partners
(collectively, the PRC Parties). Should a dispute
develop between the Group and any of the PRC Parties, there can
be no assurance that the Group would be able to enforce its
understanding of its agreements or interests with any of such
PRC Parties, which could result in a significant loss of, or
depreciation in the value of, the Groups factory buildings
and other assets. The Groups investment in factory
buildings and other assets in the PRC are significant and could
not be replaced without a considerable new investment, if at
all. The lack of cooperation by any of the PRC Parties could
subject the Group to additional risks and costs, including the
interruption or cessation of its present operations in the PRC,
all of which would have a material adverse effect on the
Groups business, financial condition and results of
operations.



| |                            
| | ---------------------------
| | Dependence on Raw Materials

The Group uses zinc alloy and various plastic
resins in its manufacturing operations. The Groups
financial performance is dependent, to a substantial extent, on
the cost of such raw materials. The supply and demand for zinc
alloy and for both plastic resins and the petrochemical
intermediates from which plastic resins are produced are subject
to cyclical and other market factors and may fluctuate
significantly. As a result, the cost of raw materials to the
Group is subject to substantial increases and decreases over
which the

6



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##### Table of Contents



Group has no control except by seeking to time
its purchases in order to take advantage of favorable market
conditions. In the past, the Group has experienced significant
increases in the price of certain raw materials, which resulted
in increases in the Groups production costs that the Group
was not able to pass on fully to its customers. To the extent
that future increases in the cost of raw materials cannot be
passed on to customers, such increases could have a material
adverse effect on the Groups business, financial condition
and results of operations. The Group has no formal written
agreements with any of its suppliers. No assurance can be given
that the Group will be able to obtain sufficient quantities of
such raw materials to meet its needs. The Group believes that it
could continue to obtain needed raw materials in the event that
it experiences significant rapid growth, in light of the current
availability of such raw materials on the world markets. Any
lack of sufficient raw materials for its needs would have a
material adverse effect on the Groups business, financial
condition and results of operations. However, to the extent the
Group is unable to obtain needed raw materials in such
circumstances in sufficient quantities or at affordable prices,
such inability would have a material adverse effect on the
Groups business, financial condition and results of
operations.




| |                          
| | -------------------------
| | Reliance on Key Personnel

The success of the Group is substantially
dependent upon its executive management, as well as upon its
ability to attract and retain qualified design, manufacturing
and marketing personnel. The loss of any of the Groups
current executive management team for any reason could have a
material adverse effect on the business, financial condition and
results of operations of the Group. The Group is not the
beneficiary of any key person life insurance policy
on any such person.



| |            
| | -----------
| | Seasonality

The Group normally ceases manufacturing
operations for a two-week period during January or February of
each year due to the Chinese New Year holiday, which is
partially responsible for net sales during the fourth fiscal
quarter of each year being lower than net sales during the other
three fiscal quarters. Additionally, the Group ceases production
for a week during October due to Chinese National Day holiday.

The Group may also experience fluctuations in
quarterly revenues and related net income due to the timing of
receipt of orders from customers and the shipment of products.



| |                            
| | ---------------------------
| | Potential Product Liability

Use of the Groups products could result in
possible claims for injury or damage. The Group is not
currently, nor has it been in the past, a defendant in any
product liability lawsuit. A successful claim brought against
the Group by a customer or a consumer and the adverse publicity
that could accompany any such claim could have a material
adverse effect on the Groups business, financial condition
and results of operations. The Corgi division does carry
liability insurance against possible liability claims.



| |           
| | ----------
| | Litigation

The Company is subject to pending claims and
litigation. A lawsuit was filed by Alcone Marketing Group, Inc.
(Alcone) against the Company for breach of written
contract, breach of express warranty, breach of implied
warranty, contractual indemnification, implied indemnification,
negligent interference with contractual and economic relations
and declaratory relief. Alcone is the marketing agent for large
consumer goods companies, such as Burger King. In a series of
promotions for Burger King, the Company substantially performed
under the purchase orders but executed a contract proffered by
Alcone after substantial performance anyway, after excising
several provisions. Several offensive provisions, including a
comprehensive indemnity and consent to jurisdiction in the
U.S. were not excised before executing and sending the
contract to Alcone and if found to be binding upon the Company,
would expose the Company to substantial damages.

Several of the manufactured items were recalled
by Burger King. Alcone claimed damages under the indemnity
provisions of the agreement. At the reporting date, no judgment
had been handed out in the Alcone case. In May 2004, the parties
agreed to a final settlement of all claims for a total cash
payment of $750,000. The payment was fully accrued as a current
liability on the March 31, 2004 balance sheet.

7



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##### Table of Contents





| |                       
| | ----------------------
| | Government Regulations

U.S. customers of the Group are subject to
the provisions of the Federal Hazardous Substances Act and the
Federal Consumer Product Safety Act. These laws empower the
Consumer Product Safety Commission (the CPSC) to
protect consumers from hazardous toys and other articles. The
CPSC has the authority to exclude products from the market that
are found to be unsafe or hazardous, and can require a recall of
such products under certain circumstances. Similar laws exist in
some states and cities in the U.S., as well as in foreign
jurisdictions. The Group relies on its customers to design
products that comply with such safety standards and to test the
products to ensure compliance with applicable regulatory safety
standards. While the Group believes that its customers design
and test the products the Group manufactures for compliance with
regulatory standards, and the Group itself maintains quality
assurance procedures, there can be no assurance that the
Groups products will not be found to violate applicable
laws, rules and regulations, which could have a material adverse
effect on the business, financial condition and results of
operations of the Group. In addition, there can be no assurance
that more restrictive laws, rules and regulations will not be
adopted in the future, or that the Groups products will
not be marketed in the future in countries with more restrictive
laws, rules and regulations, either of which could make
compliance more difficult or expensive, and which could have a
material adverse effect on the Groups business, financial
condition and results of operations.



| |         
| | --------
| | Taxation

The Hong Kong profits tax rate is 17.5% for the
year of assessment 2003/04.

The Group has two contractual joint ventures
namely Dongguan Xinda Giftware Company Limited (Dongguan
Xinda) and Shenzhen Hua Yang Printing Company Limited
(Shenzhen Hua Yang).

For the year ended March 31, 2004, Dongguan
Xinda would be subject to state income tax at the rate of 12%
from April 1, 2003 to December 31, 2003 and at the
rate of 15% (12% state income tax and 3% local income tax) from
January 1, 2004 to March 31, 2004, provided that it is
qualified as an export oriented enterprise.

For the year ended March 31, 2004, Shenzhen
Hua Yang would be subject to state income tax at the rate of 15%.

The Groups effective income tax rate based
on (loss) income before income taxes, minority interests and
discontinued operations was 4.0% for the year ended
March 31, 2004. Under interpretations relating to
allocation of income under Hong Kong tax law, Zindart
Manufacturing recognizes one-half of its gross profit as taxable
income in Hong Kong. In the event that these interpretations
change or are held invalid, the Groups taxable income
could be increased in Hong Kong. As a result, the effective
income tax rate of the Group would increase, which would in turn
have a material adverse effect on the Groups business,
financial condition and results of operations.



| |                   
| | ------------------
| | Tariffs and Quotas

Most of the Groups products are shipped to
customers in the U.S. The U.S. may, from time to time,
impose new quotas, duties, tariffs, or other charges or
restrictions, or adjust presently prevailing quota, duty or
tariff levels, which could adversely affect the Groups
ability to continue to export products to the U.S. at
current or increased levels. The Group cannot predict what
regulatory changes may occur, if any, or the type or extent of
any financial impact on the Group that such changes may have in
the future. In addition, various forms of protectionist trade
legislation have been proposed in the U.S. Adverse changes
in tariff structures or other trade policies could have a
material adverse effect on the Groups business, financial
condition and results of operations.



| |                      
| | ---------------------
| | Environmental Matters

The Groups operations involve the use of
certain toxic substances, including plastic resins, oil-based
paints and cleaning solvents. The Group is, and is likely to
continue to be, subject to PRC national, provincial and local
environmental protection laws and regulations. Such laws and
regulations currently impose a

8



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##### Table of Contents



uniform fee on industrial wastewater discharges
and a graduated schedule of pollution fees for the discharge
into the environment of waste substances in excess of applicable
standards, require the payment of fines for violations of laws
and regulations or decrees and provide for possible closure by
the central, provincial or local government of any facility that
fails to comply with orders requiring it to cease or cure
certain activities deemed by such authorities to be causing
environmental damage. The Group currently disposes of its waste
substances in a manner it believes is consistent with
similarly-situated companies operating in the PRC. Such disposal
practices may not be consistent with those of companies
operating in the U.S. There can be no assurance that the
Group will be in compliance with applicable laws and regulations
and will avoid incurring the consequences of non-compliance, or
that PRC authorities will not impose additional regulatory
requirements that would necessitate additional expenditures for
environmental compliance. Any such occurrence could have a
material adverse effect on the Groups business, financial
condition and results of operations. The Group is not aware of
any claims related to environmental contamination, and has not
accrued any amounts to cover such claims.




| |          
| | ---------
| | Employees

Substantially all of the Groups production
workers are young women and men who come from various rural
provinces in the PRC for the purpose of working for wages higher
than are available in such rural regions. These production
workers typically work for the Group for two to five years and
then return to their communities. In addition, approximately
5%-10% of the production workers do not return to the Group each
year after the Chinese New Year holiday, and the Group must hire
replacements. If these production workers were able to earn
similar wages in their home provinces or higher wages in other
industries, the Group could experience labor shortages or could
be required to increase salaries to meet its labor needs, either
of which could have a material adverse effect on the
Groups business, financial condition and results of
operations.

The Groups employees are not unionized, and
the Group has not experienced any labor strikes. Union
organizing and worker unrest are not common in the PRC; however,
no assurance can be given that labor conflicts will not develop.
Any labor conflicts could have a material adverse effect on the
Groups business, financial condition and results of
operations.

Country Risks

The Group conducts much of its product
engineering, and all of its model-making, mold-making and
manufacturing operations, in the PRC. In addition, some of the
Groups administrative, finance and accounting, marketing
and Management Information System activities are located in Hong
Kong. As a result, the Groups business, financial
condition and results of operations may be influenced by the
general political, social and economic situation in the PRC,
Hong Kong and the U.S. Accordingly, the Group may be subject to
political and economic risks, including political instability,
currency controls, exchange rate fluctuations and changes in
import/export regulations, tariffs, duties and quotas.



| |                          
| | -------------------------
| | Risks Relating to the PRC

The political, social and economic environment in
the PRC may be adversely impact investment in the Group. The PRC
is controlled by the Communist Party of the PRC. Under its
current leadership, the PRC has been pursuing economic reform
policies, including the encouragement of private economic
activity and greater economic decentralization. There can be no
assurance, however, that the PRC government will continue to
pursue such policies, that such policies will be successful if
pursued, or that such policies will not be significantly altered
from time to time. Political relations between the U.S. and the
PRC have been and may continue to be adversely affected by a
number of factors. Economic development may be limited as well
by the imposition of austerity measures intended to reduce
inflation or reform money-losing state-owned enterprises, the
inadequate development or maintenance of infrastructure or the
unavailability of adequate power and water supplies,
transportation, raw materials and parts, or a deterioration of
the general political, economic or social environment in the
PRC, any of which could have a material adverse effect on the
Groups business, financial condition and results of
operations.

9



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##### Table of Contents



Loss of PRC Facilities; Nationalization;
Expropriation.If for any reason the
Group were required to move its manufacturing operations outside
of the PRC, the Groups profitability, competitiveness and
market position could be materially jeopardized, and there could
be no assurance that the Group could continue its manufacturing
operations. The Groups business and prospects are
dependent upon agreements with various entities controlled by
PRC governmental instrumentalities. Not only would the
Groups operations and prospects be materially and
adversely affected by the failure of such entities to honor
these contracts, but it might also be difficult to enforce these
contracts in the PRC. Following the formation of the PRC in
1949, the PRC government renounced various debt obligations
incurred by predecessor governments, which obligations remain in
default, and expropriated assets without compensation.
Accordingly, an investment in the Group involves a risk of total
loss. After nearly 20 years of foreign manufacturing
performed in China, the Group is unaware of any nationalization
or expropriation of a foreign-owned or operated enterprise.

Government Control Over
Economy.The PRC only recently has
permitted greater provincial and local economic autonomy and
private economic activities. Accordingly, PRC government actions
in the future, including any decision not to continue to support
current economic reform programs and to return to a more
centrally planned economy, or regional or local variations in
the implementation of economic reform policies, could have a
significant effect on economic conditions in the PRC or
particular regions thereof. Any such developments could affect
current operations of and property ownership by foreign
investors.

PRC Law; Evolving Regulations and
Policies.The PRCs legal system
is a civil law system based on written statutes in which decided
legal cases have little value as precedents, unlike the common
law system in the U.S. The PRC does not have a well-developed,
consolidated body of law governing foreign investment
enterprises. As a result, the administration of laws and
regulations by government agencies may be subject to
considerable discretion and variation. In addition, the legal
system of the PRC relating to foreign investments is both new
and continually evolving, and currently there can be no
certainty as to the application of its laws and regulations in
particular instances. Definitive regulations and policies with
respect to such matters as the permissible percentage of foreign
investment and permissible rates of equity returns have not yet
been published, statements regarding these evolving policies
have been conflicting, and any such policies, as administered,
are likely to be subject to broad interpretation, discretion and
modification, perhaps on a case-by-case basis. As the legal
system in the PRC develops with respect to these new types of
enterprises, foreign investors may be adversely affected by new
laws, changes to existing laws (or interpretations thereof) and
the preemption of provincial or local laws by national laws. In
circumstances where adequate laws exist, it may not be possible
to obtain timely and equitable enforcement thereof. The
Groups activities in the PRC are by law subject, in some
circumstances, to administrative review and approval by various
national and local agencies of the PRC government. Although the
Group believes that the present level of support from local,
provincial and national governmental entities enjoyed by the
Group benefits the Groups operations in connection with
administrative review and the receipt of approvals, there is no
assurance that such approvals, when necessary or advisable in
the future, will be forthcoming. The inability to obtain such
approvals could have a material adverse effect on the
Groups business, financial condition and results of
operations.



| |                            
| | ---------------------------
| | Risks Relating to Hong Kong

The Groups business, financial condition
and results of operations may be influenced by the political
situation in Hong Kong and by the general state of the Hong Kong
economy. On July 1, 1997, sovereignty over Hong Kong was
transferred from the United Kingdom (the U.K.) to
the PRC, and Hong Kong became a Special Administrative Region
(SAR) of the PRC. As provided in the Sino-British
Joint Declaration on the Question of Hong Kong and the Basic Law
of the Hong Kong SAR of the PRC (the Basic Law), the
Hong Kong SAR is to have a high degree of autonomy from PRC
except in foreign affairs and defense. Under the Basic Law, the
Hong Kong SAR has its own legislature, legal and judicial system
and economic autonomy for 50 years. Based on current
political conditions and the Groups understanding of the
Basic Law, the Group does not believe that the transfer of
sovereignty of Hong Kong has had or will have a material adverse
effect on the Groups business, financial condition or
results of operations. There can be no assurance, however, that
changes in political, legal or other conditions will not result
in such an adverse effect.

10



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##### Table of Contents





| |                                        
| | ---------------------------------------
| | Foreign Currency Exchange Rate
    Risk

The Group is exposed to risk from changing
foreign currency exchange rates. The Groups sales are
denominated either in U.S. dollars, GBP, HK dollars or
Euros. The majority of the Groups expenses are denominated
in HK dollars, followed by RMB, GBP, Euros and
U.S. dollars. The Group is subject to a variety of risks
associated with changes among the relative value of the
U.S. dollar, GBP, Euro, HK dollar and RMB. For the
years ended March 31, 2004, 2003 and 2002, the Group has
entered into certain foreign currency forward contracts in order
to settle trade payable denominated in foreign currencies. Any
material increase in the value of the Hong Kong dollar, RMB, GBP
or Euro relative to the U.S. dollar would increase the
Groups expenses and therefore would have a material
adverse effect on the Groups business, financial condition
and results of operations.

Since 1983, the Hong Kong government has
maintained a policy of linking the U.S. dollar and the Hong
Kong dollar at an exchange rate of approximately HK$7.80 to
US$1.00. There can be no assurance that this link will be
continued, although the Group is not aware of any intention of
the Hong Kong government or the PRC to abandon the link. Over
the last five years, the value of the RMB has not changed
significantly against the U.S. dollar or Hong Kong dollar.
The rates at which exchanges of RMB into U.S. dollars may
take place in the future may vary.

Risks Associated with the Companys
American Depositary Shares



| |                                   
| | ----------------------------------
| | Limited Reporting
    Requirements

As a foreign private issuer, the Group is exempt
from the rules and regulations of the Exchange Act prescribing
the furnishing and content of proxy statements, and its
officers, directors and principal shareholders are exempt from
the reporting and short-swing profit recovery provisions
contained in Section 16 of the Exchange Act. In addition,
the Group is not required to publish financial statements as
frequently, as promptly or containing the same information as
U.S. companies.



| |                                     
| | ------------------------------------
| | Effect of Principal
    Shareholders

As a significant shareholder, the ChinaVest group
of funds (ChinaVest) has the ability to
significantly influence the election of the Groups
directors and other matters requiring the approval of the
Companys shareholders. Robert A. Theleen, Vice-Chairman of
the Board of Directors, is the founder and Chairman of
ChinaVest. In addition, Gordon L. M. Seow, a member of the
Board of Directors, is a member of the advisory board of one of
ChinaVests venture funds.



| |                                                                       
| | ----------------------------------------------------------------------
| | Limited Public Market; Possible Volatility
    of Market Price of ADSs

The public trading volume of the Companys
American Depositary Shares (ADSs) at times has been
limited. There can be no assurance that a more active trading
market for the ADSs will develop or that, if developed, it will
be sustained. Further, there is no public market for the
Ordinary Shares underlying the ADSs. In the past several years,
many foreign issuers with market capitalization similar to that
of the Group have been unable to sustain an active trading
market for their securities. The market price for the ADSs going
forward may be highly volatile, as has been the case with the
ADSs and the securities of other companies located in emerging
market countries. The market price of the ADSs may fluctuate
substantially in response to numerous factors, many of which are
beyond the Groups control.






|        |                           
|------- | --------------------------
|Item 4. | Information on the Company

History and Development of the
Company



| |                        
| | -----------------------
| | Description of Business

The Company was incorporated in Hong Kong as a
limited company under the Hong Kong Companies Ordinance in July
1977. Its American Depositary Shares have been listed on the
Nasdaq National Market since February 1997.

11



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##### Table of Contents





| |                  
| | -----------------
| | Registered Office

The Companys registered office is located
at Flat D, 25/F., Block 1, Tai Ping Industrial Centre,
57 Ting Kok Road, Tai Po, New Territories, Hong Kong,
S.A.R., China and its telephone number is 2256-6000, country
code 852.



| |                        
| | -----------------------
| | Discontinued Operations

The Company completed the sale of its subsidiary
Hua Yang in May 2004. We have reported the results of this
business segment as discontinued operations under
SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, for all periods shown,
which are described in note 2 of Notes to Consolidated
Financial Statements in Item 18 of this Annual Report.



| |                                   
| | ----------------------------------
| | Principal Capital
    Expenditures

Capital expenditures were paid for principally
out of net cash provided by operating activities and cash
available under lines of credit. The Group believes that these
sources will be adequate to meet the Groups present
requirements for capital expenditures.

Business Overview



| |                                               
| | ----------------------------------------------
| | Business Segments and Principal
    Activities

Subsequent to the sale of Hua Yang in May 2004,
the Group operates in two business segments. The Groups
Zindart Manufacturing segment engages in the manufacturing of
die-cast and injection-molded plastic products under Original
Equipment Manufacturing (OEM) arrangements. The
Groups Corgi segment engages in the design, marketing and
distribution of die-cast products under its proprietary brand
names owned by Corgi UK. Net sales of continuing operations
by business segment are reflected in the table below.

|                                                                                              |  |                      |        |      |  |      |        |  |  |   |        | 
|--------------------------------------------------------------------------------------------- |  | -------------------- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                                                                                              |  |                     
|                                                                                              |  | Year Ended March 31,
|                                                                                              |  |                     
|                                                                                              |  | 2004                 |        | 2003 |  | 2002
|                                                                                              |  |                      |        |      |  |     
|                                                                                              |  |                     
|                                                                                              |  | (In thousands)      
|Manufacturing of die-cast and injection-molded
    plastic
    products                       |  | $                    | 46,244 |      |  | $    | 33,902 |  |  | $ | 49,316 | 
|Design, marketing and distribution of die-cast
    products
    under proprietary brand names |  |                      | 49,575 |      |  |      | 49,455 |  |  |   | 43,165 | 
|                                                                                              |  |                      |        |      |  |      |        |  |  |   |        | 
|                                                                                              |  | $                    | 95,819 |      |  | $    | 83,357 |  |  | $ | 92,481 | 
|                                                                                              |  |                      |        |      |  |      |        |  |  |   |        | 



| |                                             
| | --------------------------------------------
| | Products, Markets and Marketing
    Channels



| |                                               
| | ----------------------------------------------
| | Die-Cast and Injection-Molded
    Collectibles

Zindart Manufacturing manufactures a wide range
of metal die-cast and injection-molded collectible scale model
replicas of trucks, airplanes and automobiles, such as the Ford
Taurus, Chevrolet Monte Carlo, Ferrari, Audi TT, Corvette,
Mustang, and Formula One cars. These replicas come in various
scales from  1/12th to  1/64th of the size of the
original product, and are medium and high-feature products that
must meet exacting standards. Many of the die-cast and
injection-molded replicas have complex designs, which require
high-quality workmanship and decorative details, with pad
printing with up to one hundred imprints. The most complex of
these models incorporates up to 20 moveable parts.

The die-cast and injection-molded scale model
replicas manufactured by Zindart Manufacturing are sold through
hobby shops, collectors clubs, car and equipment dealers,
toy and gift stores and other channels. These products typically
retail in the U.S. for between $15 and $50 for high-feature
products, between $5 and $15 for medium-feature products and
between $1 and $5 for low-feature products. Many of these
products have nostalgic appeal to adult consumers, and some of
these products, especially the automobile replicas, have
attracted a following of collectors and are traded on secondary
markets. Zindart Manufacturing believes, based

12



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##### Table of Contents



on many years of sales experience, that many
die-cast and injection-molded collectibles have enduring
consumer appeal.




| |                              
| | -----------------------------
| | Collectible Holiday Ornaments

Hallmark, regarded as a leading producer of
greeting cards, also distributes collectible holiday ornaments
and giftware products. Zindart Manufacturing is one of various
manufacturers that provide Hallmarks Keepsake Ornaments,
which consist of a variety of Christmas ornaments,
holiday-themed pieces and other giftware both in die-cast zinc
alloy and plastic. The production of Keepsake Ornaments requires
highly developed hand spray-painting skills and attention to
quality by each member of Zindart Manufacturings workforce
in order to meet Hallmarks exacting aesthetic and quality
requirements.

The Keepsake Ornaments manufactured by Zindart
Manufacturing are collectibles sold through authorized retail
outlets. Many purchasers of Keepsake Ornaments consider these
products to be valuable, collectible items.



| |               
| | --------------
| | Corgi Products

Corgi is one of the oldest and has the largest
market share compared to other U.K. based marketers of
collectible die-cast models of trucks, buses, cars and
airplanes. Corgi offers a broad portfolio of products ranging
from special interest items to more popular, often
license-based, items. The majority of Corgis product lines
are highly detailed, authentic scale replicas of transport
vehicles, produced in strictly limited numbers and appealing to
a wide range of die-cast collectors. Increasingly, Corgi is
broadening its product lines to include more mixed scale,
lower-priced, unlimited die-cast lines which are sold in wider
distribution channels. Corgis product portfolio is broadly
divided into the following categories: (1) collectible
trucks, steam vehicles, and other road transport;
(2) collectible public transport; (3) collectible
aircraft; (4) traditional die-cast toys and
(5) collectible metal figurines.

Corgi holds a number of major licenses, including
licenses for the production of James Bond, Batman, Postman Pat,
Little Red Tractor and Texaco items. More recently, Corgi has
established a number of products designed to be more appealing
to the U.S. consumer, including U.S. fire truck and
military based lines, which are developed and supplied by Corgi
US. Corgi also owns the Lledo brand and a number of sub-brands
including The Aviation Archive, The Original Omnibus Company,
Icon Collectibles and Unsung Heroes.

Corgi serves its customers through a number of
distribution channels, including wholesale, retail, direct
marketing and the Internet. Corgis products are sold in 30
countries throughout the world. In addition to the U.K. and
North America, important markets include France, Germany, Japan
and Australia.

In the U.K., there are over 2,000 retail outlets
that stock Corgi products, and of these there are more than 350
Gold Star and Approved specialist Corgi collector retailers and
20 premium standard Collector Centers, each of which carries a
wide range of Corgis cars, trucks, buses, and airplanes
die-cast scale models. Corgi also operates a Corgi Classics
Roadshow vehicle, which can be seen at over 40 events per year
and is visited by an estimated one million people every year.

13



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##### Table of Contents





| |                   
| | ------------------
| | Geographic Markets

The Groups business is managed on a
worldwide basis, but participates in two principal geographic
markets. The U.S. and U.K. accounted for approximately 57.9% and
40.8%, respectively, of the Groups net sales of continuing
operations for the year ended March 31, 2004. The U.S. is a
major market for Zindart Manufacturing, and Corgi products are
distributed primarily in the U.K. and the U.S. Net sales of
continuing operations by geographical location of customers are
reflected in the table below.

|                                            |  |                      |        |      |  |      |        |  |  |   |        | 
|------------------------------------------- |  | -------------------- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                                            |  |                     
|                                            |  | Year Ended March 31,
|                                            |  |                     
|                                            |  | 2004                 |        | 2003 |  | 2002
|                                            |  |                      |        |      |  |     
|                                            |  |                     
|                                            |  | (In thousands)      
|United States of America                    |  | $                    | 55,522 |      |  | $    | 40,729 |  |  | $ | 51,360 | 
|United Kingdom and other European countries |  |                      | 39,142 |      |  |      | 41,191 |  |  |   | 40,813 | 
|Others                                      |  |                      | 1,155  |      |  |      | 1,437  |  |  |   | 308    | 
|                                            |  |                      |        |      |  |      |        |  |  |   |        | 
|                                            |  | $                    | 95,819 |      |  | $    | 83,357 |  |  | $ | 92,481 | 
|                                            |  |                      |        |      |  |      |        |  |  |   |        | 

The Group serves a growing number of customers
that are brand-name marketers of die-cast and injection-molded
giftware and collectibles in the U.S. and Europe. Major
customers for Zindart Manufacturing include Hallmark, Mattel,
Funline Merchandise Co. Inc. (Funline), Creata
Promotion (Asia) Limited and Jada Toys Co. Limited
(Jada). Corgi serves its customers through a number
of distribution channels, including wholesale, retail, direct
marketing and the Internet.

Sales to the Groups five largest customers
accounted for approximately 38.7%, 32.9% and 36.0%,
respectively, of the total net sales from continuing operations
for the years ended March 31, 2004, 2003 and 2002. The
Groups most significant customers are Hallmark and Mattel.
Sales to Hallmark and Mattel represented 12.9% and 10.6%,
respectively, of the Groups net sales for the year ended
March 31, 2004 compared to 11.5% and 9.6%, respectively, of
the total net sales from continuing operations for the year
ended March 31, 2003.

Zindart Manufacturings die-cast and
injection-molded plastic product customers generally contact
Zindart Manufacturing four to six months in advance of product
delivery in order to provide Zindart Manufacturings
engineers adequate time to design and fashion the molds for the
products. Thereafter, these customers place production orders
one to three months in advance of target delivery dates. These
purchase orders may be canceled by the customer upon
reimbursement of actual costs incurred and payment of a portion
of lost profits, as determined on a case-by-case basis.



| |                  
| | -----------------
| | Business Strategy

The Groups goal is to be the leading
developer and manufacturer of high-quality die-cast and
injection-molded collectibles and collectible holiday ornaments
for its own brands and other third party premier designers and
marketers of such items. The Groups strategy calls for
continuous strengthening of its relationships with its
multi-national customers and increasing and diversifying of its
customer base. To achieve these goals, the Group has been
focusing on the following:



| |                  
| | -----------------
| | Brand Development

The Group seeks to further develop its Corgi
brand in the U.S. The Group has established a direct sales
force for its Corgi line of die-cast replica items in the
U.S. Combining Corgis marketing strength and brand
credentials with Zindart Manufacturings manufacturing
capabilities, the Group expects to strengthen its marketing
infrastructure and to advance its goal of worldwide growth and
expansion in collectible markets. Corgi has expanded the number
of its retail storefronts in the U.S. and has opened a permanent
showroom at the Toy Center in New York, which is convenient for
major retail chain buyers.

14



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##### Table of Contents





| |                                   
| | ----------------------------------
| | Develop Additional Major Customers

The Group has a core group of large customers,
but it also manufactures products for many other smaller
customers. The Group expects that it may be able to develop
several of these smaller customers into major customers as they
become familiar with the benefits of the Groups turnkey
manufacturing service. The Group offers major customers a
dedicated production team and dedicated production space, which
can provide such customers with attractive advantages. For
example, the Group can customize its production facilities to
meet the specific needs of its customers, and the customers are
able to exercise greater control over the production process,
thereby enhancing quality control and cost efficiency,
increasing confidentiality and expediting scheduling and
delivery timetables. The Group believes that its ability to
offer such dedicated production services has led to enhanced
relationships with its core customer base.



| |                            
| | ---------------------------
| | Diversify Product Offerings

The Group is diversifying its product offerings
to include the manufacture of additional consumer products that
utilize the Groups current competitive advantages and
production expertise. The new product lines are expected to
decrease seasonality that historically has been experienced. By
diversifying into product lines in which the demand timing
varies from that of Zindart Manufacturings traditional
product lines, the group can more effectively utilize its
manufacturing facilities, thereby improving profitability.



| |                                                   
| | --------------------------------------------------
| | Deploy Advanced Management Information
    Systems

The Group is enhancing its manufacturing and
business processes through the deployment of advanced management
information systems that enable the real-time monitoring and
management of its operating and financial performance and
resources. The Group plans to implement an Enterprise Resources
Planning System to enhance its master planning and operation
efficiency.



| |              
| | -------------
| | Manufacturing

Excluding its discontinued operations, the
Groups customers seek suppliers that can manufacture
high-quality products in both large quantities and limited runs,
in a timely and cost-effective manner. In addition, the
Groups customers seek to eliminate the cost, time and
complexity of identifying and managing multiple vendors to
develop and produce a product. For example, marketers of
die-cast and injection-molded plastic products often must hire
different companies to engage in product engineering, design,
model and mold-making, and manufacturing, assembling and
packaging of the finished product. The need to coordinate
several different companies in the manufacturing process can
cause production delays, inefficiencies in the management of
multiple contractors and quality and reliability problems.

The Groups full service, value-added
approach to manufacturing addresses these customer needs as
follows:



| |                        
| | -----------------------
| | High-quality Production

The Group uses modern computer-aided design and
manufacturing equipment to produce high-quality products. The
Group also employs a highly trained workforce, including
skilled, technically trained craftsmen and other capable but
relatively inexpensive laborers for its manufacturing and
assembly operations under the guidance of experienced
management. The Group ensures quality through rigorous quality
control procedures at each step of the production process. The
Group has an employee training program geared specifically
toward inspection and quality control.



| |                       
| | ----------------------
| | Manufacturing Capacity

Excluding its discontinued operations, the Group
currently employs approximately 10,000 production workers and
has an aggregate of 61,313 square meters of manufacturing
space with the capacity for up to 10,000 workers in the Dongguan
Facility.

15



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##### Table of Contents





| |                              
| | -----------------------------
| | Turnkey Manufacturing Service

The Group offers a fully integrated turnkey
manufacturing service. With this service, the Group integrates
component sourcing, product development and engineering, design,
model and mold making, and manufacturing, assembling and
packaging of the finished product. This enables the Group to
meet all of a customers needs and eliminates the need for
intermediaries. The Group is able to shorten the lead-time from
design to product delivery and to lower product cost while
maintaining high quality and reliability.



| |                         
| | ------------------------
| | Commitment to Efficiency

The Group continually strives to increase
efficiency and reduce costs for the benefit of the Group and its
customers. To date, the Group has been able to achieve
efficiencies by locating its production facilities in the PRC,
vertically integrating its production processes and working in
close cooperation with its customers.



| |                         
| | ------------------------
| | Manufacturing Facilities

The Groups manufacturing operations are
conducted in the Dongguan Facility.

The Dongguan Facility includes: (1) a
product engineering area, (2) model-making and mold-making
areas, (3) die-casting and injection-molding areas,
(4) hand spray and electrostatic painting and pad printing
areas, (5) assembly and packing areas, (6) a heat
transfer decal application workshop, (7) a warehouse and
(8) dormitory, dining and recreational facilities. Zindart
Manufacturings product engineering staff makes extensive
use of sophisticated, computer-aided design systems for the
development of prototype-scale models. The die-casting,
injection-molding and electrostatic painting areas operate on a
two-shift basis. The hand-spray, pad printing and assembly and
packing areas run on a single-shift basis. Most employees are
engaged in the assembly of Zindart Manufacturings
products, and as a result, assembly and packaging account for
most of the total production area.

The Dongguan Facility has an aggregate of
approximately 61,313 square meters of manufacturing space,
approximately 44,413 square meters of dormitory space and
approximately 27,090 square meters of other warehouses and
office space. Virtually all land in the PRC is state-owned, but
can be leased from the government on a long-term basis. Dongguan
Xinda was established in the PRC to own and operate the Dongguan
Facility. Dongguan Xinda is a contractual joint venture between
Zindart Manufacturing and Dongguan Hengli Trading General
Company, an entity that is controlled by PRC governmental
bodies. The factory buildings are built on land leased by
Zindart Manufacturing. The land use rights, which are for a
remaining period of 40 years, are in name of Zindart
Manufacturing. This joint venture has a term of 15 years,
expiring in November 2009. Under the joint venture agreement and
the supplemental agreement thereto, Zindart Manufacturing has
control over the financial and operating policies of the joint
venture, and the joint venture partners do not have substantive
participating rights, and Zindart Manufacturing is entitled to
100% of the joint ventures profit, after paying the joint
venture partner a pre-determined annual fee. At the end of the
joint venture term, Zindart Manufacturing will continue to own
the factory buildings and other assets of the joint venture.

The plants and equipment owned and operated or
leased by Zindart Manufacturing are subject to comprehensive PRC
laws and regulations that involve substantial risks.



| |            
| | -----------
| | Seasonality

The Groups operating results in the past
have fluctuated in part based on seasonal factors and this
seasonality is likely to continue in the future.

The Group normally ceases manufacturing
operations for a two-week period during January or February of
each year due to the Chinese New Year holiday, which is
partially responsible for net sales during the fourth fiscal
quarter of each year being lower than net sales during the other
three fiscal quarters. Additionally, the Group ceases production
for a week during October due to Chinese National Day holiday.

16



---



##### Table of Contents



The Group may also experience fluctuations in
quarterly revenues and related net income due to the timing of
the receipt of orders from customers and the shipment of
products.



| |              
| | -------------
| | Raw Materials

Zindart Manufacturing uses zinc alloy and various
plastic resins in its manufacturing operations. The supply and
demand for zinc alloy and for both plastic resins and the
petrochemical intermediates from which plastic resins are
produced are subject to cyclical and other market factors and
may fluctuate significantly. As a result, the cost of raw
materials to the Group is subject to substantial increases and
decreases over which the Group has no control except by seeking
to time its purchases in order to take advantage of favorable
market conditions. In the past, the Group has experienced
significant increases in the price of certain raw materials,
which resulted in increases in the Groups production costs
that the Group was not able to pass on fully to its customers.
Zindart Manufacturing acquires raw materials for its
manufacturing production primarily from Australia, Belgium and
Canada. Plastics used for manufacturing collectible holiday
ornaments are obtained from traders in Hong Kong. The Group has
no formal written agreements with any of its suppliers. Zindart
Manufacturings standard practice is to maintain a supply
of raw materials sufficient for approximately one and half
months of production.

Corgis suppliers are based primarily in the
PRC. Corgi obtains a substantial share of its finished products
from Zindart Manufacturings die-cast manufacturing
facilities.



| |                      
| | ---------------------
| | Intellectual Property

The Group has no registered trademarks in respect
of its manufacturing businesses. The Group owns certain
trademarks and other intellectual property rights associated
with Corgi and its wholly owned subsidiary Lledo. Key trademarks
are registered in the substantive territories in which the Group
operates or distributes its products. The Groups key
employees have entered into confidentiality agreements with the
Group.



| |            
| | -----------
| | Competition

The Group faces significant competition in each
of its business segments. In die-cast and injection-molded
collectibles and collectible holiday ornaments manufacturing,
Zindart Manufacturing competes with contract manufacturers
located primarily in the PRC. In addition, Zindart Manufacturing
competes with customers that have the capability to manufacture
their products internally. In branded toys and collectibles,
Corgi competes with numerous companies located all over the
world.

The Group believes that there are several factors
that provide the basis of competition in the manufacturing of
its products, including: price, quality, technical capabilities,
production capabilities and on-time delivery. The ability to
meet increasing demands of just-in-time ordering by customers is
becoming one of the essential factors for maintaining a
competitive advantage in the die-cast market. The Group believes
that it can maintain its competitive advantage through the
effective use of its expanded facilities. The Group also expects
increased competition from other industry participants that may
seek to enter one or more of the Groups high margin
product segments. Some existing and potential competitors have
significantly greater financial, technical, manufacturing and
marketing resources than the Group.

The Group does not believe that there are any
significant barriers to entry into the light manufacturing
business. The Group has no registered trademarks in respect of
its manufacturing businesses. Accordingly, additional
participants may enter the market at any time. The Group owns
certain trademarks and other intellectual property rights
associated with Corgi and its wholly owned subsidiary Lledo. Key
trademarks are registered in the substantive territories in
which the Group operates or distributes its products. The
Groups key employees have entered into confidentiality
agreements with the Group.

In addition, certain of the Groups
customers manufacture a substantial portion of their products
internally. Any determination by a principal customer to
manufacture new products internally or to move manufacturing
from the Group to another third party would have a material
adverse effect on the Groups business, financial condition
and results of operations.

17



---



##### Table of Contents





| |                        
| | -----------------------
| | Governmental Regulation

The Groups business activities are subject
to various governmental regulations in countries in which it
operate, including regulations relating to business/ investment
approvals, export regulations including those related to
national security considerations, tariffs, antitrust,
intellectual property, consumer and business taxation, exchange
controls, and environmental and recycling requirements.



| |                         
| | ------------------------
| | Organizational Structure

The Group holds the controlling interests in two
mold-making subsidiaries: Onchart Industrial Limited and Luen
Tat Mould Manufacturing Limited (Luen Tat Mould),
and one model-making subsidiary, Luen Tat Model Design Company
Limited, all of which are British Virgin Islands corporations.
Presently, Luen Tat Mould conducts its mold-making operations in
the Dongguan Facility, and provides the Group with in-house
mold-making capacity.

Dongguan Xinda was established in the PRC to own
and operate the Dongguan Facility. Dongguan Xinda is a
contractual joint venture between Zindart Manufacturing and
Dongguan Hengli Trading General Company, an entity that is
controlled by PRC governmental bodies.

Corgi Holdings is a wholly-owned subsidiary of
the Group and has a wholly-owned subsidiary, Corgi UK. Corgi UK
has three main wholly-owned operating subsidiaries: Corgi US,
Icon Collectibles Limited and Lledo Collectibles Limited.

A list of the Companys subsidiaries is set
forth in Exhibit 8.1 to this Annual Report.



| |                              
| | -----------------------------
| | Property, Plant and Equipment

The Group is headquartered in part of one
building in the Tai Ping Industrial Centre located in Hong Kong
and occupies approximately 9,995 square feet of such building.
The facilities are owned by the Group, but the land on which
such facilities are located is subject to medium-term leases.

The Groups manufacturing operations are
conducted in the Dongguan Facility. See Manufacturing
Facilities above.

Corgi UK operates out of an office accommodation
in Leicester, England totaling approximately 8,415 square
feet under a lease scheduled to expire in February 2015. The
offices of Corgi US are located in Chicago, Illinois and occupy
approximately 8,800 square feet under a lease that expires
in August 2008.






|        |                                                 
|------- | ------------------------------------------------
|Item 5. | Operating and Financial Review and
    Prospects

Overview

The toy industry has continued to provide
opportunity for product sales through many different companies.
Although the industry includes two prominent leaders, room
continues to be available for new companies with innovative
products to thrive. Retailers continue to look for new product
that will bring foot traffic into their stores.

Recently, the United States retail environment
for toys has become concentrated in only a few retailers.
Competition in toys amongst these retailers is become strong,
and in many cases toys have become traffic builders and loss
leader products especially during the holiday season. To the
manufacturer, sales to these mass-market retailers present
opportunities in sales and profits, along with risks of bearing
higher receivables, inventories, and advertising costs.

The concentration of retailers also leads to a
general decline in manufacturers bargaining. Therefore,
the Group faces increasing risks of decreasing margins due to
price increases in critical raw materials including zinc and
plastic resins. Also, the mass merchandisers drive for
efficiency results in shorter cycle-times for product
development and production. Shorter planning and production
horizons lead to tighter shipment schedules, smaller order
quantities, and proliferation of SKUs, resulting in smaller
production lots, more frequent production line changeovers,
diminished economies of scale, and increased opportunities for
errors.

18



---



##### Table of Contents



The Group is subject to increasing risks of
customer penalties including returned goods and air-freight
costs, rework costs for prematurely approved designs, and delays
by its third-party vendors.


In the United Kingdom, the primary market for
Corgi, mass-market retailers are less concentrated than in the
US. The UK has key toy retailers, but also a wide variety of
independent toyshops and department stores, serving to spread
the risk related to toy sales more broadly across the nation.

The diecast manufacturing segment is experiencing
growth after a general decline during the past three years, as
reflected by increases in customer orders for diecast replicas.
Also, the Group has noted growth in orders for collectible
Christmas ornaments, a segment of the industry that had also
been declining during recent years. The growth of both segments
is, at least in part, due to increase in functionality,
complexity, play value, and uniqueness of such products. The
trend is to incorporate more mechanized moving parts, more
detailed decorations, fancy and unique colors, etc. to make the
products stand out and generally increase their collectible
value.

Demand has also increased for electro-
(chrome) platings on more parts of the products in order to
create uniqueness and to impart an upscale quality perception.
Such trends force the Group to become more dependent on external
third-party vendors, as many of these moving parts and
finishings, such as chrome plating, are not produced in-house.
This dependency serves to diminish the Groups own
value-add percentage, and makes it more dependent on
third-parties quality, delivery and other relevant
performance. The Group has addressed a number of these issues by
adding diecast machines to handle more throughput, installing
state-of-the-art static painting machines to achieve
high-performance paint coatings, and establishing assembly lines
for more complex electronic and mechanized products.

Competition amongst toy manufacturers remains
strong, and downward price pressure is expected to continue. The
Group will be required to identify new areas of manufacturing
efficiencies to offset the downward price pressure.

Operating Results

The results of our continuing operations below
exclude the results of discontinued operations. In May 2004, the
Group completed the sale of Hua Yang and has reported the
operating results of this business segment as discontinued
operations under SFAS No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets, for all
periods shown. In March 2004, the Groups board of
directors resolved to sell Hua Yang. Terms for the sale included
cash consideration of $14,250,000, less 10% to be held by an
escrow agent until the closing balance sheet has been audited
and accepted by the buyer, which will be less than one year
subsequent to the sale date. The sale price was subject to
adjustments for indebtedness in excess of $10,000,000 or cash
balances less than $1,000,000. The transaction is also described
in note 2 of the Notes to Consolidated Financial Statements
in Item 18 of this Annual Report. The accompanying
consolidated statements of operations and comprehensive (loss)
income, for the years ended March 31, 2003 and 2002 have
been reclassified to reflect discontinued operations in 2004.

19



---



##### Table of Contents



The table below sets forth the consolidated
statements of operation data as a percentage of net sales from
continuing operations for the years ended March 31, 2004,
2003 and 2002.

|                                                             |  |                      |       |      |  |      |       |   |  |  |       |  
|------------------------------------------------------------ |  | -------------------- | ----- | ---- |  | ---- | ----- | - |  |  | ----- | -
|                                                             |  |                     
|                                                             |  | Year Ended March 31,
|                                                             |  |                     
|                                                             |  | 2004                 |       | 2003 |  | 2002
|                                                             |  |                      |       |      |  |     
|Net sales                                                    |  |                      | 100.0 | %    |  |      | 100.0 | % |  |  | 100.0 | %
|Cost of goods sold                                           |  |                      | (68.1 | )    |  |      | (62.9 | ) |  |  | (69.5 | )
|                                                             |  |                      |       |      |  |      |       |   |  |  |       |  
|Gross profit                                                 |  |                      | 31.9  |      |  |      | 37.1  |   |  |  | 30.5  |  
|Selling, general, and administrative expenses                |  |                      | (33.9 | )    |  |      | (33.3 | ) |  |  | (34.9 | )
|Amortization of goodwill                                     |  |                      |      |      |  |      |      |   |  |  | (1.5  | )
|                                                             |  |                      |       |      |  |      |       |   |  |  |       |  
|Operating (loss) income                                      |  |                      | (2.0  | )    |  |      | 3.8   |   |  |  | (5.9  | )
|Interest income                                              |  |                      |      |      |  |      | 0.1   |   |  |  | 0.3   |  
|Interest expense                                             |  |                      | (0.9  | )    |  |      | (1.6  | ) |  |  | (2.2  | )
|Other (loss) income                                          |  |                      | (0.1  | )    |  |      | (0.2  | ) |  |  |      |  
|                                                             |  |                      |       |      |  |      |       |   |  |  |       |  
|(Loss) income before income taxes and minority
    interests |  |                      | (3.0  | )    |  |      | 2.1   |   |  |  | (7.8  | )
|Income tax (expense) benefit                                 |  |                      | (0.1  | )    |  |      | (0.2  | ) |  |  | 0.5   |  
|                                                             |  |                      |       |      |  |      |       |   |  |  |       |  
|(Loss) income before minority interests                      |  |                      | (3.1  | )    |  |      | 1.9   |   |  |  | (7.3  | )
|Minority interests                                           |  |                      | (0.3  | )    |  |      | (0.2  | ) |  |  | (0.2  | )
|                                                             |  |                      |       |      |  |      |       |   |  |  |       |  
|(Loss) income from continuing operations                     |  |                      | (3.4  | )    |  |      | 1.7   |   |  |  | (7.5  | )
|                                                             |  |                      |       |      |  |      |       |   |  |  |       |  



| |                                        
| | ---------------------------------------
| | Years Ended March 31, 2004 and
    2003

Net Sales.The
Groups net sales were $95.8 million for the year
ended March 31, 2004, an increase of $12.4 million, or
14.9%, from $83.4 million for the year ended March 31,
2003. The increase was due to an increase in sales in Zindart
Manufacturing as a result of new customers, including Funline
and Jada, as well as increases in the aggregate value of orders
from Hallmark and Mattel.

Gross Profit and Gross
Margin.The Groups gross profit
was $30.5 million for the year ended March 31, 2004, a
decrease of $400,000, or 1.3%, from $30.9 million for the
year ended March 31, 2003. Gross margin was 31.9% for the
year ended March 31, 2004 and 37.1% for the year ended
March 31, 2003. The decreases in gross profit and gross
margin were due to a decrease in the sales of Corgis
specialty products, which are Corgis highest margin
products.

Selling, General and Administrative
Expenses.The Groups selling,
general and administrative expenses were $32.5 million for
the year ended March 31, 2004, an increase of
$4.8 million, or 17.3%, from $27.7 million for the
year ended March 31, 2003. Selling, general and
administrative expenses equaled 33.9% of net sales for the year
ended March 31, 2004 and 33.3% for the year ended
March 31, 2003. The increase in selling, general and
administrative expenses was due to a 32.6% in increase in
advertising costs for Corgi and an increase in the Groups
general and administrative expenses including growth of
Corgis US-based operations, bonuses accrued for certain
executive officers, and higher professional fees.

Amortization of
Goodwill.No amortization of goodwill
was recorded for the years ended March 31, 2004 and 2003 as
a result of the adoption of Statement of Financial Accounting
Standard (SFAS) No. 142, Goodwill and
Other Intangible Assets.. The Groups goodwill was
created as a result of the acquisition of subsidiaries, most
notably Corgi.

Interest Expense,
Net.The Groups interest
expense, net, was $866,000 for the year ended March 31,
2004, as compared to $1.3 million for the year ended
March 31, 2003. The decrease in the Groups interest
expense, net, was due to a repayment of the principal of the
term loan that had been procured for the acquisition of Corgi UK.

20



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##### Table of Contents



Other (Loss) Income.The Groups other loss was $130,000 for the year ended
March 31, 2004, as compared to $145,000 for the year ended
March 31, 2003.

Income Tax (Expense)
Benefit.The Groups income tax
expense was $121,000 for the year ended March 31, 2004, as
compared to $145,000 for the year ended March 31, 2003.

Minority Interests.The Groups minority interests were $298,000 for the year
ended March 31, 2004 and $191,000 for the year ended
March 31, 2003. The increase was due to higher net income
in the Groups subsidiaries.

(Loss) Income from continuing
operations.The Groups loss from
continuing operations was $3.4 million for the year ended
March 31, 2004, a decrease of $4.9 million, or 326.7%,
from income from continuing operations of $1.5 million for
year ended March 31, 2003. The decrease was primarily due
to lower gross margins as a result of unfavorable product mix,
and higher selling, general and administrative expenses as a
result of higher advertising costs, growth of Corgis
US-based operations, and bonuses accrued for certain executive
officers, and higher professional fees.

(Loss) Income from discontinued
operations.The Groups loss from
discontinued operations was $1.9 million for the year ended
March 31, 2004, a decrease of $3.0 million, or 272.7%,
from a $1.1 million net income in year ended March 31,
2003. The decrease was primarily due to lower packaging sales
and lower orders for book reprints during the second half of the
fiscal year. The sale of the discontinued operations will have
the impact of increasing the Groups cash balances,
increasing the Groups net working capital, and decreasing
the Groups intangible assets. No significant impact to net
shareholders equity is expected, as the asset is being
sold for an amount that is near to its net book value. Proceeds
from the sale were used partially to pay certain vendor
liabilities of the Group. The Group will retain the remaining
proceeds for working capital and future projects.



| |                                        
| | ---------------------------------------
| | Years Ended March 31, 2003 and
    2002

Net Sales.The
Groups net sales were $83.4 million for the year
ended March 31, 2003, a decrease of $9.1 million, or
9.8%, from $92.5 million for the year ended March 31,
2002. The decrease was due to a decrease in sales in the Zindart
Manufacturing as a result of global economic volatility. The
decrease was partially offset by an increase in sales in Corgi
as a result of an expansion of Corgis specialty collector
channel as well as mass market channel into the U.S. market.

Gross Profit and Gross
Margin.The Groups gross profit
was $30.9 million for the year ended March 31, 2003,
an increase of $2.6 million, or 9.2%, from
$28.3 million for the year ended March 31, 2002. Gross
margin was 37.1% for the year ended March 31, 2003 and
30.5% for the year ended March 31, 2002. The increase in
gross margin was due to a favorable product mix and a focused
reduction in operating costs in all divisions through
improvements in efficiency and reduction of wastes.

Selling, General and Administrative
Expenses.The Groups selling,
general and administrative expenses were $27.7 million for
the year ended March 31, 2003, a decrease of
$4.6 million, or 14.2%, from $32.3 million for the
year ended March 31, 2002. Selling, general and
administrative expenses equaled 33.3% of net sales for the year
ended March 31, 2003 and 34.9% for the year ended
March 31, 2002. The decrease in selling, general and
administrative expenses was due to a cost reduction program in
all divisions and a decrease in the Groups legal,
accounting and other administrative expenses as a result of a
change in reporting method in accordance with the criteria set
for foreign private issuers, as the Group had reported in priors
years in accordance with the criteria set for domestic private
issuers.

Amortization of
Goodwill.No amortization of goodwill
was recorded for the year ended March 31, 2003 as a result
of the adoption of SFAS No. 142. The Groups
amortization of goodwill was $1.4 million for the year
ended March 31, 2002. The Groups goodwill was created
as a result of the acquisition of subsidiaries, most notably
Corgi.

Interest Expense,
Net.The Groups interest
expense, net, was $1.3 million for the year ended
March 31, 2003, as compared to $1.8 million for the
year ended March 31, 2002. The decrease in the Groups
interest

21



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expense, net, was due to a reduction of the
principal of the term loan that had been procured for the
acquisition of Corgi UK as well as market related interest rate
reductions in the U.S. and Hong Kong.


Other (Loss) Income.The Groups other (loss) income was $(145,000) for the year
ended March 31, 2003, as compared to $42,000 for the year
ended March 31, 2002. The decrease in the Groups
other income, was due to a realized loss on available-for-sale
investments during the year ended March 31, 2003.

Income Tax (Expense)
Benefit.The Groups income tax
(expense) benefit was $(145,000) for the year ended
March 31, 2003, as compared to $470,000 for the year ended
March 31, 2002. The increase in income tax expense is due
to the net taxable income during the year ended March 31,
2003, as compared to the net taxable loss during the year ended
March 31, 2002.

Minority Interests.The Groups minority interests were $191,000 for the year
ended March 31, 2003 and $210,000 for the year ended
March 31, 2002. The decrease was due to lower net income in
the Groups subsidiaries.

(Loss) Income from Continuing
Operations.The Groups income
from continuing operations was $1.5 million for the year
ended March 31, 2003, an increase of $8.3 million, or
122.1%, from a loss from continuing operations of
$6.8 million in year ended March 31, 2002. The
increase was primarily due to higher sales and higher gross
margins as a result of an expansion into the U.S. and Europe
markets in Corgi and favorable product mix, and lower selling,
general and administrative expenses as a result of a cost
reduction program in the Group.

(Loss) Income from discontinued
operations.The Groups income
from discontinued operations was $1.1 million for the year
ended March 31, 2003, an increase of $2.5 million, or
178.6%, from a $1.4 million loss in year ended
March 31, 2002. The increase was primarily due to higher
sales and higher gross margins as a result of an expansion into
the U.S. and Europe markets and favorable product mix, and lower
selling, general and administrative expenses as a result of a
cost reduction program.



| |                              
| | -----------------------------
| | Foreign Currency Fluctuations

The Groups functional currency is
U.S. dollars as a substantial portion of the Groups
business activities is based in the U.S. The Groups sales
are denominated either in U.S. dollars, British Pounds
(GBP), HK dollars or Euros. The majority of the
Groups expenses are denominated in HK dollars, followed by
Chinese Renminbi (RMB), GBP, Euros and U.S. dollars.
Aggregate gains or losses from foreign currency transactions
included in other (loss) income for the years ended
March 31, 2004, 2003 and 2002 were approximately losses of
$310,000, gains of $589,000 and losses of $443,000, respectively.

The Group selectively hedges anticipated
transactions that are subject to foreign currency exchange
exposure, primarily using foreign currency forward contracts.
These instruments are designated as cash flow hedges in
accordance with SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended
and are recorded in the consolidated financial statements at
fair value. The effective portion of the contracts gains
or losses due to changes in fair value are initially recorded as
a component of accumulated other comprehensive income (loss) and
are subsequently reclassified into earnings when the hedged
transactions occur and affect earnings. These contracts are
highly effective in hedging the variability in future cash flows
attributable to changes in foreign currency exchange rates. At
March 31, 2004, the Group had outstanding foreign currency
forward contracts to sell approximately GBP3,898,000 for
US$6,450,000, HK dollars 2,331,000 for US$300,000, US$2,860,000
for Euros 2,200,000 and US$1,076,605 for 1,300,000 Swiss Francs
(CHF). For the year ended March 31, 2004, total net amounts
recognized in earnings due to ineffectiveness and amounts
excluded from the assessment of hedge effectiveness were not
material. The amount reported as unrealized loss on derivatives
in the accumulated other comprehensive income (loss) account
within stockholder equity represents the total unrealized
loss on derivatives designated as cash flow hedges. The majority
of the balance at March 31, 2004 will be recognized within
the subsequent 12 months as the anticipated transactions
occur. For the years ended March 31, 2003 and 2002, the
Groups derivatives did not qualify as hedging instruments
and therefore are marked to market through income.

22



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Liquidity and Capital Resources

In July 1999, the Group acquired all of the
outstanding shares of Corgi UK (the Corgi
Acquisition). The Corgi Acquisition was financed by a
$30.0 million term loan extended in July 1999 to Corgi
Holdings by the London branch of ABN AMRO Bank N.V. (the
Corgi Term Loan). A standby letter of credit
facility between the Hong Kong branch of ABN AMRO Bank, N.V. and
certain other financial institutions and the Group also in the
amount of $30.0 million was entered into on the same date
in support of the Corgi Term Loan.

From July 1999 through March 2001, the Group
repaid $21.0 million (70%) of its original
$30.0 million Corgi Term Loan. In order to release working
capital to expand its sales and marketing efforts, the Group
completed a $9.0 million refinancing (the Refinancing
Loan) with four international banks, the Hong Kong branch
of ABN AMRO Bank N.V., the Hong Kong branch of KBC Bank N.V.,
Standard Chartered Bank and the Hong Kong branch of Rabo Bank
(collectively, the Lenders) in March 2001. The
Refinancing Loan extended the loan terms and reduced the
quarterly repayment commitments. The Refinancing Loan was fully
repaid in September 2003.

In January 2001, Corgi UK entered into two
agreements (collectively, the RBS Loan) with The
Royal Bank of Scotland plc (RBS) to support
Corgis expansion into U.S. markets and general
working capital requirements. Under the terms of the RBS Loan,
RBS agreed to provide Corgi UK a term loan of $7.4 million
(equivalent of GBP4.0 million) as well as a revolving
working capital facility of $5.5 million (equivalent
GBP3.0 million). In April 2003, Corgi UK entered into a
committed multi-currency overdraft facility of $5.5 million
(equivalent GBP3.0 million). By agreeing to this facility,
the revolving working capital facility ceased to have effect. At
March 31, 2004, the outstanding amount of the term loan was
$2.2 million and the committed multi-currency overdraft
facility was unused.

Under the terms of the RBS Loan, the Group is
required to comply with various restrictive financial covenants
imposed by RBS. The Group was in violation of one of the
financial covenants at March 31, 2004. According to the
terms of the RBS Loan, RBS is entitled to declare the loan
immediately due and payable upon such violation of a financial
covenant. In May 2004, the Group obtained a letter from RBS
waiving its right to take this course of action but only in
respect of the accounting period ended March 31, 2004. The
RBS Loan requires repayment in quarterly installments of
principal and interest through March 31, 2005 and the
breach of financial covenants has had no material adverse impact
on the Group. The noted financial covenants are tested on a
quarterly basis; therefore, additional testing of covenants will
occur before the loan is fully paid on March 31, 2005. At
least one financial covenant appears to have been breached for
the quarter ended June 30, 2004. If such breach is deemed
to occur, RBS is entitled to declare the loan immediately due
and payable. The Group believes that it has sufficient current
liquid assets to pay the loan should RBS enforce it rights.

Cash and cash equivalents were $1.5 million
at March 31, 2004. Net cash provided by operating
activities was $3.5 million for the year ended
March 31, 2004. Cash used in investing activities for the
year ended March 31, 2004 was $5.2 million. Such cash
was used primarily in connection with the acquisition of
tooling. Cash used in financing activities was $886,000 for the
year ended March 31, 2004. Net current liabilities were
$3.3 million at March 31, 2004.

The Group has lines of credit with certain banks
including: ABSA Asia Limited, Agricultural Bank of China,
International Bank of Asia Limited, KBC Bank N.V., Standard
Chartered Bank, The Hong Kong and Shanghai Banking Corporation
Limited, and RBS. At March 31, 2004, the Group had banking
facilities of approximately $52.4 million, of which
$9.2 million were shared with the discontinued operations
and $21.8 million associated solely with the discontinued
operations, for overdrafts, trade financing, term loan and
capital leases. Unused banking facilities at the same date
amounted to approximately $26.8 million, of which
$4.0 million were shared with the discontinued operations
and $12.6 million associated solely with the discontinued
operations.

Consistent with practice in industry, the Group
offers payment terms to its customers. This practice creates
working capital requirements that the Group generally finances
with net cash balances through short-

23



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##### Table of Contents



term borrowings and factoring arrangements. The
Groups trade accounts receivable balance at March 31,
2004 was $17.8 million.


In May 2004, the Group completed the sale of Hua
Yang for gross consideration of $24.25 million, less
indebtedness of $10.0 million, resulting in net cash
consideration of approximately $14.25 million. The cash
generated by the sale will be used to reduce the Groups
reliance on short-term debt and support the growth of Corgi US.
The cash infusion from the sale served to materially increase
the Groups current assets relative to its current
liabilities, decrease the Groups consolidated debt
outstanding, and increases the Groups ratio of debt to
equity.

The Groups principal sources of cash to
fund its liquidity needs are the net cash provided by operating
activities, net cash from sale of Hua Yang and cash available
under lines of credit. The Group believes that these sources
will be adequate to meet the Groups present requirements
for working capital and capital expenditures. However, there can
be no assurances that these resources will be adequate to meet
the Groups needs in the future. In the event that the
Group requires additional capital, it may be required to issue
additional equity securities, which could result in dilution to
existing stockholders, or to borrow funds, which could adversely
affect operating results. Such capital may not be available on
appropriate terms, if at all.

Research and Development

Research and development costs are expensed as
incurred. Corgi is continually involved in the development of
new products, new markets and new manufacturing processes.
Research and development costs incurred by the Group amounted to
$1.2 million, $1.3 million and $1.7 million for
the years ended March 31, 2004, 2003 and 2002, respectively.

Contractual Obligations

The table below summarized the Groups
contractual obligations as of March 31, 2004 (in thousands):

|                   |                                  |                        |        |           |  |           |       |         |  |       |       |       |  |   |       |       |  |   |        |       | 
|------------------ | -------------------------------- | ---------------------- | ------ | --------- |  | --------- | ----- | ------- |  | ----- | ----- | ----- |  | - | ----- | ----- |  | - | ------ | ----- | 
|                   |                                  |                       
|                   |                                  | Payment Due by Periods
|                   |                                  |                       
|                   |                                  | Less                   |        |           |  | More      |       |        
|                   |                                  | Than                   |        |           |  | Than      |       |        
|                   |                                  | 1 Year                 |        | 1-3 Years |  | 3-5 Years |       | 5 Years |  | Total
|                   |                                  |                        |        |           |  |           |       |         |  |      
|                   |                                  |                       
|                   |                                  | (In thousands)        
|On-Balance Sheet:  |                                  |                        |        |           |  |           |       |         |  |       |       |       |  |   |       |       |  |   |        |      
|                   | Long-term debt                   |                        | $      | 2,208     |  |           | $     |        |  |       | $     |      |  |   | $     |      |  |   | $      | 2,208 | 
|                   | Short-term debt                  |                        |        | 9,774     |  |           |       |        |  |       |       |      |  |   |       |      |  |   |        | 9,774 | 
|                   | Obligations under capital leases |                        |        | 498       |  |           |       | 701     |  |       |       |      |  |   |       |      |  |   |        | 1,199 | 
|Off-Balance Sheet: |                                  |                        |        |           |  |           |       |         |  |       |       |       |  |   |       |       |  |   |        |      
|                   | Operating lease                  |                        |        | 1,439     |  |           |       | 1,118   |  |       |       | 630   |  |   |       | 1,023 |  |   |        | 4,210 | 
|                   | Contractual joint-venture Fees   |                        |        | 542       |  |           |       | 1,160   |  |       |       | 1,271 |  |   |       | 1,002 |  |   |        | 3,975 | 
|                   |                                  |                        |        |           |  |           |       |         |  |       |       |       |  |   |       |       |  |   |        |      
|                   |                                  | $                      | 14,461 |           |  | $         | 2,979 |         |  | $     | 1,901 |       |  | $ | 2,025 |       |  | $ | 21,366 |      
|                   |                                  |                        |        |           |  |           |       |         |  |       |       |       |  |   |       |       |  |   |        |      

For additional information to the Groups
short-term debt, long-term debt, capital leases, contractual
joint venture and operating lease obligations, see
notes 10, 11, 12, and 20 in the Notes to the
Consolidated Financial Statements in Item 18 of this Annual
Report.

Off-Balance Sheet Arrangements

At March 31, 2004 and 2003, the Group had
outstanding irrevocable letters of credit in the aggregate
amounts of $1.6 million and $1.4 million,
respectively. Except for these letters of credit, the Group has
no other outstanding off-balance sheet arrangements or
guarantees.

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Critical Accounting Policies

The preparation of financial statements in
conformity with US GAAP requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and revenues
and expenses during the years reported. We based our estimates
on historical experience and on various other assumptions that
are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the
carrying amounts of assets and liabilities that are not readily
apparent from other sources. On an on-going basis, management
evaluates its estimates. Actual results may differ from those
estimates under different assumptions and conditions.

The fundamental objective of financial reporting
is to provide useful information that allows a reader to
comprehend our business activities. To aid in that
understanding, our management has identified critical
accounting policies. These policies have the potential to
have a more significant impact on our financial statements,
either because of the significance of the financial statement
item to which they relate, or because they require judgment and
estimation due to the uncertainty involved in measuring, at a
specific point in time, events which are continuous in nature.

These critical accounting policies include:



| |                                   
| | ----------------------------------
| | Available-For-Sale
    Investments

Available-for-sale investments, in accordance
with Statement of Financial Accounting Standards
(SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities, are recorded at
fair value, with unrealized holding gains and losses excluded
from earnings and reported as a separate component of other
comprehensive (loss) income until realized. Realized gains and
losses from the sale of available-for-sale investments are
determined on a specific-identification basis.
Available-for-sale investments are periodically reviewed to
determine if declines in fair value below cost basis are
other-than-temporary. Significant and sustained decreases in
quoted market prices and a series of historic and projected
losses by investees are considered in review. If the decline in
fair value is determined to be other-than-temporary, an
impairment loss is recorded and the investment is written down
to a new carrying cost.



| |                    
| | -------------------
| | Inventory Valuation

Inventories are stated at the lower of cost or
market value. Cost is determined using the first-in, first-out
(FIFO) method for all inventories.

The Group writes-down inventory for estimated
obsolescence or unmarketable inventory equal to the difference
between the cost of inventory and the estimated selling prices,
which require assumptions about future demand for the
Groups products and related market conditions. If actual
future demand or market conditions are less favorable than those
projected by management, additional write-downs may be required.



| |                                   
| | ----------------------------------
| | Valuation of Long-lived
    Assets

The Group assesses the carrying value of
long-lived assets whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. Factors
considered important which could trigger an impairment review
include the following:



| |   |                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------
| |  | significant under-performance relative to
    expected historical or projected future operating results;
|
| |  | significant changes in the manner of our use of
    the asset;                                          
|
| |  | significant negative industry or economic
    trends; and                                               
|
| |  | our market capitalization relative to net book
    value.                                               

Upon the existence of one or more of the above
indicators of impairment, the Group tests such assets for a
potential impairment. The carrying value of a long-lived asset
is considered impaired when the anticipated future undiscounted
cash flows are less than the assets carrying value. In
that event, a loss is recognized based

25



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on the amount by which the carrying value exceeds
the fair market value of the long-lived asset. Fair market value
is determined primarily using the anticipated future cash flows
discounted at a rate commensurate with the risk involved.




| |         
| | --------
| | Goodwill

Goodwill represents the excess of costs over the
estimated fair value of identifiable net assets of businesses
acquired. The Group adopted the provisions of
SFAS No. 142, Goodwill and Other Intangible
Assets, at April 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.
Statement 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 FASB Statement
No. 144, Accounting for Impairment or Disposal of
Long-Lived Assets.

The Group has undertaken goodwill impairment
testing to determine whether the goodwill was impaired and the
extent of such impairment, if any. To accomplish this, the Group
is required to determine the fair value of each reporting unit
and compare it to the carrying amount of the reporting unit. In
estimating the fair value of the reporting unit, the Group used
the valuation performed by a third-party valuer using the
discounted cash flow methodology, and the selling price of the
reporting units. When available and as appropriate, market
multiples were used to corroborate discounted cash flow results.
In applying this methodology, the Group rely on a number of
factors, including actual operating results, future business
plans, economic projections and market data. There was no
indication that goodwill was impaired at March 31, 2004 and
2003 as the fair value of the reporting units (as determined
using the valuation performed by a third-party valuer for the
Corgi reporting unit and the selling price for the Hua Yang
reporting unit) exceeded the carrying amount of the reporting
unit (including goodwill).

Prior to the adoption of SFAS No. 142,
goodwill was amortized on a straight-line basis over the
expected periods to be benefited, from 10 to 30 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 amount of goodwill
impairment, if any, was measured based on projected discounted
future operating cash flows using a discount rate reflecting the
Groups average cost of funds.



| |               
| | --------------
| | Deferred Taxes

As part of the process of preparing the
Groups consolidated financial statements, management are
required to estimate income taxes and tax bases of assets and
liabilities in each of the jurisdictions in which the Group
operates. This process involves estimating current tax exposure
together with assessing temporary differences resulting from
differing treatment of items for tax and accounting purposes.
These differences result in deferred tax assets and liabilities,
which are included in the consolidated balance sheets.
Management must then assess the likelihood that the deferred tax
assets will be recovered from future taxable income, and, to the
extent it believes that recovery is not more likely than not, a
valuation allowance must be provided.

Recent Accounting Pronouncements

In December 2003, the FASB issued FIN 46
(revised December 2003). Consolidation of Variable
Interest Entities, which addresses how a business
enterprise should evaluate whether it has a controlling
financial interest in an entity through means other than voting
rights and accordingly should consolidate the entity.
FIN 46R replaces FIN 46, Consolidation of
Variable Interest Entities, which was issued in January
2003. The Group will be required to apply FIN 46R to
variable interests in Variable Interest Entities
(VIEs) created after December 31, 2003. For
variable interests in VIEs created before January 1, 2004,
the interpretation will be applied beginning on January 1,
2005. For any VIEs that must be consolidated under FIN 46R
that were created before January 1, 2004, the assets,
liabilities and non-controlling interests of the VIE initially
would be measured at their carrying amounts with any difference
between the net amount added

26



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##### Table of Contents



to the balance sheet and any previously
recognized interest being recognized as the cumulative effect of
an accounting change. If determining the carrying amounts is not
practicable, fair value at the date Fin 46R first applies may be
used to measure the assets, liabilities and non-controlling
interest of the VIE. While the Group has evaluated the impact of
applying FIN 46R, the Group does not believe it has an
interest in any VIEs that are within the scope of this
statement. Therefore, the application of this interpretation did
not have a material effect on the Groups consolidated
financial statements.


In May 2003, the FASB issued
SFAS No. 150 Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity. This statement establishes standards for the
classification and measurement of certain financial instruments
with characteristics of both liabilities and equity. The
statement also includes required disclosures for financial
instruments within its scope. The statement was generally
effective for instruments entered into or modified after
May 31, 2003 and otherwise will be effective as of
January 1, 2004, except for mandatorily redeemable
financial instruments. For certain mandatorily redeemable
financial instruments, the statement will be effective for the
Group on January 1, 2005. The effective date has been
deferred indefinitely for certain other types of mandatorily
redeemable financial instruments. The Group currently does not
have any financial instruments that are within the scope of this
statement.






|        |                                               
|------- | ----------------------------------------------
|Item 6. | Directors, Senior Management and
    Employees

Directors and Senior Management

The following table sets forth the current
directors and executive officers of the Group.



| |                                     
| | ------------------------------------
| | Board of Directors (The
    Board)

|                      |  |     |    |          |  |                                
|--------------------- |  | --- | -- | -------- |  | -------------------------------
|Name                  |  | Age |    | Position
|                      |  |     |    |         
|Peter A.J. Gardiner   |  |     | 68 |          |  | Executive Chairman of the Board
|Robert A. Theleen(2)  |  |     | 58 |          |  | Vice-Chairman of the Board     
|Leo Paul Koulos(2)(3) |  |     | 70 |          |  | Director                       
|Takaaki Ohya(1)(3)    |  |     | 66 |          |  | Director                       
|Gordon L.M. Seow      |  |     | 71 |          |  | Director                       
|Victor Yang(1)(2)(3)  |  |     | 58 |          |  | Director                       
|David Yu(1)           |  |     | 56 |          |  | Director                       



| |                   
| | ------------------
| | Executive Officers

|                      |  |     |    |          |  |                                                         
|--------------------- |  | --- | -- | -------- |  | --------------------------------------------------------
|Name                  |  | Age |    | Position
|                      |  |     |    |         
|Corporate             |  |     |    |          |  |                                                         
|Peter A.J. Gardiner   |  |     | 68 |          |  | Executive Chairman of the Board                         
|Ken Fowler            |  |     | 44 |          |  | Chief Financial Officer                                 
|Zindart Manufacturing |  |     |    |          |  |                                                         
|C. Richard Tong       |  |     | 48 |          |  | President and Chief Executive Officer                   
|K.H. Li               |  |     | 46 |          |  | Vice President of Technical Services and
    Development
|Yim To                |  |     | 51 |          |  | Vice President of Operations                            
|Franki Lee            |  |     | 46 |          |  | Vice President of Marketing and Sales                   
|Daisy Lee             |  |     | 36 |          |  | Vice President of Finance and Administration            
|Corgi                 |  |     |    |          |  |                                                         
|George Volanakis      |  |     | 56 |          |  | President and Chief Executive Officer                   
|Colin Summerbell      |  |     | 52 |          |  | U.K. Sales Director                                     
|James Cavanaugh       |  |     | 50 |          |  | Vice President of U.S. Sales                            
|David ONeill         |  |     | 53 |          |  | Vice President of U.S. Marketing                        
|Trevor Hayes          |  |     | 57 |          |  | Vice President of Global Product Development            



---



|    |                                                  
|--- | -------------------------------------------------
|(1) | Member of the Audit Committee                    
|   
|(2) | Member of the Compensation Committee             
|   
|(3) | Member of the Nominating and Governance Committee

27



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##### Table of Contents



Peter A.J. Gardiner joined the Board in January
2000 and has served as Executive Chairman since October 2000.
From March 1997 to August 1998, Mr. Gardiner was Chairman,
Chief Executive Officer and a major shareholder of Veriflo
Corporation, a leading manufacturer of semiconductor components.
Mr. Gardiner received a Bachelors degree in Brewing
and Industrial Fermentation from Heriot-Watt University.

Robert A. Theleen joined the Board in January
1997, currently serves as Vice-Chairman and served as Chairman
from January 1997 to September 2000. Mr. Theleen is the
founder and Chairman of ChinaVest, a venture capital firm.
Mr. Theleen is also a director of several ChinaVest
portfolio companies. Mr. Theleen is a founding member of
the executive committee of the Hong Kong-Taipei Business
Cooperation Committee of the Hong Kong General Chamber of
Commerce. Mr. Theleen received a Bachelors degree in
International Relations from Duquesne University and a Master of
Business Administration from the American School of
International Management.

Leo Paul Koulos joined the Board in March 1997.
Prior to the sale of his company, Mr. Koulos was President
and Chief Executive Officer of National Coupon Redemption
Service, Inc., a national clearinghouse for manufacturers
cents-off coupons and, served as Chairman and Chief Executive
Officer of Coupon Processing Associates, Inc., of Texas, and its
Mexican affiliate, Enlace Vital, S.A. de. C.V. Mr. Koulos
is currently Chairman of International Data, LLC, its successor
company. Mr. Koulos received a Bachelors degree from
the University of San Francisco.

Takaaki Ohya joined the Board in January 2003.
Mr. Ohya served as Deputy Chairman and Deputy Chief Manager
from 1984 to 2002 of Chekiang First Bank, Ltd., Hong Kong.
Mr. Ohya had served in various other senior banking posts
at the Dai-Ichi Kangyo Bank, Ltd., Japan (now MIZUHO FINANCIAL
GROUP) 1963 and 1984. Mr. Ohya is Founder and Chairman of
Asia Pacific Precious Metals Limited. Mr. Ohya received a
Bachelors degree in Economics from Kyushu University.

Gordon L.M. Seow joined the Board in March 1998.
Mr. Seow is a director of two companies in Singapore, Hotel
Properties Limited and Pacific Century Regional Developments
Limited. Mr. Seow is a member of the advisory board of
ChinaVest IV-B, one of ChinaVests venture capital funds.
Mr. Seow was a director of Shell Eastern Petroleum (Pte)
Limited, Singapore and retired from the company in 1987 after
30 years of service. He then joined the Singapore Ministry
of Foreign Affairs in 1988 and served as Singapores
Commissioner to Hong Kong from 1988 to 1994 and subsequently
retired. Mr. Seow received a Barrister-At-Law degree from
Lincolns Inn London.

Victor Yang joined the Board in March 1998.
Mr. Yang is a founding partner of and has practiced for
over 20 years with the Canadian law firm Boughton Peterson
Yang Anderson, Solicitors and manages the firms Hong Kong
office. Mr. Yang has served as directors of various
publicly listed companies in Canada, Singapore and Hong Kong.
Mr. Yang is also a member of the law societies of British
Columbia, Canada, Hong Kong and the United Kingdom.
Mr. Yang received a Bachelors degree in Business and
an L.L.B. in Law from the University of British Columbia.

David Yu joined the Board in March, 2004.
Mr. Yu is a Fellow of The Institute of Chartered
Accountants in England and Wales, an Associate Member of the
Hong Kong Society of Accountants and a Fellow of the Hong Kong
Institute of Directors. Mr. Yu was a partner at an
international accounting firm with extensive experience in
corporate finance. Mr. Yu is a founder and director of
Management Capital Limited, which specializes in direct
investment and financial advisory activities. Mr. Yu
currently serves as an independent non-executive director of
various listed companies in Hong Kong. Mr. Yu received a
Bachelor of Social Science from the Chinese University of Hong
Kong.

Ken Fowler joined the Group as Chief Financial
Officer in September 2002. From January 2001 to September 2002,
Mr. Fowler was Chief Financial Officer of
DeliriumCyberTouch Corporation, a leading pan-Asian web
solutions company with operations in five Asian countries. From
February 2000 to January 2001, Mr. Fowler served as Senior
Vice President Finance of Chinadotcom Corporation (Nasdaq symbol
CHINA). Prior to Chinadotcom, Mr. Fowler spent
seven years with SkyTel Corporation (SkyTel), a
Nasdaq listed, international wireless messaging service provider
(acquired by MCI Worldcom in October

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##### Table of Contents



1999). As head of finance for SkyTels
international operations, Mr. Fowler managed the financial
operations for 17 international operations based in Latin
America, Asia, and Europe. His corporate finance
responsibilities included spearheading acquisitions, joint
venture development, capital financing efforts, and
divestitures. Prior to SkyTel, Mr. Fowler spent almost
10 years in the audit and consulting arms of Price
Waterhouse (now PriceWaterhouseCoopers) and Ernst &
Young. At Ernst & Young, Mr. Fowler provided
strategic management consulting services as well as operations
and information systems consulting services. Mr. Fowler
received a Masters of Business Administration degree from
Vanderbilt University and a Bachelors of Accountancy degree from
the University of Mississippi.


C. Richard Tong joined the Group as
President and Chief Executive Officer of Zindart Manufacturing
in December 2001. Mr. Tong is in charge of the Groups
die-cast and injection-molded plastic OEM business. From
November 1999 to September 2000, Mr. Tong was Chief
Executive Officer of Magician Industries, a publicity listed
company in Hong Kong serving the houseware market. Prior to
Magician Industries, Mr. Tong held senior executive
positions at Emerson Electric and Jebsen & Co.
Mr. Tong received his undergraduate degrees in Chemical
Engineering from Columbia University and Davidson College as
well as a Masters degree in Chemical Engineering from
Northwestern University and a Master of Business Administration
from the Kellogg School of Management at Northwestern University.

K.H. Li joined the Group in September 1998.
Mr. Li has served as Vice President of Technical Services
of Zindart Manufacturing since December 2001. Mr. Li has
21 years of experience in marketing and engineering of
toys. Prior to joining the Group, Mr. Li worked in various
positions for Unitoys, Mattel and Playmates. Mr. Li
received a Higher Diploma in Production & Industrial
Engineering from the Hong Kong Polytechnic University.

Yim To joined Zindart as Vice President of
Operation in 2003. A native of Hong Kong, Mr. Yim began his
career in production 31 years ago with Tyco HK Ltd. He has
subsequently gained a wealth of experience in manufacturing and
management with a number of companies, the last being Lung
Cheong Toys Ltd. as Manufacturing Director.

Franki Lee joined the Group in April 1987. and
has served as Vice President of Marketing and Sales of Zindart
Manufacturing since December 2001. Mr. Lee has
15 years experience in customer service and engineering of
toys. Mr. Lee received a certificate of Mechanical
Engineering from the Hong Kong Polytechnic University.

Daisy Lee joined the Group in February 1999 and
has served as Vice President of Finance and Administration of
Zindart Manufacturing since April 2002. From May 2001 to April
2002, Ms. Lee served as Financial Controller of Zindart
Manufacturing and Hua Yang. From March 1995 to November 1996,
Ms. Lee served as Assistant Manager of Finance for HYPHCL.
Ms. Lee is a qualified accountant in the United Kingdom and
Hong Kong. Ms. Lee received a Bachelor degree of Business
Administration degree from the Hong Kong Baptist University and
a Master degree of Business Administration from University of
Nottingham in the United Kingdom.

George Volanakis joined Corgi in February 2004 as
its President and Chief Executive Officer. From 1998 to 2002
Mr. Volanakis served as Executive Vice-President of Hasbro,
Inc. and President of Hasbro International. From 1988 to 1998
Mr. Volanakis served as President and Chief Executive
Officer of The Ertl Company, Inc. (Ertl) During that
period he also served on the Board of Zindart. Prior to Ertl
Mr. Volanakis served as Senior Vice-President of Marketing
at Mattel, Inc., President and COO of Matchbox Toys USA, Inc.
and President and COO of Playskool, Inc., then a division of the
Milton Bradley Co. Inc. Mr. Volanakis began his
career in the toy industry in 1969 with the Milton
Bradley Co. where over a period of 15 years held
positions of increasing responsibility including Vice-President
of Sales and Marketing and Vice-President of Research and
Development.

Colin Summerbell joined Corgi in 1989 and the
Group in 1999. Mr. Summerbell has served as United Kingdom
Sales Director of Corgi since August 1995. Mr. Summerbell
oversees the various duties of the Corgi sales department.

29



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James Cavanagh joined Corgi in February of 2004
as its Vice President of Sales. Prior to joining Corgi, Jim was
Senior Vice President of Sales for the Hedstrom Corporation.
Before joining Hedstrom, Jim served as Vice President of Sales,
Director of Sales and National Sales Manager over an 8 year
period for Ertl. Jim started his career in the toy industry in
1979 with Fisher Price Toys, where over an 11 year period
held positions of increasing sales responsibility that included
Key Account Manager and National Accounts Manager.

David ONeill joined Corgi in March of 2004
as Vice President of Marketing. Prior to joining Corgi, from
2003 to 2004 Mr. ONeill was Director of Product
Development, Preschool and Boys Toys for KB Toys, Inc. From 1996
to 2003 Mr. ONeill held positions as Director of Hot
Wheels and Director of Customer Marketing for the Arco Division
of Mattel, Inc. In 1992 joined The Ertl Company as Director of
Marketing  Promotional Product, and served in that
capacity until 1996. Prior to joining Ertl,
Mr. ONeill held various positions, in Marketing, at
Tyco, Hasbro and Mattel.

Trevor Hayes joined Corgi in May 2003 as Vice
President of Global Product Development. From 1999 to 2003
Mr. Hayes worked for Mattel in the USA as Director and
later VP of Matchbox design and from 1990 to 1999 for Mattel
Europe as Director of Design and Development. From 1984 to 1990,
Mr. Hayes was Director of Design &
Development  UK at Corgi. Prior to 1984,
Mr. Hayes held a variety of positions in design and
development at Matchbox Toys UK from 1964 to 1984. Trevor Hayes
has over 40 years of experience in the design and
development of toy and model products. Mr. Hayes received a
Bachelors degree in Industrial Management from Danbury College
in Essex.

Compensation



| |                                                     
| | ----------------------------------------------------
| | Compensation of Directors and Executive
    Officers

For the year ended March 31, 2004, we paid
an aggregate amount of compensation, including salary, bonus and
other compensation, to our executive officers as a group equal
to $4.0 million. This figure includes aggregate bonus
payments of $569,963.

Each non-employee director of the Company
received a $30,000 fee for services as a board member for the
year ended March 31, 2004. Directors could elect to receive
some or all of this fee in shares of the Companys common
stock valued at the then current market price. Each non-employee
director of the Company also received a fee of $1,000 for
attendance at each committee meeting. In addition, each
committee chairman received a $5,000 fee for service as chairman
for the year ended March 31, 2004. An aggregate of $179,037
was paid (in the form of cash) to the non-employee directors as
a group for board and committee service during the year ended
March 31, 2004.

Directors who are employees of the Company do not
receive any remuneration for service as members of the Board or
its committees.

See the table in the section below entitled
Share Ownership for details regarding options
granted to the named executive officers.



| |                             
| | ----------------------------
| | Certain Employment Contracts

On October 1, 2000, Zindart Limited, a
corporation organized under the laws of Bermuda and an indirect
wholly-owned subsidiary of the Company (Zindart
Bermuda) entered into an employment agreement with Peter
A.J. Gardiner. The employment agreement provides that
Mr. Gardiner will serve as the Chief Executive Officer of
Zindart Bermuda and perform such duties as determined by the
Board for a base salary of $300,000 per year plus a
performance-based annual bonus. Pursuant to the employment
agreement, the Board retains the discretion to increase
Mr. Gardiners base salary at any time and in any
amount as it so decides in its sole discretion. On June 2003,
the Board approved that Mr. Gardiners base salary be
increased to $400,000 annually from $300,000 annually effective
April 1, 2003. In addition, effective October 31,
2000, Mr. Gardiner was granted options to
purchase 500,000 ADSs representing 500,000 Shares of
the Company, with 120,000 of the ADSs vesting immediately upon
the grant. Of the remaining 380,000 ADSs, one third vests on
October 31, 2001 and the remaining two-thirds vest monthly
over the following two year period. Zindart

30



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##### Table of Contents



Bermuda may terminate Mr. Gardiners
employment with or without cause as defined in the
employment agreement. However, if Zindart Bermuda terminates
Mr. Gardiner without cause, Zindart Bermuda
must pay him severance equal to one full year of his base salary.


The Company entered into an employment agreement
with Ken Fowler on September 25, 2002. The employment
agreement provides that Mr. Fowler will serve as the Chief
Financial Officer of the Group. The employment agreement has no
fixed term and is terminable by three months notice from
Mr. Fowler or the Company.

The Company entered into an employment agreement
with C. Richard Tong on December 17, 2001. The employment
agreement provides that Mr. Tong will serve as the
President and Chief Executive Officer of Zindart Manufacturing.
The employment agreement has no fixed term and is terminable by
three months notice from Mr. Tong or the Company.

Corgi UK entered into an employment agreement
with George Volanakis on February 15, 2004. The employment
agreement provides that Mr. Volanakis will serve as the
President and Chief Executive Officer of Corgi. The employment
agreement will terminate on the second anniversary of the date
thereof and is terminable by three months notice from
Mr. Volanakis. Corgi UK may terminate
Mr. Volanakiss employment with or without
cause as defined in the employment agreement.

Board Practices

All members of the Board serve a one-year term.
Please see Directors and Senior Management above for
information regarding the tenure of the current board members.
The company has not entered into service contracts with any
members of the Board that provide benefits upon termination of
employment.

The business and affairs of the Group are managed
under the direction of the Board. The Board monitors the overall
performance of the Group and oversees strategic planning. The
Board also monitors the Groups financial controls and
reviews and ratifies the selection and compensation of senior
executives. During the year ended March 31, 2004, the Board
held six meetings. During the year ended March 31, 2004,
each Board member attended 75% or more of the aggregate number
of meetings of the Board that were held during the period for
which he or she was a director. The Board has three standing
committees: the Audit Committee, the Compensation Committee, and
the Nominating and Governance Committee.

The Audit Committee meets with the Groups
independent auditors at least annually to review the results of
the annual audit and discuss the financial statements;
recommends to the Board the independent auditors to be retained;
oversees the independence of the independent auditors; evaluates
the independent auditors performance; reviews the
Groups internal accounting procedures and reports to the
Board with respect to other auditing and accounting matters,
including the selection of the Groups independent
auditors, the scope of annual audits, fees to be paid to our
independent auditors and the performance of the Groups
independent auditors. The Audit Committee is currently composed
of three members: Mr. Yu, Mr. Ohya and Mr. Yang.
Mr. Iain Gray served on the Audit Committee until
October 17, 2003, when he resigned from the Board and the
Audit Committee. On March 23, 2004, Mr. Yu was
appointed to the Board and the Audit Committee. All members of
the Audit Committee meet the independence and financial literacy
requirements of the Nasdaq Stock Market (Nasdaq) and
Mr. Yu satisfies the applicable Nasdaq financial experience
requirements. In addition, the Board has determined that David
Yu qualifies as an audit committee financial expert
(as defined in the instructions to Item 16A of
Form 20-F). The Audit Committee met four times during the
year ended March 31, 2004 and all directors who were
members of the Audit Committee at the time of such meetings were
present.

The Compensation Committee makes recommendations
concerning salaries and incentive compensation, administers and
awards stock options to employees and consultants under the
Companys stock option plans and otherwise determines
compensation levels and performs such other functions regarding
compensation as the Board may delegate. The Compensation
Committee is composed of three members: Mr. Koulos,
Mr. Theleen and Mr. Yang. The Compensation Committee
met five times and acted by written consent one

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time during the year ended March 31, 2004
and all directors who were members of the Compensation Committee
were present at all such meetings.


The Nominating and Governance Committee oversees
all aspects of the Companys corporate governance functions
on behalf of the Board; makes recommendations to the Board
regarding corporate governance issues; identifies, reviews and
evaluates candidates to serve as directors of the Company;
reviews and evaluates incumbent directors and serves as a focal
point for communication between director candidates,
non-committee directors and the Groups management. The
Nominating and Governance Committee also selects or recommends
to the Board for selection candidates to the Board and makes
other recommendations to the Board regarding affairs relating to
the directors of the Company, including director compensation.
The Nominating and Governance Committee is composed of three
members: Mr. Yang, Mr. Ohya and Mr. Koulos. All
members were appointed to the Nominating and Governance
Committee on March 12, 2004. The Nominating and Governance
Committee met once during the year ended March 31, 2004 and
Mr. Yang and Mr. Ohya were present.

Employees

At March 31, 2004 and excluding discontinued
operations, the Group employed 11,175 persons, of whom
approximately 10,069 were production workers, 610 were
administrative staff, 38 were sales and marketing staff, and 458
were engineering and technical personnel. Employee information
with respect to the Groups business and geographical
segments is presented below:

|                         |  |               |        |       |  |           |    |           |  |  |   |  |  |  |        | 
|------------------------ |  | ------------- | ------ | ----- |  | --------- | -- | --------- |  |  | - |  |  |  | ------ | 
|                         |  | Zindart       |        |       |  |           |    |          
|                         |  | Manufacturing |        | Corgi |  | Corporate |    | The Group
|                         |  |               |        |       |  |           |    |          
|PRC                      |  |               | 11,040 |       |  |           |   |           |  |  |  |  |  |  | 11,040 | 
|Hong Kong                |  |               | 59     |       |  |           | 4  |           |  |  | 3 |  |  |  | 66     | 
|United Kingdom           |  |               |       |       |  |           | 51 |           |  |  |  |  |  |  | 51     | 
|United States of America |  |               |       |       |  |           | 17 |           |  |  | 1 |  |  |  | 18     | 
|                         |  |               |        |       |  |           |    |           |  |  |   |  |  |  |        | 
|                         |  |               | 11,099 |       |  |           | 72 |           |  |  | 4 |  |  |  | 11,175 | 
|                         |  |               |        |       |  |           |    |           |  |  |   |  |  |  |        | 

In connection with the Dongguan Facility, the
Group also entered into a subcontract processing agreement with
a local industrial development authority, which provides the
Group with a labor pool for certain production needs.

Substantially all of the Groups production
workers are young women and men who come from various rural
provinces in the PRC for the purpose of working for wages higher
than are available in such rural regions. These production
workers typically work for the Group for two to five years and
then return to their communities. In addition, approximately
5%-10% of the production workers do not return to the Group each
year after the Chinese New Year holiday, and the Group must hire
replacements.

As is customary for employers in the PRC, the
Groups production facilities include housing facilities
for production workers. The Group is committed to providing good
working and living conditions for its production workers in the
PRC. To that end, the Group has adopted Code of Conduct relating
to human rights, including a prohibition on use of child labor.
In addition, the Group has adopted guidelines that address
worker safety, wages, hours and statutory holidays.

The Groups employees are not unionized, and
the Group has not experienced any labor strike.

Share Ownership

The Company has a stock-based compensation plan,
under which non-qualified stock options may be granted to
certain directors and employees. The following table sets forth
information concerning individual

32



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##### Table of Contents



grants of stock options made during the year
ended March 31, 2004 to the named executive officers. No
directors received any stock options for serving on the Board
during the year ended March 31, 2004.


|                    |  |                 |           |                      |  |                    |      |  |  |  |              | 
|------------------- |  | --------------- | --------- | -------------------- |  | ------------------ | ---- |  |  |  | ------------ | 
|                    |  | Number of       |           |                      |  |                   
|Name                |  | Options Granted |           | Exercise Price($)(1) |  | Expiration Date(1)
|                    |  |                 |           |                      |  |                   
|Peter A.J. Gardiner |  |                 | 20,534(2  | )                    |  |                    | 4.87 |  |  |  | Jun 19, 2013 | 
|Yim To              |  |                 | 15,000(3  | )                    |  |                    | 6.82 |  |  |  | Mar 12, 2014 | 
|Franki Lee          |  |                 | 15,000(4  | )                    |  |                    | 4.87 |  |  |  | Jun 19, 2013 | 
|Daisy Lee           |  |                 | 15,000(4  | )                    |  |                    | 4.87 |  |  |  | Jun 19, 2013 | 
|George Volanakis    |  |                 | 100,000(5 | )                    |  |                    | 5.50 |  |  |  | Mar 29, 2014 | 
|James Cavanaugh     |  |                 | 50,000(6  | )                    |  |                    | 5.50 |  |  |  | Mar 29, 2014 | 
|David ONeill       |  |                 | 40,000(6  | )                    |  |                    | 5.50 |  |  |  | Mar 29, 2014 | 



---



|    |                                                                                                                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | All options described above have a term of ten
    years and an exercise price equal to the closing price of the
    ADSs, on the trading date immediately prior to the date of grant.                                                    
|   
|(2) | The option vests over a four years period
    subsequent to the date of grant in accordance with the terms of
    the original Notice of Stock Option Grant, which was accelerated
    in full on March 11, 2004.                         
|   
|(3) | The option vests with 25% of the ADSs subject to
    the option vesting on the first anniversary date of grant,
    March 12, 2005, and the remaining 75% of the ADSs vesting
    in 36 equal monthly installments through March 12, 2008.
|   
|(4) | The options vest over a four-year period
    subsequent to the date of grant.                                                                                                                                                             
|   
|(5) | The option vests with 50% of the ADSs subject to
    the option vesting on the first anniversary date of grant,
    March 29, 2005, and the remaining 50% of the ADSs vesting
    on December 31, 2005.                                   
|   
|(6) | The options vest with 25% of the ADSs subject to
    the option vesting on the first anniversary date of grant,
    March 29, 2005, and the remaining 75% of the ADSs vesting
    in 36 equal monthly installments through March 29, 2008.

33



---



##### Table of Contents



The following table sets forth, as of
March 31, 2004, information concerning ADSs held by, and
stock options granted to, the Companys directors and named
executive officers.

|                    |  |                     |        |                  |  |        |   |                   |  |                 |         |  |  |  |        |  |  |  |              | 
|------------------- |  | ------------------- | ------ | ---------------- |  | ------ | - | ----------------- |  | --------------- | ------- |  |  |  | ------ |  |  |  | ------------ | 
|                    |  |                     |        |                 
|                    |  | ADS/Share Ownership |        | Options Held    
|                    |  |                     |        |                 
|Name                |  | Number              |        | % of Outstanding |  | Number |   | Exercise Price($) |  | Expiration Date
|                    |  |                     |        |                  |  |        |   |                   |  |                
|Peter A.J. Gardiner |  |                     |       |                  |  |        |  |                   |  |                 | 100,000 |  |  |  | 2.50   |  |  |  | Oct 31, 2010 | 
|                    |  |                     |        |                  |  |        |   |                   |  |                 | 20,000  |  |  |  | 2.50   |  |  |  | Oct 31, 2010 | 
|                    |  |                     |        |                  |  |        |   |                   |  |                 | 380,000 |  |  |  | 2.50   |  |  |  | Oct 31, 2010 | 
|                    |  |                     |        |                  |  |        |   |                   |  |                 | 20,534  |  |  |  | 4.87   |  |  |  | Jun 19, 2013 | 
|Robert A. Theleen   |  |                     | 4,000  |                  |  |        | * |                   |  |                 | 19,481  |  |  |  | 1.54   |  |  |  | Sep 4, 2012  | 
|Leo Paul Koulos     |  |                     | 1,000  |                  |  |        | * |                   |  |                 | 10,000  |  |  |  | 6.75   |  |  |  | May 15, 2007 | 
|                    |  |                     |        |                  |  |        |   |                   |  |                 | 10,000  |  |  |  | 6.75   |  |  |  | Dec 15, 2008 | 
|                    |  |                     |        |                  |  |        |   |                   |  |                 | 10,000  |  |  |  | 6.875  |  |  |  | Jan 21, 2010 | 
|                    |  |                     |        |                  |  |        |   |                   |  |                 | 19,481  |  |  |  | 1.54   |  |  |  | Sep 4, 2012  | 
|                    |  |                     |        |                  |  |        |   |                   |  |                 | 30,000  |  |  |  | 3.03   |  |  |  | Jan 20, 2013 | 
|Takaaki Ohya        |  |                     |       |                  |  |        |  |                   |  |                 | 2,475   |  |  |  | 3.03   |  |  |  | Jan 20, 2013 | 
|Gordon L.M. Seow    |  |                     | 46,981 |                  |  |        | * |                   |  |                 | 10,000  |  |  |  | 6.75   |  |  |  | May 15, 2007 | 
|                    |  |                     |        |                  |  |        |   |                   |  |                 | 7,500   |  |  |  | 6.75   |  |  |  | Dec 15, 2008 | 
|                    |  |                     |        |                  |  |        |   |                   |  |                 | 10,000  |  |  |  | 6.875  |  |  |  | Jan 21, 2010 | 
|Victor Yang         |  |                     | 10,000 |                  |  |        | * |                   |  |                 | 5,000   |  |  |  | 6.75   |  |  |  | May 15, 2007 | 
|                    |  |                     |        |                  |  |        |   |                   |  |                 | 5,000   |  |  |  | 6.75   |  |  |  | Dec 15, 2008 | 
|                    |  |                     |        |                  |  |        |   |                   |  |                 | 10,000  |  |  |  | 6.875  |  |  |  | Jan 21, 2010 | 
|Ken Fowler          |  |                     |       |                  |  |        |  |                   |  |                 | 100,000 |  |  |  | 1.51   |  |  |  | Sep 25, 2012 | 
|C. Richard Tong     |  |                     | 50,000 |                  |  |        | * |                   |  |                 | 50,000  |  |  |  | 1.80   |  |  |  | Dec 17, 2011 | 
|K.H. Li             |  |                     | 5,865  |                  |  |        | * |                   |  |                 | 5,000   |  |  |  | 6.75   |  |  |  | Dec 15, 2008 | 
|                    |  |                     |        |                  |  |        |   |                   |  |                 | 5,000   |  |  |  | 6.875  |  |  |  | Jan 21, 2010 | 
|                    |  |                     |        |                  |  |        |   |                   |  |                 | 7,500   |  |  |  | 1.5625 |  |  |  | Jan 11, 2011 | 
|Yim To              |  |                     |       |                  |  |        |  |                   |  |                 | 15,000  |  |  |  | 6.82   |  |  |  | Mar 12, 2014 | 
|Franki Lee          |  |                     |       |                  |  |        |  |                   |  |                 | 15,000  |  |  |  | 4.87   |  |  |  | Jun 19, 2013 | 
|Daisy Lee           |  |                     |       |                  |  |        |  |                   |  |                 | 15,000  |  |  |  | 4.87   |  |  |  | Jun 19, 2013 | 
|George Volanakis    |  |                     |       |                  |  |        |  |                   |  |                 | 100,000 |  |  |  | 5.50   |  |  |  | Mar 29, 2014 | 
|Colin Summerbell    |  |                     |       |                  |  |        |  |                   |  |                 | 20,000  |  |  |  | 1.5625 |  |  |  | Jan 11, 2011 | 
|James Cavanaugh     |  |                     |       |                  |  |        |  |                   |  |                 | 50,000  |  |  |  | 5.50   |  |  |  | Mar 29, 2014 | 
|David ONeill       |  |                     |       |                  |  |        |  |                   |  |                 | 40,000  |  |  |  | 5.50   |  |  |  | Mar 29, 2014 | 



---



|  |             
|- | ------------
|* | Less than 1%






|        |                                                      
|------- | -----------------------------------------------------
|Item 7. | Major Shareholders and Related Party
    Transactions

Major Shareholders

The following table sets forth beneficial
ownership of the Companys outstanding shares at
May 17, 2004 by each person known by the Company to own
beneficially more than 5% of the outstanding shares.

|                                                                       |  |                    |           |                      |  |  |      | 
|---------------------------------------------------------------------- |  | ------------------ | --------- | -------------------- |  |  | ---- | 
|                                                                       |  | Number of Shares   |           | Percentage of Shares
|Name of Beneficial Owner                                               |  | Beneficially Owned |           | Outstanding(%)(1)   
|                                                                       |  |                    |           |                     
|ChinaVest Partners IV and associated
    entities(2)                   |  |                    | 2,087,252 |                      |  |  | 22.6 | 
|Gruber & McBaine Capital Management LLC
    and associated entities(3) |  |                    | 1,258,760 |                      |  |  | 13.6 | 
|Heartland Advisors, Inc.(4)                                            |  |                    | 1,145,800 |                      |  |  | 12.4 | 
|Peter A.J. Gardiner(5)                                                 |  |                    | 520,534   |                      |  |  | 5.3  | 

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---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Based on 9,239,218 shares outstanding on
    May 17, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|(2) | Based on a Schedule 13D filed on
    January 15, 2004, ChinaVest Partners IV, a Delaware
    limited partnership (Partners) and
    ChinaVest IV, L.P., a Delaware limited partnership
    (IV) have sole and shares voting power over
    2,087,252 Shares, of which 1,755,104 Shares are
    registered in the name of IV, 247,868 Shares are registered
    to ChinaVest IV-A, L.P., a Delaware limited partnership
    (IV-A) and 84,280 Shares are registered to
    ChinaVest IV-B, L.P., a Bermuda limited partnership
    (IV-B). Partners is the general partner of IV
    and IV-A, and ChinaVest Management Limited, a Bermuda
    corporation and affiliate of Partners is the general partner of
    IV-B. The address for Partners is c/o 19/F Dina House,
    11 Duddell Street, Central, Hong Kong. The address
    for IV is c/o The Prentice Hall Corporation Systems,
    Inc., 32 Lookerman Square, Suite L-100, Dover, Delaware
    19901.                               
|   
|(3) | Based on the Schedule 13G filed on
    February 13, 2004, Gruber & McBaine Capital
    Management LLC (GMCM), Jon D. Gruber
    (Gruber), J. Patterson McBaine
    (McBaine), and Eric B. Swergold
    (Swergold) beneficially own and have shared voting
    power with respect to 1,258,760 Shares and Lagunitis
    Partners (Lagunitis) beneficially own and have
    shared voting power with respect to 545,800 Shares.
    Pursuant to the 13G, Gruber also has sole voting authority for
    an additional 205,140 Shares, and McBaine also has sole
    voting authority for an additional 157,950 Shares. GMCM is
    a registered investment advisor. Gruber and McBaine are
    managers, controlling persons and portfolio managers of GMCM.
    Lagunitis is an investment limited partnership of which GMCM is
    the general partner. The address for GMCM, Gruber, McBaine,
    Swergold and Lagunitis is 50 Osgood Place, Penthouse,
    San Francisco, California 94133.
|   
|(4) | Based on the Quarterly Report on Form 13F
    for the quarter ended March 31, 2004, filed on May 15,
    2003 by Heartland Advisors, Inc. The address of Heartland
    Advisors, Inc. is 789 North Water Street, Milwaukee, Wisconsin
    53202.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|(5) | Includes 520,534 ADSs issuable upon exercise of
    options within 60 days after the date of this table with
    respect to Mr. Gardiner. The percentage of shares
    outstanding is based on 9,239,218 shares outstanding on
    May 17, 2004, plus the 520,534 ADSs issuable upon exercise
    of Mr. Gardiners options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

The Companys major shareholders do not have
voting rights that are different from other shareholders. Of the
9,022,568 shares outstanding at March 31, 2004,
9,022,567 were held in the form of ADSs, which are traded on the
Nasdaq National Market under the symbol ZNDT. At
March 31, 2004, entities affiliated with ChinaVest
beneficially owned 22.6% of the Companys outstanding
stock, and accordingly, may be viewed as having a controlling
interest in the Company. Otherwise, the Company is not directly
or indirectly controlled by another corporation, any foreign
government or any other natural or legal person.

Related Party Transactions

As of March 31, 2004, the Company had notes
payable to officers, directors or shareholders in the aggregate
principal amount of $370,000. These notes are interest bearing
at 6%, which is automatically increased to 10% per annum,
compounded monthly, in the event that the notes are not repaid
on maturity date and are expected to be repaid within one year.
The notes are classified as short-term debt of the Group.






|        |                      
|------- | ---------------------
|Item 8. | Financial Information

Consolidated Statements and Other Financial
Information

See Item 18 of this Annual Report.

Legal Proceedings

The Company is subject to pending claims and
litigation. A lawsuit was filed by Alcone Marketing Group, Inc.
(Alcone) against the Company for breach of written
contract, breach of express warranty, breach of implied
warranty, contractual indemnification, implied indemnification,
negligent interference with contractual and economic relations
and declaratory relief. Alcone is the marketing agent for large
consumer goods companies, such as Burger King. In a series of
promotions for Burger King, the Company substantially

35



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performed under the purchase orders but executed
a contract proffered by Alcone after substantial performance
anyway, after excising several provisions. Several offensive
provisions, including a comprehensive indemnity and consent to
jurisdiction in the U.S. were not excised before executing
and sending the contract to Alcone and if found to be binding
upon the Company, would expose the Company to substantial
damages.


Several of the manufactured items were recalled
by Burger King. Alcone claimed damages under the indemnity
provisions of the agreement. At the reporting date, no judgment
had been handed out in the Alcone case. In May 2004, the parties
agreed to a final settlement of all claims for a total cash
payment of $750,000. The payment was fully accrued as a current
liability on the March 31, 2004 consolidated balance sheet.

Dividend Policy

While the Group may pay dividends in the future,
the Group currently intends to retain substantially all of its
earnings for expansion of its operations in accordance with its
business strategy. The Group did not declared a cash dividend or
other dividend during the year ended March 31, 2004.

Significant Changes

In May 2004, the Group completed the sale of Hua
Yang for gross consideration of $24.25 million, less
indebtedness of $10.0 million, resulting in net cash
consideration of approximately $14.25 million. Proceeds
from the sale were used partially to pay certain vendor
liabilities of the Group. The Group will retain the remaining
proceeds for working capital and future projects.






|        |                      
|------- | ---------------------
|Item 9. | The Offer and Listing

Historical Share Price Information

The annual high and low market prices for the
Companys American Depositary Shares for the fiscal year
ended March 31, 2004 were $10.30 and $3.50; for the year
ended March 31, 2003 were $4.09 and $1.00; for the year
ended March 31, 2002 were $3.42 and $1.06; for the year
ended March 31, 2001 were $4.62 and $0.94; and for the year
ended March 31, 2000 were $14.50 and $4.00. There is no
public market for the Companys Ordinary Shares.

The tables below set forth the high and low
market prices for the Companys American Depositary Shares
for each quarter for the year ended March 31, 2004 and 2003.

|                          |                |      |   |       |  |  |   |      | 
|------------------------- | -------------- | ---- | - | ----- |  |  | - | ---- | 
|                          |                | High |   | Low  
|                          |                |      |   |      
|Year ended March 31, 2004 |                |      |   |       |  |  |   |     
|                          | First Quarter  |      | $ | 6.25  |  |  | $ | 3.50 | 
|                          | Second Quarter |      | $ | 7.39  |  |  | $ | 5.75 | 
|                          | Third Quarter  |      | $ | 10.30 |  |  | $ | 6.40 | 
|                          | Fourth Quarter |      | $ | 8.14  |  |  | $ | 5.30 | 
|Year ended March 31, 2003 |                |      |   |       |  |  |   |     
|                          | First Quarter  |      | $ | 2.60  |  |  | $ | 1.74 | 
|                          | Second Quarter |      | $ | 1.96  |  |  | $ | 1.00 | 
|                          | Third Quarter  |      | $ | 3.50  |  |  | $ | 1.41 | 
|                          | Fourth Quarter |      | $ | 4.09  |  |  | $ | 2.81 | 

The monthly high and low market prices for the
most recent six months for the year ended March 31, 2004
were $8.02 and $5.30 in March 2004, $8.10 and $6.66 in February
2004, $8.14 and $6.43 in January 2004, $9.48 and $6.57 in
December 2003; $9.55 and $7.67 in November 2003 and $10.30 and
$6.40 in October 2003.

36



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Markets

The Companys ADSs have been listed on the
Nasdaq National Market since February 1997. The ADSs are traded
on the Nasdaq National Market under the symbol ZNDT.






|         |                       
|-------- | ----------------------
|Item 10. | Additional Information

Memorandum and Articles of
Association

The information contained under the heading
Memorandum and Articles of Association in
Item 10 of the Companys Annual Report on
Form 20-F for the Fiscal Year ended March 31, 2003 is
incorporated by reference herein in its entirety.

Material Contracts

No material contracts, other than contracts
entered into in the ordinary course of business, were entered
into or existed during the year ended March 31, 2004 and
2003.

Exchange Controls

The Company was incorporated in Hong Kong as a
limited company under the Hong Kong Companies Ordinance in July
1977. The Company is therefore governed by and subject to the
provisions of Hong Kong law.

Under Hong Kong law, there are currently no
restrictions on the degree of foreign ownership of a company
incorporated in Hong Kong. Likewise, there are currently no
restrictions on the rights of non-Hong Kong owners to exercise
voting rights in respect of shares held by them in Hong
Kong-incorporated companies.

There are currently no foreign exchange control
restrictions imposed by Hong Kong law that affect the Company.
There are currently no foreign exchange control restrictions on
the ability of the Company to transfer funds into and out of
Hong Kong or to pay dividends to U.S. residents who are
holders of the Shares or ADSs.

In accordance with Hong Kong law, share
certificates are only issued in the name 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 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 securities, whether or not it
had notice of such trust.

The rights and liabilities of the shareholders of
the Company are governed by the Companies Ordinance, the
Memorandum of Association of the Company and the Articles of
Association of the Company. Under Hong Kong law, shareholders
are liable to pay the full purchase price of shares or ADSs
registered in their name, but are not otherwise subject to
liabilities vis-à-vis the Company in their capacity as
shareholders.

Taxation

The following discussion under Hong Kong
Taxation generally summarizes the material Hong Kong tax
consequences of an investment in the Shares or ADSs and the
material Hong Kong taxes applicable to the Groups
operations in Hong Kong. The discussion under United
States  Federal Income Tax Considerations
generally summarizes certain United States federal income tax
consequences of an investment in the Shares or ADSs. The
discussion under PRC Taxation generally summarizes
the material PRC taxes applicable to the Groups investment
in the PRC. The discussion under United Kingdom
Taxation generally summarizes the material United Kingdom
taxes applicable to the Groups investment in the United
Kingdom. The summaries do not address all the possible tax
consequences relating to an investment in the Shares or ADSs and
do not purport to address the tax consequences applicable to all
categories of investors, some of which may be subject to special
rules. In particular, the discussion does not address the tax
consequences

37



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under state or local law or the laws of countries
other than Hong Kong, the U.S., the PRC and the U.K.
Accordingly, an investor is urged to consult its own tax advisor
regarding the particular tax consequences to such investor of an
investment in the Shares or ADSs. The following summaries are
based upon laws and relevant interpretations thereof in effect
at the date of this Annual Report, all of which are subject to
change, possibly with retroactive effect.




| |                   
| | ------------------
| | Hong Kong Taxation

The following discussion summarizes the taxes
applicable to the Group and its shareholders under Hong Kong law:



| |            
| | -----------
| | Profits Tax

The Group is subject to profits tax on profits
(excluding capital profits) arising in or derived from the
business it carries on in Hong Kong. The source of income is
therefore the relevant factor, and this is generally a question
of fact. There are certain situations where the Hong Kong tax
authorities are prepared to accept apportionment of chargeable
profits, for example when a Hong Kong-based company has carried
out manufacturing operation in the PRC under an approved
contract processing arrangement. The proportion of income
originating from the PRC and Hong Kong respectively in such a
situation is a question of fact. However, where apportionment is
appropriate, the Hong Kong tax authorities usually adopt a 50:50
allocation unless compelling circumstances dictate otherwise.

Profits tax is levied at the rate of 17.5% for
corporations and 15.5% for unincorporated entities. Generally
speaking, business losses may be carried forward indefinitely to
be offset against future profits of the Group.



| |                                     
| | ------------------------------------
| | Capital Gains/ Taxation of Dividends

Hong Kong has neither capital gains tax nor
withholding tax on distribution of dividends. Hence,
distributable profits accumulated in a Hong Kong company can be
distributed as dividends without tax withheld in Hong Kong.

However, Hong Kong profits tax will be charged on
trading gains from the sale of property that are derived from or
arose in Hong Kong, by persons carrying on a trade in Hong Kong
where such gains are from such trade. Liability to Hong Kong
profits tax would therefore arise in respect of trading gains
from the sale of the ADSs or Shares realized by persons carrying
on a business of trading or dealing in securities in Hong Kong.



| |            
| | -----------
| | Estate Duty

Estate duties are imposed upon the value of
properties situated in Hong Kong that pass to a persons
estate upon his or her death. In general, ADSs or Shares that
are registered outside Hong Kong are not regarded as properties
situated in Hong Kong for estate duty purposes.



| |           
| | ----------
| | Stamp Duty

Hong Kong stamp duty is generally payable by the
purchaser on every purchase, and by the seller on every sale, of
shares of Hong Kong-incorporated companies. The duty is charged
to both the purchaser and the seller at the current rate of
HK$1.0 per HK$1,000 or part thereof of the consideration
for, or (if greater) the value of, the shares transferred. In
addition, a fixed duty of HK$5 is currently payable on an
instrument of transfer of such shares. Under the current
practice of the Hong Kong Inland Revenue Department, if ADSs are
not specifically identified to correspond with particular
underlying Shares, the issuance of ADSs upon the deposit of
Shares issued directly to the Depositary or for the account of
the Depositary should not be subject to stamp duty, nor should
any Hong Kong stamp duty be payable upon the transfer of ADSs
outside Hong Kong.

38



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| |                                                    
| | ---------------------------------------------------
| | United States Federal Income Tax
    Considerations

The following is a summary of certain United
States federal income tax considerations relevant to
U.S. Holders, as defined below, who own Shares or ADSs.
This summary is based upon existing United States federal income
tax law, which is subject to change, possibly with retroactive
effect. This summary does not discuss all aspects of United
States federal income taxation which may be important to
particular investors in light of their individual investment
circumstances, such as investors subject to special tax rules
including financial institutions, insurance companies,
broker-dealers, tax-exempt organizations, and foreign persons,
or to persons that hold Shares or ADSs as part of a straddle,
hedge, conversion, or constructive sale transaction for United
States federal income tax purposes or that have a functional
currency other than the U.S. dollar, or persons treated as
owning 10% or more of the voting power of the Groups
Shares, all of whom may be subject to tax rules that differ
significantly from those summarized below. In addition, this
summary does not discuss any state, local, or foreign tax
considerations. This summary assumes that investors hold their
Shares or ADSs as capital assets (generally,
property held for investment) under the United States Internal
Revenue Code. Each investor is urged to consult its tax advisor
regarding the United States federal, state, local, and foreign
income and other tax considerations of the ownership and
disposition of Shares or ADSs.



| |        
| | -------
| | General

For purposes of this summary, a U.S. Holder
is a beneficial owner of Shares or ADSs that is for United
States federal income tax purposes:



| |   |                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | an individual who is a citizen or resident of the
    United States;                                                                                                                                                                       
|
| |  | a corporation or partnership created in or
    organized under the law of the United States or any State or
    political subdivision thereof;                                                                                             
|
| |  | an estate the income of which is includible in
    gross income for United States federal income tax purposes
    regardless of its source;                                                                                                
|
| |  | a trust the administration of which is subject to
    the primary supervision of a United States court and which has
    one or more United States persons who have the authority to
    control all substantial decisions of the trust; or
|
| |  | a trust that was in existence on August 20,
    1996, was treated as a United States person, for United States
    federal income tax purposes, on the previous day, and elected to
    continue to be so treated.                         

The Group will be treated as a passive
foreign investment company (a PFIC), for
United States federal income tax purposes, if 75% or more of its
gross income consists of certain types of passive
income or 50% or more of its assets are passive. Based on its
current and projected income, assets, and activities, the Group
presently does not believe that it is a PFIC. This is, however,
a factual determination that is made on an annual basis.

In addition, the Group will be treated as a
controlled foreign corporation (a CFC)
if in the aggregate 10% U.S. Holders own more than 50% of
the voting power or the value of the Groups equity. A
10% U.S. Holder is a U.S. Holder who owns
10% or more of the voting power of the Groups equity.
Complex attribution rules apply in determining whether a person
is treated as a 10% U.S. Holder and whether 10%
U.S. Holders in the aggregate own more than 50% of the
voting power or the value of the Group. Although the Group
presently does not believe that it is a CFC, the principles for
applying these tests are not entirely clear and this
determination is based on factors beyond the Groups
control such as the identity of the Groups shareholders,
and in the case of the Groups shareholders treated as
pass-through entities for United States federal income tax
purposes, the identity of the owners of such entities.
Accordingly, the Group cannot assure U.S. Holders that it
is not or will not become a CFC.

The discussion below under Dividends
and Sale or Other Disposition of Shares or ADSs,
assumes that the Group will not be subject to treatment as a
PFIC or as a CFC for United States federal income tax purposes.

39



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For United States federal income tax purposes, a
U.S. Holder of an ADS will be treated as the owner of a
proportionate interest of the Shares held by the depositary that
is represented by an ADS. Accordingly, no gain or loss will be
recognized upon the exchange of an ADS for the holders
proportionate interest in the underlying Shares. A
U.S. Holders tax basis in the withdrawn shares will
be the same as the tax basis in the ADS surrendered in exchange
therefore, and the holding period in the withdrawn shares will
include the period during which the holder held the surrendered
ADS.



| |          
| | ---------
| | Dividends

Any cash distributions paid by the Group out of
its earnings and profits, as determined under United States
federal income tax principles, will be subject to tax as
ordinary dividend income and will be includible in the gross
income of a U.S. Holder upon receipt. Cash distributions
paid by the Group in excess of its earnings and profits will be
treated as a tax-free return of capital to the extent of the
U.S. Holders adjusted tax basis in its Shares or
ADSs, and thereafter as gain from the sale or exchange of a
capital asset. Dividends paid in HK dollars will be includible
in income in a U.S. dollar amount based on the
U.S. dollar  HK dollar exchange rate
prevailing at the time of receipt of such dividends by the
depositary, in the case of ADSs, or by the U.S. Holder, in
the case of shares held directly by such U.S. Holder. Each
U.S. Holder is urged to consult its tax advisor regarding
the United States federal income tax treatment of any foreign
currency gain or loss recognized on the subsequent conversion of
HK dollars into U.S. dollars. Dividends received on shares
or ADSs will not be eligible for the dividends received
deduction allowable to United States corporations.

Dividends received on Shares or ADSs will be
treated, for United States federal income tax purposes, as
foreign source income. A U.S. Holder may be eligible,
subject to a number of complex limitations, to claim a foreign
tax credit in respect of any foreign withholding taxes imposed
on dividends received on Shares or ADSs. A U.S. Holder who
does not elect to claim a foreign tax credit for foreign
withholding taxes may instead claim a deduction, for United
States federal income tax purposes, in respect of such
withholdings, but only for a year in which the U.S. Holder
elects to do so for all creditable foreign income taxes.

In addition, the United States Treasury has
expressed concerns that parties to whom depositary shares are
pre-released may be taking actions that are inconsistent with
the claiming of foreign tax credits by the holders of ADSs.
Accordingly, the analysis of the creditability for foreign
withholding taxes could be affected by future actions that may
be taken by the United States Treasury.



| |                                                
| | -----------------------------------------------
| | Sale or Other Disposition of Shares or
    ADSs

A U.S. Holder will recognize capital gain or
loss upon the sale or other disposition of Shares or ADSs in an
amount equal to the difference between the amount realized upon
the disposition and the U.S. Holders adjusted tax
basis in such Shares or ADSs, as each is determined in
U.S. dollars. Any such gain or loss will be long-term if
the Shares or ADSs have been held for more than one year and
will generally be United States source gain or loss. The claim
of a deduction in respect of a capital loss, for United States
federal income tax purposes, may be subject to limitations. If a
U.S. Holder receives HK dollars for any such disposition,
such U.S. Holder is urged to consult its tax advisor
regarding the United States federal income tax treatment of any
foreign currency gain or loss recognized on the subsequent
conversion of the HK dollars to U.S. dollars.



| |                    
| | -------------------
| | PFIC Considerations

If the Group were to be classified as a PFIC in
any taxable year, a U.S. Holder would be subject to special
rules generally intended to reduce or eliminate any benefits
from the deferral of United States federal income tax that a
U.S. Holder could derive from investing in a foreign
company that does not distribute all of its earnings on a
current basis. In such event, a U.S. Holder of the Shares
or ADSs may be subject to tax at ordinary income tax rates on
(i) any gain recognized on the sale of the Shares or ADSs
and (ii) any excess distribution paid on the
shares or ADSs (generally, a distribution in excess of 125% of
the average annual distributions paid by the Group in the three
preceding taxable years). In addition, a U.S. Holder may be
subject to an interest charge on such gain or excess
distribution. Each U.S. Holder is urged to consult its tax

40



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##### Table of Contents



advisor regarding the potential tax consequences
to it if the Group is or becomes a PFIC, as well as certain
elections that may be available to such holder in order to
mitigate such consequences.




| |                                                  
| | -------------------------------------------------
| | Controlled Foreign Corporation
    Considerations

If the Group were to be classified as a CFC, a
10% U.S. Holder would be required to include in income its
pro rata share of Subpart F income of the
Group, which generally includes income of a passive nature such
as dividends and interest, whether or not the Group pays
dividends, and would be subject to special rules on the
disposition of Shares or ADSs that may treat all or a portion of
any gain as ordinary income. Each U.S. Holder is urged to
consult its tax advisor regarding the potential tax consequences
to such holder if the Group is or becomes a CFC.



| |             
| | ------------
| | PRC Taxation

The following discussion summarizes the taxes
applicable to the Groups investment in the PRC under PRC
law:



| |           
| | ----------
| | Income Tax

The Groups investment is subject to the
Income Tax Law of the PRC for Enterprises with Foreign
Investment and Foreign Enterprises (the Foreign Investment
Enterprise Tax Law). Pursuant to the Foreign Investment
Enterprise Tax Law, Sino-foreign equity and contractual joint
venture enterprises are generally subject to an income tax at a
rate of 33%, which is comprised of a state tax of 30% and a
local tax of 3%. The production joint venture established in the
open coastal area of Mainland China is subject to Mainland
Chinese income tax at a rate of 27% (24% state income tax and 3%
local income tax), while the joint venture established in a
special economic zone in Mainland China is subject to Mainland
Chinese income tax at a rate of 15%. The Foreign Investment
Enterprise Tax Law generally exempts Sino-foreign equity and
contractual joint venture enterprises engaged in production with
an operating period of more than ten years from state and local
income taxes for two years starting from the first profitable
year of operations after offsetting prior years losses,
followed by a 50% reduction in income tax rate for the next
three years.

The tax exemption period of Dongguan Xinda
started on January 1, 1999 and expired on December 31,
2000. It was subject to PRC state income tax at the rate of 12%
for the three months ended March 31, 2001 and the years
ended March 31, 2002 and 2003. For the year ended
March 31, 2004, Dongguan Xinda is subject to state income
tax at the rate of 12% from April 1, 2003 to
December 31, 2003 and at the rate of 15% (12% state income
tax and 3% local income tax) from January 1, 2004 to
March 31, 2004, as it is expected that it will qualify as
an export oriented enterprise.

The tax exemption period of Shenzhen Hua Yang
expired on December 31, 1997 and it was subject to PRC
state income tax at the rate of 7.5% for the nine months ended
December 31, 2000. Starting from January 1, 2001, it
has been subject to PRC state income tax at the rate of 15%.



| |                        
| | -----------------------
| | Value-Added Tax (VAT)

Effective January 1, 1994, all goods
produced or processed in the PRC, other than real property and
goods produced or processed for export, are subject to a new VAT
at each stage or sale in the process of manufacture, processing
and distribution through the sale to the ultimate consumer of
the goods. The new basic output VAT rate for the Group is 17% of
the sale price of the item except items such as books and
magazines is 13% instead of 17%. Generally, the seller of the
goods adds 17% to the sale price of the item and collects the
applicable amount of output VAT through the sale of the item.
The amount of the sellers output VAT liability payable to
the Tax Bureau is calculated as the amount of sales multiplied
by the applicable output VAT rate. The amount of the
sellers VAT liability may be reduced by the set off of the
input VAT incurred in the purchase of materials, parts and other
items by the seller which are used in producing the goods.

41



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The Value-Added Tax Provisional Regulations do
not permit the seller to deduct from its VAT liability the
amount of input VAT included in the purchase price of fixed
assets purchased by the seller. Thus, although the book value of
fixed assets, including plant and equipment purchased by the
Group will be the depreciated cost (ordinarily the purchase
price plus VAT) paid at the time of such purchase, the Group is
not permitted to deduct from its output VAT liability in respect
of products sold.



| |                                   
| | ----------------------------------
| | Taxation of Dividends from the PRC

Although the Foreign Investment Enterprise Tax
Law provides that certain remittances of foreign exchange
earnings from the PRC are subject to PRC withholding tax,
dividends received by a foreign investor from its foreign
investment enterprise are currently exempt from withholding tax.
The Groups PRC subsidiaries are qualified as foreign
investment enterprises, so withholding tax is exempted on
dividends paying out to the Group from these subsidiaries.



| |                                                            
| | -----------------------------------------------------------
| | Taxation of Disposition of Interest in PRC
    Subsidiaries

In the event that the Group transfers its
interest in its PRC subsidiaries, the amount received in excess
of its original capital contribution would be subject to PRC
withholding tax currently at the rate of 10%.

In the event that the Groups PRC
subsidiaries are liquidated, the portion of the balance of their
assets or remaining property, after deducting undistributed
profits, various funds and liquidation expenses, that exceeds
the Groups paid-in capital would be treated as income from
liquidation, which would be subject to income tax at the same
rate that would apply to the Groups income as described
under Income Tax.



| |                        
| | -----------------------
| | United Kingdom Taxation

The following discussion summarizes the taxes
applicable to the Groups investment in the United Kingdom
under United Kingdom law:

The U.K. statutory corporation tax rate is 30%.
The U.K. group companies are able to claim and surrender tax
losses between them under the U.K. groups relief
provisions. As such, deductible interest expenses incurred
within the U.K. parent company can be offset against taxable
trading profits earned by trading entities within the U.K. group
only in the same year.

The accounts and computations of the U.K.
entities contain relatively significant amounts in respect of
intra-group flows, including funding. Were the U.K. Inland
Revenue to successfully secure adjustments to the returns under
the U.K.s transfer pricing legislation, the U.K.
groups tax position would be adversely affected, with a
consequential increase in the effective tax rate applicable to
the U.K. group. Were the U.K. tax authority not to accept the
recent change of the U.K. groups functional currency to US
dollars, a tax liability of approximately $2.2 million
would be levied on foreign exchange gain in the U.K.

Documents on Display

Reports and other information filed by us may be
inspected and copied at the Public Reference Section of the SEC
located at 450 Fifth Street, N.W., Washington, D.C.
20549. Please call the SEC at 1-800-SEC-0330 for more
information about the operation of the public reference rooms.
The SEC also makes electronic filings publicly available on the
Internet. The SECs Internet address is http://www.sec.gov.
Our ADSs are quoted on the Nasdaq National Market. Reports,
proxy statements and other information concerning us may be
inspected at the National Association of Securities Dealers,
Inc. at 1735 K Street, N.W., Washington, D.C.
20006.






|         |                                                               
|-------- | --------------------------------------------------------------
|Item 11. | Quantitative and Qualitative Disclosures
    About Market Risk

Interest Rate Risk

The Group had $13.2 million in variable rate
debt outstanding at March 31, 2004. The Group does not
currently hedge its interest rate exposure. Based on its current
level of variable rate debt, the Group believes

42



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##### Table of Contents



that its financial position, results from
operations and cash flows would not be adversely affected if the
applicable interest rate were increased one percent.


Raw Materials Price Risk

If worldwide oil prices or zinc prices rise, the
Groups cost of sales could be expected to rise due to the
related increase in the cost of petroleum-based products
including plastic resins. The gross margin impact of such an
increase in cost of sales could be partially offset by related
price increases on new products introduced to the market by the
Group.

Foreign Currency Exchange Rate Risk

The Group is exposed to risk from changing
foreign currency exchange rates. The Groups sales are
denominated either in U.S. dollars, GBP, HK dollars or
Euros. The majority of the Groups expenses are denominated
in HK dollars, followed by RMB, GBP, Euros and
U.S. dollars. The Group is subject to a variety of risks
associated with changes among the relative value of the
U.S. dollar, GBP, Euro, HK dollar and RMB. For the years
ended March 31, 2004, 2003 and 2002, the Group has entered
into certain foreign currency forward contracts in order to
settle trade payable denominated in foreign currencies. Any
material increase in the value of the HK dollar, RMB, GBP or
Euro relative to the U.S. dollar would increase the
Groups expenses and therefore would have a material
adverse effect on the Groups business, financial condition
and results of operations.

Since 1983, the Hong Kong government has
maintained a policy of linking the U.S. dollar and the Hong
Kong dollar at an exchange rate of approximately HK$7.80 to
US$1.00. There can be no assurance that this link will be
continued, although the Group is not aware of any intention of
the Hong Kong government or the PRC to abandon the link. Over
the last five years, the value of the RMB has not changed
significantly against the U.S. dollar or Hong Kong dollar.
The rates at which exchanges of RMB into U.S. dollars may
take place in the future may vary.

The fair value of net derivative financial
instruments (derivative assets less derivative liabilities) as
of March 31, 2004 was US$869,000. The Group primarily uses
foreign currency forward contracts to minimize the risk of loss
resulted from fluctuations in foreign currency exchange rates.
The fair value of the derivative financial instruments as of
March 31, 2004 mainly represents the appreciation of the
market exchange rate of GBP against U.S. dollars over the
forward rates to purchase U.S. dollars under the forward
exchange contract. For additional information on our
derivatives, please refer to Note 19 of the Notes to
Consolidated Financial Statements.

43



---



##### Table of Contents



The table below summarizes and presents the
information in U.S. dollars equivalents on the Groups
derivative financial instruments and other instruments that are
sensitive to foreign currency exchange rates, including bank and
cash balances, debt and capital lease obligations that are
denominated in currencies other than U.S. dollars, and
foreign currency forward exchanges.

|                            |                                   |                        |        |                |  |           |       |       |  |            |     |   |  |   |        |       |  |   |        |      |  
|--------------------------- | --------------------------------- | ---------------------- | ------ | -------------- |  | --------- | ----- | ----- |  | ---------- | --- | - |  | - | ------ | ----- |  | - | ------ | ---- | -
|                            |                                   |                       
|                            |                                   | Expected Maturity Date
|                            |                                   |                       
|                            |                                   | Within 1 Year          |        | 1-3 Years      |  | 3-5 Years |       | Total |  | Fair Value
|                            |                                   |                        |        |                |  |           |       |       |  |           
|                            |                                   |                       
|                            |                                   | (In thousands)        
|Bank and cash balances      |                                   | $                      | 2,202  |                |  | $         |      |       |  | $          |    |   |  | $ | 2,202  |       |  | $ | 2,202  |     
|Debt obligations            |                                   |                        | 17,177 |                |  |           |      |       |  |            |    |   |  |   | 17,177 |       |  |   | 17,177 |     
|Capital leases obligations  |                                   |                        | 1,418  |                |  |           | 2,664 |       |  |            | 868 |   |  |   | 4,950  |       |  |   | 4,950  |     
|Foreign exchange contracts: |                                   |                        |        |                |  |           |       |       |  |            |     |   |  |   |        |       |  |   |        |     
|                            | Sell GBP                          |                        |        | 6,450          |  |           |       |      |  |            |     |  |  |   |        | 6,450 |  |   |        | (660 | )
|                            | Average contractual exchange rate |                        |        | US$/GBP   1.65 |  |           |       |       |  |            |     |   |  |   |        |       |  |   |        |      |  
|                            | Sell HKD                          |                        |        | 300            |  |           |       |      |  |            |     |  |  |   |        | 300   |  |   |        |     |  
|                            | Average contractual exchange rate |                        |        | HK$/US$   7.77 |  |           |       |       |  |            |     |   |  |   |        |       |  |   |        |      |  
|                            | Buy EUR                           |                        |        | 2,860          |  |           |       |      |  |            |     |  |  |   |        | 2,860 |  |   |        | (159 | )
|                            | Average contractual exchange rate |                        |        | US$/EUR   1.30 |  |           |       |       |  |            |     |   |  |   |        |       |  |   |        |      |  
|                            | Buy CHF                           |                        |        | 1,077          |  |           |       |      |  |            |     |  |  |   |        | 1,077 |  |   |        | (50  | )
|                            | Average contractual exchange rate |                        |        | CHF/US$   1.21 |  |           |       |       |  |            |     |   |  |   |        |       |  |   |        |      |  




PART II






|         |                                                    
|-------- | ---------------------------------------------------
|Item 13. | Defaults, Dividend Arrearages and
    Delinquencies

Under the terms of the RBS Loan, the Group is
required to comply with various restrictive financial covenants
imposed by the RBS. The Group was in violation of one of the
financial covenants at March 31, 2004. In May 2004, the
Group obtained a letter from RBS acknowledging its
non-compliance with this financial covenant at March 31,
2004. The RBS Loan requires repayment in quarterly installments
of principal and interest through March 31, 2005. At least
one financial covenant appears to have been breached for the
quarter ended June 30, 2004. If such breach is deemed to
occur, RBS is entitled to declare the loan immediately due and
payable. The Group believes that it has sufficient current
liquid assets to pay the loan should RBS enforce its rights.






|         |                        
|-------- | -----------------------
|Item 15. | Controls and Procedures

Disclosure Controls and Procedures

Based on their evaluation of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the U.S. Securities Exchange Act of 1934)
as of March 31, 2004, our Executive Chairman and our Chief
Financial Officer concluded that our disclosure controls and
procedures were effective as of that date.

The Group believes that a controls system, no
matter how well designed and operated, cannot provide absolute
assurance that the objectives of the controls system are met,
and no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, within a
company have been detected. The Groups disclosure controls
and procedures are designed to provide reasonable assurance of
achieving their objectives, and the Executive Chairman and the
Chief Financial Officer have concluded that these controls and
procedures are effective at the reasonable assurance
level.

44



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##### Table of Contents



Changes in Internal Controls

There were no significant changes in our internal
control over financial reporting during the period covered by
this report that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting. The Group has refined, and intends to continue to
refine, its internal controls on an ongoing basis with a view
towards continuous improvements.

Management and KPMG, the Groups independent
registered public accounting firm, have reported to its Audit
Committee certain matters involving internal controls that KPMG
considers to be material weaknesses or reportable conditions
under standards established by the American Institute of
Certified Public Accountants. Although none of the individual
internal control weaknesses are considered material, a material
weakness is presumed to exist due to the number of reportable
conditions. The identified reportable conditions relate to
adequacy of documentation retained to support accounting entries
and certain judgmental accounting areas; inadequate internal
review on supporting calculations/schedules for journal entries;
insufficient integrated computerized accounting systems;
accurate recording of routine transactions; appropriateness and
consistency of application of accounting estimates, including
managements monitoring controls designed to detect errors;
and timely computation of current and deferred tax liabilities.






|          |                                     
|--------- | ------------------------------------
|Item 16A. | Audit Committee Financial
    Expert

The Board has determined that David Yu qualifies
as an audit committee financial expert (as defined
in the instructions to Item 16A of Form 20-F) serving
on the Audit Committee.






|          |               
|--------- | --------------
|Item 16B. | Code of Ethics

The Group has developed a Business Ethics and
Compliance Policy that applies to its principal executive
officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions,
as well as all other employees, officers and directors of the
Group. A copy of the Groups Business Ethics and Compliance
Policy will be available on the Groups website at
www.zindart.com after the Policy is approved by the Board in
fall 2004.






|          |                                           
|--------- | ------------------------------------------
|Item 16C. | Principal Accountant Fees and
    Services

|                         |  |                |     |      |  |  |     | 
|------------------------ |  | -------------- | --- | ---- |  |  | --- | 
|                         |  |               
|                         |  | Year Ended    
|                         |  | March 31,     
|                         |  |               
|                         |  | 2003           |     | 2004
|                         |  |                |     |     
|                         |  |               
|                         |  | (In thousands)
|Audit fees billed(1)     |  |                | 194 |      |  |  | 154 | 
|Tax fees billed(2)       |  |                | 27  |      |  |  | 4   | 
|All other fees billed(3) |  |                |    |      |  |  | 12  | 
|                         |  |                |     |      |  |  |     | 
|Total                    |  |                | 221 |      |  |  | 170 | 
|                         |  |                |     |      |  |  |     | 



---



|    |                                                                                                                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | These are fees for professional services
    performed by KPMG for the audit of the Groups annual
    financial statements and services that are normally provided in
    connection with statutory and regulatory filings.
|   
|(2) | These are fees for professional services
    performed by KPMGs tax division except those related to
    the audit and includes tax compliance, tax advice and tax
    planning.                                           
|   
|(3) | These are fees for all other services received
    from KPMG except those separately defined above.                                                                                                                         

The Audit Committee pre-approves all audit,
audit-related and non-audit services not prohibited by law to be
performed by our independent auditors and associated fees prior
to the engagement of the independent auditor with respect to
such services, except that fees relating to the Groups
year-end audit remain subject to final agreement between the
Group and KPMG. The Audit Committee approved all of the
non-audit services relating to the fees listed above for the
fiscal year ended March 31, 2004.

45



---



##### Table of Contents





|          |                                                              
|--------- | -------------------------------------------------------------
|Item 16D. | Exemption from the Listing Standards for
    Audit Committees

Not applicable.



|          |                                                                           
|--------- | --------------------------------------------------------------------------
|Item 16E. | Purchases of Equity Securities by the
    Issuer and Affiliated Purchasers

Not applicable.

46



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##### Table of Contents






PART III






|         |                     
|-------- | --------------------
|Item 18. | Financial Statements

INDEX TO FINANCIAL STATEMENTS

|                                                                          |  |      |    | 
|------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                          |  | Page
|                                                                          |  |     
|Report of Independent Registered Public
    Accounting Firm               |  |      | 48 | 
|Consolidated Balance Sheets                                               |  |      | 49 | 
|Consolidated Statements of Operations and
    Comprehensive (Loss) Income |  |      | 50 | 
|Consolidated Statements of Stockholders
    Equity                       |  |      | 51 | 
|Consolidated Statements of Cash Flows                                     |  |      | 52 | 
|Notes to Consolidated Financial Statements                                |  |      | 53 | 

47



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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

The Board of Directors and Stockholders

Zindart Limited:


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

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

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

/s/ KPMG

August 19, 2004 Hong Kong


48



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##### Table of Contents



ZINDART LIMITED AND SUBSIDIARIES

Consolidated Balance Sheets

March 31, 2004 and 2003


|                                                                     |                                                                                                                                                                             |                                            |    |                    |  |      |        |        |         |  |        |        |         | 
|-------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | -- | ------------------ |  | ---- | ------ | ------ | ------- |  | ------ | ------ | ------- | 
|                                                                     |                                                                                                                                                                             | Note                                       |    | 2004               |  | 2003
|                                                                     |                                                                                                                                                                             |                                            |    |                    |  |     
|                                                                     |                                                                                                                                                                             |                                            |    |                   
|                                                                     |                                                                                                                                                                             |                                            |    | (In thousands,    
|                                                                     |                                                                                                                                                                             |                                            |    | except share data)
|ASSETS                                                              
|Current assets:                                                      |                                                                                                                                                                             |                                            |    |                    |  |      |        |        |         |  |        |       
|                                                                     | Cash and cash equivalents                                                                                                                                                   |                                            |    |                    |  |      | $      | 1,539  |         |  | $      | 1,973  |        
|                                                                     | Available-for-sale investments                                                                                                                                              |                                            |    | 3                  |  |      |        | 63     |         |  |        | 380    |        
|                                                                     | Trade accounts receivable, net                                                                                                                                              |                                            |    | 4                  |  |      |        | 17,755 |         |  |        | 24,313 |        
|                                                                     | Inventories                                                                                                                                                                 |                                            |    | 5                  |  |      |        | 14,166 |         |  |        | 15,808 |        
|                                                                     | Prepaid expenses and other current assets                                                                                                                                   |                                            |    |                    |  |      |        | 4,361  |         |  |        | 4,962  |        
|                                                                     | Loan receivable, current portion                                                                                                                                            |                                            |    | 6                  |  |      |        | 260    |         |  |        | 625    |        
|                                                                     | Deferred tax assets                                                                                                                                                         |                                            |    | 14                 |  |      |        | 1,003  |         |  |        | 368    |        
|                                                                     | Assets of discontinued operations                                                                                                                                           |                                            |    | 2                  |  |      |        | 31,712 |         |  |        |       |        
|                                                                     |                                                                                                                                                                             |                                            |    |                    |  |      |        |        |         |  |        |       
|                                                                     |                                                                                                                                                                             | Total current assets                       |    |                    |  |      |        |        | 70,859  |  |        |        | 48,429  | 
|Property, plant, and equipment, net                                  |                                                                                                                                                                             |                                            | 7  |                    |  |      | 22,277 |        |         |  | 29,574 |       
|Land use rights, net                                                 |                                                                                                                                                                             |                                            | 8  |                    |  |      | 1,109  |        |         |  | 1,135  |       
|Loan receivable, non-current portion                                 |                                                                                                                                                                             |                                            | 6  |                    |  |      |       |        |         |  | 208    |       
|Deferred tax assets                                                  |                                                                                                                                                                             |                                            | 14 |                    |  |      | 1,571  |        |         |  | 1,241  |       
|Goodwill                                                             |                                                                                                                                                                             |                                            | 9  |                    |  |      | 35,726 |        |         |  | 45,234 |       
|                                                                     |                                                                                                                                                                             |                                            |    |                    |  |      |        |        |         |  |        |       
|                                                                     |                                                                                                                                                                             | Total assets                               |    |                    |  |      |        | $      | 131,542 |  |        | $      | 125,821 | 
|                                                                     |                                                                                                                                                                             |                                            |    |                    |  |      |        |        |         |  |        |       
|LIABILITIES AND STOCKHOLDERS
    EQUITY                            
|Current liabilities:                                                 |                                                                                                                                                                             |                                            |    |                    |  |      |        |        |         |  |        |       
|                                                                     | Short-term debt                                                                                                                                                             |                                            |    | 10                 |  |      | $      | 9,774  |         |  | $      | 11,543 |        
|                                                                     | Current installments of long-term debt                                                                                                                                      |                                            |    | 11                 |  |      |        | 2,208  |         |  |        | 4,395  |        
|                                                                     | Current installments of obligations under capital
    leases                                                                                                                |                                            |    | 12                 |  |      |        | 498    |         |  |        | 701    |        
|                                                                     | Trade accounts payable                                                                                                                                                      |                                            |    |                    |  |      |        | 14,425 |         |  |        | 15,221 |        
|                                                                     | Receipts in advance                                                                                                                                                         |                                            |    |                    |  |      |        | 1,380  |         |  |        | 1,130  |        
|                                                                     | Accrued expenses                                                                                                                                                            |                                            |    | 13                 |  |      |        | 11,505 |         |  |        | 14,045 |        
|                                                                     | Income taxes payable                                                                                                                                                        |                                            |    | 14                 |  |      |        | 2,662  |         |  |        | 2,416  |        
|                                                                     | Liabilities of discontinued operations                                                                                                                                      |                                            |    | 2                  |  |      |        | 18,068 |         |  |        |       |        
|                                                                     |                                                                                                                                                                             |                                            |    |                    |  |      |        |        |         |  |        |       
|                                                                     |                                                                                                                                                                             | Total current liabilities                  |    |                    |  |      |        |        | 60,520  |  |        |        | 49,451  | 
|Long-term debt, excluding current installments                       |                                                                                                                                                                             |                                            | 11 |                    |  |      |       |        |         |  | 1,895  |       
|Obligations under capital leases, excluding
    current installments |                                                                                                                                                                             |                                            | 12 |                    |  |      | 701    |        |         |  | 1,693  |       
|Deferred tax liabilities                                             |                                                                                                                                                                             |                                            | 14 |                    |  |      | 361    |        |         |  | 666    |       
|                                                                     |                                                                                                                                                                             |                                            |    |                    |  |      |        |        |         |  |        |       
|                                                                     |                                                                                                                                                                             | Total liabilities                          |    |                    |  |      |        |        | 61,582  |  |        |        | 53,705  | 
|                                                                     |                                                                                                                                                                             |                                            |    |                    |  |      |        |        |         |  |        |       
|Minority interests                                                   |                                                                                                                                                                             |                                            |    |                    |  |      | 1,770  |        |         |  | 1,542  |       
|                                                                     |                                                                                                                                                                             |                                            |    |                    |  |      |        |        |         |  |        |       
|Stockholders equity:                                                |                                                                                                                                                                             |                                            |    |                    |  |      |        |        |         |  |        |       
|                                                                     | Common stock, $0.0646 (equivalent of HK$0.50) par
    value; authorized 15,000,000 shares; issued and outstanding
    9,022,568 shares in 2004 and 8,834,125 shares in 2003 |                                            |    | 15                 |  |      |        | 583    |         |  |        | 571    |        
|                                                                     | Additional paid-in capital                                                                                                                                                  |                                            |    |                    |  |      |        | 38,997 |         |  |        | 38,634 |        
|                                                                     | Retained earnings                                                                                                                                                           |                                            |    |                    |  |      |        | 26,693 |         |  |        | 32,002 |        
|                                                                     | Accumulated other comprehensive income (loss)                                                                                                                               |                                            |    |                    |  |      |        | 1,917  |         |  |        | (633   | )      
|                                                                     |                                                                                                                                                                             |                                            |    |                    |  |      |        |        |         |  |        |       
|                                                                     |                                                                                                                                                                             | Total stockholders equity                 |    |                    |  |      |        |        | 68,190  |  |        |        | 70,574  | 
|                                                                     |                                                                                                                                                                             |                                            |    |                    |  |      |        |        |         |  |        |       
|                                                                     |                                                                                                                                                                             | Total liabilities and stockholders equity |    |                    |  |      |        | $      | 131,542 |  |        | $      | 125,821 | 
|                                                                     |                                                                                                                                                                             |                                            |    |                    |  |      |        |        |         |  |        |       

See accompanying notes to consolidated financial
statements.

49



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##### Table of Contents



ZINDART LIMITED AND SUBSIDIARIES

Consolidated Statements of Operations and
Comprehensive (Loss) Income

Years ended March 31, 2004, 2003 and
2002


|                                                          |                                                                          |                                            |                                                              |                                   |    |      |         |           |       |        |         |           |      |        |         |           |       |        |  
|--------------------------------------------------------- | ------------------------------------------------------------------------ | ------------------------------------------ | ------------------------------------------------------------ | --------------------------------- | -- | ---- | ------- | --------- | ----- | ------ | ------- | --------- | ---- | ------ | ------- | --------- | ----- | ------ | -
|                                                          |                                                                          | Note                                       |                                                              | 2004                              |    | 2003 |         | 2002     
|                                                          |                                                                          |                                            |                                                              |                                   |    |      |         |          
|                                                          |                                                                          |                                            |                                                              |                                  
|                                                          |                                                                          |                                            |                                                              | (In thousands, except share data)
|Net sales                                                 |                                                                          |                                            | 22                                                           | (a)                               |    | $    | 95,819  |           |       | $      | 83,357  |           |      | $      | 92,481  |          
|Cost of goods sold                                        |                                                                          |                                            |                                                              |                                   |    |      | (65,300 | )         |       |        | (52,413 | )         |      |        | (64,231 | )        
|                                                          |                                                                          |                                            |                                                              |                                   |    |      |         |           |       |        |         |           |      |        |         |          
|                                                          |                                                                          |                                            | Gross profit                                                 |                                   |    |      |         |           |       | 30,519 |         |           |      | 30,944 |         |           |       | 28,250 |  
|Selling, general, and administrative expenses             |                                                                          |                                            |                                                              |                                   |    |      | (32,531 | )         |       |        | (27,729 | )         |      |        | (32,266 | )        
|Amortization of goodwill                                  |                                                                          |                                            |                                                              |                                   |    |      |        |           |       |        |        |           |      |        | (1,376  | )        
|                                                          |                                                                          |                                            |                                                              |                                   |    |      |         |           |       |        |         |           |      |        |         |          
|                                                          |                                                                          |                                            | Operating (loss) income                                      |                                   |    | 22   | (b)     |           |       | (2,012 | )       |           |      | 3,215  |         |           |       | (5,392 | )
|Other (expense) income:                                   |                                                                          |                                            |                                                              |                                   |    |      |         |           |       |        |         |           |      |        |         |          
|                                                          | Interest income                                                          |                                            |                                                              |                                   |    |      |         | 39        |       |        |         | 111       |      |        |         | 240       |      
|                                                          | Interest expense                                                         |                                            |                                                              |                                   |    |      |         | (905      | )     |        |         | (1,372    | )    |        |         | (1,997    | )    
|                                                          | Other (loss) income                                                      |                                            |                                                              |                                   |    |      |         | (130      | )     |        |         | (145      | )    |        |         | 42        |      
|                                                          |                                                                          |                                            |                                                              |                                   |    |      |         |           |       |        |         |           |      |        |         |          
|                                                          |                                                                          |                                            | (Loss) income before income taxes and minority
    interests |                                   |    | 14   |         |           |       | (3,008 | )       |           |      | 1,809  |         |           |       | (7,107 | )
|Income tax (expense) benefit                              |                                                                          |                                            | 14                                                           |                                   |    |      | (121    | )         |       |        | (145    | )         |      |        | 470     |          
|                                                          |                                                                          |                                            |                                                              |                                   |    |      |         |           |       |        |         |           |      |        |         |          
|                                                          |                                                                          |                                            | (Loss) income before minority interests                      |                                   |    |      |         |           |       | (3,129 | )       |           |      | 1,664  |         |           |       | (6,637 | )
|Minority interests                                        |                                                                          |                                            |                                                              |                                   |    |      | (298    | )         |       |        | (191    | )         |      |        | (210    | )        
|                                                          |                                                                          |                                            |                                                              |                                   |    |      |         |           |       |        |         |           |      |        |         |          
|                                                          |                                                                          |                                            | (Loss) income from continuing operations                     |                                   |    |      |         |           |       | (3,427 | )       |           |      | 1,473  |         |           |       | (6,847 | )
|(Loss) income from discontinued operations                |                                                                          |                                            | 2                                                            |                                   |    |      | (1,882  | )         |       |        | 1,092   |           |      |        | (1,398  | )        
|                                                          |                                                                          |                                            |                                                              |                                   |    |      |         |           |       |        |         |           |      |        |         |          
|                                                          |                                                                          |                                            | Net (loss) income                                            |                                   |    |      |         |           | $     | (5,309 | )       |           | $    | 2,565  |         |           | $     | (8,245 | )
|                                                          |                                                                          |                                            |                                                              |                                   |    |      |         |           |       |        |         |           |      |        |         |          
|Other comprehensive (loss) income, net of tax:            |                                                                          |                                            |                                                              |                                   |    |      |         |           |       |        |         |           |      |        |         |          
|                                                          | Translation adjustments                                                  |                                            |                                                              |                                   |    |      |         | 2,948     |       |        |         | 1,175     |      |        |         | (54       | )    
|                                                          | Unrealized loss on available-for-sale investments                        |                                            |                                                              |                                   |    |      |         |          |       |        |         |          |      |        |         | (330      | )    
|                                                          | Reclassification adjustment for realized loss
    included in net income |                                            |                                                              |                                   |    |      |         |          |       |        |         | 330       |      |        |         |           |      
|                                                          | Net unrealized loss on derivative instruments,
    net of tax            |                                            |                                                              |                                   |    |      |         | (398      | )     |        |         |          |      |        |         |          |      
|                                                          |                                                                          |                                            |                                                              |                                   |    |      |         |           |       |        |         |           |      |        |         |          
|                                                          |                                                                          |                                            | Comprehensive (loss) income                                  |                                   |    |      |         |           | $     | (2,759 | )       |           | $    | 4,070  |         |           | $     | (8,629 | )
|                                                          |                                                                          |                                            |                                                              |                                   |    |      |         |           |       |        |         |           |      |        |         |          
|(Loss) earnings per common share:                         |                                                                          |                                            |                                                              |                                   |    |      |         |           |       |        |         |           |      |        |         |          
|                                                          | Basic:                                                                   |                                            |                                                              |                                   |    |      |         |           |       |        |         |           |      |        |         |           |      
|                                                          |                                                                          | (Loss) income from continuing operations   |                                                              |                                   | 24 |      |         | $         | (0.38 | )      |         | $         | 0.17 |        |         | $         | (0.78 | )     
|                                                          |                                                                          | (Loss) income from discontinued operations |                                                              |                                   | 24 |      |         |           | (0.22 | )      |         |           | 0.12 |        |         |           | (0.15 | )     
|                                                          |                                                                          |                                            |                                                              |                                   |    |      |         |           |       |        |         |           |      |        |         |          
|                                                          |                                                                          |                                            | Net (loss) income                                            |                                   |    | 24   |         |           | $     | (0.60  | )       |           | $    | 0.29   |         |           | $     | (0.93  | )
|                                                          |                                                                          |                                            |                                                              |                                   |    |      |         |           |       |        |         |           |      |        |         |          
|                                                          | Diluted:                                                                 |                                            |                                                              |                                   |    |      |         |           |       |        |         |           |      |        |         |           |      
|                                                          |                                                                          | (Loss) income from continuing operations   |                                                              |                                   | 24 |      |         | $         | (0.38 | )      |         | $         | 0.16 |        |         | $         | (0.78 | )     
|                                                          |                                                                          | (Loss) income from discontinued operations |                                                              |                                   | 24 |      |         |           | (0.22 | )      |         |           | 0.12 |        |         |           | (0.15 | )     
|                                                          |                                                                          |                                            |                                                              |                                   |    |      |         |           |       |        |         |           |      |        |         |          
|                                                          |                                                                          |                                            | Net (loss) income                                            |                                   |    | 24   |         |           | $     | (0.60  | )       |           | $    | 0.28   |         |           | $     | (0.93  | )
|                                                          |                                                                          |                                            |                                                              |                                   |    |      |         |           |       |        |         |           |      |        |         |          
|Weighted average number of common shares
    outstanding: |                                                                          |                                            |                                                              |                                   |    |      |         |           |       |        |         |           |      |        |         |          
|                                                          | Basic                                                                    |                                            |                                                              | 24                                |    |      |         | 8,907,015 |       |        |         | 8,834,125 |      |        |         | 8,834,125 |      
|                                                          |                                                                          |                                            |                                                              |                                   |    |      |         |           |       |        |         |           |      |        |         |          
|                                                          | Diluted                                                                  |                                            |                                                              | 24                                |    |      |         | 8,907,015 |       |        |         | 9,044,122 |      |        |         | 8,834,125 |      
|                                                          |                                                                          |                                            |                                                              |                                   |    |      |         |           |       |        |         |           |      |        |         |          

See accompanying notes to consolidated financial
statements.

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ZINDART LIMITED AND SUBSIDIARIES

Consolidated Statements of Stockholders
Equity

Years ended March 31, 2004, 2003 and
2002


|                           |                                                                                      |                                   |           |            |  |         |     |             |  |               |        |               |  |   |        |        |   |   |        |       |   |   |        |        |  
|-------------------------- | ------------------------------------------------------------------------------------ | --------------------------------- | --------- | ---------- |  | ------- | --- | ----------- |  | ------------- | ------ | ------------- |  | - | ------ | ------ | - | - | ------ | ----- | - | - | ------ | ------ | -
|                           |                                                                                      |                                   |           |            |  |         |     |             |  |              
|                           |                                                                                      | Common Stock                      |           |            |  |         |     | Accumulated |  |              
|                           |                                                                                      |                                   |           | Additional |  |         |     | Other       |  | Total        
|                           |                                                                                      | Number of                         |           |            |  | Paid-In |     | Retained    |  | Comprehensive |        | Stockholders
|                           |                                                                                      | Shares                            |           | Amount     |  | Capital |     | Earnings    |  | Income (Loss) |        | Equity       
|                           |                                                                                      |                                   |           |            |  |         |     |             |  |               |        |              
|                           |                                                                                      |                                  
|                           |                                                                                      | (In thousands, except share data)
|Balances at March 31, 2001 |                                                                                      |                                   | 8,834,125 |            |  | $       | 571 |             |  | $             | 38,634 |               |  | $ | 37,682 |        |   | $ | (1,754 | )     |   | $ | 75,133 |       
|                           | Net loss                                                                             |                                   |           |           |  |         |     |            |  |               |        |              |  |   |        | (8,245 | ) |   |        |      |   |   |        | (8,245 | )
|                           | Translation adjustments                                                              |                                   |           |           |  |         |     |            |  |               |        |              |  |   |        |       |   |   |        | (54   | ) |   |        | (54    | )
|                           | Unrealized loss on available-for-sale investments                                    |                                   |           |           |  |         |     |            |  |               |        |              |  |   |        |       |   |   |        | (330  | ) |   |        | (330   | )
|                           |                                                                                      |                                   |           |            |  |         |     |             |  |               |        |               |  |   |        |        |   |   |        |       |   |   |        |       
|Balances at March 31, 2002 |                                                                                      |                                   | 8,834,125 |            |  |         | 571 |             |  |               | 38,634 |               |  |   | 29,437 |        |   |   | (2,138 | )     |   |   | 66,504 |       
|                           | Net income                                                                           |                                   |           |           |  |         |     |            |  |               |        |              |  |   |        | 2,565  |   |   |        |      |   |   |        | 2,565  |  
|                           | Translation adjustments                                                              |                                   |           |           |  |         |     |            |  |               |        |              |  |   |        |       |   |   |        | 1,175 |   |   |        | 1,175  |  
|                           | Reclassification adjustment for realized loss
    included in net income             |                                   |           |           |  |         |     |            |  |               |        |              |  |   |        |       |   |   |        | 330   |   |   |        | 330    |  
|                           |                                                                                      |                                   |           |            |  |         |     |             |  |               |        |               |  |   |        |        |   |   |        |       |   |   |        |       
|Balances at March 31, 2003 |                                                                                      |                                   | 8,834,125 |            |  |         | 571 |             |  |               | 38,634 |               |  |   | 32,002 |        |   |   | (633   | )     |   |   | 70,574 |       
|                           | Net loss                                                                             |                                   |           |           |  |         |     |            |  |               |        |              |  |   |        | (5,309 | ) |   |        |      |   |   |        | (5,309 | )
|                           | Translation adjustments                                                              |                                   |           |           |  |         |     |            |  |               |        |              |  |   |        |       |   |   |        | 2,948 |   |   |        | 2,948  |  
|                           | Common stock issued upon exercise of stock options                                   |                                   |           | 188,443    |  |         |     | 12          |  |               |        | 363           |  |   |        |       |   |   |        |      |   |   |        | 375    |  
|                           | Net unrealized loss on derivative instruments,
    inclusive of $171,000 tax benefit |                                   |           |           |  |         |     |            |  |               |        |              |  |   |        |       |   |   |        | (398  | ) |   |        | (398   | )
|                           |                                                                                      |                                   |           |            |  |         |     |             |  |               |        |               |  |   |        |        |   |   |        |       |   |   |        |       
|Balances at March 31, 2004 |                                                                                      |                                   | 9,022,568 |            |  | $       | 583 |             |  | $             | 38,997 |               |  | $ | 26,693 |        |   | $ | 1,917  |       |   | $ | 68,190 |       
|                           |                                                                                      |                                   |           |            |  |         |     |             |  |               |        |               |  |   |        |        |   |   |        |       |   |   |        |       

See accompanying notes to consolidated financial
statements.

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ZINDART LIMITED AND SUBSIDIARIES

Consolidated Statements of Cash
Flows

Years ended March 31, 2004, 2003 and
2002


|                                                                                |                                                                   |                                                                                       |        |        |        |      |        |        |        |   |       |        |        |  
|------------------------------------------------------------------------------- | ----------------------------------------------------------------- | ------------------------------------------------------------------------------------- | ------ | ------ | ------ | ---- | ------ | ------ | ------ | - | ----- | ------ | ------ | -
|                                                                                |                                                                   | 2004                                                                                  |        | 2003   |        | 2002
|                                                                                |                                                                   |                                                                                       |        |        |        |     
|                                                                                |                                                                   |                                                                                      
|                                                                                |                                                                   | (In thousands)                                                                       
|Net cash provided by operating activities
    (note 17)                         |                                                                   | $                                                                                     | 3,511  |        |        | $    | 10,396 |        |        | $ | 2,916 |       
|                                                                                |                                                                   |                                                                                       |        |        |        |      |        |        |        |   |       |       
|Cash flows from investing activities:                                           |                                                                   |                                                                                       |        |        |        |      |        |        |        |   |       |       
|                                                                                | Proceeds from sale of property, plant and
    equipment           |                                                                                       |        | 3      |        |      |        | 9      |        |   |       | 38     |       
|                                                                                |                                                                   |                                                                                       |        |        |        |      |        |        |        |   |       |       
|                                                                                | Purchases of property, plant and equipment                        |                                                                                       |        | (5,035 | )      |      |        | (4,391 | )      |   |       | (4,639 | )     
|                                                                                | Cash advance to discontinued operations                           |                                                                                       |        | (192   | )      |      |        |       |        |   |       |       |       
|                                                                                |                                                                   |                                                                                       |        |        |        |      |        |        |        |   |       |       
|                                                                                |                                                                   | Net cash used in investing activities                                                 |        |        | (5,224 | )    |        |        | (4,382 | ) |       |        | (4,601 | )
|                                                                                |                                                                   |                                                                                       |        |        |        |      |        |        |        |   |       |       
|Cash flows from financing activities:                                           |                                                                   |                                                                                       |        |        |        |      |        |        |        |   |       |       
|                                                                                | Proceeds from issuance of common stock                            |                                                                                       |        | 375    |        |      |        |       |        |   |       |       |       
|                                                                                |                                                                   |                                                                                       |        |        |        |      |        |        |        |   |       |       
|                                                                                | Increase (decrease) in short-term debt                            |                                                                                       |        | 3,408  |        |      |        | (1,207 | )      |   |       | 1,661  |       
|                                                                                | Repayment of long-term debt                                       |                                                                                       |        | (4,082 | )      |      |        | (5,897 | )      |   |       | (2,486 | )     
|                                                                                | Repayment of capital element of capital leases                    |                                                                                       |        | (517   | )      |      |        | (537   | )      |   |       | (760   | )     
|                                                                                | Repayment of convertible note                                     |                                                                                       |        |       |        |      |        | (1,551 | )      |   |       | (1,427 | )     
|                                                                                | Dividends paid by subsidiaries to their minority
    shareholders |                                                                                       |        | (70    | )      |      |        | (57    | )      |   |       | (112   | )     
|                                                                                |                                                                   |                                                                                       |        |        |        |      |        |        |        |   |       |       
|                                                                                |                                                                   | Net cash used in financing activities                                                 |        |        | (886   | )    |        |        | (9,249 | ) |       |        | (3,124 | )
|                                                                                |                                                                   |                                                                                       |        |        |        |      |        |        |        |   |       |       
|Effect of translation adjustments on cash                                       |                                                                   |                                                                                       | 2,946  |        |        |      | 1,176  |        |        |   | (101  | )     
|                                                                                |                                                                   |                                                                                       |        |        |        |      |        |        |        |   |       |       
|                                                                                |                                                                   | Net increase (decrease) in cash and cash
    equivalents from continuing operations   |        |        | 347    |      |        |        | (2,059 | ) |       |        | (4,910 | )
|                                                                                |                                                                   | Net increase (decrease) in cash and cash
    equivalents from discontinued operations |        |        | 273    |      |        |        | 607    |   |       |        | (287   | )
|                                                                                |                                                                   |                                                                                       |        |        |        |      |        |        |        |   |       |       
|                                                                                |                                                                   | Total increase (decrease) in cash and cash
    equivalents                            |        |        | 620    |      |        |        | (1,452 | ) |       |        | (5,197 | )
|Cash and cash equivalents at beginning of year                                  |                                                                   |                                                                                       | 1,973  |        |        |      | 3,425  |        |        |   | 8,622 |       
|Less cash and cash equivalents at March 31,
    2004 of discontinued operations |                                                                   |                                                                                       | (1,054 | )      |        |      |       |        |        |   |      |       
|                                                                                |                                                                   |                                                                                       |        |        |        |      |        |        |        |   |       |       
|Cash and cash equivalents at end of year                                        |                                                                   | $                                                                                     | 1,539  |        |        | $    | 1,973  |        |        | $ | 3,425 |       
|                                                                                |                                                                   |                                                                                       |        |        |        |      |        |        |        |   |       |       

See accompanying notes to consolidated financial
statements.

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##### Table of Contents



ZINDART LIMITED AND SUBSIDIARIES

Notes to Consolidated Financial
Statements

March 31, 2004, 2003 and 2002




|    |                                                             
|--- | ------------------------------------------------------------
|(1) | Summary of Significant Accounting Policies and
    Practices



|    |                        
|--- | -----------------------
|(a) | Description of Business

Zindart Limited (the Company) was
incorporated in Hong Kong as a limited company under the Hong
Kong Companies Ordinance in July 1977. Its American Depositary
Shares have been listed on the Nasdaq National Market since
February 1997.

The Company and its subsidiaries (the
Group) are principally engaged in the manufacturing of
die-cast and injection-molded plastic products under Original
Equipment Manufacturing (OEM) arrangements, and the
design, marketing and distribution of die-cast products under
its proprietary brand names.

The Group is required to comply with various
restrictive financial covenants imposed by one lender in
connection with the Groups term loan agreement. The Group
was in violation of one of the financial covenants at
March 31, 2004. According to the terms of the loan, the
lender is entitled to declare the loan immediately due and
payable upon such violation of a financial covenant. In May
2004, the Group obtained a letter from the lender waiving its
right to take this course of action but only in respect of the
accounting period ended March 31, 2004. The loan requires
repayment in quarterly installments of principal and interest
through March 31, 2005 and the breach of financial
covenants has had no material adverse impact on the Group. The
noted financial covenants are tested on a quarterly basis;
therefore, additional testing of covenants will occur before the
loan is fully paid on March 31, 2005. At least one
financial covenant appears to have been breached for the quarter
ended June 30, 2004. If such breach is deemed to occur, RBS
is entitled to declare the loan immediately due and payable. The
Group believes that it has sufficient current liquid assets to
pay the loan should RBS enforce it rights. In May 2004, the
Group completed the sale of Hua Yang Holdings Co., Ltd. and its
subsidiaries (Hua Yang) for gross consideration of
$24.25 million, less indebtedness of $10.0 million,
resulting in net cash consideration of approximately
$14.25 million. The cash generated by the sale will be used
to reduce the Groups reliance on short-term debt and
support the growth of design, marketing and distribution of
die-cast products in United States of America. The Groups
directors and management believe that the Groups future
operations will generate sufficient cash to meet its obligations
as they fall due and that the Group will remain in compliance
with its financial covenants for the foreseeable future.

Prior period amounts in our consolidated
statements of operations and comprehensive (loss) income and
notes have been reclassified to reflect the discontinued
operations of Hua Yang.



|    |                            
|--- | ---------------------------
|(b) | Principles of Consolidation

The consolidated financial statements include the
financial statements of the Company and its subsidiaries and its
contractual joint ventures which are controlled by the Company.
All significant intercompany balances and transactions have been
eliminated on consolidation.

A contractual joint venture is an entity
established between the Group and one or more other parties,
with the rights and obligations of the joint venture partners
governed by a contract. If the Group owns more than 50% of the
equity interests of the joint venture and is able to govern and
control the joint ventures financial and operating
policies and board of directors and the joint venture partners
do not possess substantive participating rights (as defined by
generally accepted accounting principles), such joint venture is
accounted for as a subsidiary. Pre-determined annual fees paid
to joint venture partners are recorded as cost of goods sold
(see note 20(b)).

The Groups minority interests on the
consolidated balance sheet represent the minority
interests shares of the Groups consolidated
subsidiaries. Minority interests on the consolidated statements
of operations and comprehensive (loss) income represent the
minority interests share of earnings or losses in such
subsidiaries.

53



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ZINDART LIMITED AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)



|    |                          
|--- | -------------------------
|(c) | Cash and Cash Equivalents

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



|    |                                   
|--- | ----------------------------------
|(d) | Available-For-Sale
    Investments

Available-for-sale investments, in accordance
with Statement of Financial Accounting Standards
(SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities, are recorded at
fair value, with unrealized holding gains and losses excluded
from earnings and reported as a separate component of other
comprehensive (loss) income until realized. Realized gains and
losses from the sale of available-for-sale investments are
determined on a specific-identification basis.
Available-for-sale investments are periodically reviewed to
determine if declines in fair value below cost basis are
other-than-temporary. Significant and sustained decreases in
quoted market prices and a series of historic and projected
losses by investees are considered in the review. If the decline
in fair value is determined to be other-than-temporary, an
impairment loss is recorded and the investment is written down
to a new carrying cost.



|    |                          
|--- | -------------------------
|(e) | Trade Accounts Receivable

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

A subsidiary of the Company, now reported as
discontinued operations, has entered into a receivables purchase
agreement with a financial institution whereby the subsidiary
transfers eligible trade accounts receivable to the financial
institution. If the trade accounts receivable transferred are
still unpaid by specified overdue dates, the relevant customers
become insolvent or disputes occur between the subsidiary and
the relevant customer in respect of the relevant sales, the
financial institution may or may not have the right to immediate
recourse to the receivable sold, depending on the arrangements
agreed and stipulated in the receivable purchase agreements.
SFAS No. 140 Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities requires the following three conditions to be
met for a sale of receivables to be accounted for as a sale.



| |                                                                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a.     The transferred
    assets have been isolated from the transferor-presumptively
    beyond the reach of the transferor and its creditors, even in
    bankruptcy or other receivership;                                                                                                                                                                    
|
| | b.     Each transferee
    has the right to pledge or exchange the assets it received, and
    no condition both constraints the transferee from taking
    advantage of its right to pledge or exchange and provides more
    than a trivial benefit to the transferor; and                                                                                      
|
| | c.     The transferor
    does not maintain effective control over the transferred assets
    through either (1) an agreement that both entitles and
    obligates the transferor to repurchase or redeem them before
    their maturity or (2) the ability to unilaterally cause the
    holder to return specific assets, other than through a cleanup
    call.

For sale of receivables which satisfies the three
conditions, the sale of receivables is accounted for as a sale.
For sale of receivables where the subsidiary has not surrendered
control over the transferred assets, the

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ZINDART LIMITED AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

trade accounts receivable are included in the
consolidated balance sheet and the proceeds of the transfer are
recorded as short-term debt.



|    |                
|--- | ---------------
|(f) | Loan Receivable

Loan receivable relates to a credit facility
extended to a customer that exceeds one year. It bears interest
at LIBOR plus 5% and is recorded at face value. Interest income
is recognized on a cash basis. The loan receivable is
collateralized by certain assets of the customer. The loan is
assessed for impairment pursuant to SFAS No. 114,
Accounting by Creditors for Impairment of a Loan and
SFAS No. 118, Accounting by Creditors for
Impairment of a Loan  Income Recognition and
Disclosure. Pursuant to SFAS No. 114, a loan is
impaired if it is probable that the Group will not collect all
principal and interest contractually due. The impairment is
measured based on the present value of expected future cash
flows discounted at the loans effective interest rate. The
Group recognizes interest income using a cash-basis when a loan
is considered impaired. Impairment losses are charged against
the allowance and increases in allowance are charged to bad debt
expense. Loans are written off against the allowance when all
possible means of collection have been exhausted and the
potential for recovery is considered remote.



|    |            
|--- | -----------
|(g) | Inventories

Inventories are stated at the lower of cost or
market. Cost is determined using the first-in, first-out method
(FIFO) for all inventories. Costs of work-in-process and
finished goods consist of direct materials, direct labor and an
attributable portion of production overheads.



|    |                                                  
|--- | -------------------------------------------------
|(h) | Derivative Instruments and Hedging
    Activities

The Company accounts for derivatives and hedging
activities in accordance with FASB Statement No. 133,
Accounting for Derivative Instruments and Certain Hedging
Activities, as amended, which requires that all derivative
instruments be recorded on the balance sheet at their respective
fair values.

On the date a derivative contract is entered
into, the Company may designate the derivative as either a hedge
of the fair value of a recognized asset or liability or of an
unrecognized firm commitment (fair value hedge), a hedge of a
forecasted transaction or the variability of cash flows to be
received or paid related to a recognized asset or liability
(cash flow hedge), a foreign-currency fair-value or cash-flow
hedge (foreign currency hedge), or a hedge of a net investment
in a foreign operation. For all hedging relationships the
Company formally documents the hedging relationship and its
risk-management objective and strategy for undertaking the
hedge, the hedging instrument, the item, the nature of the risk
being hedged, how the hedging instruments effectiveness in
offsetting the hedged risk will be assessed, and a description
of the method of measuring ineffectiveness. This process
includes linking all derivatives that are designated as
fair-value, cash-flow, or foreign-currency hedges to specific
assets and liabilities on the balance sheet or to specific firm
commitments or forecasted transactions. The Company also
formally assesses, both at the hedges inception and on an
ongoing basis, whether the derivatives that are used in hedging
transactions are highly effective in offsetting changes in fair
values or cash flows of hedged items. Changes in the fair value
of a derivative that is highly effective and that is designated
and qualifies as a fair-value hedge, along with the loss or gain
on the hedged asset or liability or unrecognized firm commitment
of the hedged item that is attributable to the hedged risk, are
recorded in earnings. Changes in the fair value of a derivative
that is highly effective and that is designated and qualifies as
a cash-flow hedge are recorded in other comprehensive income to
the extent that the derivative is effective as a hedge, until
earnings are affected by the variability in cash flows of the
designated hedged item. Changes in the fair value of derivatives
that are highly effective as hedges and that are designated and
qualify as foreign-currency hedges are recorded in either
earnings or other comprehensive income, depending on whether the
hedge transaction is a fair-value hedge or a cash-flow hedge.
However, if a derivative is used as a hedge of a net investment
in a foreign operation, its changes in fair value, to the extent

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ZINDART LIMITED AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

effective as a hedge, are recorded in the
cumulative translation adjustments account within other
comprehensive income. The ineffective portion of the change in
fair value of a derivative instrument that qualifies as either a
fair-value hedge or a cash-flow hedge is reported in earnings.
Changes in the fair value of those derivative instruments that
are not designated as hedges are reported in current period
earnings.

The Company discontinues hedge accounting
prospectively when it is determined that the derivative is no
longer effective in offsetting changes in the fair value or cash
flows of the hedged item, the derivative expires or is sold,
terminated, or exercised, the derivative is dedesignated as a
hedging instrument, because it is unlikely that a forecasted
transaction will occur, a hedged firm commitment no longer meets
the definition of a firm commitment, or management determines
that designation of the derivative as a hedging instrument is no
longer appropriate.

When hedge accounting is discontinued because it
is determined that the derivative no longer qualifies as an
effective fair-value hedge, the Company continues to carry the
derivative on the balance sheet at its fair value and no longer
adjusts the hedged asset or liability for changes in fair value.
The adjustment of the carrying amount of the hedged asset or
liability is accounted for in the same manner as other
components of the carrying amount of that asset or liability.
When hedge accounting is discontinued because the hedged item no
longer meets the definition of a firm commitment, the Company
continues to carry the derivative on the balance sheet at its
fair value, removes any asset or liability that was recorded
pursuant to recognition of the firm commitment from the balance
sheet, and recognizes any gain or loss in earnings. When hedge
accounting is discontinued because it is probable that a
forecasted transaction will not occur, the Company continues to
carry the derivative on the balance sheet at its fair value with
subsequent changes in fair value included in earnings, and gains
and losses that were accumulated in other comprehensive income
are recognized immediately in earnings. In all other situations
in which hedge accounting is discontinued, the Company continues
to carry the derivative at its fair value on the balance sheet
and recognizes any subsequent changes in its fair value in
earnings.



|    |                                   
|--- | ----------------------------------
|(i) | Property, Plant, and
    Equipment

Property, plant, and equipment are stated at
cost. Plant and equipment under capital leases are stated at the
present value of minimum lease payments. Depreciation on plant
and equipment is calculated on the straight-line method over the
estimated useful lives of the assets. The estimated useful life
of buildings is 25 to 50 years; machinery and tooling is 3
to 12 years; furniture and office equipment is 5 to
8 years; and motor vehicles is 3 to 4 years. Plant and
equipment held under capital leases and leasehold improvements
are amortized using the straight line method over the shorter of
the lease term or estimated useful life of the asset. Total
depreciation for the years ended March 31, 2004, 2003 and
2002 was $6,387,000, $6,230,000 and $6,076,000, respectively, of
which 98.1%, 97.9% and 96.4% was recorded in cost of goods sold
and 1.9%, 2.1% and 3.6% was recorded in selling, general, and
administrative expenses, respectively.



|    |                
|--- | ---------------
|(j) | Land Use Rights

Land use rights are stated at cost less
accumulated amortization. Amortization is provided using the
straight-line method over the lease term of 50 years.



|    |         
|--- | --------
|(k) | Goodwill

Goodwill represents the excess of costs over the
estimated fair value of identifiable net assets of businesses
acquired. The Group adopted the provisions of
SFAS No. 142, Goodwill and Other Intangible
Assets, at April 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. To
accomplish this, the Group is required to determine the fair
value of each reporting unit and compare it to the carrying
amount of the reporting unit. In

56



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ZINDART LIMITED AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

estimating the fair value of the reporting unit,
the Group used the valuation performed by a third-party valuer
using the discounted cash flow methodology, and the selling
price of the reporting units. Statement 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
FASB Statement No. 144, Accounting for Impairment or
Disposal of Long-Lived Assets.

Prior to the adoption of SFAS No. 142,
goodwill was amortized on a straight-line basis over the
expected periods to be benefited, from 10 to 30 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 amount of goodwill
impairment, if any, was measured based on projected discounted
future operating cash flows using a discount rate reflecting the
Groups average cost of funds.



|    |                    
|--- | -------------------
|(l) | Receipts in Advance

Receipts in advance represent advance payments
received from customers for molds specifically made for
production of products ordered by the customers. The amount will
be recognized as income upon the delivery of the first lot of
products produced using the molds.



|    |                                   
|--- | ----------------------------------
|(m) | Research and Development
    Costs

Research and development costs are expensed as
incurred. Research and development costs for the years ended
March 31, 2004, 2003 and 2002 were $1,215,000, $1,293,000
and $1,740,000, respectively.



|    |                  
|--- | -----------------
|(n) | Advertising Costs

Advertising costs represent amounts paid to third
parties for direct advertising events and are expensed as
incurred. Advertising costs for the years ended March 31,
2004, 2003 and 2002 were $6,997,000, $5,277,000 and $7,352,000,
respectively.



|    |             
|--- | ------------
|(o) | Income Taxes

Income taxes are accounted for under the asset
and liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases
and operating loss and tax credit carryforwards. A valuation
allowance is provided to reduce the deferred tax assets to an
amount that is more likely than not to be realized. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
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.

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##### Table of Contents



ZINDART LIMITED AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)



|    |                  
|--- | -----------------
|(p) | Stock Option Plan

The Group 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 Group 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 16). The
table below presents a reconciliation of net (loss) income as
reported to pro forma net (loss) income as it would be shown if
the Group applied the fair-value-based method of accounting (in
thousands).

|                                                                                                                              |  |      |        |      |  |      |       |   |  |   |        |  
|----------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ----- | - |  | - | ------ | -
|                                                                                                                              |  | 2004 |        | 2003 |  | 2002
|                                                                                                                              |  |      |        |      |  |     
|Reported net (loss) income                                                                                                    |  | $    | (5,309 | )    |  | $    | 2,565 |   |  | $ | (8,245 | )
|Deduct stock-based employee compensation expense
    determined under fair-value-based method for all rewards, net of
    tax |  |      | (159   | )    |  |      | (409  | ) |  |   | (264   | )
|                                                                                                                              |  |      |        |      |  |      |       |   |  |   |        |  
|Pro-forma net (loss) income                                                                                                   |  | $    | (5,468 | )    |  | $    | 2,156 |   |  | $ | (8,509 | )
|                                                                                                                              |  |      |        |      |  |      |       |   |  |   |        |  



|    |                 
|--- | ----------------
|(q) | Use of Estimates

The preparation of the consolidated financial
statements requires management of the Group to make a number of
estimates and assumptions relating to the reported amount of
assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses
during the period. Significant items subject to such estimates
and assumptions include the carrying amount of property, plant
and equipment; carrying value of goodwill; valuation allowances
for receivables and deferred tax assets; and the carrying amount
of inventories. Actual results could differ from those estimates.



|    |                                    
|--- | -----------------------------------
|(r) | Impairment of Long-Lived
    Assets

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 Group adopted SFAS No. 144 on
April 1, 2002. Prior to the adoption of
SFAS No. 144, the Group 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.. The adoption of
SFAS No. 144 did not affect the Groups
consolidated 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
estimate undiscounted future cash flows expected to be generated
by the asset. If the carrying amount of an asset exceeds its
estimated undiscounted future cash flows, an impairment charge
is recognized by the amount by which the carrying amount of the
asset exceeds the fair value of the asset. Assets to be disposed
of are separately presented in the balance sheet and reported at
the lower of the carrying amount or fair value less costs to
sell, and are no longer depreciated. The assets and liabilities
of a disposed group classified as held-for-sale would be
presented separately in the appropriate asset and liability
sections of the balance sheet.

58



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ZINDART LIMITED AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)



|    |                    
|--- | -------------------
|(s) | Revenue Recognition

The Group recognizes revenue when products are
shipped and in some arrangements when the products reach the
destination as specified by the customers, which is when title
is passed and the customer takes ownership and assumes risk of
loss, collection of the relevant receivable is probable,
persuasive evidence of an arrangement exists and the sales price
is fixed or determinable. The Group follows the guidance of
Staff Accounting Bulletin No. 104
(SAB 104), which requires that a strict series
of criteria are met in order to recognize revenue related to
product sales. If these criteria are not met, the associated
revenue is deferred until the criteria are met. Generally, these
criteria are that there be an arrangement to sell the product,
the Group has delivered the product in accordance with that
arrangement, the sales price is determinable, and collectibility
is probable.



|    |                            
|--- | ---------------------------
|(t) | Shipping and Handling Costs

The Group records costs incurred for shipping and
handling of the products as selling expenses in the consolidated
statements of operations. The shipping and handling costs for
the years ended March 31, 2004, 2003 and 2002 were
$2,404,000, $2,562,000 and $2,583,000, respectively.



|    |                             
|--- | ----------------------------
|(u) | Foreign Currency Translation

The Companys functional and reporting
currency is the United States (U.S.) dollar. Assets
and liabilities of subsidiaries, whose functional currency is
not the U.S. dollar, are translated at year end exchange
rates. Income and expense items are translated at the average
rates of exchange prevailing during the year. The adjustment
resulting from translating the financial statements of such
subsidiaries and entities is reflected as a separate component
of stockholders equity.

Monetary assets and liabilities denominated in
foreign currencies are translated into U.S. dollars using
the applicable exchange rates at the balance sheet dates. All
such exchange gains and losses are included in the statements of
operations. Aggregate gains or losses from foreign currency
transactions for the years ended March 31, 2004, 2003 and
2002 were approximately losses of $310,000, gains of $589,000
and losses of $443,000, respectively.



|    |                     
|--- | --------------------
|(v) | Comprehensive Income

The Group has adopted SFAS No. 130,
Reporting Comprehensive Income, which requires the
Group to report all changes in equity during a period, except
for those resulting from investment by owners and distribution
to owners, in the financial statements for the period in which
they are recognized. The Group has presented comprehensive
(loss) income, which encompasses net (loss) income, translation
adjustments, unrealized loss on available-for-sale investments
and unrealized loss on derivative instruments, in the
consolidated statements of operations and comprehensive (loss)
income.



|    |                                     
|--- | ------------------------------------
|(w) | (Loss) Earnings per Common
    Share

Basic (loss) earnings per common share is
computed in accordance with SFAS No. 128,
Earnings Per Share, by dividing the net (loss)
income by the weighted average number of common shares
outstanding during the year. Diluted (loss) earnings per common
share is computed based on the weighted average number of common
shares outstanding and giving effect to the dilutive potential
of outstanding stock options and convertible note to the extent
such securities were dilutive during the year.

The numerator in calculating both basic and
diluted (loss) earnings per common share for each year is the
reported net (loss) income. Stock options outstanding for the
year ended March 31, 2004 were not included in computing
diluted (loss) earnings per common shares since their effects
were anti-dilutive due to the net loss from continuing
operations for the year. The difference between basic and
diluted weighted

59



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ZINDART LIMITED AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

average number of common shares for the year
ended March 31, 2003 results from the assumption that stock
options outstanding were exercised by the application of the
treasury stock method. Stock options and convertible note
outstanding for the year ended March 31, 2002 were not
included in computing diluted (loss) earnings per common share
since their effects were anti-dilutive. Stock options and
convertible note for the year ended March 31, 2002 were
anti-dilutive due to the net loss from continuing operations for
the year.



|    |                                        
|--- | ---------------------------------------
|(x) | Fair Value of Financial
    Instruments

The carrying amounts of cash and cash
equivalents, trade accounts receivable, short-term debt, and
trade accounts payable approximate their fair values because of
the short maturity of these instruments. The carrying amounts of
available-for-sale investments, loan receivable and long-term
debt approximate their fair values at March 31, 2004 and
2003.



|    |                
|--- | ---------------
|(y) | Operating Risks

The Group is also subject to, among others, the
following operating risks:

Country
risk As a major portion of
the Groups operations are conducted in Mainland China, the
Group is subject to special considerations and significant risks
not typically associated with companies in North America and
Western Europe. These include risks associated with, among
others, the political, economic and legal environments and
foreign currency exchange. The Groups results may be
adversely affected by changes in the political and social
conditions in Mainland China, and by changes in governmental
policies with respect to laws and regulations, anti-inflationary
measures, currency conversion and remittance abroad, and rates
and methods of taxation, among other things.

Dependence on strategic
relationship The Group
conducts its manufacturing operations through its contractual
joint ventures established between the Group and certain Chinese
parties, and subcontracting agreements entered into with certain
Chinese parties. The deterioration of any or all these strategic
relationships may have an adverse effect on the operations of
the Group.

Concentration of credit
risk Concentration of
credit risk is primarily related to trade accounts receivable
and a loan receivable from a customer (see note 6) and
is subject to the financial conditions of certain major
customers and this particular customer.

The Group performs ongoing credit evaluation of
each customers financial condition. It maintains reserves
for potential credit losses and such losses in the aggregate
have not exceeded managements projections. Sales to five
largest customers accounted for approximately 38.7%, 32.9% and
36.0%, respectively, of the total net sales from continuing
operations for the years ended March 31, 2004, 2003 and
2002. Sales to Hallmark Cards, Inc. (Hallmark)
represented 12.9%, 11.5% and 11.4% of the total net sales from
continuing operations for the years ended March 31, 2004,
2003 and 2002, respectively. Sales to Mattel ® Toys
(Mattel) represented 10.6%, 9.6% and 16.3% of the
total net sales from continuing operations for the years ended
March 31, 2004, 2003 and 2002, respectively. At
March 31, 2004 and 2003, the five largest trade accounts
receivable accounted for approximately 48.0% and 38.5%,
respectively, of the total gross trade accounts receivable from
continuing operations. Accounts receivable from Hallmark
accounted for 16.5% and 12.6% of the total gross trade accounts
receivable from continuing operations at March 31, 2004 and
2003, respectively. Accounts receivable from Funline Merchandise
Co. Inc. and Mattel accounted for 10.4% and 10.3% of the total
gross trade accounts receivable from continuing operations at
March 31, 2004, respectively. Accounts receivable from
Creata Promotion (Asia) Limited accounted for 12.7% of the total
gross trade accounts receivable from continuing operations at
March 31, 2003.

Dependence on a limited number of
suppliers The Group
purchases raw materials from a limited number of suppliers.
Purchases from five largest suppliers accounted for
approximately 17.1%, 16.9% and

60



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##### Table of Contents



ZINDART LIMITED AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

16.2%, respectively, of the total net purchases
from continuing operations for the years ended March 31,
2004, 2003 and 2002.



|    |                                         
|--- | ----------------------------------------
|(z) | Recently Issued Accounting
    Standards

In December 2003, the FASB issued FIN 46
(revised December 2003). Consolidation of Variable
Interest Entities, which addresses how a business
enterprise should evaluate whether it has a controlling
financial interest in an entity through means other than voting
rights and accordingly should consolidate the entity.
FIN 46R replaces FIN 46, Consolidation of
Variable Interest Entities, which was issued in January
2003. The Group will be required to apply FIN 46R to
variable interests in Variable Interest Entities
(VIEs) created after December 31, 2003. For
variable interests in VIEs created before January 1, 2004,
the interpretation will be applied beginning on January 1,
2005. For any VIEs that must be consolidated under FIN 46R
that were created before January 1, 2004, the assets,
liabilities and non-controlling interests of the VIE initially
would be measured at their carrying amounts with any difference
between the net amount added to the balance sheet and any
previously recognized interest being recognized as the
cumulative effect of an accounting change. If determining the
carrying amounts is not practicable, fair value at the date
Fin 46R first applies may be used to measure the assets,
liabilities and non-controlling interest of the VIE. While the
Group has evaluated the impact of applying FIN 46R, the
Group does not believe it has an interest in any VIEs that are
within the scope of this statement. Therefore, the application
of this interpretation did not have a material effect on the
Groups consolidated financial statements.

In May 2003, the FASB issued
SFAS No. 150 Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity. This statement establishes standards for the
classification and measurement of certain financial instruments
with characteristics of both liabilities and equity. The
statement also includes required disclosures for financial
instruments within its scope. The statement was generally
effective for instruments entered into or modified after
May 31, 2003 and otherwise will be effective as of
January 1, 2004, except for mandatorily redeemable
financial instruments. For certain mandatorily redeemable
financial instruments, the statement will be effective for the
Group on January 1, 2005. The effective date has been
deferred indefinitely for certain other types of mandatorily
redeemable financial instruments. The Group currently does not
have any financial instruments that are within the scope of this
statement.



|    |                        
|--- | -----------------------
|(2) | Discontinued Operations

In March 2004, the Groups board of
directors resolved to sell Hua Yang. In May 2004, the Group
completed the sale of Hua Yang and has reported this business
segment as discontinued operations under SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets.. Terms for the sale included net cash
consideration of $14,250,000, less 10% to be held by an escrow
agent until the closing balance sheet has been audited and
accepted by the buyer, which will be less than one year
subsequent to the sale date. The sale price was subject to
adjustments for indebtedness in excess of $10,000,000 or cash
balances less than $1,000,000, both as of the date of the sale.

The operating results of the discontinued
operations are as follows (in thousands):

|                                           |  |      |        |      |  |      |        |   |  |   |        |  
|------------------------------------------ |  | ---- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                           |  | 2004 |        | 2003 |  | 2002
|                                           |  |      |        |      |  |     
|Net sales                                  |  | $    | 34,348 |      |  | $    | 37,491 |   |  | $ | 29,239 |  
|                                           |  |      |        |      |  |      |        |   |  |   |        |  
|(Loss) income before income taxes          |  | $    | (2,111 | )    |  | $    | 1,375  |   |  | $ | (822   | )
|Income tax benefit (expense)               |  |      | 229    |      |  |      | (283   | ) |  |   | (576   | )
|                                           |  |      |        |      |  |      |        |   |  |   |        |  
|(Loss) income from discontinued operations |  | $    | (1,882 | )    |  | $    | 1,092  |   |  | $ | (1,398 | )
|                                           |  |      |        |      |  |      |        |   |  |   |        |  

61



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##### Table of Contents



ZINDART LIMITED AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

At March 31, 2004 and 2003, the assets and
liabilities associated with the discontinued operations are as
follows (in thousands):

|                                      |  |      |        |      |  |   |        |  
|------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | -
|                                      |  | 2004 |        | 2003
|                                      |  |      |        |     
|Trade accounts receivable, net        |  | $    | 5,414  |      |  | $ | 8,526  |  
|Inventories                           |  |      | 4,349  |      |  |   | 4,450  |  
|Property, plant, and equipment, net   |  |      | 10,368 |      |  |   | 7,696  |  
|Goodwill                              |  |      | 9,508  |      |  |   | 9,508  |  
|Other assets                          |  |      | 2,073  |      |  |   | 2,472  |  
|Short-term debt                       |  |      | (4,704 | )    |  |   | (5,177 | )
|Trade accounts payable                |  |      | (5,161 | )    |  |   | (5,680 | )
|Obligation under capital leases       |  |      | (4,941 | )    |  |   | (2,142 | )
|Other liabilities                     |  |      | (3,262 | )    |  |   | (3,806 | )
|                                      |  |      |        |      |  |   |        |  
|Net assets of discontinued operations |  | $    | 13,644 |      |  | $ | 15,847 |  
|                                      |  |      |        |      |  |   |        |  



|    |                               
|--- | ------------------------------
|(3) | Available-for-Sale Investments

At March 31, 2004 and 2003, the total
available-for-sale investments for the Group represents
1,269,842 shares in the common stock of a company
incorporated in the United States of America, of which
634,921 shares were held by discontinued operations. The
investment represents an equity interest of 11.85% of the
company in 2004 with 5.93% relating to discontinued operations.
The investment was initially classified in 2002 as
available-for-sale, and was recorded at its fair value at the
date of acquisition of $800,000. The amount represented
satisfaction of $400,000 of trade accounts receivable held by
discontinued operations and loan receivable of $400,000 (see
note 6). At March 31, 2004, the fair value of this
investment held by the continuing operations, as determined
based on quoted market price, was approximately $63,000. For the
year ended March 31, 2003, the Group realized a total loss
of $420,000 in earnings, of which $210,000 was associated with
the continuing operations. In March 31, 2004, an additional
realized loss of $127,000 was recorded to reflect the other than
temporary decline in the market value of this security.



|    |                          
|--- | -------------------------
|(4) | Trade Accounts Receivable

Trade accounts receivable consist of the
following (in thousands):

|                                     |  |      |        |      |  |   |        |  
|------------------------------------ |  | ---- | ------ | ---- |  | - | ------ | -
|                                     |  | 2004 |        | 2003
|                                     |  |      |        |     
|Trade accounts receivable            |  | $    | 18,835 |      |  | $ | 29,745 |  
|Less allowance for doubtful accounts |  |      | (1,080 | )    |  |   | (5,432 | )
|                                     |  |      |        |      |  |   |        |  
|Trade accounts receivable, net       |  | $    | 17,755 |      |  | $ | 24,313 |  
|                                     |  |      |        |      |  |   |        |  

Movements of allowance for doubtful accounts are
as follows (in thousands):

|                                                               |  |      |        |      |  |      |       |   |  |   |       |  
|-------------------------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ----- | - |  | - | ----- | -
|                                                               |  | 2004 |        | 2003 |  | 2002
|                                                               |  |      |        |      |  |     
|Balance at beginning of year                                   |  | $    | 5,432  |      |  | $    | 4,822 |   |  | $ | 4,803 |  
|Less balance at March 31, 2004 for
    discontinued operations |  |      | (3,646 | )    |  |      |      |   |  |   |      |  
|(Released) charged to expense                                  |  |      | (385   | )    |  |      | 765   |   |  |   | 776   |  
|Bad debts write-offs                                           |  |      | (321   | )    |  |      | (155  | ) |  |   | (757  | )
|                                                               |  |      |        |      |  |      |       |   |  |   |       |  
|Balance at end of year                                         |  | $    | 1,080  |      |  | $    | 5,432 |   |  | $ | 4,822 |  
|                                                               |  |      |        |      |  |      |       |   |  |   |       |  

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ZINDART LIMITED AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

At March 31, 2004 and 2003, certain trade
accounts receivable associated with the discontinued operations
transferred to financial institutions have the right of recourse
and were recorded as debt obligations. The financial institution
charges a service charge of 1% of the receivable balance and a
discounting charge at the financial institutions standard
bills finance rate minus 0.25% per annum.



|    |            
|--- | -----------
|(5) | Inventories

Inventories consist of the following (in
thousands):

|                |  |      |        |      |  |   |        | 
|--------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                |  | 2004 |        | 2003
|                |  |      |        |     
|Raw materials   |  | $    | 2,765  |      |  | $ | 5,002  | 
|Work in process |  |      | 2,496  |      |  |   | 2,464  | 
|Finished goods  |  |      | 8,905  |      |  |   | 8,342  | 
|                |  |      |        |      |  |   |        | 
|                |  | $    | 14,166 |      |  | $ | 15,808 | 
|                |  |      |        |      |  |   |        | 

At March 31, 2004 and 2003, certain
inventories of the Group were pledged against certain banking
facilities (see note 10).



|    |                
|--- | ---------------
|(6) | Loan Receivable

Loan receivable consists of the following (in
thousands):

|                                                                 |                                           |      |      |      |  |   |       |     | 
|---------------------------------------------------------------- | ----------------------------------------- | ---- | ---- | ---- |  | - | ----- | --- | 
|                                                                 |                                           | 2004 |      | 2003
|                                                                 |                                           |      |      |     
|Loan receivable                                                  |                                           | $    | 490  |      |  | $ | 1,063 |    
|Less valuation allowance                                         |                                           |      | (230 | )    |  |   | (230  | )  
|                                                                 |                                           |      |      |      |  |   |       |    
|Loan receivable, net                                             |                                           | $    | 260  |      |  | $ | 833   |    
|                                                                 |                                           |      |      |      |  |   |       |    
|Maturities of loan receivable are as follows (in
    thousands): |                                           |      |      |      |  |   |       |    
|Receivable during the following period:                          |                                           |      |      |      |  |   |       |    
|                                                                 | Within one year                           |      | $    | 260  |  |   | $     | 625 | 
|                                                                 | Over one year but not exceeding two years |      |      |     |  |   |       | 208 | 
|                                                                 |                                           |      |      |      |  |   |       |    
|                                                                 |                                           |      | 260  |      |  |   | 833   |    
|Less current portion                                             |                                           |      | (260 | )    |  |   | (625  | )  
|                                                                 |                                           |      |      |      |  |   |       |    
|Non-current portion                                              |                                           | $    |     |      |  | $ | 208   |    
|                                                                 |                                           |      |      |      |  |   |       |    

During the year ended March 31, 2000, the
Group granted to a customer (the Borrower) a credit
facility up to an amount of $2,300,000. The credit facility was
collateralized by certain assets of the Borrower, bore interest
at LIBOR plus 5% and matured on May 12, 2000. On
May 13, 2000, the Borrower exercised an option under the
credit facility to extend the maturity date of the facility for
an additional one year to May 12, 2001 and as consideration
for the extension, issued to the Group non-transferable warrants
to purchase a maximum of 150,000 shares of common stock of
the Borrower at a price of $1.7325 per share, representing
the average of the closing bid prices of the shares over 20
trading days prior to May 13, 2000, during a two-year
period ended May 12, 2002. The estimated fair value of the
warrants of $170,000 was recognized upon receipt as a
non-marketable equity security accounted for using the cost
method. In accordance with SFAS No. 114,
Accounting by Creditors for Impairment of A
Loan  an Amendment of FASB Statement No. 5 and
15, an impairment of loan is recognized when it is
probable that a creditor will be unable to collect all amounts
due (including both principal and interest) according to the
contractual terms of the original loan agreement. The
determination of whether a loan is impaired takes into account
not only the amount that the creditor expects to collect but
also the timing of his collection. Management considered that,
in light of uncertainty

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ZINDART LIMITED AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

surrounding the timing of repayment of the loan,
the fair value of the warrants of $170,000 should be applied to
reduce the basis of the loan. The value of the warrants was
fully impaired through charges to income of $40,000 in the year
ended March 31, 2002 and $130,000 in the year ended
March 31, 2003.

On April 16, 2001, the Borrower repaid
$250,000, and the Group granted an extension of the remaining
loan balance to June 30, 2002 for no consideration.

On December 31, 2001, the terms of the
credit facility were further amended pursuant to which
(i) $400,000 of the outstanding facility was converted into
common stock of the Borrower at $0.63 per share,
representing the quoted market price on the date which the
amendment became unconditional; (ii) $400,000 of the
outstanding facility would be canceled in the quarter ending
September 30, 2002, contingent upon satisfactory
performance in respect of repayment of interest and principal by
the Borrower; and (iii) the remaining $1,250,000 would be
payable in 24 equal monthly installments commencing
August 31, 2002. The loan receivable is collateralized by
certain assets of the Borrower and bears interest at LIBOR plus
5%.

This loan restructuring arrangement was accounted
for in accordance with SFAS No. 15, Accounting
by Debtors and Creditors for Troubled Debt Restructurings
and SFAS No. 114, Accounting by Creditors for
Impairment of A Loan  an Amendment of FASB Statement
No. 5 and 15. The loan restructuring involved receipt
of common stock from the Borrower in partial satisfaction of the
aforementioned loan and a modification of terms of the remaining
loan. The common stock was accounted for as described in
note 3. The loan receivable from the Borrower of $2,050,000
was first reduced by $400,000, representing the fair value of
common stock received from the Borrower. The loan receivable was
also reduced by a valuation allowance of approximately $230,000.
The remaining balance of $1,250,000 represented the present
value at December 31, 2001 of the expected future cash
flows which would be received under the modified loan
arrangement. During the years ended March 31, 2004 and
2003, the Borrower has repaid principal and interest in
accordance with the modified loan arrangement.



|    |                              
|--- | -----------------------------
|(7) | Property, Plant and Equipment

Property, plant and equipment consist of the
following (in thousands):

|                                   |  |      |         |      |  |   |         |  
|---------------------------------- |  | ---- | ------- | ---- |  | - | ------- | -
|                                   |  | 2004 |         | 2003
|                                   |  |      |         |     
|Buildings                          |  | $    | 14,230  |      |  | $ | 15,272  |  
|Machinery and tooling              |  |      | 44,780  |      |  |   | 50,350  |  
|Furniture and office equipment     |  |      | 10,397  |      |  |   | 11,366  |  
|Motor vehicles                     |  |      | 716     |      |  |   | 932     |  
|                                   |  |      |         |      |  |   |         |  
|Cost                               |  |      | 70,123  |      |  |   | 77,920  |  
|Less accumulated depreciation      |  |      | (47,846 | )    |  |   | (48,346 | )
|                                   |  |      |         |      |  |   |         |  
|Property, plant and equipment, net |  | $    | 22,277  |      |  | $ | 29,574  |  
|                                   |  |      |         |      |  |   |         |  

At March 31, 2004 and 2003, buildings with
net book value of approximately $9,987,000 and $10,518,000,
respectively, were situated in Mainland China and were held
under land use rights of 50 years until 2044 and 2047. At
March 31, 2003, buildings with net book value of
approximately $605,000 associated with the discontinued
operations were situated in Hong Kong and were held under leases
expiring in 2047.

At March 31, 2004 and 2003, certain
machinery and tooling with net book value of approximately
$1,544,000 and $2,940,000, respectively, were held under capital
leases (see note 12).

64



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ZINDART LIMITED AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)



|    |                
|--- | ---------------
|(8) | Land Use Rights

Land use rights consist of the following (in
thousands):

|                              |  |      |       |      |  |   |       |  
|----------------------------- |  | ---- | ----- | ---- |  | - | ----- | -
|                              |  | 2004 |       | 2003
|                              |  |      |       |     
|Land use rights               |  | $    | 1,315 |      |  | $ | 1,315 |  
|Less accumulated amortization |  |      | (206  | )    |  |   | (180  | )
|                              |  |      |       |      |  |   |       |  
|Land use rights, net          |  | $    | 1,109 |      |  | $ | 1,135 |  
|                              |  |      |       |      |  |   |       |  

A subsidiary operating in Mainland China owns
factory buildings on certain state-owned land in Mainland China.
The land use rights were acquired by the Group at $1,315,000 and
the Group has the right to use the land for a period of
50 years until 2044 and 2047.



|    |         
|--- | --------
|(9) | Goodwill

At March 31, 2003, the Groups goodwill
related primarily to the acquisition of Hua Yang Holdings Co.,
Ltd and Corgi Classics Holdings Limited. At March 31, 2004,
the goodwill associated with the acquisition of Hua Yang
Holdings Co. of $9,508,000 was included in the discontinued
operations. See note 2, Discontinued Operations
for the goodwill associated with the discontinued operations.
Accumulated amortization related to goodwill of $6,305,000
arising prior to the adoption of SFAS No. 142 has been
reflected in the gross carrying amount of goodwill at
March 31, 2002.

The Group adopted SFAS No. 142,
Goodwill and Other Intangible Assets, on
April 1, 2002. Under SFAS No. 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 acquisition of Hua Yang Holdings Co.,
Ltd and Corgi Classics Holdings Limited was allocated to the Hua
Yang reporting unit and the Corgi reporting unit, respectively.
The Group has undertaken goodwill impairment testing to
determine whether the goodwill was impaired and the extent of
such impairment, if any. There was no indication that goodwill
was impaired at March 31, 2004 and 2003 as the fair value
of the reporting units (as determined using the valuation
performed by a third-party valuer using the discounted cash flow
methodology for the Corgi reporting unit and the selling price
for the Hua Yang reporting unit) exceeded the carrying amount of
the reporting unit (including goodwill).

65



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ZINDART LIMITED AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

Amortization of goodwill was $1,976,000 for the
year ended March 31, 2002. Net (loss) income, basic and
diluted (loss) earnings per common share adjusted to exclude
amortization of goodwill are as follows (in thousands, except
per share data):

|                                                                                  |  |      |        |      |  |      |       |  |  |   |        |  
|--------------------------------------------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ----- |  |  | - | ------ | -
|                                                                                  |  | 2004 |        | 2003 |  | 2002
|                                                                                  |  |      |        |      |  |     
|Reported net (loss) income                                                        |  | $    | (5,309 | )    |  | $    | 2,565 |  |  | $ | (8,245 | )
|Add back amortization of goodwill                                                 |  |      |       |      |  |      |      |  |  |   | 1,376  |  
|Add back amortization of goodwill associated with
    the discontinued operations |  |      |       |      |  |      |      |  |  |   | 600    |  
|                                                                                  |  |      |        |      |  |      |       |  |  |   |        |  
|Adjusted net (loss) income                                                        |  | $    | (5,309 | )    |  | $    | 2,565 |  |  | $ | (6,269 | )
|                                                                                  |  |      |        |      |  |      |       |  |  |   |        |  
|Basic (loss) earnings per common share:                                           |  |      |        |      |  |      |       |  |  |   |        |  
|As reported                                                                       |  | $    | (0.60  | )    |  | $    | 0.29  |  |  | $ | (0.93  | )
|Add back amortization of goodwill                                                 |  |      |       |      |  |      |      |  |  |   | 0.22   |  
|                                                                                  |  |      |        |      |  |      |       |  |  |   |        |  
|As adjusted                                                                       |  | $    | (0.60  | )    |  | $    | 0.29  |  |  | $ | (0.71  | )
|                                                                                  |  |      |        |      |  |      |       |  |  |   |        |  
|Diluted (loss) earnings per common share:                                         |  |      |        |      |  |      |       |  |  |   |        |  
|As reported                                                                       |  | $    | (0.60  | )    |  | $    | 0.28  |  |  | $ | (0.93  | )
|Add back amortization of goodwill                                                 |  |      |       |      |  |      |      |  |  |   | 0.22   |  
|                                                                                  |  |      |        |      |  |      |       |  |  |   |        |  
|As adjusted                                                                       |  | $    | (0.60  | )    |  | $    | 0.28  |  |  | $ | (0.71  | )
|                                                                                  |  |      |        |      |  |      |       |  |  |   |        |  



|     |                
|---- | ---------------
|(10) | Short-Term Debt

At March 31, 2004, the Group had banking
facilities consisting of uncommitted credit facilities,
receivables purchase and letters of credit arrangements with
various banks that provided for borrowings of up to
approximately $44,080,000, of which $9,205,000 were made
available to both the Company and the discontinued operations,
and $16,826,000 associated solely with the discontinued
operations. Substantially all of the short-term debt outstanding
at March 31, 2004 and 2003 represent borrowings made under
these banking facilities. The weighted average interest rate of
the outstanding borrowings was approximately 6.9%, 7.2% and 8.4%
for the years ended March 31, 2004, 2003 and 2002,
respectively.

At March 31, 2004 and 2003, the Company has
outstanding notes payable to directors and shareholders of
$370,000 and $872,000, respectively. The notes are unsecured and
bear interest at 6% per annum, compounded monthly, increase
to 10% per annum to the extent the notes are not paid on
maturity in March 2003. The notes were unsecured and fully
repaid in June 2004.

At March 31, 2003, the discontinued
operations had amounts advanced by financial institution under
receivable purchase arrangements of $945,000. These arrangements
carried a service charge of 1% of the receivable balance and a
discounting charge at the financial institutions standard
bills finance rate minus 0.25% per annum.

66



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ZINDART LIMITED AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)



|     |               
|---- | --------------
|(11) | Long-Term Debt

Long-term debt consists of the following (in
thousands):

|                                                                                                                                                                                                                    |  |      |        |      |  |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | -
|                                                                                                                                                                                                                    |  | 2004 |        | 2003
|                                                                                                                                                                                                                    |  |      |        |     
|Long-term bank loan, LIBOR interest plus 2.0%
    payable quarterly with principal, due September 14, 2003,
    secured by the Companys interest in Corgi Classics
    Holdings Limited and Corgi Classics Limited |  | $    |       |      |  | $ | 2,500  |  
|Long-term bank loan, LIBOR interest plus 1.5%
    payable quarterly with principal, due March 31, 2005
    secured by the assets of Corgi Classics Limited                                                          |  |      | 2,208  |      |  |   | 3,790  |  
|                                                                                                                                                                                                                    |  |      |        |      |  |   |        |  
|Total long-term debt                                                                                                                                                                                                |  |      | 2,208  |      |  |   | 6,290  |  
|Less current installments                                                                                                                                                                                           |  |      | (2,208 | )    |  |   | (4,395 | )
|                                                                                                                                                                                                                    |  |      |        |      |  |   |        |  
|Long-term debt, excluding current installments                                                                                                                                                                      |  | $    |       |      |  | $ | 1,895  |  
|                                                                                                                                                                                                                    |  |      |        |      |  |   |        |  

The term loan agreement contains restrictions on
financial covenants. The Group was in violation of one of the
financial covenants at March 31, 2004. According to the
terms of the loan, the lender is entitled to declare the loan
immediately due and payable upon such violation of a financial
covenant. In May 2004, the Group obtained a letter from the
lender waiving its right to take this course of action but only
in respect of the accounting period ended March 31, 2004.
The loan requires repayment in quarterly installments of
principal and interest through March 31, 2005 and the
breach of financial covenants has had no material adverse impact
on the Group. The noted financial covenants are tested on a
quarterly basis; therefore, additional testing of covenants will
occur before the loan is fully paid on March 31, 2005. At
least one financial covenant appears to have been breached for
the quarter ended June 30, 2004, but the breach has had no
material adverse impact on the Group.



|     |       
|---- | ------
|(12) | Leases

The Group is obligated under capital leases
covering certain machinery and tooling that expire at various
dates during the next 3 years. At March 31, 2004 and
2003, the gross amount of machinery and tooling and related
accumulated depreciation recorded under capital leases are as
follows (in thousands):

|                              |  |      |       |      |  |   |       |  
|----------------------------- |  | ---- | ----- | ---- |  | - | ----- | -
|                              |  | 2004 |       | 2003
|                              |  |      |       |     
|Machinery and tooling         |  | $    | 2,356 |      |  | $ | 3,652 |  
|Less accumulated depreciation |  |      | (812  | )    |  |   | (712  | )
|                              |  |      |       |      |  |   |       |  
|Machinery and tooling, net    |  | $    | 1,544 |      |  | $ | 2,940 |  
|                              |  |      |       |      |  |   |       |  

Amortization of assets held under capital leases
is included with depreciation expense.

67



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ZINDART LIMITED AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

Future minimum capital lease payments at
March 31, 2004 are as follows (in thousands):

|                                                                            |      |   |       |     | 
|--------------------------------------------------------------------------- | ---- | - | ----- | --- | 
|Year ending March 31:                                                       |      |   |       |    
|                                                                            | 2005 |   | $     | 556 | 
|                                                                            | 2006 |   |       | 493 | 
|                                                                            | 2007 |   |       | 246 | 
|                                                                            |      |   |       |    
|Total minimum capital lease payments                                        |      |   | 1,295 |    
|Less amount representing interest (at rates
    ranging from 2.5% to 9.75%) |      |   | (96   | )  
|                                                                            |      |   |       |    
|Present value of net minimum capital lease
    payments                     |      |   | 1,199 |    
|Less current installments of obligations under
    capital leases           |      |   | (498  | )  
|                                                                            |      |   |       |    
|Obligations under capital leases, excluding
    current installments        |      | $ | 701   |    
|                                                                            |      |   |       |    



|     |                 
|---- | ----------------
|(13) | Accrued Expenses

Accrued expenses consist of the following (in
thousands):

|                                 |                                    |      |        |       |  |   |        |       | 
|-------------------------------- | ---------------------------------- | ---- | ------ | ----- |  | - | ------ | ----- | 
|                                 |                                    | 2004 |        | 2003 
|                                 |                                    |      |        |      
|Accruals for operating expenses: |                                    |      |        |       |  |   |        |      
|                                 | Wages, salaries and bonus          |      | $      | 1,795 |  |   | $      | 2,002 | 
|                                 | Management bonus                   |      |        | 201   |  |   |        | 132   | 
|                                 | Rental expenses                    |      |        | 9     |  |   |        | 304   | 
|                                 | Freight charges and packaging fees |      |        | 295   |  |   |        | 683   | 
|                                 | Utility charges                    |      |        | 3     |  |   |        | 56    | 
|                                 | Others                             |      |        | 2,192 |  |   |        | 2,832 | 
|Commission                       |                                    |      | 137    |       |  |   | 66     |      
|Royalty                          |                                    |      | 1,159  |       |  |   | 673    |      
|Raw materials purchases          |                                    |      | 2,825  |       |  |   | 5,318  |      
|Factory consumables              |                                    |      | 92     |       |  |   | 81     |      
|Subcontracting charges           |                                    |      | 514    |       |  |   | 274    |      
|Others                           |                                    |      | 2,283  |       |  |   | 1,624  |      
|                                 |                                    |      |        |       |  |   |        |      
|                                 |                                    | $    | 11,505 |       |  | $ | 14,045 |      
|                                 |                                    |      |        |       |  |   |        |      



|     |             
|---- | ------------
|(14) | Income Taxes

(Loss) income before income taxes, minority
interests and discontinued operations is attributable to the
following geographical locations for the years ended
March 31, 2004, 2003 and 2002 (in thousands):

|          |  |      |        |      |  |      |       |   |  |   |        |  
|--------- |  | ---- | ------ | ---- |  | ---- | ----- | - |  | - | ------ | -
|          |  | 2004 |        | 2003 |  | 2002
|          |  |      |        |      |  |     
|Hong Kong |  | $    | (1,674 | )    |  | $    | (812  | ) |  | $ | (3,059 | )
|Foreign   |  |      | (1,334 | )    |  |      | 2,621 |   |  |   | (4,048 | )
|          |  |      |        |      |  |      |       |   |  |   |        |  
|          |  | $    | (3,008 | )    |  | $    | 1,809 |   |  | $ | (7,107 | )
|          |  |      |        |      |  |      |       |   |  |   |        |  

The Company and its subsidiaries are subject to
income taxes on an entity basis on income arising in or derived
from the tax jurisdictions in which they operate. The Company
and the Hong Kong subsidiaries are subject to Hong Kong profits
tax at a rate of 17.5% for the year ended 31 March, 2004.
The United Kingdom subsidiaries are subject to United Kingdom
profits tax at a rate of 30%. The British Virgin Islands
subsidiaries

68



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ZINDART LIMITED AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

are incorporated under the International Business
Companies Act of the British Virgin Islands and, accordingly,
are exempted from payment of the British Virgin Islands income
taxes. The Cayman Islands subsidiary is incorporated under the
Companies Law of the Cayman Islands as a limited liability
exempted company and, accordingly, is exempted from payment of
the Cayman Islands income taxes until 2014. The Bermuda
subsidiary is incorporated under the Companies Act 1981 of
Bermuda and, accordingly, is exempted from payment of the
Bermuda income taxes until 2016.

In respect of the Mainland entities, the tax
exemption period of Dongguan Xinda started on January 1,
1999 and expired on December 31, 2000. It was subject to
PRC state income tax at the rate of 12% for the three months
ended March 31, 2001 and the years ended March 31,
2002 and March 31, 2003. For the year ended March 31,
2004, Dongguan Xinda is subject to state income tax at the rate
of 12% from April 1, 2003 to December 31, 2003 and at
the rate of 15% (12% state income tax and 3% local income tax)
from January 1, 2004 to March 31, 2004, as it is
expected that it will qualify as an export oriented enterprise.

In addition, the tax exemption period of Shenzhen
Huaxuan expired on December 31, 1997 and it was subject to
PRC state income tax at the rate of 7.5% for the nine months
ended December 31, 2000. Starting from January 1,
2001, it has been subject to PRC state income tax at the rate of
15%.

If the tax holiday for the joint venture
established in Mainland China did not exist, the Groups
income tax provisions would have been increased by approximately
$Nil, $98,000 and $74,000 for the years ended March 31,
2004, 2003 and 2002, respectively. Basic (loss) earnings per
common share would have been approximately $(0.60), $0.28 and
$(0.94) for the years ended March 31, 2004, 2003 and 2002,
respectively. Diluted (loss) earnings per common share would
have been approximately $(0.60), $0.27 and $(0.94) for the years
ended March 31, 2004, 2003 and 2002, respectively.

Income tax (expense) benefit consists of the
following (in thousands):

|                |                               |      |      |      |   |      |        |        |   |   |     |     |  
|--------------- | ----------------------------- | ---- | ---- | ---- | - | ---- | ------ | ------ | - | - | --- | --- | -
|                |                               | 2004 |      | 2003 |   | 2002
|                |                               |      |      |      |   |     
|Current taxes:  |                               |      |      |      |   |      |        |        |   |   |     |    
|                | Hong Kong profits tax         |      | $    |     |   |      | $      | (40    | ) |   | $   | 132 |  
|                | United Kingdom profits tax    |      |      | (604 | ) |      |        | (1,597 | ) |   |     |    |  
|                | Mainland Chinese income taxes |      |      |     |   |      |        |       |   |   |     | (9  | )
|                |                               |      |      |      |   |      |        |        |   |   |     |    
|                |                               |      | (604 | )    |   |      | (1,637 | )      |   |   | 123 |    
|                |                               |      |      |      |   |      |        |        |   |   |     |    
|Deferred taxes: |                               |      |      |      |   |      |        |        |   |   |     |    
|                | Hong Kong profits tax         |      |      | 297  |   |      |        | 31     |   |   |     | 347 |  
|                | United Kingdom profits tax    |      |      | 186  |   |      |        | 1,461  |   |   |     |    |  
|                |                               |      |      |      |   |      |        |        |   |   |     |    
|                |                               |      | 483  |      |   |      | 1,492  |        |   |   | 347 |    
|                |                               |      |      |      |   |      |        |        |   |   |     |    
|                |                               | $    | (121 | )    |   | $    | (145   | )      |   | $ | 470 |    
|                |                               |      |      |      |   |      |        |        |   |   |     |    

69



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##### Table of Contents



ZINDART LIMITED AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

The reconciliation of the Hong Kong statutory
profits tax rate to the effective income tax rate based on
(loss) income before income taxes, minority interests and
discontinued operations stated in the consolidated statements of
operations is as follows:

|                                                                                                                                                    |                                                 |      |       |      |    |      |       |      |    |  |       |      |   
|--------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------- | ---- | ----- | ---- | -- | ---- | ----- | ---- | -- |  | ----- | ---- | --
|                                                                                                                                                    |                                                 | 2004 |       | 2003 |    | 2002
|                                                                                                                                                    |                                                 |      |       |      |    |     
|Hong Kong statutory profits tax rate                                                                                                                |                                                 |      | (17.5 | )%   |    |      | 16.0  | %    |    |  | (16.0 | )%  
|Effect of difference in income tax rates outside
    Hong Kong                                                                                      |                                                 |      | (20.2 | )%   |    |      | 2.2   | %    |    |  | (9.0  | )%  
|Non-taxable income arising from activities which
    qualified as offshore                                                                          |                                                 |      | (7.7  | )%   |    |      | (8.9  | )%   |    |  | (0.1  | )%  
|Exchange gain/(loss) arising from re-translation
    of certain balances to local currency in respect of an overseas
    subsidiary for tax purpose |                                                 |      | 75.8  | %    |    |      | 67.9  | %    |    |  | 4.5   | %   
|Change in valuation allowance                                                                                                                       |                                                 |      | (33.1 | )%   |    |      | (76.5 | )%   |    |  | 9.0   | %   
|Non-deductible/non-taxable items:                                                                                                                   |                                                 |      |       |      |    |      |       |      |    |  |       |     
|                                                                                                                                                    | Amortization of goodwill                        |      |       | 0.0  | %  |      |       | 0.0  | %  |  |       | 6.5  | % 
|                                                                                                                                                    | Interest expense                                |      |       | 0.2  | %  |      |       | 2.3  | %  |  |       | 0.2  | % 
|                                                                                                                                                    | Interest income                                 |      |       | (0.2 | )% |      |       | (1.0 | )% |  |       | (0.5 | )%
|                                                                                                                                                    | Amortization of loan arrangement fees           |      |       | 0.3  | %  |      |       | 1.0  | %  |  |       | 0.0  | % 
|                                                                                                                                                    | Realized loss on available-for-sale investments |      |       | 0.7  | %  |      |       | 1.9  | %  |  |       | 0.0  | % 
|                                                                                                                                                    | Other                                           |      |       | 5.7  | %  |      |       | 3.2  | %  |  |       | (0.7 | )%
|                                                                                                                                                    |                                                 |      |       |      |    |      |       |      |    |  |       |     
|Effective income tax rate                                                                                                                           |                                                 |      | 4.0   | %    |    |      | 8.1   | %    |    |  | (6.1  | )%  
|                                                                                                                                                    |                                                 |      |       |      |    |      |       |      |    |  |       |     

Income taxes payable consists of the following
(in thousands):

|                              |  |      |       |      |  |   |       | 
|----------------------------- |  | ---- | ----- | ---- |  | - | ----- | 
|                              |  | 2004 |       | 2003
|                              |  |      |       |     
|Hong Kong profits tax         |  | $    |      |      |  | $ | 690   | 
|United Kingdom profits tax    |  |      | 2,439 |      |  |   | 1,530 | 
|Mainland Chinese income taxes |  |      | 223   |      |  |   | 196   | 
|                              |  |      |       |      |  |   |       | 
|                              |  | $    | 2,662 |      |  | $ | 2,416 | 
|                              |  |      |       |      |  |   |       | 

The tax effects of the Groups temporary
differences that give rise to significant portions of the
deferred tax assets and liabilities are as follows (in
thousands):

|                          |                                           |      |       |        |   |   |     |        |  
|------------------------- | ----------------------------------------- | ---- | ----- | ------ | - | - | --- | ------ | -
|                          |                                           | 2004 |       | 2003  
|                          |                                           |      |       |       
|Deferred tax assets:      |                                           |      |       |        |   |   |     |       
|                          | Net operating loss carryforwards          |      | $     | 3,157  |   |   | $   | 1,681  |  
|                          | Property, plant and equipment             |      |       | 1,027  |   |   |     | 729    |  
|                          | Accrued expenses                          |      |       | 544    |   |   |     | 438    |  
|                          | Unrealised loss on derivative instruments |      |       | 171    |   |   |     |       |  
|                          | Others                                    |      |       | 368    |   |   |     | 294    |  
|                          |                                           |      |       |        |   |   |     |       
|                          | Gross deferred tax assets                 |      |       | 5,267  |   |   |     | 3,142  |  
|                          | Less valuation allowance                  |      |       | (2,528 | ) |   |     | (1,533 | )
|                          |                                           |      |       |        |   |   |     |       
|                          | Net deferred tax assets                   |      |       | 2,739  |   |   |     | 1,609  |  
|                          |                                           |      |       |        |   |   |     |       
|Deferred tax liabilities: |                                           |      |       |        |   |   |     |       
|                          | Property, plant and equipment             |      |       | (575   | ) |   |     | (666   | )
|                          |                                           |      |       |        |   |   |     |       
|Net deferred tax assets   |                                           | $    | 2,164 |        |   | $ | 943 |       
|                          |                                           |      |       |        |   |   |     |       

70



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##### Table of Contents



ZINDART LIMITED AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

Current deferred tax assets of $165,000 and
non-current deferred liabilities of $214,000 are associated with
discontinued operations as of March 31, 2004. Non-current
deferred tax liabilities as of March 31, 2003 associated
with discontinued operations amounted to $324,000.

At March 31, 2004, the Group has net
operating loss carryforwards of $10,121,000. Of this amount,
$6,515,000 expires from 2021 through 2024 and $3,606,000 can be
carried forward indefinitely.

The Group recorded valuation allowance 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 allowance
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 allowance could result in future adjustments to the
allowance. Based on managements assessment of the need for
a valuation allowance at the balance sheet dates, the Group
views the recoverability of the deferred tax assets as not more
likely than not. The valuation allowance increased from 2003 to
2004 by $995,000 and decreased from 2002 to 2003 by $1,346,000.
Of the decrease from 2002 to 2003, $1,101,000 relates to a
change in judgment about the realizability of the associated
deferred tax assets in future years.



|     |             
|---- | ------------
|(15) | Common Stock

At April 1, 2001 (the earliest date covered
by these financial statements), the Company had
15,000,000 shares of common stock, par value HK$0.50 each,
authorized, and 8,834,125 shares of common stock
outstanding.

In June 2003, the Company issued
10,000 shares of common stock, par value HK$0.50 per
share, for cash consideration of $1.5625 per share in
respect of the exercise of stock options granted under the
Companys equity incentive plan.

In October 2003, the Company issued 58,443,
15,000, 25,000 and 47,500 shares of common stock, par value
HK$0.50 per share, for cash consideration of $1.54,
$1.5625, $1.80 and $3.03 per share, respectively, in
respect of the exercise of stock options granted under the
Companys equity incentive plan.

In February 2004, the Company issued 7,500 and
25,000 shares of common stock, par value HK$0.50 per
share, for cash consideration of $1.5625 and $1.80 per
share, respectively, in respect of the exercise of stock options
granted under the Companys equity incentive plan.



|     |                  
|---- | -----------------
|(16) | Stock Option Plan

In 1997, the Group adopted an equity incentive
plan (the Plan) pursuant to which the Groups
board of directors may grant stock options to directors,
officers and key employees. The Plan authorizes grants of
options to purchase up to 2,200,000 shares of authorized
but unissued common stock. Stock options can be granted with an
exercise price at not less than the stocks fair market
value at the date of grant. All stock options have 10-year
terms, and generally vest and become fully exercisable over a
4-year period subsequent to the date of grant. The vesting
period of certain stock options issued to a director were
accelerated in full during the year ended March 31, 2004.

The Group has made option grants to two employees
outside of the Plan. Except as otherwise set forth in the option
agreement entered into with each individual, the options are
governed by the terms of the Plan.

At March 31, 2004, there were 447,211
additional shares available for grant under the Plan. The per
share weighted average fair value of stock options granted
during 2004, 2003 and 2002 was $2.96, $0.53 and $1.49 on the
date of grant using the Black Scholes option-pricing model with
the following weighted average assumptions: 2004 
expected dividend yield 0.0%, risk-free interest rate of 3.57%,
and an expected life of 5 years; expected stock price
volatility of 65.93%; 2003  expected dividend yield
0.0%, risk-free interest rate

71



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##### Table of Contents



ZINDART LIMITED AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

of 3.78%, and an expected life of 5 years,
expected stock price volatility of 37.98%; 2002 
expected dividend yield 0.0%, risk-free interest rate of 5.38%,
and an expected life of 5 years, expected stock price
volatility of 122.86%. Stock option activity during the periods
indicated is as follows:

|                          |  |           |           |          |  |   |      | 
|------------------------- |  | --------- | --------- | -------- |  | - | ---- | 
|                          |  |           |           | Weighted
|                          |  |           |           | Average 
|                          |  | Number of |           | Exercise
|                          |  | Options   |           | Price   
|                          |  |           |           |         
|Balance at April 1, 2001  |  |           | 1,536,250 |          |  | $ | 4.02 | 
|Granted                   |  |           | 200,000   |          |  |   | 1.75 | 
|Forfeited                 |  |           | (113,000  | )        |  |   | 4.80 | 
|                          |  |           |           |          |  |   |      | 
|Balance at March 31, 2002 |  |           | 1,623,250 |          |  |   | 3.69 | 
|Granted                   |  |           | 639,855   |          |  |   | 1.95 | 
|Forfeited (as restated)   |  |           | (502,500  | )        |  |   | 5.72 | 
|                          |  |           |           |          |  |   |      | 
|Balance at March 31, 2003 |  |           | 1,760,605 |          |  |   | 2.48 | 
|Granted                   |  |           | 520,534   |          |  |   | 5.26 | 
|Exercised                 |  |           | (188,443  | )        |  |   | 1.99 | 
|Forfeited                 |  |           | (162,475  | )        |  |   | 4.77 | 
|                          |  |           |           |          |  |   |      | 
|Balance at March 31, 2004 |  |           | 1,930,221 |          |  | $ | 3.08 | 
|                          |  |           |           |          |  |   |      | 

|                  |  |                   |           |             |  |           |       |           |  |  |           |  |  |  |      | 
|----------------- |  | ----------------- | --------- | ----------- |  | --------- | ----- | --------- |  |  | --------- |  |  |  | ---- | 
|                  |  |                  
|                  |  | At March 31, 2004
|                  |  |                  
|                  |  |                   |           |            
|                  |  | Outstanding       |           | Exercisable
|                  |  |                   |           |            
|                  |  |                   |           | Weighted    |  |           |       | Weighted 
|                  |  |                   |           | Average     |  |           |       | Average  
|                  |  | Number of         |           | Unexpired   |  | Number of |       | Unexpired
|Exercise Price($) |  | Options           |           | Life        |  | Options   |       | Life     
|                  |  |                   |           |             |  |           |       |          
|1.51              |  |                   | 100,000   |             |  |           | 8.49  |           |  |  | 100,000   |  |  |  | 8.49 | 
|1.54              |  |                   | 38,962    |             |  |           | 8.44  |           |  |  | 38,962    |  |  |  | 8.44 | 
|1.5625            |  |                   | 216,250   |             |  |           | 6.79  |           |  |  | 177,500   |  |  |  | 6.79 | 
|1.7               |  |                   | 100,000   |             |  |           | 7.59  |           |  |  | 66,667    |  |  |  | 7.59 | 
|1.8               |  |                   | 50,000    |             |  |           | 7.72  |           |  |  |          |  |  |  |     | 
|1.82              |  |                   | 330,000   |             |  |           | 8.01  |           |  |  | 307,500   |  |  |  | 8.01 | 
|2.5               |  |                   | 500,000   |             |  |           | 6.59  |           |  |  | 500,000   |  |  |  | 6.59 | 
|3.03              |  |                   | 32,475    |             |  |           | 8.81  |           |  |  | 32,475    |  |  |  | 8.81 | 
|3.2               |  |                   | 30,000    |             |  |           | 8.93  |           |  |  | 7,500     |  |  |  | 8.93 | 
|4.87              |  |                   | 128,034   |             |  |           | 9.22  |           |  |  | 20,534    |  |  |  | 9.22 | 
|5.5               |  |                   | 215,000   |             |  |           | 10.00 |           |  |  |          |  |  |  |     | 
|6.75              |  |                   | 95,500    |             |  |           | 3.96  |           |  |  | 95,500    |  |  |  | 3.96 | 
|6.82              |  |                   | 35,000    |             |  |           | 9.95  |           |  |  |          |  |  |  |     | 
|6.875             |  |                   | 59,000    |             |  |           | 5.81  |           |  |  | 59,000    |  |  |  | 5.81 | 
|                  |  |                   |           |             |  |           |       |           |  |  |           |  |  |  |      | 
|                  |  |                   | 1,930,221 |             |  |           | 7.61  |           |  |  | 1,405,638 |  |  |  | 7.05 | 
|                  |  |                   |           |             |  |           |       |           |  |  |           |  |  |  |      | 

At March 31, 2004, 2003 and 2002, the number
of options exercisable was 1,405,638, 1,291,557 (as restated)
and 942,444, respectively, and the weighted average exercise
price of those options was $2.62, $2.67 and $4.91, respectively.

72



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##### Table of Contents



ZINDART LIMITED AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

The table below presents a reconciliation of net
(loss) income as reported to pro forma net (loss) income as it
would be shown if the Group applied the fair-value-based method
of accounting (in thousands).

|                                                                                                                              |  |      |        |      |  |      |       |   |  |   |        |  
|----------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ----- | - |  | - | ------ | -
|                                                                                                                              |  | 2004 |        | 2003 |  | 2002
|                                                                                                                              |  |      |        |      |  |     
|Reported net (loss) income                                                                                                    |  | $    | (5,309 | )    |  | $    | 2,565 |   |  | $ | (8,245 | )
|Deduct stock-based employee compensation expense
    determined under fair-value-based method for all rewards, net of
    tax |  |      | (159   | )    |  |      | (409  | ) |  |   | (264   | )
|                                                                                                                              |  |      |        |      |  |      |       |   |  |   |        |  
|Pro-forma net (loss) income                                                                                                   |  | $    | (5,468 | )    |  | $    | 2,156 |   |  | $ | (8,509 | )
|                                                                                                                              |  |      |        |      |  |      |       |   |  |   |        |  



|     |                                                                                     
|---- | ------------------------------------------------------------------------------------
|(17) | Reconciliation of Net (Loss) Income to Net
    Cash Provided by Operating Activities

The reconciliation of net (loss) income to net
cash provided by operating activities for the years ended
March 31, 2004, 2003 and 2002 is as follows (in thousands):

|                                                                                                                            |                                                                                |      |        |        |   |      |        |        |   |   |        |        |  
|--------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------ | ---- | ------ | ------ | - | ---- | ------ | ------ | - | - | ------ | ------ | -
|                                                                                                                            |                                                                                | 2004 |        | 2003   |   | 2002
|                                                                                                                            |                                                                                |      |        |        |   |     
|Net (loss) income                                                                                                           |                                                                                | $    | (5,309 | )      |   | $    | 2,565  |        |   | $ | (8,245 | )     
|Less net (loss) income from discontinued
    operations                                                                     |                                                                                |      | (1,882 | )      |   |      | 1,092  |        |   |   | (1,398 | )     
|                                                                                                                            |                                                                                |      |        |        |   |      |        |        |   |   |        |       
|Net (loss) income from continuing operations                                                                                |                                                                                |      | (3,427 | )      |   |      | 1,473  |        |   |   | (6,847 | )     
|Adjustments to reconcile net (loss) income from
    continuing operations to net cash provided by operating
    activities: |                                                                                |      |        |        |   |      |        |        |   |   |        |       
|                                                                                                                            | Minority interests                                                             |      |        | 298    |   |      |        | 191    |   |   |        | 210    |  
|                                                                                                                            | Amortization of goodwill                                                       |      |        | 0      |   |      |        |       |   |   |        | 1,376  |  
|                                                                                                                            | Depreciation                                                                   |      |        | 6,387  |   |      |        | 6,230  |   |   |        | 6,076  |  
|                                                                                                                            | (Gain) loss on disposal of property, plant and
    equipment                   |      |        | (290   | ) |      |        | (2     | ) |   |        | (15    | )
|                                                                                                                            | Amortization of land use rights                                                |      |        | 26     |   |      |        | 26     |   |   |        | 27     |  
|                                                                                                                            | Amortization of loan arrangement fees                                          |      |        | 76     |   |      |        | 184    |   |   |        | 177    |  
|                                                                                                                            | Loss on impairment of available-for-sale
    investments                       |      |        | 127    |   |      |        | 210    |   |   |        | 130    |  
|                                                                                                                            | Deferred taxes                                                                 |      |        | (775   | ) |      |        | (1,493 | ) |   |        | (347   | )
|                                                                                                                            | (Increase) decrease in trade accounts receivable                               |      |        | (1,968 | ) |      |        | 1,179  |   |   |        | 2,109  |  
|                                                                                                                            | (Increase) decrease in inventories                                             |      |        | (2,808 | ) |      |        | (1,351 | ) |   |        | 2,422  |  
|                                                                                                                            | (Increase) decrease in prepaid expenses and other
    current assets           |      |        | (976   | ) |      |        | 413    |   |   |        | 117    |  
|                                                                                                                            | Decrease in loan receivable                                                    |      |        | 573    |   |      |        | 417    |   |   |        | 480    |  
|                                                                                                                            | Increase (decrease) in trade accounts payable                                  |      |        | 4,884  |   |      |        | (3,012 | ) |   |        | 1,919  |  
|                                                                                                                            | Increase (decrease) in receipts in advance                                     |      |        | 335    |   |      |        | 451    |   |   |        | (755   | )
|                                                                                                                            | (Decrease) increase in accrued expenses                                        |      |        | (374   | ) |      |        | 4,893  |   |   |        | (1,460 | )
|                                                                                                                            | Increase (decrease) in income taxes payable                                    |      |        | 908    |   |      |        | 1,570  |   |   |        | (910   | )
|                                                                                                                            | Increase (decrease) in trade accounts payable
    with discontinued operations |      |        | 515    |   |      |        | (983   | ) |   |        | (1,793 | )
|                                                                                                                            |                                                                                |      |        |        |   |      |        |        |   |   |        |       
|Net cash provided by operating activities                                                                                   |                                                                                | $    | 3,511  |        |   | $    | 10,396 |        |   | $ | 2,916  |       
|                                                                                                                            |                                                                                |      |        |        |   |      |        |        |   |   |        |       

The Group paid $905,000, $1,372,000 and
$1,997,000 for interest for the years ended March 31, 2004,
2003 and 2002, respectively. The Group did not pay for income
taxes for the years ended March 31, 2004 and 2003. The
Group paid $985,000 for income taxes for the year ended
March 31, 2002.

73



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##### Table of Contents



ZINDART LIMITED AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)



|     |                                               
|---- | ----------------------------------------------
|(18) | Noncash Financing and Investing
    Activities

Capital lease obligations of $1,464,000 and
$206,000 were incurred for the years ended March 31, 2004
and 2002, respectively, when the Group entered into capital
leases for new machinery and tooling. The Group did not enter
into capital leases for the year ended March 31, 2003.



|     |                       
|---- | ----------------------
|(19) | Derivative Instruments

The Group participates in the foreign exchange
markets to minimize its risk of loss from fluctuations in
currency exchange rates. The Group has applied hedge accounting
under SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities only to a portion of
the hedged transactions. For those transactions that qualify for
cash flow hedge accounting under SFAS No. 133, the
marked to fair value is reported through other comprehensive
(loss) income. For those transactions that do not qualify for
hedge accounting under SFAS No. 133, the mark to fair
value is reported currently through earnings.



|    |                 
|--- | ----------------
|(a) | Cash Flow Hedges

The Group primarily uses foreign currency forward
contracts to hedge anticipated transactions that are subject to
foreign currency exchange exposure. These instruments are
designated as cash flow hedges in accordance with
SFAS No. 133 and are recorded in the consolidated
financial statements at fair value. The effective portion of the
contract gains or losses due to changes in fair value are
initially recorded as a component of accumulated other
comprehensive income (loss) and are subsequently reclassified
into earnings when the hedged transactions occur and affect
earnings. These contracts are highly effective in hedging the
variability in future cash flows attributable to changes in
foreign currency exchange rates. For the year ended
March 31, 2004, total net amounts recognized in earnings
due to ineffectiveness and amounts excluded from the assessment
of hedge effectiveness amounted to approximately $91,000. The
total unrealized loss of $569,000, net of tax $171,000 on
derivatives designated as cash flow hedges was reported in the
accumulated other comprehensive income (loss) account within
stockholder equity. The majority of the balance at
March 31, 2004 will be recognized within the subsequent
12 months as the anticipated transactions occur. At
March 31, 2004, maximum length of the foreign exchange
forward contracts entered by the Group was no longer than
12 months. The Group did not have any derivative, which
qualifies cash flow hedges for the year ended March 31,
2003 and 2002.



|    |                             
|--- | ----------------------------
|(b) | Other Derivative Instruments

As previously stated, in certain instances the
Group elects not to apply hedge accounting and the change in
fair value of the derivatives are recorded in earnings. The
impact to earnings associated with non-designated hedges was a
loss of $209,000 associated with the discontinued operations at
March 31, 2004, a gain of $83,000 in 2003 and $20,000 in
2002.

The fair values of foreign currency exchange
contracts were determined using market exchange rates.

74



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ZINDART LIMITED AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)



|     |                              
|---- | -----------------------------
|(20) | Commitments and Contingencies



|    |                 
|--- | ----------------
|(a) | Operating Leases

The Group has several noncancelable operating
leases, primarily for office, factory premises, staff quarters
and warehouse space, that expire over the next 11 years.
Rental expense for operating leases (except those with lease
terms of a month or less that were not renewed) for the years
ended March 31, 2004, 2003 and 2002 was approximately
$626,000, $536,000 and $552,000, respectively. At March 31,
2004, future minimum payments under agreements classified as
operating leases with non-cancelable terms are as follows (in
thousands):

|                      |            |            |       |              |  |   |     |     | 
|--------------------- | ---------- | ---------- | ----- | ------------ |  | - | --- | --- | 
|                      |            | Continuing |       | Discontinued
|                      |            | Operations |       | Operations  
|                      |            |            |       |             
|Year ending March 31: |            |            |       |              |  |   |     |    
|                      | 2005       |            | $     | 758          |  |   | $   | 681 | 
|                      | 2006       |            |       | 643          |  |   |     |    | 
|                      | 2007       |            |       | 475          |  |   |     |    | 
|                      | 2008       |            |       | 374          |  |   |     |    | 
|                      | 2009       |            |       | 256          |  |   |     |    | 
|                      | Thereafter |            |       | 1,023        |  |   |     |    | 
|                      |            |            |       |              |  |   |     |    
|                      |            | $          | 3,529 |              |  | $ | 681 |    
|                      |            |            |       |              |  |   |     |    



|    |                           
|--- | --------------------------
|(b) | Contractual Joint Ventures

Under the supplementary joint venture agreement
for the establishment of Dongguan Xinda Giftware Company Limited
and the joint venture agreement for the establishment of
Shenzhen Hua Yang Printing Company Limited, the Group has
committed to pay pre-determined annual fees to the third-party
joint venture partners for the period from November 1994 to
October 2010. Pre-determined annual fees paid to joint venture
partners, which have been charged to expense, amounted to
approximately $36,000, $36,000 and $36,000 for the years ended
March 31, 2004, 2003 and 2002, respectively. At
March 31, 2004, future fees payable under these agreements
are as follows (in thousands):

|                      |            |            |     |              |  |   |       |     | 
|--------------------- | ---------- | ---------- | --- | ------------ |  | - | ----- | --- | 
|                      |            | Continuing |     | Discontinued
|                      |            | Operations |     | Operations  
|                      |            |            |     |             
|Year ending March 31: |            |            |     |              |  |   |       |    
|                      | 2005       |            | $   | 36           |  |   | $     | 506 | 
|                      | 2006       |            |     | 36           |  |   |       | 531 | 
|                      | 2007       |            |     | 36           |  |   |       | 557 | 
|                      | 2008       |            |     | 36           |  |   |       | 585 | 
|                      | 2009       |            |     | 36           |  |   |       | 614 | 
|                      | Thereafter |            |     | 26           |  |   |       | 976 | 
|                      |            |            |     |              |  |   |       |    
|                      |            | $          | 206 |              |  | $ | 3,769 |    
|                      |            |            |     |              |  |   |       |    

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ZINDART LIMITED AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)



|    |           
|--- | ----------
|(c) | Guarantees

The group issued the following guarantees at
March 31, 2004 in respect of the indebtedness of the
consolidated subsidiaries (in thousands):

|                                            |  |                   |       |              |  |   |       | 
|------------------------------------------- |  | ----------------- | ----- | ------------ |  | - | ----- | 
|                                            |  |                  
|                                            |  | Maximum Potential
|                                            |  | Future Payment   
|                                            |  |                  
|                                            |  | Continuing        |       | Discontinued
|                                            |  | Operations        |       | Operations  
|                                            |  |                   |       |             
|Debt and lease obligations                  |  | $                 | 5,049 |              |  | $ | 6,903 | 
|Sales of accounts receivable, with recourse |  |                   |      |              |  |   | 418   | 
|                                            |  |                   |       |              |  |   |       | 
|                                            |  | $                 | 5,049 |              |  | $ | 7,321 | 
|                                            |  |                   |       |              |  |   |       | 

Management do not expect that these guarantees
will have a material adverse effect on our consolidated results
of operation, financial position and liquidity.



|    |           
|--- | ----------
|(d) | Litigation

The Company is subject to pending claims and
litigation. A lawsuit was filed by Alcone Marketing Group, Inc.
(Alcone) against the Company for breach of written
contract, breach of express warranty, breach of implied
warranty, contractual indemnification, implied indemnification,
negligent interference with contractual and economic relations
and declaratory relief. Alcone is the marketing agent for large
consumer goods companies, such as Burger King. In a series of
promotions for Burger King, the Company substantially performed
under the purchase orders but executed a contract proffered by
Alcone after substantial performance anyway, after excising
several provisions. Several offensive provisions, including a
comprehensive indemnity and consent to jurisdiction in the
U.S. were not excised before executing and sending the
contract to Alcone and if found to be binding upon the Company,
would expose the Company to substantial damages.

Several of the manufactured items were recalled
by Burger King. Alcone claimed damages under the indemnity
provisions of the agreement. At the reporting date, no judgment
had been handed out in the Alcone case. In May 2004, the parties
agreed to a final settlement of all claims for a total cash
payment of $750,000.



|     |                 
|---- | ----------------
|(21) | Retirement Plans

During the period from April 1, 2000 to
November 30, 2000, the Groups employees in Hong Kong
and the United Kingdom, after completing a probation period,
were entitled to join the Groups defined contribution
provident funds managed by independent trustees in Hong Kong and
the United Kingdom. The Group makes monthly contribution to the
schemes ranging from 5.0% to 11.0% of the employees basic
salaries, and the employees make monthly contributions ranging
from 2.5% to 5.0% of their basic salaries. The employees are
entitled to receive their entire contribution together with
accrued interest thereon at any time upon leaving the Group, and
100% of the employers contribution and the accrued
interest thereon upon retirement or at a reduced scale of 30% to
100% of the employers contribution and the accrued
interest thereon upon leaving the Group depending on the number
of years of service. Any forfeited contributions made by the
Group and the accrued interest thereon are used to reduce future
employers contributions. Starting from December 1,
2000, the Group has arranged for its employees in Hong Kong to
participate in the Mandatory Provident Fund Scheme (MPF
Scheme), a defined contribution scheme managed by an
independent trustee. Under the MPF Scheme, the Group makes
monthly contributions to the scheme at 5% of the employees
basic salaries subject to a maximum contribution of $128
(equivalent of HK$1,000) per month. The Group has no other
post-retirement or post-employment benefit plans.

Dongguan Xinda Giftware Company Limited
contributes to a state-sponsored retirement plan with amounts
stipulated by local government of Mainland China and has no
further obligations for the actual

76



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ZINDART LIMITED AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

pension payments or post-retirement benefits. The
state-sponsored retirement plan is responsible for the entire
pension obligations payable to retired employees.

The aggregate amount of the Groups employer
contributions (net of forfeited contributions) to the retirement
plans for the years ended March 31, 2004, 2003 and 2002 was
approximately $346,000, $210,000 and $199,000, respectively.



|     |                    
|---- | -------------------
|(22) | Segment Information

Subsequent to the sale of Hua Yang in May 2004.
The Group operates in two business segments: manufacturing of
die-cast and injection-molded plastic products under OEM
arrangements, and design, marketing and distribution of die-cast
products under its proprietary brand names owned by Corgi
Classics Limited. The segment information relating to the
continuing operations are presented as follows (in thousands):



|    |          
|--- | ---------
|(a) | Net Sales

|                                    |                                                                                           |      |        |        |  |      |        |        |  |   |        |        | 
|----------------------------------- | ----------------------------------------------------------------------------------------- | ---- | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ------ | 
|                                    |                                                                                           | 2004 |        | 2003   |  | 2002
|                                    |                                                                                           |      |        |        |  |     
|Net sales consist of the following: |                                                                                           |      |        |        |  |      |        |        |  |   |        |       
|                                    | Manufacturing of die-cast and injection-molded
    plastic products                       |      | $      | 46,244 |  |      | $      | 33,902 |  |   | $      | 49,316 | 
|                                    | Design, marketing and distribution of die-cast
    products under proprietary brand names |      |        | 49,575 |  |      |        | 49,455 |  |   |        | 43,165 | 
|                                    |                                                                                           |      |        |        |  |      |        |        |  |   |        |       
|                                    |                                                                                           | $    | 95,819 |        |  | $    | 83,357 |        |  | $ | 92,481 |       
|                                    |                                                                                           |      |        |        |  |      |        |        |  |   |        |       

|                                                  |                                                                                           |                          |        |      |        |      |        |   |        |   |        |   |        | 
|------------------------------------------------- | ----------------------------------------------------------------------------------------- | ------------------------ | ------ | ---- | ------ | ---- | ------ | - | ------ | - | ------ | - | ------ | 
|                                                  |                                                                                           | 2004                     |        | 2003 |        | 2002
|                                                  |                                                                                           |                          |        |      |        |     
|Geographical analysis of net sales is as follows: |                                                                                           |                          |        |      |        |      |        |   |        |   |        |  
|                                                  | Manufacturing of die-cast and injection-molded
    plastic products                       |                          |        |      |        |      |        |   |        |   |        |   |       
|                                                  |                                                                                           | United States of America |        | $    | 45,566 |      |        | $ | 33,586 |   |        | $ | 47,157 | 
|                                                  |                                                                                           | Europe                   |        |      | 616    |      |        |   | 69     |   |        |   | 1,958  | 
|                                                  |                                                                                           | Others                   |        |      | 62     |      |        |   | 247    |   |        |   | 201    | 
|                                                  |                                                                                           |                          |        |      |        |      |        |   |        |   |        |  
|                                                  |                                                                                           |                          | 46,244 |      |        |      | 33,902 |   |        |   | 49,316 |  
|                                                  |                                                                                           |                          |        |      |        |      |        |   |        |   |        |  
|                                                  | Design, marketing and distribution of die-cast
    products under proprietary brand names |                          |        |      |        |      |        |   |        |   |        |   |       
|                                                  |                                                                                           | United Kingdom           |        |      | 35,443 |      |        |   | 37,140 |   |        |   | 35,153 | 
|                                                  |                                                                                           | Other European countries |        |      | 3,083  |      |        |   | 3,982  |   |        |   | 3,702  | 
|                                                  |                                                                                           | United States of America |        |      | 9,956  |      |        |   | 7,143  |   |        |   | 4,203  | 
|                                                  |                                                                                           | Others                   |        |      | 1,093  |      |        |   | 1,190  |   |        |   | 107    | 
|                                                  |                                                                                           |                          |        |      |        |      |        |   |        |   |        |  
|                                                  |                                                                                           |                          | 49,575 |      |        |      | 49,455 |   |        |   | 43,165 |  
|                                                  |                                                                                           |                          |        |      |        |      |        |   |        |   |        |  
|                                                  |                                                                                           | $                        | 95,819 |      |        | $    | 83,357 |   |        | $ | 92,481 |  
|                                                  |                                                                                           |                          |        |      |        |      |        |   |        |   |        |  

77



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ZINDART LIMITED AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)



|    |                        
|--- | -----------------------
|(b) | Operating (Loss) Income

|                                                                                          |  |      |        |      |  |      |       |   |  |   |        |  
|----------------------------------------------------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ----- | - |  | - | ------ | -
|                                                                                          |  | 2004 |        | 2003 |  | 2002
|                                                                                          |  |      |        |      |  |     
|Manufacturing of die-cast and injection-molded
    plastic products                       |  | $    | (1,323 | )    |  | $    | (636  | ) |  | $ | (3,528 | )
|Design, marketing and distribution of die-cast
    products under proprietary brand names |  |      | (689   | )    |  |      | 3,851 |   |  |   | (1,864 | )
|                                                                                          |  |      |        |      |  |      |       |   |  |   |        |  
|                                                                                          |  | $    | (2,012 | )    |  | $    | 3,215 |   |  | $ | (5,392 | )
|                                                                                          |  |      |        |      |  |      |       |   |  |   |        |  



|    |                                                                             
|--- | ----------------------------------------------------------------------------
|(c) | Identifiable Assets, Capital Expenditures,
    Depreciation and Amortization

|                               |                                                                                           |      |        |        |  |      |        |        |  |   |        |        | 
|------------------------------ | ----------------------------------------------------------------------------------------- | ---- | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ------ | 
|                               |                                                                                           | 2004 |        | 2003   |  | 2002
|                               |                                                                                           |      |        |        |  |     
|Identifiable assets:           |                                                                                           |      |        |        |  |      |        |        |  |   |        |       
|                               | Manufacturing of die-cast and injection-molded
    plastic products                       |      | $      | 34,096 |  |      | $      | 29,973 |  |   | $      | 31,643 | 
|                               | Design, marketing and distribution of die-cast
    products under proprietary brand names |      |        | 65,734 |  |      |        | 63,196 |  |   |        | 64,922 | 
|                               |                                                                                           |      |        |        |  |      |        |        |  |   |        |       
|                               |                                                                                           | $    | 99,830 |        |  | $    | 93,169 |        |  | $ | 96,565 |       
|                               |                                                                                           |      |        |        |  |      |        |        |  |   |        |       
|Capital expenditures:          |                                                                                           |      |        |        |  |      |        |        |  |   |        |       
|                               | Manufacturing of die-cast and injection-molded
    plastic products                       |      | $      | 2,408  |  |      | $      | 382    |  |   | $      | 656    | 
|                               | Design, marketing and distribution of die-cast
    products under proprietary brand names |      |        | 3,180  |  |      |        | 3,192  |  |   |        | 4,181  | 
|                               |                                                                                           |      |        |        |  |      |        |        |  |   |        |       
|                               |                                                                                           | $    | 5,588  |        |  | $    | 3,574  |        |  | $ | 4,837  |       
|                               |                                                                                           |      |        |        |  |      |        |        |  |   |        |       
|Depreciation and amortization: |                                                                                           |      |        |        |  |      |        |        |  |   |        |       
|                               | Manufacturing of die-cast and injection-molded
    plastic products                       |      | $      | 1,680  |  |      | $      | 2,212  |  |   | $      | 3,530  | 
|                               | Design, marketing and distribution of die-cast
    products under proprietary brand names |      |        | 4,809  |  |      |        | 4,228  |  |   |        | 4,726  | 
|                               |                                                                                           |      |        |        |  |      |        |        |  |   |        |       
|                               |                                                                                           | $    | 6,489  |        |  | $    | 6,440  |        |  | $ | 8,256  |       
|                               |                                                                                           |      |        |        |  |      |        |        |  |   |        |       



|    |                   
|--- | ------------------
|(d) | Long-Lived Assets*

|                                                            |                              |      |        |        |  |      |        |        |  |   |        |        | 
|----------------------------------------------------------- | ---------------------------- | ---- | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ------ | 
|                                                            |                              | 2004 |        | 2003   |  | 2002
|                                                            |                              |      |        |        |  |     
|Geographic analysis of long-lived assets is as
    follows: |                              |      |        |        |  |      |        |        |  |   |        |       
|                                                            | Hong Kong and Mainland China |      | $      | 14,031 |  |      | $      | 13,308 |  |   | $      | 15,210 | 
|                                                            | United Kingdom               |      |        | 45,081 |  |      |        | 45,431 |  |   |        | 45,401 | 
|                                                            |                              |      |        |        |  |      |        |        |  |   |        |       
|                                                            |                              | $    | 59,112 |        |  | $    | 58,739 |        |  | $ | 60,611 |       
|                                                            |                              |      |        |        |  |      |        |        |  |   |        |       



---



|  |                                                                                              
|- | ---------------------------------------------------------------------------------------------
|* | Long-lived assets represent property, plant and
    equipment, land use rights, and goodwill.

78



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ZINDART LIMITED AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)



| |                    
| | -------------------
| | (e) Major Customers

|                                                                                                     |                                 |      |  |      |   |      |  |      |   |  |  |      |  
|---------------------------------------------------------------------------------------------------- | ------------------------------- | ---- |  | ---- | - | ---- |  | ---- | - |  |  | ---- | -
|                                                                                                     |                                 | 2004 |  | 2003 |   | 2002
|                                                                                                     |                                 |      |  |      |   |     
|Details of individual customers accounting for
    more than 5% of the Groups sales are as follows: |                                 |      |  |      |   |      |  |      |   |  |  |     
|                                                                                                     | Hallmark Cards, Inc.            |      |  | 12.9 | % |      |  | 11.5 | % |  |  | 11.4 | %
|                                                                                                     | Mattel(R)Toys                   |      |  | 10.6 | % |      |  | 9.6  | % |  |  | 16.3 | %
|                                                                                                     | Funline Merchandise Co. Inc.    |      |  | 5.4  | % |      |  |     |   |  |  |     |  
|                                                                                                     | Creata Promotion (Asia) Limited |      |  | 5.0  | % |      |  | 7.6  | % |  |  |     |  



|     |                 
|---- | ----------------
|(23) | Pledge of Assets

At March 31, 2004, the Groups term
loan agreement and certain banking facilities were
collateralized by fixed and floating charges over Corgi Classics
Limiteds whole property and assets, including the whole
property and assets of Corgi Classics Inc., Lledo Collectibles
Limited and Icon Collectibles Limited, as well as the property
situated in Mainland China.



|     |                   
|---- | ------------------
|(24) | Earnings Per Share

The following tables sets forth the computation
of basic and diluted (loss) earnings per common share at
March 31, 2004:

|                                                                      |                                                                  |      |   |           |   |      |   |           |  |  |   |           |  
|--------------------------------------------------------------------- | ---------------------------------------------------------------- | ---- | - | --------- | - | ---- | - | --------- |  |  | - | --------- | -
|                                                                      |                                                                  | 2004 |   | 2003      |   | 2002
|                                                                      |                                                                  |      |   |           |   |     
|Numerator for basic and diluted (loss) earnings
    per common share: |                                                                  |      |   |           |   |      |   |           |  |  |   |          
|                                                                      | (Loss) income from continuing operations                         |      | $ | (3,427    | ) |      | $ | 1,473     |  |  | $ | (6,847    | )
|                                                                      | (Loss) income from discontinued operations                       |      |   | (1,882    | ) |      |   | 1,092     |  |  |   | (1,398    | )
|                                                                      |                                                                  |      |   |           |   |      |   |           |  |  |   |          
|                                                                      | Net (loss) income                                                |      | $ | (5,309    | ) |      | $ | 2,565     |  |  | $ | (8,245    | )
|                                                                      |                                                                  |      |   |           |   |      |   |           |  |  |   |          
|Denominator:                                                          |                                                                  |      |   |           |   |      |   |           |  |  |   |          
|                                                                      | Basic weighted average number of common shares
    outstanding   |      |   | 8,907,015 |   |      |   | 8,834,125 |  |  |   | 8,834,125 |  
|                                                                      | Effect of dilutive options                                       |      |   |          |   |      |   | 209,997   |  |  |   |          |  
|                                                                      |                                                                  |      |   |           |   |      |   |           |  |  |   |          
|                                                                      | Diluted weighted average number of common shares
    outstanding |      |   | 8,907,015 |   |      |   | 9,044,122 |  |  |   | 8,834,125 |  
|                                                                      |                                                                  |      |   |           |   |      |   |           |  |  |   |          
|Basic (loss) income per common share:                                 |                                                                  |      |   |           |   |      |   |           |  |  |   |          
|                                                                      | (Loss) income from continuing operations                         |      | $ | (0.38     | ) |      | $ | 0.17      |  |  | $ | (0.78     | )
|                                                                      | (Loss) income from discontinued operations                       |      |   | (0.22     | ) |      |   | 0.12      |  |  |   | (0.15     | )
|                                                                      |                                                                  |      |   |           |   |      |   |           |  |  |   |          
|                                                                      | Net (loss) income                                                |      | $ | (0.60     | ) |      | $ | 0.29      |  |  | $ | (0.93     | )
|                                                                      |                                                                  |      |   |           |   |      |   |           |  |  |   |          
|Diluted (loss) income per common share:                               |                                                                  |      |   |           |   |      |   |           |  |  |   |          
|                                                                      | (Loss) income from continuing operations                         |      | $ | (0.38     | ) |      | $ | 0.16      |  |  | $ | (0.78     | )
|                                                                      | (Loss) income from discontinued operations                       |      |   | (0.22     | ) |      |   | 0.12      |  |  |   | (0.15     | )
|                                                                      |                                                                  |      |   |           |   |      |   |           |  |  |   |          
|                                                                      | Net (loss) income                                                |      | $ | (0.60     | ) |      | $ | 0.28      |  |  | $ | (0.93     | )
|                                                                      |                                                                  |      |   |           |   |      |   |           |  |  |   |          

Stock options for 1,102,638 shares of common
stock for the year ended March 31, 2004 were not included
in computing diluted (loss) earnings per common share since
their effects were anti-dilutive due to the net loss from
continuing operations for the year. The difference between basic
and diluted weighted average

79



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ZINDART LIMITED AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

number of common shares for the year ended
March 31, 2003 results from the assumption that stock
options outstanding were exercised by application of the
treasury stock method. Stock options and convertible note
outstanding for 97,041 shares of common stock for the year
ended March 31, 2002 were not included in computing diluted
(loss) earnings per common share since their effects were
anti-dilutive. Stock options and convertible note for the year
ended March 31, 2002 were anti-dilutive due to the net loss
from continuing operations for the year.



|     |                   
|---- | ------------------
|(25) | Banking Facilities

At March 31, 2004, the Group had banking
facilities of approximately $52,429,000, of which $9,205,000
were made available to both the Company and the discontinued
operations and $21,765,000 associated solely with the
discontinued operations, for overdrafts, trade financing, term
loan and capital leases. Unused banking facilities at the same
date amounted to approximately $26,806,000, of which $3,970,000
were shared with the discontinued operations and $12,551,000
associated solely with the discontinued operations.

In addition, the capital lease obligations were
secured by certain machinery and tooling with net book value
amounted to approximately $1,544,000 (see note 12).



|     |                           
|---- | --------------------------
|(26) | Related Party Transactions

During the year ended March 31, 2003, notes
payable in the aggregate of $1,322,000 had been due to officers,
directors or shareholders. These notes are interest bearing at
6%, which is automatically increased to 10% per annum,
compounded monthly, in the event that the notes are not repaid
on maturity date and are expected to be repaid within one year.
At March 31, 2004 and 2003, $370,000 and $872,000 in notes
payable remained outstanding to directors and shareholders,
respectively. The notes are classified as short-term debt of the
Group. During the year ended March 31, 2002, no amounts
were due to officers, directors or shareholders by the Company.

80



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|         |         
|-------- | --------
|Item 19. | Exhibits

|         |  |                                                                                                                                                                                                                                                                       
|-------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1(a)     |  | Memorandum of Association of the Company.(1)                                                                                                                                                                                                                          
|1(b)     |  | Articles of Association of the Company.(3)                                                                                                                                                                                                                            
|2(a)(1)  |  | Exchange Agreement by and among Zindart Limited,
    Hua Yang Holdings Co., Ltd., Hua Yang Printing Holdings Co.,
    Limited, the shareholders of Hua Yang Holdings Co., Ltd. and
    certain beneficial owners of such shareholders, dated
    February 13, 1998.(3)
|2(a)(2)  |  | Form of Deposit Agreement by and among Zindart
    Limited, The Bank of New York and Owners and Holders of American
    Depositary Receipts, dated at January 1997.(1)                                                                                                
|2(a)(3)  |  | Amended and Restated 1997 Equity Incentive Plan.                                                                                                                                                                                                                      
|4(a)(1)  |  | Sino-Foreign Co-Operation Contract, Zindart Toys
    (Dongguan) Company Limited, between Dongguan Hengli Trading
    General Company and Zindart Industrial Company Limited, dated
    September 8, 1994.(1)                                                          
|4(a)(2)  |  | Sino-Foreign Co-Operation Contract, Zindart Toys
    (Dongguan) Company Limited, Supplemental Contract, between
    Dongguan Hengli Trading General Company and Zindart Industrial
    Company Limited, dated December 5, 1995.(1)                                    
|4(a)(3)  |  | Sino-Foreign Cooperation Contract by and between
    Shenzhen City Boan District Xixian Town Gushu Economic
    Development Company Limited and Hua Yang Printing Holdings Co.
    Limited, dated May 28, 1995.(3)                                                    
|4(a)(4)  |  | Processing Agreement by and between Zindart
    Limited and Dongguan Hengli Industry Development Company, dated
    August 18, 1997.(3)                                                                                                                               
|4(a)(5)  |  | Land Use Certificate for State-Owned Land,
    Dongguan Government State-Owned (1993) No. 49.(1)                                                                                                                                                                      
|4(a)(6)  |  | Land Use Certificate for State-Owned Land,
    Dongguan Government State-Owned (1994) No. 664.(1)                                                                                                                                                                     
|4(a)(7)  |  | Land Use Certificate for State-Owned Land,
    Dongguan Government State-Owned (1994) No. 665.(1)                                                                                                                                                                     
|4(a)(8)  |  | Land Use Certificate for State-Owned Land,
    Dongguan Government State-Owned (1994) No. 666.(1)                                                                                                                                                                     
|4(a)(9)  |  | Agreement of Utilization of Factory, Warehouse
    and Dormitory, by and between Gushu Economic Development Company
    and Huan Printing Group Company, dated January 24, 1995.(3)                                                                                   
|4(a)(10) |  | Tenancy Agreement of Dormitory by and between
    Gushu Economic Development Co. and Huaxuan Printing Company
    Limited, dated August 1997.(3)                                                                                                                      
|4(a)(11) |  | Standard Chartered Bank, Banking Facility: Hua
    Yang, dated March 22, 2000.(4)                                                                                                                                                                                     
|4(a)(12) |  | Standard Chartered Bank, Banking Facility:
    Zindart Limited dated March 22, 2000.(4)                                                                                                                                                                               
|4(a)(13) |  | Hong Kong Bank, Banking Facilities, dated
    April 25, 2000.(4)                                                                                                                                                                                                      
|4(a)(14) |  | Agreement by and between The Royal Bank of
    Scotland plc and Corgi Classics Limited with respect to the Term
    Loan of GBP4,000,000, dated January 24, 2001.(5)                                                                                                  
|4(a)(15) |  | Agreement by and between The Royal Bank of
    Scotland plc and Corgi Classics Limited with respect to the
    Revolving Advance Facility of GBP3,000,000, dated
    January 24, 2001.(5)                                                                             
|4(a)(16) |  | Agreement by and among ABN AMRO Bank, N.V. Hong
    Kong Branch, KBC Bank, N.V., Hong Kong Branch, Standard
    Chartered Bank, Rabo Bank, Hong Kong Branch with respect to the
    Term Loan of US$9,000,000, dated March 8, 2001.(7)                                
|4(a)(17) |  | Zindart Loan and Security Agreement and
    Agreement, May 13, 1999, by and among Zindart Limited (Hong
    Kong), Intervisual Books, Inc. and Fast Forward Marketing,
    Inc.(6)                                                                                    
|4(a)(18) |  | Extension Notice, May 29, 2000, delivered
    pursuant to the Zindart Loan and Security Agreement and
    Agreement, May 13, 1999, by and among Zindart Limited (Hong
    Kong), Intervisual Books, Inc. and Fast Forward Marketing,
    Inc.(6)                      

81



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##### Table of Contents



|     |          |                                                                     |                                                                                                                                                                                                              
|---- | -------- | ------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | 4(a)(19) |                                                                     | Amendment No. 1 to the Zindart Loan and
    Security Agreement and Agreement, April 16, 2001, by and
    among Zindart Limited (Hong Kong), Intervisual Books, Inc. and
    Fast Forward Marketing, Inc.(6)  
|     | 4(a)(20) |                                                                     | Amendment No. 2 to the Zindart Loan and
    Security Agreement and Agreement, December 31 2001, by and
    among Zindart Limited (Hong Kong), Intervisual Books, Inc. and
    Fast Forward Marketing, Inc.(6)
|     | 4(c)(1)  |                                                                     | Employment Agreement, by and between Zindart
    Limited, a corporation organized under the laws of Bermuda and
    Peter A.J. Gardiner, dated at October 1, 2000.(5)                                        
|     | 4(c)(2)  |                                                                     | Employment Agreement, between Hua Yang Printing
    Holdings Co., Ltd., a wholly-owned subsidiary of Zindart
    Limited, and Kevin Murphy, dated November 1, 2001.(6)                                       
|     | 4(c)(3)  |                                                                     | Employment Agreement, between Zindart Limited and
    Richard Tong, dated December 17, 2001.(6)                                                                                                              
|     | 4(c)(4)  |                                                                     | Option Agreement, between Zindart Limited and
    Peter A.J. Gardiner, dated at October 31, 2000.(8)                                                                                                         
|     | 4(c)(5)  |                                                                     | Option Agreement, between Zindart Limited and
    Christopher Guest, dated at January 11, 2001.(8)                                                                                                           
|     | 8.1      |                                                                     | List of subsidiaries                                                                                                                                                                                         
|12.1 |          | Section 302 Certification of Peter A.J.
    Gardiner               
|12.2 |          | Section 302 Certification of Ken Fowler                            
|13.1 |          | Section 906 Certification of Peter A.J.
    Gardiner and Ken Fowler



---



|    |                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to the
    Registrants Registration Statement on Form F-1, as
    amended (File No. 333-17973).            
|   
|(2) | Incorporated by reference to the
    Registrants Registration Statement on Form S-8, filed
    October 13, 1998 (File No. 333-09516).
|   
|(3) | Incorporated by reference to the
    Registrants Registration Statement on Form F-1, as
    amended (File No. 333-08134).            
|   
|(4) | Incorporated by reference to the
    Registrants Annual Report on Form 10-K, filed
    June 29, 2000 (File No. 000-22161).           
|   
|(5) | Incorporated by reference to the
    Registrants Quarterly Report on Form 10-Q, filed
    February 14, 2001 (File No. 000-22161).    
|   
|(6) | Incorporated by reference to the
    Registrants Quarterly Report on Form 10-Q, filed
    February 12, 2002.                         
|   
|(7) | Incorporated by reference to the
    Registrants Annual Report on Form 10-K, filed
    June 28, 2001.                                
|   
|(8) | Incorporated by reference to the
    Registrants Annual Report on Form 10-K, filed
    July 1, 2002.                                 

82



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##### Table of Contents






SIGNATURES

The registrant hereby certifies that it meets all
of the requirements for filing on Form 20-F and that it has
duly caused and authorized the undersigned to sign this Annual
Report on its behalf.



| |                              
| | -----------------------------
| | ZINDART LIMITED              
|
| | /s/ KEN FOWLER               
| |                              
| | Ken Fowler                   
| | Chief Financial Officer      
| | (Principal Financial Officer)

Date: August 19, 2004

83



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##### Table of Contents



Exhibits

| |          |  |  |                                                                                                                                                                                                                                                                       
| | -------- |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1(a)     |  |  | Memorandum of Association of the Company.(1)                                                                                                                                                                                                                          
| | 1(b)     |  |  | Articles of Association of the Company.(3)                                                                                                                                                                                                                            
| | 2(a)(1)  |  |  | Exchange Agreement by and among Zindart Limited,
    Hua Yang Holdings Co., Ltd., Hua Yang Printing Holdings Co.,
    Limited, the shareholders of Hua Yang Holdings Co., Ltd. and
    certain beneficial owners of such shareholders, dated
    February 13, 1998.(3)
| | 2(a)(2)  |  |  | Form of Deposit Agreement by and among Zindart
    Limited, The Bank of New York and Owners and Holders of American
    Depositary Receipts, dated at January 1997.(1)                                                                                                
| | 2(a)(3)  |  |  | Amended and Restated 1997 Equity Incentive Plan.                                                                                                                                                                                                                      
| | 4(a)(1)  |  |  | Sino-Foreign Co-Operation Contract, Zindart Toys
    (Dongguan) Company Limited, between Dongguan Hengli Trading
    General Company and Zindart Industrial Company Limited, dated
    September 8, 1994.(1)                                                          
| | 4(a)(2)  |  |  | Sino-Foreign Co-Operation Contract, Zindart Toys
    (Dongguan) Company Limited, Supplemental Contract, between
    Dongguan Hengli Trading General Company and Zindart Industrial
    Company Limited, dated December 5, 1995.(1)                                    
| | 4(a)(3)  |  |  | Sino-Foreign Cooperation Contract by and between
    Shenzhen City Boan District Xixian Town Gushu Economic
    Development Company Limited and Hua Yang Printing Holdings Co.
    Limited, dated May 28, 1995.(3)                                                    
| | 4(a)(4)  |  |  | Processing Agreement by and between Zindart
    Limited and Dongguan Hengli Industry Development Company, dated
    August 18, 1997.(3)                                                                                                                               
| | 4(a)(5)  |  |  | Land Use Certificate for State-Owned Land,
    Dongguan Government State-Owned (1993) No. 49.(1)                                                                                                                                                                      
| | 4(a)(6)  |  |  | Land Use Certificate for State-Owned Land,
    Dongguan Government State-Owned (1994) No. 664.(1)                                                                                                                                                                     
| | 4(a)(7)  |  |  | Land Use Certificate for State-Owned Land,
    Dongguan Government State-Owned (1994) No. 665.(1)                                                                                                                                                                     
| | 4(a)(8)  |  |  | Land Use Certificate for State-Owned Land,
    Dongguan Government State-Owned (1994) No. 666.(1)                                                                                                                                                                     
| | 4(a)(9)  |  |  | Agreement of Utilization of Factory, Warehouse
    and Dormitory, by and between Gushu Economic Development Company
    and Huan Printing Group Company, dated January 24, 1995.(3)                                                                                   
| | 4(a)(10) |  |  | Tenancy Agreement of Dormitory by and between
    Gushu Economic Development Co. and Huaxuan Printing Company
    Limited, dated August 1997.(3)                                                                                                                      
| | 4(a)(11) |  |  | Standard Chartered Bank, Banking Facility: Hua
    Yang, dated March 22, 2000.(4)                                                                                                                                                                                     
| | 4(a)(12) |  |  | Standard Chartered Bank, Banking Facility:
    Zindart Limited dated March 22, 2000.(4)                                                                                                                                                                               
| | 4(a)(13) |  |  | Hong Kong Bank, Banking Facilities, dated
    April 25, 2000.(4)                                                                                                                                                                                                      
| | 4(a)(14) |  |  | Agreement by and between The Royal Bank of
    Scotland plc and Corgi Classics Limited with respect to the Term
    Loan of GBP4,000,000, dated January 24, 2001.(5)                                                                                                  
| | 4(a)(15) |  |  | Agreement by and between The Royal Bank of
    Scotland plc and Corgi Classics Limited with respect to the
    Revolving Advance Facility of GBP3,000,000, dated
    January 24, 2001.(5)                                                                             
| | 4(a)(16) |  |  | Agreement by and among ABN AMRO Bank, N.V. Hong
    Kong Branch, KBC Bank, N.V., Hong Kong Branch, Standard
    Chartered Bank, Rabo Bank, Hong Kong Branch with respect to the
    Term Loan of US$9,000,000, dated March 8, 2001.(7)                                
| | 4(a)(17) |  |  | Zindart Loan and Security Agreement and
    Agreement, May 13, 1999, by and among Zindart Limited (Hong
    Kong), Intervisual Books, Inc. and Fast Forward Marketing,
    Inc.(6)                                                                                    
| | 4(a)(18) |  |  | Extension Notice, May 29, 2000, delivered
    pursuant to the Zindart Loan and Security Agreement and
    Agreement, May 13, 1999, by and among Zindart Limited (Hong
    Kong), Intervisual Books, Inc. and Fast Forward Marketing,
    Inc.(6)                      
| | 4(a)(19) |  |  | Amendment No. 1 to the Zindart Loan and
    Security Agreement and Agreement, April 16, 2001, by and
    among Zindart Limited (Hong Kong), Intervisual Books, Inc. and
    Fast Forward Marketing, Inc.(6)                                                           



---



##### Table of Contents



| |          |  |  |                                                                                                                                                                                                              
| | -------- |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 4(a)(20) |  |  | Amendment No. 2 to the Zindart Loan and
    Security Agreement and Agreement, December 31 2001, by and
    among Zindart Limited (Hong Kong), Intervisual Books, Inc. and
    Fast Forward Marketing, Inc.(6)
| | 4(c)(1)  |  |  | Employment Agreement, by and between Zindart
    Limited, a corporation organized under the laws of Bermuda and
    Peter A.J. Gardiner, dated at October 1, 2000.(5)                                        
| | 4(c)(2)  |  |  | Employment Agreement, between Hua Yang Printing
    Holdings Co., Ltd., a wholly-owned subsidiary of Zindart
    Limited, and Kevin Murphy, dated November 1, 2001.(6)                                       
| | 4(c)(3)  |  |  | Employment Agreement, between Zindart Limited and
    Richard Tong, dated December 17, 2001.(6)                                                                                                              
| | 4(c)(4)  |  |  | Option Agreement, between Zindart Limited and
    Peter A.J. Gardiner, dated at October 31, 2000.(8)                                                                                                         
| | 4(c)(5)  |  |  | Option Agreement, between Zindart Limited and
    Christopher Guest, dated at January 11, 2001.(8)                                                                                                           
| | 8.1      |  |  | List of subsidiaries                                                                                                                                                                                         
| | 12.1     |  |  | Section 302 Certification of Peter A.J.
    Gardiner                                                                                                                                                         
| | 12.2     |  |  | Section 302 Certification of Ken Fowler                                                                                                                                                                      
| | 13.1     |  |  | Section 906 Certification of Peter A.J.
    Gardiner and Ken Fowler                                                                                                                                          



---



|    |                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to the
    Registrants Registration Statement on Form F-1, as
    amended (File No. 333-17973).            
|   
|(2) | Incorporated by reference to the
    Registrants Registration Statement on Form S-8, filed
    October 13, 1998 (File No. 333-09516).
|   
|(3) | Incorporated by reference to the
    Registrants Registration Statement on Form F-1, as
    amended (File No. 333-08134).            
|   
|(4) | Incorporated by reference to the
    Registrants Annual Report on Form 10-K, filed
    June 29, 2000 (File No. 000-22161).           
|   
|(5) | Incorporated by reference to the
    Registrants Quarterly Report on Form 10-Q, filed
    February 14, 2001 (File No. 000-22161).    
|   
|(6) | Incorporated by reference to the
    Registrants Quarterly Report on Form 10-Q, filed
    February 12, 2002.                         
|   
|(7) | Incorporated by reference to the
    Registrants Annual Report on Form 10-K, filed
    June 28, 2001.                                
|   
|(8) | Incorporated by reference to the
    Registrants Annual Report on Form 10-K, filed
    July 1, 2002.